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ANNUAL REPORT
& ACCOUNTS
JANUARY 2023
CONTENTS
Strategic Report
  4 Chairman’sStatement
  5 ChiefExecutive’sReview
 70 BusinessModel
 72 KeyPerformanceIndicators
 74 RisksandUncertainties
 83 ViabilityAssessment
 85 CorporateResponsibility
107 Section172Statement
111 Non-FinancialInformationStatement
Governance
114 Directors’Biographies
116 Directors’ResponsibilitiesStatement
117 CorporateGovernanceReport
124 NominationCommitteeReport
125 AuditCommitteeReport
133 RemunerationReport
163 Directors’Report
165 IndependentAuditors’Report
Financial Statements
Group Financial Statements
176 ConsolidatedIncomeStatement
177 ConsolidatedStatementofComprehensiveIncome
178 ConsolidatedBalanceSheet
179 ConsolidatedStatementofChangesinEquity
180 ConsolidatedCashFlowStatement
181 GroupAccountingPolicies
195 NotestotheConsolidatedFinancialStatements
Parent Company Financial Statements
238 ParentCompanyBalanceSheet
239 ParentCompanyStatementofChangesinEquity
240 NotestotheParentCompanyFinancialStatements
Shareholder Information
243 HalfYearandSegmentAnalysis
244 FiveYearHistory
245 Glossary
249 NoticeofMeeting
256 OtherShareholderInformation
FINANCIAL
HIGHLIGHTS
Jan 22
Jan 21
Jan 20
Jan 19
£4.2bn
£4.4bn
£3.6bn
£4.9bn
£5.4bn
Jan 23
TOTAL GROUP SALES
APM
Underlying continuing business
£5.4bn
Jan 22
Jan 21
Jan 20
Jan 19
£734m
£749m
£342m
£823m
Jan 23
£870.4m
NEXT PROFIT BEFORE TAX
APM
£870.4m
Jan 22
Jan 21
Jan 19
Jan 20
441.7P
472.4p
223.3p
530.8p
573.4p
Jan 23
EARNINGS PER SHARE
573.4p
APM
Alternative Performance Measure as defined
in the Glossary on pages 245 to 248.
1
Strategic Report Governance Financial Statements
Shareholder Information
STRATEGIC
REPORT
  4 Chairman’sStatement
  5 ChiefExecutive’sReview
 70 BusinessModel
 72 KeyPerformanceIndicators
 74 RisksandUncertainties
 83 ViabilityAssessment
 85 CorporateResponsibility
107 Section172Statement
111 Non-Financial Information Statement
2
3
Strategic Report Governance Financial Statements
Shareholder Information
CHAIRMAN’SSTATEMENT
It has been a good year for NEXT. We have embraced the various challenges and seized the
opportunities that have arisen.
A detailed analysis of our performance in 2022/23 and our outlook for the year ahead are covered in
the following pages. Looking back on the year, among the highlights are:
● The delivery of record Earnings Per Share (EPS).
● In the midst of a consumer squeeze, trading sales were up +8.4% on last year. (Excluding the
weeks that were flattered by lockdown in the previous year, trading sales were up +4.8%).
● Returning £461.4m to shareholders through dividends (£237.4m) and share buybacks
(£224.0m).
● The partial opening of our new Elmsall 3 warehouse.
● The launch of Reiss, our largest client to date, on Total Platform.
● The additions of JoJo Maman Bébé, MADE.com and Joules to our Total Platform brands.
● An increase of our equity stake in Reiss.
We will be welcoming Jeremy Stakol to the Board in April as Group Investments, Acquisitions and
Third Party Brands Director. Jeremy has been the managing director at Lipsy since 2004 and in more
recent years has successfully led many of the new investment transactions and related Total
Platform opportunities.
We have prepared (and budgeted) for a difficult year. We are very clear on our priorities. If we
continue to improve our product ranges, relentlessly manage our costs and upgrade our customer
service, whilst also developing new business opportunities; we can lay the foundations for an
exceptionally strong business and still deliver healthy profits, cash flow and dividends.
Our performance, as ever, is a result of the hard work and dedication of the NEXT team. I would like
to thank my colleagues across the Group for all of their effort, talent and dedication.
Michael Roney
Chairman
29 March 2023
4
CHIEFEXECUTIVE’SREVIEW
STRUCTUREOFTHISREPORT
The report is broken down into the following sections:
● PART ONE: Headlines and Summary of Financial Performance, gives a short overview of the
financial performance of the Group in the year and our guidance for the year ahead.
● PART TWO: Big Picture, summarises the way we are thinking about the Company’s future in the
context of the last twenty years. It comes at a pivotal time for the Group and summarises (1)
new avenues of growth and (2) our priorities for the year ahead.
● PART THREE: Group Financial Performance and Full Year Guidance, details our Group sales and
profit performance for the year, summarised by business division, along with our sales and
profit guidance for the year ahead.
● PART FOUR: Retail, Online and Finance - Financial Performance, Commentary and Guidance,
gives a detailed breakdown of the financial performance of each trading business division. This
section is mainly for the benefit of analysts and professional investors.
● PART FIVE: Total Platform and Other Business Activities, gives a detailed breakdown of the
financial performance of Total Platform and other non-trading business activities.
● PART SIX: Cash Flow, Dividends and Net Debt, gives a detailed breakdown of our cash flow and
shareholder distributions, including our guidance for the year ahead.
CHAIRMAN’SSTATEMENT
It has been a good year for NEXT. We have embraced the various challenges and seized the
opportunities that have arisen.
A detailed analysis of our performance in 2022/23 and our outlook for the year ahead are covered in
the following pages. Looking back on the year, among the highlights are:
● The delivery of record Earnings Per Share (EPS).
● In the midst of a consumer squeeze, trading sales were up +8.4% on last year. (Excluding the
weeks that were flattered by lockdown in the previous year, trading sales were up +4.8%).
● Returning £461.4m to shareholders through dividends (£237.4m) and share buybacks
(£224.0m).
● The partial opening of our new Elmsall 3 warehouse.
● The launch of Reiss, our largest client to date, on Total Platform.
● The additions of JoJo Maman Bébé, MADE.com and Joules to our Total Platform brands.
● An increase of our equity stake in Reiss.
We will be welcoming Jeremy Stakol to the Board in April as Group Investments, Acquisitions and
Third Party Brands Director. Jeremy has been the managing director at Lipsy since 2004 and in more
recent years has successfully led many of the new investment transactions and related Total
Platform opportunities.
We have prepared (and budgeted) for a difficult year. We are very clear on our priorities. If we
continue to improve our product ranges, relentlessly manage our costs and upgrade our customer
service, whilst also developing new business opportunities; we can lay the foundations for an
exceptionally strong business and still deliver healthy profits, cash flow and dividends.
Our performance, as ever, is a result of the hard work and dedication of the NEXT team. I would like
to thank my colleagues across the Group for all of their effort, talent and dedication.
Michael Roney
Chairman
29 March 2023
5
Strategic Report Governance Financial Statements
Shareholder Information
TABLEOFCONTENTS
PART ONE - HEADLINES AND SUMMARY OF FINANCIAL PERFORMANCE
___________________________________
7
PART TWO - BIG PICTURE
______________________________________________________________________________________________
8
THE LONG VIEW
_____________________________________________________________________________________________________________
8
WHAT’S REALLY GOING ON HERE
_________________________________________________________________________________________
10
NEW AVENUES OF GROWTH
______________________________________________________________________________________________
12
TOTAL PLATFORM 13
INVESTMENTS AND ACQUISITIONS 15
NEXT BRAND OVERSEAS - WHOLESALE, FRANCHISE & LICENSING 16
ORGANISATION, MANAGEMENT AND CULTURE
_______________________________________________________________________
17
ACTIONS FOR THE YEAR AHEAD
__________________________________________________________________________________________
19
IN CONCLUSION
____________________________________________________________________________________________________________
20
PART THREE - GROUP FINANCIAL PERFORMANCE IN 2022/23 AND GUIDANCE FOR 2023/24
_________
21
GROUP SALES AND PROFIT SUMMARY
_________________________________________________________________________________
22
TOTAL GROUP SALES BY DIVISION 22
SUMMARY OF GROUP PROFIT BY DIVISION 23
GUIDANCE FOR THE YEAR AHEAD
_______________________________________________________________________________________
25
PART FOUR - RETAIL, ONLINE AND FINANCE
_____________________________________________________________________
28
NEXT RETAIL
________________________________________________________________________________________________________________
28
SUMMARY OF RETAIL SALES AND PROFIT 28
GUIDANCE FOR RETAIL SALES AND PROFIT FOR THE YEAR AHEAD 30
LEASE RENEWALS AND COMMITMENTS 31
RETAIL SPACE 33
NEXT ONLINE
_______________________________________________________________________________________________________________
34
SUMMARY OF ONLINE SALES, PROFIT AND MARGIN 34
FULL PRICE SALES BY DIVISION 35
CUSTOMER ANALYSIS 36
ONLINE PROFIT AND NET MARGIN 37
FOCUS ON LABEL 39
FOCUS ON OVERSEAS 43
NEXT FINANCE
_____________________________________________________________________________________________________________
45
FINANCE PROFIT & LOSS SUMMARY 45
OUTLOOK FOR THE FULL YEAR TO JANUARY 2024 48
PART FIVE - TOTAL PLATFORM AND OTHER BUSINESS ACTIVITIES
__________________________________________
50
TOTAL PLATFORM & INVESTMENTS
_____________________________________________________________________________________
50
OTHER BUSINESS ACTIVITIES
_____________________________________________________________________________________________
52
INTEREST, TAX, PENSIONS AND ESG
_____________________________________________________________________________________
54
PART SIX - CASH FLOW, DIVIDENDS & NET DEBT
________________________________________________________________
56
CASH FLOW 56
CAPITAL EXPENDITURE
57
INVESTMENTS IN THIRD-PARTY BRANDS
59
DIVIDENDS AND SHAREHOLDER RETURNS
______________________________________________________________________________
60
NET DEBT, BOND AND BANK FACILITIES
_________________________________________________________________________________
61
APPENDIX 1 - PRIOR PERIOD RESTATEMENTS
_____________________________________________________________________
62
APPENDIX 2 - RECONCILIATION TO STATUTORY RESULTS
______________________________________________________
65
6
PART ONE
HEADLINES AND SUMMARY OF
FINANCIAL PERFORMANCE
SALESANDPROFITINTHEYEARTOJANUARY2023
£m
Jan 2023
Jan 2022
1 Year
var %
3 Year
var %
Total Trading Sales
1
5,146.1
4,746.5
+8.4%
4,267.2
+20.6%
NEXT Profit before tax
2
870.4
823.1
+5.7% 748.5
+16.3%
Profit after tax
711.7
677.5
+5.0% 610.2
+16.6%
Basic Earnings Per Share
3
573.4p
530.8p
+8.0%
+21.4%
HEADLINES
● Full price sales
4
up +6.9% versus 2021/22 and +20.5% against 2019/20. Total Trading Sales,
including markdown, were up +8.4% versus 2021/22 and +20.6% against 2019/20.
● Profit before tax of £870m, up +5.7% versus 2021/22 and +16.3% against 2019/20. This is
+£10m higher than our previous guidance of £860m.
● Full price sales in January were flat and in line with our guidance. However, the participation of
higher margin Retail sales was greater than expected, which added £5m to profit.
● Clearance rates in our end-of-season Sale were ahead of our expectations and added a further
£5m to profit.
● Basic Earnings Per Share (EPS) 573.4p, up +8.0% versus 2021/22 and +21.4% versus 2019/20.
OutlookfortheYearAhead
● We are maintaining our current guidance for sales and profit (see page 25 for analysis of current
trade and further detail).
● We are budgeting for full price sales to be down -1.5% versus last year and NEXT profit before
tax to be £795m.
● Selling price inflation is forecast to be more benign than previously thought. Like-for-like price
inflation in Spring/Summer is expected to be +7% and, in Autumn/Winter, +3% (previously +8%
and +6% respectively).
A detailed analysis of our guidance for the year ahead is given on page 25.
1
Total Trading sales are VAT exclusive sales (including the full value of commission based sales) in Retail, Online plus
NEXT Finance interest income. They exclude sales through Total Platform and Joules, in which we acquired a 74%
equity stake during November 2022. Trading sales are not statutory sales (refer to Note 2 of the financial statements).
Statutory sales were up +8.8% versus 2021/22 and up +18.0% versus 2019/20.
2
NEXT profit before tax, profit after tax and EPS reflect the profit attributable to the shareholders of NEXT plc. They
exclude the effect of the Joules minority interests. Statutory profit before tax, including minority interests, is
£869.3m, see Appendix 2 for detail.
3
All references to EPS in the CEO report are ‘Basic’ EPS unless otherwise stated.
4
Full price sales are total Trading sales, less items sold in Sale events and Clearance.
7
Strategic Report Governance Financial Statements
Shareholder Information
PART TWO
BIG PICTURE
THE
LONGVIEW
A very respectable twenty years
NEXT plc’s core measure of success is the sustainable growth in Earnings Per Share. In the last
twenty years, the Company has delivered a compound annual growth rate (CAGR) of 14.1% in pre-
tax EPS (assuming the reinvestment of dividends
5
), a very respectable return by the standards of
most public companies.
Twenty Year Pre-Tax EPS History with Dividends Reinvested
The last eight years have been an uphill battle…
But in business you are only as good as your next set of results. Looking at our EPS guidance for the
year ahead, in the context of the last eight years, is sobering. If our guidance is correct, EPS will have
delivered a CAGR of 5.4%; more than enough to keep pace with inflation (CPI), which was 3.5% over
the period, and good in the circumstances, but unexciting in absolute terms. And ultimately,
investors are most interested in absolute returns.
The BIG question: maturity or growth?
The big question is whether the Company’s modest growth over the last eight years is indicative of
its prospects going forward; or can it return to higher levels of growth more in keeping with its
longer term performance? As it stands today the Group has far more ideas and opportunities for
long term growth than it has had for some time. And while the year ahead looks very challenging,
we are not facing the kind of long term structural obstacles that we have overcome in the past eight
years.
5
Assumes that all ordinary and special dividends were used to purchase NEXT shares, on the date that the dividends
were paid.
8
PART TWO
BIG PICTURE
THE
LONGVIEW
A very respectable twenty years
NEXT plc’s core measure of success is the sustainable growth in Earnings Per Share. In the last
twenty years, the Company has delivered a compound annual growth rate (CAGR) of 14.1% in pre-
tax EPS (assuming the reinvestment of dividends
5
), a very respectable return by the standards of
most public companies.
Twenty Year Pre-Tax EPS History with Dividends Reinvested
The last eight years have been an uphill battle…
But in business you are only as good as your next set of results. Looking at our EPS guidance for the
year ahead, in the context of the last eight years, is sobering. If our guidance is correct, EPS will have
delivered a CAGR of 5.4%; more than enough to keep pace with inflation (CPI), which was 3.5% over
the period, and good in the circumstances, but unexciting in absolute terms. And ultimately,
investors are most interested in absolute returns.
The BIG question: maturity or growth?
The big question is whether the Company’s modest growth over the last eight years is indicative of
its prospects going forward; or can it return to higher levels of growth more in keeping with its
longer term performance? As it stands today the Group has far more ideas and opportunities for
long term growth than it has had for some time. And while the year ahead looks very challenging,
we are not facing the kind of long term structural obstacles that we have overcome in the past eight
years.
5
Assumes that all ordinary and special dividends were used to purchase NEXT shares, on the date that the dividends
were paid.
Eight years weathering storms
Over the last eight years, the Company has endured three considerable shocks: the structural shift in
shopping habits from Retail to Online; the pandemic; and now the cost of living squeeze.
Of these three challenges, the least dramatic has had the most profound effect: the structural
change in our industry resulted in a precipitous decline in Retail turnover, offset by rapid growth
Online. The central difficulty was that Retail costs, such as rent and rates, in the short term
remained fixed. Retail rents and other costs are beginning to adjust to the new reality (see page 32),
but the transition has been uncomfortable.
Conversely, the costs associated with Online growth, such as delivery and warehousing, have risen in
line with sales and have required significant capital investment. The effect has been that we have
had to undertake the painful process of cutting costs in our Retail operations, whilst racing to keep
up with growth Online.
A great accomplishment, but…
NEXT’s steady growth in these circumstances represents a considerable accomplishment. But, in a
year when profits look set to decline, it would be right for us to question the Group's prospects for
longer term growth. The following paragraphs explain our thinking about the direction of the Group
over the next few years and then sets out our immediate priorities for the year ahead.
9
Strategic Report Governance Financial Statements
Shareholder Information
WHAT’SREALLYGOINGONHERE
Our diagnosis, set out in the following pages, is that NEXT plc can return to higher levels of growth
once the cost of living crisis has passed. Our reasoning runs as follows:
1. The Group’s heartland, NEXT-branded, business in the UK is established but not standing still.
2. The Group has developed outstanding assets and skills that can deliver growth outside its
heartland business.
3. New avenues of growth are proven, but at early stages in their development.
NEXTBRANDUK-EstablishedbutnotStandingStill
NEXT has around 7m Online customers
6
in the UK, close to 25% of the UK’s 28m
7
households. Our
466 stores give us a presence in almost all major UK and Ireland trading locations. Our product
ranges stretch from women’s clothing through to upholstery. So the opportunities to expand our
customer base, trading space and product offer are less numerous than they were.
But we are far from running out of ideas. Our product teams continue to push the boundaries of
their offers, in terms of design content, price architecture and product categories. Our e-commerce
and marketing teams can still do much more to recruit and retain new customers, and drive growth
in website traffic, online conversion and sales per customer.
The NEXT brand accounts for less than 10% in most of its key markets (see chart below). So, while
our market share renders exceptional growth unlikely, we are a long way from reaching saturation.
NEXT Brand UK Market Share
8
by Product Category
Developing the NEXT brand remains our first priority
Our highest priority remains the continued development of the NEXT brand; it is our most valuable
asset and cornerstone of the Group. In past reports we have written at length about the measures
we take to improve our product ranges, customer service, websites, marketing and stores. So we
have not elaborated on them here. Shareholders should not confuse lack of detail with loss of focus.
We have concentrated on new business opportunities here, not because they are most important
but because, to the outside world, they are the least understood.
GroupAssetsandSkillsCanDeliverFurtherGrowth
6
NEXT Online customers in the UK at the end of January 2023 were 6,993k, (2,870k credit and 4,123k cash).
7
ONS, 2021 Census.
8
Chart sources: Women’s, Men’s and Children’s total UK Sales taken from Kantar, 52 weeks to 5 February 2023.
Home UK sales taken from Globalreach, Q4 2022.
10
WHAT’SREALLYGOINGONHERE
Our diagnosis, set out in the following pages, is that NEXT plc can return to higher levels of growth
once the cost of living crisis has passed. Our reasoning runs as follows:
1. The Group’s heartland, NEXT-branded, business in the UK is established but not standing still.
2. The Group has developed outstanding assets and skills that can deliver growth outside its
heartland business.
3. New avenues of growth are proven, but at early stages in their development.
NEXTBRANDUK-EstablishedbutnotStandingStill
NEXT has around 7m Online customers
6
in the UK, close to 25% of the UK’s 28m
7
households. Our
466 stores give us a presence in almost all major UK and Ireland trading locations. Our product
ranges stretch from women’s clothing through to upholstery. So the opportunities to expand our
customer base, trading space and product offer are less numerous than they were.
But we are far from running out of ideas. Our product teams continue to push the boundaries of
their offers, in terms of design content, price architecture and product categories. Our e-commerce
and marketing teams can still do much more to recruit and retain new customers, and drive growth
in website traffic, online conversion and sales per customer.
The NEXT brand accounts for less than 10% in most of its key markets (see chart below). So, while
our market share renders exceptional growth unlikely, we are a long way from reaching saturation.
NEXT Brand UK Market Share
8
by Product Category
Developing the NEXT brand remains our first priority
Our highest priority remains the continued development of the NEXT brand; it is our most valuable
asset and cornerstone of the Group. In past reports we have written at length about the measures
we take to improve our product ranges, customer service, websites, marketing and stores. So we
have not elaborated on them here. Shareholders should not confuse lack of detail with loss of focus.
We have concentrated on new business opportunities here, not because they are most important
but because, to the outside world, they are the least understood.
GroupAssetsandSkillsCanDeliverFurtherGrowth
6
NEXT Online customers in the UK at the end of January 2023 were 6,993k, (2,870k credit and 4,123k cash).
7
ONS, 2021 Census.
8
Chart sources: Women’s, Men’s and Children’s total UK Sales taken from Kantar, 52 weeks to 5 February 2023.
Home UK sales taken from Globalreach, Q4 2022.
The fact that our core business is well established has an advantage: over the last thirty years it has
built up valuable trading assets and skills - software, infrastructure, stores and people - that can be
used to build new growth businesses. Those assets are as follows:
Physical
infrastructure
NEXT operates 9m sq. ft. of highly automated warehousing for fashion and
homeware products along with distribution depots, transport fleets, returns
centres, contact centres and our UK and Ireland store network.
Software
Over the years NEXT has developed thousands of bespoke and proprietary
software applications, running across our Online, Finance and Retail
businesses. These include systems for websites, apps, tills, stock management,
staff scheduling, warehouses, distribution, buying and merchandising, contact
centre and more.
Product skills
Our design, sourcing, product technology, buying and merchandising skills
alongside our global sourcing office (NEXT Sourcing) and wider manufacturing
network.
Customer base
NEXT Online’s 8.7m worldwide customer base
9
enables the further
development of our aggregation business, selling third-party brands to our
customers on our websites in the UK and overseas (our LABEL business).
NEXT brand
(overseas)
NEXT is increasingly becoming an international brand with the potential to
further extend its reach overseas.
Balance sheet
Healthy cash resources, strong balance sheet and strong cash generation gives
the Company the ability to further invest in infrastructure and new businesses.
9
Customer numbers at the end of January 2023.
11
Strategic Report Governance Financial Statements
Shareholder Information
NEWAVENUESOFGROWTH
FOURNEWANDDEVELOPINGBUSINESSES
There are four main areas of opportunity outside our heartland business. These are:
● Total Platform (see page 13)
● Investments and acquisitions (see page 15)
● New brands and third-party licences (see page 40)
● Developing the NEXT brand overseas (see page 16).
Growth…ButNotatAnyCost
Before we move on to discuss these opportunities in detail, there is an important aspect of our
thinking that needs clarification.
It is all too easy for companies to lose sight of the fact that assets that deliver modest growth and
healthy cash flow are very valuable assets. Too many ‘mature’ companies have been sacrificed at
the altar of ‘growth’: it is a well-trodden path that has littered corporate history with the carcasses
of ruined companies - from GEC/Marconi to Northern Rock. Growth can always be bought, and
ambitious sales targets achieved, through taking on higher and higher risks for lower and lower
returns.
We are very clear: if we cannot find good quality investments, then there is no shame (and much
wisdom) in handing surplus cash back to our shareholders.
12
NEWAVENUESOFGROWTH
FOURNEWANDDEVELOPINGBUSINESSES
There are four main areas of opportunity outside our heartland business. These are:
● Total Platform (see page 13)
● Investments and acquisitions (see page 15)
● New brands and third-party licences (see page 40)
● Developing the NEXT brand overseas (see page 16).
Growth…ButNotatAnyCost
Before we move on to discuss these opportunities in detail, there is an important aspect of our
thinking that needs clarification.
It is all too easy for companies to lose sight of the fact that assets that deliver modest growth and
healthy cash flow are very valuable assets. Too many ‘mature’ companies have been sacrificed at
the altar of ‘growth’: it is a well-trodden path that has littered corporate history with the carcasses
of ruined companies - from GEC/Marconi to Northern Rock. Growth can always be bought, and
ambitious sales targets achieved, through taking on higher and higher risks for lower and lower
returns.
We are very clear: if we cannot find good quality investments, then there is no shame (and much
wisdom) in handing surplus cash back to our shareholders.
TOTALPLATFORM
Total Platform is operational and working well across our four clients (Reiss, GAP, Victoria’s Secret
and Laura Ashley). For a more detailed analysis of Total Platform sales, profits and margins, please
see page 50).
TheBenefitsofTotalPlatform
There are five big advantages clients get from switching their operations to Total Platform. These
are:
Delivery services
and website
functionality
Total Platform deploys the infrastructure NEXT has built over more than 30
years. This includes a next
-
day delivery on orders before 11pm, fully integrated
e
-commerce and in-
store stock systems, rapid customer refunds, international
websites, returns through stores (including NEXT stores), unique item
identification and
much more.
In terms of the website, clients can benefit from all of NEXT’s online
functionality: AI driven search engine, intelligent recommendations, personalised
search results, saved bags, credit facilities and more.
Friction free,
capex free
growth
Clients do not need to worry about upgrading their web capacities, warehouse
space and distribution networks. They can deliver exceptional levels of growth
without operational friction and step changes in their capital expenditure.
Variable cost
base
Total Platform is charged as a percentage of the client's turnover, leaving clients
with few, if any, fixed operational costs. So in the event of a downturn, clients
are not burdened with fixed costs they do not need.
Better presence
on LABEL
Because our clients’ stock is consolidated in NEXT’s central warehouses, all their
stock is available to sell to NEXT customers on LABEL. This has delivered
significant sales growth on LABEL to all our existing clients.
Focus
Total Platform allows clients to focus on the aspects of their business where
they make the most difference: designing and buying great products and
developing their brand identity.
PrioritiesfortheYearAhead
Focus for the year ahead will be:
● The full implementation of two new websites (JoJo Maman Bébé and MADE.com) and the
development of Joules’ website, planned for April 2024.
● The removal of warehouse capacity constraints (target completion October 2023).
● The ‘productionising’ (sorry for the dreadful word) of our software to make it much easier to
configure and maintain going forward.
Currently, our ability to take on new clients is constrained by three factors: warehousing capacity,
systems timescales and the people and expertise required to onboard new clients. This year we aim
to eliminate all three bottlenecks as detailed below.
WarehousingCapacity
Our new large boxed warehouse, Elmsall 3 (see page 57), will be operational towards the end of
2023. This new warehouse will remove the physical constraints to onboarding new fashion clients.
13
Strategic Report Governance Financial Statements
Shareholder Information
SystemsTimescalesandCosts
The constraint for Total Platform going into 2024 will be the speed at which we can develop new
website ‘platforms’ for new clients. Towards the end of 2022, we began simplifying the process for
creating new Total Platform websites; this process is explained below.
Existing code
Historically, we created separate copies of our website for each new client, which is costly and time-
consuming. It also meant that whenever we upgraded our own website, we had to duplicate and
test new code across each client's code base. As the number of clients grows, this process of
maintaining functional parity would have become exponentially more difficult.
Templates and single code base
Going forward we are taking a different approach. Each new client’s website will operate different
‘templates’ of a single code base. In other words, each client’s website will have a different ‘view’ of
the same functionality, operating on the same code but with a different look and feel. This is similar
to how we can individually configure our desktops to look unique while using the same operating
system. This new approach will enable us to be more efficient in onboarding new clients, it will also
ensure that clients are always kept up-to-date with improvements to website functionality.
Progress
The table below demonstrates our progress in reducing timescales and costs. It shows development
man-hours (indexed to 100 for the Reiss website) along with the elapsed development time.
Website development
Man-hours index
10
Start and end date
Time elapsed
11
Reiss
100
May 2021 - April 2022
11 months
JoJo Maman Bébé
36
Sept 2022 - May 2023
8 months
MADE.com
24
Mar 2023 - July 2023
4 months
New client
15
Mar 2024 - June 2024
3 months
People
Alongside improving our technology, we will also reinforce the teams who scope, onboard and
manage new clients. This will ensure that the workload does not restrict our growth.
10
Development time for JoJo Maman Bébé and MADE include an estimate of the time required to develop an App to
make them directly comparable with Reiss.
11
The development time is just coding time and does not include specification time or post implementation support.
14
SystemsTimescalesandCosts
The constraint for Total Platform going into 2024 will be the speed at which we can develop new
website ‘platforms’ for new clients. Towards the end of 2022, we began simplifying the process for
creating new Total Platform websites; this process is explained below.
Existing code
Historically, we created separate copies of our website for each new client, which is costly and time-
consuming. It also meant that whenever we upgraded our own website, we had to duplicate and
test new code across each client's code base. As the number of clients grows, this process of
maintaining functional parity would have become exponentially more difficult.
Templates and single code base
Going forward we are taking a different approach. Each new client’s website will operate different
‘templates’ of a single code base. In other words, each client’s website will have a different ‘view’ of
the same functionality, operating on the same code but with a different look and feel. This is similar
to how we can individually configure our desktops to look unique while using the same operating
system. This new approach will enable us to be more efficient in onboarding new clients, it will also
ensure that clients are always kept up-to-date with improvements to website functionality.
Progress
The table below demonstrates our progress in reducing timescales and costs. It shows development
man-hours (indexed to 100 for the Reiss website) along with the elapsed development time.
Website development
Man-hours index
10
Start and end date
Time elapsed
11
Reiss
100
May 2021 - April 2022
11 months
JoJo Maman Bébé
36
Sept 2022 - May 2023
8 months
MADE.com
24
Mar 2023 - July 2023
4 months
New client
15
Mar 2024 - June 2024
3 months
People
Alongside improving our technology, we will also reinforce the teams who scope, onboard and
manage new clients. This will ensure that the workload does not restrict our growth.
10
Development time for JoJo Maman Bébé and MADE include an estimate of the time required to develop an App to
make them directly comparable with Reiss.
11
The development time is just coding time and does not include specification time or post implementation support.
INVESTMENTSANDACQUISITIONS
A new activity
In 2021 we acquired a 25% stake in Reiss; it was our second acquisition of any material size in 30
years. Since then, we have made nine other investments, including a further 26% in Reiss, JoJo
Maman Bébé, Sealskinz, Joules, MADE.com, Swoon, Aubin, along with a stake in the UK franchises
for Victoria’s Secret and GAP. Last year these investments delivered £16.8m profit to the Group.
An unintended consequence of Total Platform
When we first appraised Total Platform, it appeared to us that the value created for clients was likely
to exceed the relatively modest profit generated for NEXT as a service provider. So it seemed
sensible to invest in our future clients. In fact, so far, the Group has made more profit from these
equity investments than from the service itself.
In a world where many retail businesses are regularly bought and sold by private equity owners,
Total Platform gives NEXT a means of adding value to an investment unavailable to purely financial
buyers.
Working with partners
70% of the cash invested in other retailers was done so with other partners. Working alongside
seasoned private equity professionals brings us important negotiation and valuation skills, and
serves to spread our investments across a wider pool of retailers. In other investments, partnerships
have been with the overseas owners of brands in which we operate the UK franchise (Victoria’s
Secret and GAP).
Rules of engagement
There are four criteria we look to achieve when investing. These are:
Great brands
We will focus on brands that bring something unique to the market with a clear
market position - customers, staff and suppliers understand what they stand for.
The potential
to add value
Total Platform must be able to add value to the investment. We have declined
opportunities to invest in good businesses because we felt we could not add
enough value to their operations.
Great
management
We do not intend to run the businesses in which we invest. They must be able to
operate and thrive independently, so we are looking for businesses that either have
great management (like Reiss) or where we are confident that we can find the right
people (like MADE.com).
Right price
We are not the sort of business that makes ‘strategic’ investments, we only invest
in businesses if we think they can deliver healthy returns on shareholders’ funds.
Some exceptions will break the rule…
There will be exceptions to these rules. With the proviso that we never (consciously) overpay, we
may compromise some of these criteria if the others align. For example, we invested in Swoon
which is a great business, brilliantly led with a reasonable price tag; but, in the short term, there are
no plans to put them on Total Platform.
15
Strategic Report Governance Financial Statements
Shareholder Information
NEXTBRANDOVERSEAS-WHOLESALE,FRANCHISE&LICENSING
In many overseas markets we have successful direct-to-consumer online businesses. We also have
some very productive partnerships with local aggregators (such as Zalando). However, it is apparent
that our direct-to-consumer model is not effective in some very sizable markets.
The further away the market, the less direct-to-consumer appears to work
The pie charts below give a sense of the opportunities we might be missing overseas. The left hand
chart shows total consumer spending
12
on all consumer goods by major region. The chart on the
right shows the percentage of our Online overseas sales NEXT takes by region (both charts exclude
the UK). The over-performance of regions closer to the UK, points to potential opportunities further
afield. Europe and the Middle East, which account for 26% of the world’s consumer spending,
account for 87% of our online sales overseas.
Factors that might impede growth
It is unsurprising that our direct-to-consumer business struggles in the Americas and Asia. Inventory
is sent to customers, using air freight, from our UK warehouses. A business that imports goods to
the UK from the Far East and then ships them back by air, customer by customer, with all the
logistical and customs overheads involved, is unlikely to be competitive.
There are many factors that may be hindering the success of our direct-to-consumer online business
in some regions. These consist of (1) elevated tariffs and bureaucratic obstacles, (2) prolonged
delivery times, (3) the dominance of local competition, (4) local product regulations, (5) limited
brand recognition, and, naturally, (6) the possibility that our product range may not align with the
preferences of the local market.
Actions and trials
Among these challenges, only the last is insurmountable - if our products do not appeal to the local
market, then no amount of effort will make our business a success. The remaining issues are
soluble. So we are currently exploring alternative business models to address these and other
obstacles, including:
● Wholesaling or franchising products to local operators, and shipping stock directly to them from
the point of origin. This may require additional testing to accommodate product standards that
differ from the UK.
● Licensing arrangements with local operators who might manufacture the goods themselves.
● Wider use of new local aggregators to reach new consumers and raise brand awareness.
We will be trialling all of these approaches, in a number of territories, over the coming years and
strengthening the teams required to make that happen.
12
World Bank data: Households and NPISHs Final Consumption Expenditure (current US$) 2021. Data excludes the UK.
16
NEXTBRANDOVERSEAS-WHOLESALE,FRANCHISE&LICENSING
In many overseas markets we have successful direct-to-consumer online businesses. We also have
some very productive partnerships with local aggregators (such as Zalando). However, it is apparent
that our direct-to-consumer model is not effective in some very sizable markets.
The further away the market, the less direct-to-consumer appears to work
The pie charts below give a sense of the opportunities we might be missing overseas. The left hand
chart shows total consumer spending
12
on all consumer goods by major region. The chart on the
right shows the percentage of our Online overseas sales NEXT takes by region (both charts exclude
the UK). The over-performance of regions closer to the UK, points to potential opportunities further
afield. Europe and the Middle East, which account for 26% of the world’s consumer spending,
account for 87% of our online sales overseas.
Factors that might impede growth
It is unsurprising that our direct-to-consumer business struggles in the Americas and Asia. Inventory
is sent to customers, using air freight, from our UK warehouses. A business that imports goods to
the UK from the Far East and then ships them back by air, customer by customer, with all the
logistical and customs overheads involved, is unlikely to be competitive.
There are many factors that may be hindering the success of our direct-to-consumer online business
in some regions. These consist of (1) elevated tariffs and bureaucratic obstacles, (2) prolonged
delivery times, (3) the dominance of local competition, (4) local product regulations, (5) limited
brand recognition, and, naturally, (6) the possibility that our product range may not align with the
preferences of the local market.
Actions and trials
Among these challenges, only the last is insurmountable - if our products do not appeal to the local
market, then no amount of effort will make our business a success. The remaining issues are
soluble. So we are currently exploring alternative business models to address these and other
obstacles, including:
● Wholesaling or franchising products to local operators, and shipping stock directly to them from
the point of origin. This may require additional testing to accommodate product standards that
differ from the UK.
● Licensing arrangements with local operators who might manufacture the goods themselves.
● Wider use of new local aggregators to reach new consumers and raise brand awareness.
We will be trialling all of these approaches, in a number of territories, over the coming years and
strengthening the teams required to make that happen.
12
World Bank data: Households and NPISHs Final Consumption Expenditure (current US$) 2021. Data excludes the UK.
ORGANISATION,MANAGEMENTANDCULTURE
As the Company takes on new challenges, we need to re-organise to ensure that we maximise the
opportunities available to the Group. As importantly, we need to ensure that new business
opportunities do not end up taking too much time from those whose main task is developing our
heartland NEXT product, services and operations.
ANEWDIVISION
Earlier this year we created a new division of the Group to focus on Investments, Acquisitions and
Third-Party Brands. The Investments Division has been placed under the leadership of a newly
promoted main Board Director, Jeremy Stakol (see RNS, 8 February 2023). The new division will aim
to maximise the following business opportunities:
● The sale of all third-party fashion brands through LABEL (this excludes Homewares where third-
parties and licences will be managed through our Home department).
● Investments in, and acquisitions of, third-party brands.
● The promotion (but not implementation and management) of Total Platform to potential new
clients.
● Licensing deals with third-party brands, where we manufacture and sell goods under licence.
● The continued development of Lipsy along with other wholly-owned, non-NEXT brands (for
example ‘Love & Roses’ and ‘Friends Like These’).
● Overseas wholesale, franchise and licensing of NEXT-branded stock.
ANACCELERATORNOTABRAKE….
Of course, all of these opportunities already involve many other departments across the
business. And it is important to stress that, while Jeremy and his team will aim to advance these
areas, they will not control them. In our internal communications, I have been very careful not to
use the word ‘co-ordinate’ or ‘control’ when describing Jeremy’s role. This change should not
prevent others from taking initiatives in these areas. For example, many of our product divisions will
continue to develop their own licence arrangements alongside any initiatives the Investments team
may take.
So, while this new division will serve to accelerate opportunities, it will not act as a brake on the
initiatives others are taking in these areas. Indeed, many of the transactions the Investments
division identifies may well be passed on to others in the Group to execute.
17
Strategic Report Governance Financial Statements
Shareholder Information
CULTUREANDEXPECTATIONS
People often talk about culture in terms of the qualities they aspire to. Of course, NEXT aspires to
be many things, but aspirations are not enough: for NEXT culture is about what we expect from one
another. The following paragraphs give a flavour of some of the behaviours we expect from each
other:
1. Take decisions and make things happen. Colleagues do not need permission to take decisions,
taking sensible decisions is a requirement of their job. We do not take minutes
13
at our
meetings, we only take action points. Whatever is said at a meeting, all that matters is what
happens as a result. If there were no actions, the chances are it was a wasted meeting. You will
be judged by the things you make happen, not by the infographics you put in a ‘deck’.
2. Change is everyone’s job. This follows on from taking decisions. Managing change is part of
everyone’s job; we do not have a ‘Change’ Department or a ‘Transformation’ Director, nor do
we have a battalion of business project managers operating outside business as usual. Change
and transformation are part of all of our work; we all take on new projects; there is no ‘business
as usual’ because our business constantly changes.
3. Create value and make profit. We do not make ‘strategic’ investments, we invest for a return
on our shareholders' money. All our activities, in one way or another, must work towards that
goal.
4. Keep it simple and speak in plain English; you will achieve so much more. Business jargon is so
unhelpful because it makes simple things sound complicated. It also excludes people who are
unfamiliar with this insider language. And if we use clear, easily understood language, everyone
can contribute and make our actions more effective.
5. Be open, honest and considerate in your dealings with others. Life is too short to spend it with
people who are unpleasant, and teams that get on well together are more likely to achieve their
aims. So treat those around you well. Remember, you are not competing with the other people
in NEXT, they are on your side, and if you are not on their side you are doing something wrong.
6. Be demanding but never nasty. There is a world of difference between being demanding and
being nasty. Whatever your job, you will likely need to give people uncomfortable feedback,
occasionally very uncomfortable. At NEXT we are demanding but also considerate and polite.
You do not need to be nasty to succeed: leadership in business does not require you to act like a
monster or scramble over those around you; in our experience, quite the reverse.
Of course, many of us (including me), on occasions deviate from these ideals, particularly when we
get frustrated, but our aspirations are very clear.
Small ideas make a big difference
We want to be an organisation that thinks and collaborates at every level, where everyone feels
they are making a difference. So many of our important decisions are, in the scheme of things,
small. Choosing the colour of a dress, optimising a warehouse operation, tweaking the functionality
of a web page - each decision, on its own, will make little difference. But the sum total of a myriad
of such decisions, made well, are what makes the difference between great success and abject
failure.
And in retail big ideas often start small
And even if I think about the big ideas that have transformed the business such as our first internet
business, the beginnings of our LABEL business, our first overseas website and our first licence
agreement: almost all those ideas started life as small initiatives, few of which emanated from the
Board Room. They began because people experimented, took decisions and pushed boundaries. It
is the Board’s job to foster and direct this spirit of enterprise, and ensure that, where ideas do
succeed, we push them as hard as possible and as far as they will go.
13
We do, of course, take minutes at meetings where there is a regulatory, legal or corporate governance requirement.
18
CULTUREANDEXPECTATIONS
People often talk about culture in terms of the qualities they aspire to. Of course, NEXT aspires to
be many things, but aspirations are not enough: for NEXT culture is about what we expect from one
another. The following paragraphs give a flavour of some of the behaviours we expect from each
other:
1. Take decisions and make things happen. Colleagues do not need permission to take decisions,
taking sensible decisions is a requirement of their job. We do not take minutes
13
at our
meetings, we only take action points. Whatever is said at a meeting, all that matters is what
happens as a result. If there were no actions, the chances are it was a wasted meeting. You will
be judged by the things you make happen, not by the infographics you put in a ‘deck’.
2. Change is everyone’s job. This follows on from taking decisions. Managing change is part of
everyone’s job; we do not have a ‘Change’ Department or a ‘Transformation’ Director, nor do
we have a battalion of business project managers operating outside business as usual. Change
and transformation are part of all of our work; we all take on new projects; there is no ‘business
as usual’ because our business constantly changes.
3. Create value and make profit. We do not make ‘strategic’ investments, we invest for a return
on our shareholders' money. All our activities, in one way or another, must work towards that
goal.
4. Keep it simple and speak in plain English; you will achieve so much more. Business jargon is so
unhelpful because it makes simple things sound complicated. It also excludes people who are
unfamiliar with this insider language. And if we use clear, easily understood language, everyone
can contribute and make our actions more effective.
5. Be open, honest and considerate in your dealings with others. Life is too short to spend it with
people who are unpleasant, and teams that get on well together are more likely to achieve their
aims. So treat those around you well. Remember, you are not competing with the other people
in NEXT, they are on your side, and if you are not on their side you are doing something wrong.
6. Be demanding but never nasty. There is a world of difference between being demanding and
being nasty. Whatever your job, you will likely need to give people uncomfortable feedback,
occasionally very uncomfortable. At NEXT we are demanding but also considerate and polite.
You do not need to be nasty to succeed: leadership in business does not require you to act like a
monster or scramble over those around you; in our experience, quite the reverse.
Of course, many of us (including me), on occasions deviate from these ideals, particularly when we
get frustrated, but our aspirations are very clear.
Small ideas make a big difference
We want to be an organisation that thinks and collaborates at every level, where everyone feels
they are making a difference. So many of our important decisions are, in the scheme of things,
small. Choosing the colour of a dress, optimising a warehouse operation, tweaking the functionality
of a web page - each decision, on its own, will make little difference. But the sum total of a myriad
of such decisions, made well, are what makes the difference between great success and abject
failure.
And in retail big ideas often start small
And even if I think about the big ideas that have transformed the business such as our first internet
business, the beginnings of our LABEL business, our first overseas website and our first licence
agreement: almost all those ideas started life as small initiatives, few of which emanated from the
Board Room. They began because people experimented, took decisions and pushed boundaries. It
is the Board’s job to foster and direct this spirit of enterprise, and ensure that, where ideas do
succeed, we push them as hard as possible and as far as they will go.
13
We do, of course, take minutes at meetings where there is a regulatory, legal or corporate governance requirement.
ACTIONSFORTHEYEARAHEAD
This year, the opportunity for growth is naturally limited by market conditions, so we will focus on
improving the basics of our business whilst taking the opportunity to strengthen the foundations of
the business for future years. There are four main tasks:
● Improving our product ranges
● Improving our online service levels
● Managing costs and profitability
● Laying the foundations for future growth businesses.
Improving our product ranges
As ever, our focus remains firmly fixed on the continued improvement of our product ranges. The
opportunity to stretch the brand: increasing the breadth of our offer to customers.
The re-opening of overseas travel - to visit our suppliers and find other sources of inspiration -
appears to have energised our ranges, with many areas pushing into more diverse designs, new
fabrications, price points and categories. We know that, in our customers’ eyes, we are only as good
as our latest ranges. So our product teams continue to push themselves and their suppliers to
exceed customer expectations.
Improving online service levels
Since the beginning of the pandemic our online service levels (in terms of the speed and accuracy of
delivery) have suffered. First it was the pandemic itself that interfered with our operations. More
recently our acute lack of warehouse space, combined with a national shortage of warehousing and
distribution personnel at peak times, has served to hamper operations. The delivery of new
warehousing capacity (see page 57) along with new automation and technology, provides the
opportunity to materially improve the accuracy of our picking, packing and delivery operations:
getting more items to more customers on time. The aim is to restore and surpass our pre-pandemic
reliability.
In addition, we have invested in new contact centre technology with a view to materially improving
our ability to handle enquiries and complaints. So when things do not go to plan, we can remedy the
situation quickly and more efficiently.
Managing costs and profitability
In a year where sales are not expected to grow, and inflation is driving up costs, we have turned our
minds to where we can save money within the organisation. The main heads of cost saving are
detailed below:
● Cost of the goods. A combination of negotiation, new sources of supply and managing the cost
of inbound freight is beginning to bear fruit (see NEXT selling price inflation on page 25).
● Costs of operations. All of our operational teams - from stores to contact centres - are looking
at new ways to be more efficient. Our new Elmsall 3 warehouse, with its new automation,
provides an important opportunity to eliminate many of the inefficiencies incurred as a result of
congestion and lack of storage space.
● Business channel profitability. We have made good progress in reviewing all the product
categories and brands we sell, through all the channels and territories that we sell them. This
has yielded some big opportunities to adapt our offer and pricing to ensure that we are
profitable by product category, by brand, by channel and by overseas territory.
● Technology. Last year we delivered a huge amount of much needed new technology and made
good progress with our modernisation projects. Having built a strong technology base, we now
need to focus on ensuring it delivers increasing value for money.
Laying the foundations for growth
Lay the foundations for our growth businesses. Putting in place the technology, warehousing,
distribution networks, organisation and people required.
19
Strategic Report Governance Financial Statements
Shareholder Information
INCONCLUSION
The year ahead looks like it will be challenging: the combination of inflation in our cost base and top
line sales which are likely to edge backwards is uncomfortable. But the Company is well prepared.
If we achieve our guidance, a moderate sales decline will result in a pre-tax profit of £795m, strong
cash flow and underlying net margins of around 15%.
Looking through next year to the longer term our prospects feel more positive than they have done
for some time. The burdens of the structural change to our industry appear to have eased, our
Retail business is a much smaller percentage of the Group than it was eight years ago, and its rent
and rates bill is slowly adjusting to reflect current levels of retail demand. This year, the Group will
focus on improving its product ranges, online service levels and cost controls. As importantly, the
Group is also laying the foundations for new avenues of growth to complement and leverage our
heartland business.
20
INCONCLUSION
The year ahead looks like it will be challenging: the combination of inflation in our cost base and top
line sales which are likely to edge backwards is uncomfortable. But the Company is well prepared.
If we achieve our guidance, a moderate sales decline will result in a pre-tax profit of £795m, strong
cash flow and underlying net margins of around 15%.
Looking through next year to the longer term our prospects feel more positive than they have done
for some time. The burdens of the structural change to our industry appear to have eased, our
Retail business is a much smaller percentage of the Group than it was eight years ago, and its rent
and rates bill is slowly adjusting to reflect current levels of retail demand. This year, the Group will
focus on improving its product ranges, online service levels and cost controls. As importantly, the
Group is also laying the foundations for new avenues of growth to complement and leverage our
heartland business.
PART THREE
GROUP FINANCIAL PERFORMANCE IN
2022/23 AND GUIDANCE FOR 2023/24
THREENOTESONTHEPRESENTATIONOFTHESERESULTS
These three notes are consistent with the changes made in our Half Year report issued in
September 2022 and are repeated here for clarity.
Please note that none of these changes affect the reported overall margins or total profits for
the Group in any year.
ComparativeYearforSalesandProfit
Here, and throughout this report, comparisons with last year are dominated by the impact of the
pandemic, most of which have been explained in previous reports. So, we have devoted very little
time to explaining the one year variances in our main trading divisions (Online and Retail).
Instead, we have focused on the three year variances which give important insights into the
changing economics of the Group. Part Four gives a detailed insight into sales and costs by
division.
AccountingforLipsyProfits
In the past we have split the profit we generate from selling Lipsy goods through the NEXT
website. Half the profit was reported in our Online division. The other half was reported in the
Lipsy division which was within Other Group Activities, along with Property and Sourcing.
However, because all of Lipsy’s sales were reported in the Online division, this served to
understate the margin of the Online business. Three years ago, Lipsy’s ‘share’ of Online profit was
immaterial at only £6.8m; today the number would be £27.5m.
To correct this issue, we are now reporting all of Lipsy’s Online sales and profits through the
Online division. We have adjusted the relevant numbers from last year and three years ago, so
that comparisons are on a like-for-like basis. We have corrected a similar reporting anomaly for
the Finance division, whereby half the Finance profit on Lipsy sales was reported in Lipsy.
A detailed account of this change is given in Appendix 1.
AccountingforTotalPlatformProfit
Last year, the profit on Total Platform was reported across two business areas: (1) profit on sales
was reported within the Online division and (2) equity returns were reported within Sourcing,
Property and Other.
The business has grown significantly in the last 12 months and we believe it would aid
understanding of performance to present the sales and profits in its own division. We have
represented last year's numbers to reflect this change. The effect of this change is very small and
details are provided in Appendix 1.
21
Strategic Report Governance Financial Statements
Shareholder Information
GROUPSALESANDPROFITSUMMARY
Full price sales (excluding Total Platform sales) were up +6.9% versus 2021/22 and up +20.5% versus
2019/20. Total Trading Sales (including markdown sales) were up +8.4% versus 2021/22 and up
+20.6% versus 2019/20.
NEXT Profit before tax was £870m, which was up +5.7% versus 2021/22 and up +16.3% versus
2019/20.
TOTALGROUPSALESBYDIVISION
14
TOTAL SALES (VAT EX.) £m
Jan 2023
Jan 2022
1 Year
var %
Jan 2020
Online 3,006.6
3,064.7
- 2% 2,146.6
+40%
Retail
1,865.1
1,432.4
+30%
1,851.9
Finance
274.4
249.4
+10%
268.7
Total Trading Sales
5,146.1
4,746.5
+8.4%
4,267.2
Total Platform
144.4
39.1
+269%
0.0
Franchise, Sourcing, Property & Other 124.0
76.2
+63% 94.6
+31%
Total Group sales
5,414.5
4,861.8
+11.4%
4,361.8
Total Group statutory sales
5,034.0
4,625.9
+8.8%
4,266.2
A full reconciliation of Group sales to Group statutory sales is provided in Appendix 2 on page 65.
The difference between Group sales and Group statutory sales is primarily due to the accounting
treatment of items sold on commission through Online LABEL UK. Specifically, the gross transaction
value (GTV) of these items is not included in Group statutory sales, whereas it is included in Group
sales. Instead, the commission earned on the GTV (which is around 37%) is recognised as revenue in
Group statutory sales.
14
Online sales for January 2022 have been restated to move £39m of Total Platform sales into its own division.
22
GROUPSALESANDPROFITSUMMARY
Full price sales (excluding Total Platform sales) were up +6.9% versus 2021/22 and up +20.5% versus
2019/20. Total Trading Sales (including markdown sales) were up +8.4% versus 2021/22 and up
+20.6% versus 2019/20.
NEXT Profit before tax was £870m, which was up +5.7% versus 2021/22 and up +16.3% versus
2019/20.
TOTALGROUPSALESBYDIVISION
14
TOTAL SALES (VAT EX.) £m
Jan 2023
Jan 2022
1 Year
var %
Jan 2020
3 Year
var %
Online
3,006.6
3,064.7
- 2%
2,146.6
+40%
Retail
1,865.1
1,432.4
+30%
1,851.9
+1%
Finance
274.4
249.4
+10%
268.7
+2%
Total Trading Sales
5,146.1
4,746.5
+8.4%
4,267.2
+20.6%
Total Platform
144.4
39.1
+269%
0.0
-
Franchise, Sourcing, Property & Other
124.0
76.2
+63%
94.6
+31%
Total Group sales
5,414.5
4,861.8
+11.4%
4,361.8
+24.1%
Total Group statutory sales
5,034.0
4,625.9
+8.8%
4,266.2
+18.0%
A full reconciliation of Group sales to Group statutory sales is provided in Appendix 2 on page 65.
The difference between Group sales and Group statutory sales is primarily due to the accounting
treatment of items sold on commission through Online LABEL UK. Specifically, the gross transaction
value (GTV) of these items is not included in Group statutory sales, whereas it is included in Group
sales. Instead, the commission earned on the GTV (which is around 37%) is recognised as revenue in
Group statutory sales.
14
Online sales for January 2022 have been restated to move £39m of Total Platform sales into its own division.
SUMMARYOFGROUPPROFIT
15
BYDIVISION
The table below summarises the movement in profits for the major divisions within the Group
versus last year and three years ago.
Total Trading Sales (given for reference)
+8.4% +20.6%
PROFIT £m and EPS
Jan 2023
Jan 2022
1 Year
var %
Jan 2020
3 Year
var %
Online
467.3
604.4
- 23%
417.3
+12%
Retail 240.5
107.0
+125% 234.0
+3%
Finance (after charging interest) 170.5
149.5
+14% 152.9
+12%
Profit from Trading
878.3
860.9
+2.0%
804.2
+9.2%
Total Platform (inc. equity)
16
16.3
6.9
+135%
0.0
-
Property, Sourcing, FX and Other
13.5
6.7
+101%
13.4
+1%
Recharge of interest from Finance
34.4
30.9
+11%
36.3
- 5%
Operating profit
942.5
905.4
+4.1%
853.9
+10.4%
Lease interest
(47.3)
(50.4)
- 6%
(61.8)
- 23%
Operating profit after lease interest
895.2
855.0
+4.7%
792.1
+13.0%
Underlying operating margin
16.5%
17.6%
18.2%
Net external interest
17
(24.8)
(31.9)
- 22%
(43.6)
- 43%
NEXT Profit before tax
18
870.4
823.1
+5.7%
748.5
+16.3%
Taxation
(158.7)
(145.6)
+9%
(138.3)
+15%
Profit after tax
711.7
677.5
+5.0%
610.2
+16.6%
Earnings Per Share
573.4p
530.8p
+8.0%
472.4p
+21.4%
LeaseInterestCharges,OperatingProfitsandOperatingMargins
Under the IFRS 16 accounting standard, some of our rental costs are accounted for as lease interest.
To show the full cost of our leases in our analysis of margins, we have added a line in the table
above to show underlying operating profits after deducting lease interest. As shown, lease interest
has fallen significantly in recent years, reflecting the renegotiation of many of our store leases as
they have come up for renewal.
15
Profit by division in January 2020 and 2022 includes the effect of IFRS 16 and restatements for the presentation of
profit from Lipsy and Total Platform. See Appendix 1 on page 62 for more detail on Lipsy and Total Platform changes.
16
Total Platform (TP) profit of £16.3m includes (1) profit from providing TP services and (2) profit from our equity
investments in TP clients. In addition, the external interest line includes £5.5m of preference share interest from our
investment in Reiss and interest from loans made to other TP investments, giving total Group profit for TP of £21.8m.
See page 50 for more detail.
17
January 2023 external interest includes £4.8m of preference share income from Reiss and £0.7m from loans to TP
investments.
18
NEXT profit before tax, taxation and profit after tax reflect the profit attributable to the shareholders of NEXT plc. It
excludes the effect of the Joules minority interests. See Appendix 2 for detail.
23
Strategic Report Governance Financial Statements
Shareholder Information
MovementinUnderlyingOperatingMargins
Over the last three years, underlying Group operating margins (including lease interest) have fallen
by -1.63% from 18.16% to 16.53%.
The overall achieved margin of the Group will be determined by the mix of the various business
streams within the Group. The total operating margin is not important as long as each business
stream makes a margin commensurate with the risks and investment involved. The margins of our
main business streams are set out in the table below.
Margins
19
of our Trading businesses
Jan 2023
Jan 2020
3 year
change
Retail (including lease interest)
see page 30
11.0%
9.5%
+1.5%
Online NEXT UK (including lease interest)
see page 38
19.9%
22.0%
- 2.1%
Online LABEL UK (including lease interest) see page 42 12.9%
15.4%
- 2.5%
Online Overseas (including lease interest)
see page 44
8.6%
16.5%
- 7.9%
Total Online (including lease interest) see page 37 15.2%
19.2%
- 4.0%
NEXT Finance & Other
see page 45
57.6%
55.6%
+2.0%
Total operating margin
16.53%
18.16%
- 1.63%
The main drivers of margin reduction and improvement over the last three years are set out in the
table below.
Factors reducing operating margins
versus three years ago
Factors improving operating margins
versus three years ago
Online inflationary pressures, mainly in our
logistics operation (-1.4%)
An increase in spending on Technology
(-1.0%)
Lower Retail occupancy costs (+0.7%), due to:
1. the renegotiation of store leases
2. the closure of unprofitable stores, and
3. lower depreciation (see page 30).
19
Retail and Online margins include lease interest costs, which are reported within the interest line of the P&L.
24
MovementinUnderlyingOperatingMargins
Over the last three years, underlying Group operating margins (including lease interest) have fallen
by -1.63% from 18.16% to 16.53%.
The overall achieved margin of the Group will be determined by the mix of the various business
streams within the Group. The total operating margin is not important as long as each business
stream makes a margin commensurate with the risks and investment involved. The margins of our
main business streams are set out in the table below.
Margins
19
of our Trading businesses
Jan 2023
Jan 2020
3 year
change
Retail (including lease interest)
see page 30
11.0%
9.5%
+1.5%
Online NEXT UK (including lease interest)
see page 38
19.9%
22.0%
- 2.1%
Online LABEL UK (including lease interest)
see page 42
12.9%
15.4%
- 2.5%
Online Overseas (including lease interest)
see page 44
8.6%
16.5%
- 7.9%
Total Online (including lease interest)
see page 37
15.2%
19.2%
- 4.0%
NEXT Finance & Other
see page 45
57.6%
55.6%
+2.0%
Total operating margin
16.53%
18.16%
- 1.63%
The main drivers of margin reduction and improvement over the last three years are set out in the
table below.
Factors reducing operating margins
versus three years ago
Factors improving operating margins
versus three years ago
Online inflationary pressures, mainly in our
logistics operation (-1.4%)
An increase in spending on Technology
(-1.0%)
Lower Retail occupancy costs (+0.7%), due to:
1. the renegotiation of store leases
2. the closure of unprofitable stores, and
3. lower depreciation (see page 30).
19
Retail and Online margins include lease interest costs, which are reported within the interest line of the P&L.
GUIDANCEFORTHEYEARAHEAD
We are maintaining the guidance previously set out in our January Trading Statement; with full price
sales expected to decline by -1.5% and profit before tax to be £795m.
NEXTSELLINGPRICEINFLATION
In January’s Trading Statement we set out guidance for the expected increase in our selling prices
for the year ahead. We now believe price rises in the second half will be materially lower than we
initially feared. Two factors have served to reduce pressure on pricing, these are:
● A significant reduction in the costs of container freight as shipping capacities return to normal.
● Improving factory gate prices (the price at which we purchase the goods in the country of
origin) resulting from the increased availability of factory capacity, alongside our endeavours to
move production to more cost effective sources of supply.
The majority of these benefits will be felt in the second half of the year and we have revised our
guidance for price inflation in like-for-like garments accordingly. New guidance is set out in the
table below, along with the guidance we gave in January.
Like-for-like price inflation guidance for 2023/24
Latest Guidance
January Guidance
Spring & Summer
+7%
+8%
Autumn & Winter
+3%
+6%
FULLPRICESALES
SalesGrowthPerformanceGuidancefortheFirstandSecondHalf
We are expecting performance in the first half of the year to be weaker than in the second half. This
is because, in the first half last year, unusually warm summer weather coincided with the release of
pent-up demand for summer events after the pandemic (weddings, proms, races etc.). The chart on
the left below shows the performance we are expecting in each half, compared to last year and four
years ago, which was the last year before COVID. The chart demonstrates that, whilst performance
against last year looks unbalanced, it is sensible when compared to four years ago, which was a
more normal year. The chart on the right shows our guidance by quarter (rounded to the nearest
whole number). As shown, we expect Q2 to be weaker than Q1.
25
Strategic Report Governance Financial Statements
Shareholder Information
FullPriceSalesGuidancebyHalfandbyDivision
Full price sales growth versus 2022/23
First half
Second half
Full year (e)
Retail
- 5.5%
- 2.7%
- 4.0%
Online
- 2.5%
+0.4%
- 1.0%
Finance interest income
+7.5%
+8.6%
+8.0%
Total full price sales versus last year
- 3.0%
- 0.2%
- 1.5%
GuidanceComeswithCaveats
Forecasting sales performance in the year ahead is complicated. No one really knows how the
continuing cost of living squeeze will affect consumers, and we do not know what effect lower
selling price inflation will have in the second half. It is equally unclear how much the exceptional
summer weather, pent-up demand, and the Jubilee contributed to last year's sales.
Total Employment Q1 2020 - Q4 2022
20
Employment levels remain robust and default rates in our credit receivables are below pre-
pandemic levels, which is encouraging (see page 47). But we do not have a crystal ball nor a
sophisticated economic ‘model’ (neither of which are accurate anyway). Our sales forecasts are a
combination of intuition, recent experience and a limited selection of external economic data. We
are no more sure of our sales estimates than is sensible - remaining flexible will be more critical than
the accuracy of our current guidance.
Current trading
Our current trade is broadly in line with our expectations as set out in the table below, which shows
our performance to date versus last year and four years ago compared to our internal forecasts for
the first quarter. For completeness the last row shows our guidance for the full year.
Full price sales growth so far this year
Against last
year
Against four
years ago
Full price sales performance in the last eight weeks
21
- 2.0%
+21.3%
Full price sales performance guidance for the first quarter
- 2%
+19%
Guidance for the full year
- 1.5%
+18.7%
20
Source ONS: Number of People in Employment (aged 16 and over, seasonally adjusted) (MGRZ). Figures are reported
in calendar quarters (i.e. Q1 is Jan-Mar), rather than aligned to the NEXT reporting calendar where Q1 is Feb-Apr.
21
Full price sales in the last eight weeks include an estimate of expected Online returns.
26
GUIDANCEFORPROFITBEFORETAXANDEPS
Guidance for profit before tax and EPS is set out in the table below. In April 2023, the UK
Corporation Tax rate will increase from 19% to 25%, so we have shown EPS on both a pre-tax and
post-tax basis.
Guidance for the full year 2023/24
Full year guidance
Versus 2022/23
Full year full price sales
£4.5bn
- 1.5%
NEXT profit before tax
£795m
- 8.7%
Pre-tax EPS
656.1p
- 6.4%
Post-tax EPS 501.9p
- 12.5%
Effective tax rate (new 25% rate effective from April 2023) 23.5% 18.25%
ProfitWalkForwardFrom2022/23to2023/24
(e)
The table below walks forward our profit before tax from last year (ending January 2023) to our
forecast for the year ending January 2024.
NEXT profit before tax 2022/23 £m
870
Loss of profit from -1.5% (£70m) decline in full price sales
- 27
Cost increases
Wage inflation (including third-party wages, e.g. couriers)
- 67
Electricity and gas
- 25
Spend on Technology
- 19
Other
- 5
Total cost increases
- 116
Cost savings
Operational savings from a reduction in units sold
+25
Occupancy cost savings
+21
Markdown and clearance
+22
Total cost savings
+68
NEXT profit before tax 2023/24 (e)
795
FullPriceSalesGuidancebyHalfandbyDivision
Full price sales growth versus 2022/23
First half
Second half
Full year (e)
Retail
- 5.5%
- 2.7%
- 4.0%
Online
- 2.5%
+0.4%
- 1.0%
Finance interest income
+7.5%
+8.6%
+8.0%
Total full price sales versus last year
- 3.0%
- 0.2%
- 1.5%
GuidanceComeswithCaveats
Forecasting sales performance in the year ahead is complicated. No one really knows how the
continuing cost of living squeeze will affect consumers, and we do not know what effect lower
selling price inflation will have in the second half. It is equally unclear how much the exceptional
summer weather, pent-up demand, and the Jubilee contributed to last year's sales.
Total Employment Q1 2020 - Q4 2022
20
Employment levels remain robust and default rates in our credit receivables are below pre-
pandemic levels, which is encouraging (see page 47). But we do not have a crystal ball nor a
sophisticated economic ‘model’ (neither of which are accurate anyway). Our sales forecasts are a
combination of intuition, recent experience and a limited selection of external economic data. We
are no more sure of our sales estimates than is sensible - remaining flexible will be more critical than
the accuracy of our current guidance.
Current trading
Our current trade is broadly in line with our expectations as set out in the table below, which shows
our performance to date versus last year and four years ago compared to our internal forecasts for
the first quarter. For completeness the last row shows our guidance for the full year.
Full price sales growth so far this year
Against last
year
Against four
years ago
Full price sales performance in the last eight weeks
21
- 2.0%
+21.3%
Full price sales performance guidance for the first quarter
- 2%
+19%
Guidance for the full year
- 1.5%
+18.7%
20
Source ONS: Number of People in Employment (aged 16 and over, seasonally adjusted) (MGRZ). Figures are reported
in calendar quarters (i.e. Q1 is Jan-Mar), rather than aligned to the NEXT reporting calendar where Q1 is Feb-Apr.
21
Full price sales in the last eight weeks include an estimate of expected Online returns.
27
Strategic Report Governance Financial Statements
Shareholder Information
PART FOUR
RETAIL, ONLINE AND FINANCE
FINANCIAL PERFORMANCE,
COMMENTARY AND GUIDANCE
NEXTRETAIL
HEADLINES
● Full price sales were down -0.4% versus 2019/20 (i.e. pre-COVID).
● Total sales (including markdown sales) were up +1% versus 2019/20.
● Operating profit
22
was £204m, up +16% versus 2019/20.
● Net operating margins
22
improved from 9.5% in 2019/20 to 11.0%. The improvement was
mainly due to a reduction in occupancy costs; a detailed breakdown of these and other costs is
given on page 30.
SUMMARYOFRETAILSALESANDPROFIT
Retail sales and profit are summarised in the table below, along with the equivalent numbers for last
year and three years ago. Please note that Retail profits and margins are given after accounting for
the cost of lease interest, and in this section we have focused on the three year comparisons. The
one year comparisons are shown in grey text.
£m
1 year
var %
Jan 2020
3 year
var %
Total sales
+30%
1,852
+1%
Operating profit
+125%
234
+3%
Lease interest charge
23
- 14%
(57)
- 37%
Retail profit including lease interest
+214%
177
+16%
Retail margin % (including lease interest)
11.0%
4.5%
9.5%
22
After deducting Retail lease interest costs.
23
Lease interest is reported within the Interest line of the consolidated income statement. £36m is the proportion of
the total lease interest that is attributable to the Retail business.
28
PART FOUR
RETAIL, ONLINE AND FINANCE
FINANCIAL PERFORMANCE,
COMMENTARY AND GUIDANCE
NEXTRETAIL
HEADLINES
● Full price sales were down -0.4% versus 2019/20 (i.e. pre-COVID).
● Total sales (including markdown sales) were up +1% versus 2019/20.
● Operating profit
22
was £204m, up +16% versus 2019/20.
● Net operating margins
22
improved from 9.5% in 2019/20 to 11.0%. The improvement was
mainly due to a reduction in occupancy costs; a detailed breakdown of these and other costs is
given on page 30.
SUMMARYOFRETAILSALESANDPROFIT
Retail sales and profit are summarised in the table below, along with the equivalent numbers for last
year and three years ago. Please note that Retail profits and margins are given after accounting for
the cost of lease interest, and in this section we have focused on the three year comparisons. The
one year comparisons are shown in grey text.
£m
Jan 2023
Jan 2022
1 year
var %
Jan 2020
3 year
var %
Total sales
1,865
1,432
+30%
1,852
+1%
Operating profit
240
107
+125%
234
+3%
Lease interest charge
23
(36)
(42)
- 14%
(57)
- 37%
Retail profit including lease interest
204
65
+214%
177
+16%
Retail margin % (including lease interest)
11.0%
4.5%
9.5%
22
After deducting Retail lease interest costs.
23
Lease interest is reported within the Interest line of the consolidated income statement. £36m is the proportion of
the total lease interest that is attributable to the Retail business.
Like-for-LikeSalesPerformancebyStoreLocation
During the pandemic, we experienced a shift away from shopping in city centres, with customers
preferring to shop in Retail parks in out-of-town locations. In the last twelve months, we have seen
a shift back towards city centres.
The graph below shows the like-for-like sales performance of our Retail stores versus year ending
January 2022 (in blue) and the year ending January 2020 (in green).
The graph clearly shows how performance in city centre stores has recovered compared to last year
and that the performance across all locations is much more consistent when compared to the pre-
pandemic year ending January 2020.
Overall, full price sales on a like-for-like basis were up +2.6% versus 2019/20.
Retail Like-For-Like Full Price Sales by Store Type
24
Sales Participation by Store Type Year Ending January 2023
24
Our stores were closed from week 1 to week 11 in the year ending January 2022, like-for-like sales comparisons are
based on weeks 12 to week 52.
29
Strategic Report Governance Financial Statements
Shareholder Information
RetailMarginAnalysis-ThreeYearComparison
Overall Retail net margin
25
for the year ending January 2023 was 11.0%, up from 9.5% three years
ago. The margin impact of major cost categories is summarised below.
Retail net margin (after lease interest) on total sales to January 2020
9.5%
Bought-in margin Higher freight costs reduced bought-in gross margin.
- 0.5%
Markdown
Clearance rates in our Sale events were lower than three years ago,
reducing margin.
- 0.5%
Branch payroll
Increased rates of pay -1.3% were offset by improved productivity
+1.1%.
- 0.2%
Store occupancy
costs
Occupancy costs fell, improving margin, for the following reasons:
● Fully depreciated assets resulted in lower depreciation (+1.7%).
● Lower lease interest costs (under IFRS 16) as our lease liabilities
have reduced (+1.3%).
● Store closures in the last three years have reduced occupancy
costs (+1.0%).
● Lease renewals negotiated over the last three years have reduced
the costs of rent, rates and service charge (+0.6%).
● Additional concessions have increased rental income (+0.4%).
+5.0%
Energy Inflation in energy prices reduced margin. - 0.9%
Warehouse &
distribution costs
Warehouse and distribution costs grew faster than sales due to
inflationary cost increases mainly in wages (-0.4%), distribution costs (-
0.4%) and fuel (including energy) (-0.3%).
- 1.1%
Technology Increased spend in Technology reduced margin. - 0.3%
Retail net margin (after lease interest) on total sales to January 2023
11.0%
GUIDANCEFORRETAILSALESANDPROFITFORTHEYEARAHEAD
We are forecasting Retail full price sales to be down -4% versus 2022/23. Based on this sales
guidance, Retail’s operating margin (including lease interest) is forecast to be around 9.0% for the
full year. This 2% reduction in operating margin is largely due to inflationary cost increases in
energy and wage costs.
In the year ahead, Retail will benefit from the change in business rates, announced in the Autumn
Budget Statement, which saves £12.1m of costs and improves Retail’s anticipated net margin by
+0.7%. Please note, the Online business will incur a £2.3m cost increase in business rates for our
warehouses, giving a net £9.8m saving to the Group as a result of the changes announced in the
Autumn 2022 Budget, where rates costs reduced for shops but increased for warehouses.
25
After deducting Retail lease interest costs.
30
RetailMarginAnalysis-ThreeYearComparison
Overall Retail net margin
25
for the year ending January 2023 was 11.0%, up from 9.5% three years
ago. The margin impact of major cost categories is summarised below.
Retail net margin (after lease interest) on total sales to January 2020
9.5%
Bought-in margin
Higher freight costs reduced bought-in gross margin.
- 0.5%
Markdown
Clearance rates in our Sale events were lower than three years ago,
reducing margin.
- 0.5%
Branch payroll
Increased rates of pay -1.3% were offset by improved productivity
+1.1%.
- 0.2%
Store occupancy
costs
Occupancy costs fell, improving margin, for the following reasons:
● Fully depreciated assets resulted in lower depreciation (+1.7%).
● Lower lease interest costs (under IFRS 16) as our lease liabilities
have reduced (+1.3%).
● Store closures in the last three years have reduced occupancy
costs (+1.0%).
● Lease renewals negotiated over the last three years have reduced
the costs of rent, rates and service charge (+0.6%).
● Additional concessions have increased rental income (+0.4%).
+5.0%
Energy
Inflation in energy prices reduced margin.
- 0.9%
Warehouse &
distribution costs
Warehouse and distribution costs grew faster than sales due to
inflationary cost increases mainly in wages (-0.4%), distribution costs (-
0.4%) and fuel (including energy) (-0.3%).
- 1.1%
Technology
Increased spend in Technology reduced margin.
- 0.3%
Retail net margin (after lease interest) on total sales to January 2023
11.0%
GUIDANCEFORRETAILSALESANDPROFITFORTHEYEARAHEAD
We are forecasting Retail full price sales to be down -4% versus 2022/23. Based on this sales
guidance, Retail’s operating margin (including lease interest) is forecast to be around 9.0% for the
full year. This 2% reduction in operating margin is largely due to inflationary cost increases in
energy and wage costs.
In the year ahead, Retail will benefit from the change in business rates, announced in the Autumn
Budget Statement, which saves £12.1m of costs and improves Retail’s anticipated net margin by
+0.7%. Please note, the Online business will incur a £2.3m cost increase in business rates for our
warehouses, giving a net £9.8m saving to the Group as a result of the changes announced in the
Autumn 2022 Budget, where rates costs reduced for shops but increased for warehouses.
25
After deducting Retail lease interest costs.
LEASERENEWALSANDCOMMITMENTS
LeaseRenewalsintheYearEndingJanuary2023
In the last year we have renewed 62 leases, with an average lease term of five years (to the earlier
of the break clause or the lease end). These new leases reduce our annualised occupancy cash costs
by £11.1m.
The 62 renewals can be split into two different types of lease: (1) traditional rent leases and (2)
‘total occupancy cost’ (TOC) leases, where we pay a fixed percentage of turnover to cover rent,
business rates and service charge.
The occupancy cost savings (in cash terms
26
) from these lease renewals are summarised in the
tables below. For clarity, we have shown TOC leases separately, in order to show the overall saving
in rent, rates and service charge combined.
New rent lease category
Before
renewal
After
renewal
Fixed rent charge 36
£10.5m
£7.4m
- 29%
Turnover rent
1
£0.3m
£0.3m
- 18%
Total
£10.8m
£7.7m
- 29%
Total occupancy (TOC) leases
Total occupancy lease (rents, rates and service charge)
£18.3m
Previous rent
£15.4m
Previous rates and service charge
£10.9m
Total occupancy - rent, rates and service charge
£26.3m
£18.3m
- 30%
TOTAL COMBINED LEASE RENEWALS
Total lease renewals
62
£37.1m
£26.0m
- 30%
In addition to the occupancy cost reductions detailed above, we received £6m from capital
contributions and rent free periods. We remain committed to ensuring that all our stores are a
credit to our brand, so landlord contributions will be more than offset by the £21m we intend to
spend upgrading the stores where we have renewed leases.
OutstandingLeaseCommitments
At the end of January 2023, our average lease commitment (weighted by value) was 4.7 years,
compared with 4.9 years at the same time last year. 50% of our store leases (by value) will expire or
break within 3.9 years and 91% within the next ten years.
ForecastLeaseRenewalsintheYearEndingJanuary2024
We anticipate renewing 75 store leases and based on our latest negotiations we expect to reduce
our occupancy cash costs by c.£8.9m (-34%). The average lease term (to the earlier of the break
clause or lease end) is expected to be 4.1 years.
26
Note that the savings given here are the actual rents payable rather than IFRS 16 right-of-use asset depreciation.
31
Strategic Report Governance Financial Statements
Shareholder Information
LongTermViewofRetailSalesandOccupancyCosts
In recent years we have highlighted the challenge to Retail’s profitability from rent, rates and service
charge costs during a time when Retail sales declined each year. The graph below shows the change
in Retail’s sales and annualised occupancy costs (rent, rates
27
and service charge), indexed to
January 2016, and illustrates the progress made on costs to January 2023 and our forecast for the
year ahead.
This reduction in occupancy costs (15% lower than in 2016) shows the positive impact from rent
reductions, lower business rates and the shift away from leases that previously attracted a fixed
rent, rates and service charge costs to a variable ‘total occupancy cost’ (TOC) arrangement with
landlords.
Occupancy Costs Catching up with Reality
27
Business rates in the year ending January 2021 include rates relief received during COVID, when stores were closed.
32
LongTermViewofRetailSalesandOccupancyCosts
In recent years we have highlighted the challenge to Retail’s profitability from rent, rates and service
charge costs during a time when Retail sales declined each year. The graph below shows the change
in Retail’s sales and annualised occupancy costs (rent, rates
27
and service charge), indexed to
January 2016, and illustrates the progress made on costs to January 2023 and our forecast for the
year ahead.
This reduction in occupancy costs (15% lower than in 2016) shows the positive impact from rent
reductions, lower business rates and the shift away from leases that previously attracted a fixed
rent, rates and service charge costs to a variable ‘total occupancy cost’ (TOC) arrangement with
landlords.
Occupancy Costs Catching up with Reality
27
Business rates in the year ending January 2021 include rates relief received during COVID, when stores were closed.
RETAILSPACE
The year-on-year change in store numbers and square footage to January 2023 is set out below.
Store
numbers
NEXT
Sq. ft. (k)
Concessions
Sq. ft. (k)
Total
Sq. ft. (k)
January 2022
477
7,980
421
8,401
Mainline store reconfigurations
+ 0
- 22
+ 61
+ 39
Mainline closures
- 17
- 240
- 4
- 244
Clearance stores + 6 + 49 + 1
+ 50
January 2023
466
7,767
479
8,246
Change
- 11
- 213
+ 58
- 155
Change %
- 2.3%
- 2.7%
+ 13.8%
- 1.8%
MainlineClosures
We closed 17 mainline stores this year, 11 of which are in locations we assessed as no longer being
viable, where we forecast that the store would not achieve our target margin on almost any terms.
Four store closures were due to them being merged into another local, larger store and the other
two are a result of being unable to agree acceptable new terms with landlords. The table below sets
out the profitability and turnover of stores falling into each category of closure.
Reason for store closure
No. of stores
Store
turnover
Store profit
Store profit %
Location not viable
11
£18.2m
£0.4m
2.1%
Merged two stores into one site
4
£10.3m
£1.2m
11.7%
Failure to agree acceptable terms
2
£7.3m
£1.7m
23.0%
Total closed stores
17
£35.8m
£3.3m
9.1%
ClearanceStores
This year we closed one Clearance store and opened seven new Clearance stores with an average
lease term (to the earlier of break or lease end) of 2.4 years. We have increased the number of
Clearance stores in response to the return of Sale stock levels to pre-pandemic norms. The rental
charge in all these new clearance stores is linked to store turnover, with three of the seven leases
being TOC deals.
Concessions
This year we increased the space occupied by concessions in our retail stores by +58k square feet,
with brands including Bath & Body Works, Mamas & Papas, GAP and Victoria’s Secret. In total,
concessions now occupy 6% of our total Retail space.
In the year ahead we expect to reallocate the space currently occupied by 25 Paperchase
concessions (21k square feet) with minimal impact on profitability.
33
Strategic Report Governance Financial Statements
Shareholder Information
NEXTONLINE
HEADLINES
● Full price sales were up +42% versus 2019/20 (i.e. pre-COVID).
● Total sales (including markdown sales) were up +40% versus 2019/20.
● Operating profit (including lease interest) was £457m, up +11% versus 2019/20.
● Net margin reduced from 19.2% in 2019/20 to 15.2%. The reduction was mainly due to the
higher participation of our lower margin LABEL and Overseas sales, higher warehouse and
distribution costs and increased spend on technology costs. Detailed margin analysis is given on
page 37.
A Note on Lease Interest and Online Margins
Our Online margin analysis now includes the cost of lease interest that is attributable to the
Online business. We have restated
28
margins for January 2022 and January 2020 to be on the
same basis. This is consistent with how we report the Retail margins on page 30.
We have made this change because lease interest costs in our Online business are now more
material, at £10m in the year to January 2023 compared with £4m in January 2020. This
increase is due to the new leases agreed during the last three years, which include the sale and
leaseback of a warehouse complex and our new Elmsall 3 warehouse.
SUMMARYOFONLINESALES,PROFITANDMARGIN
The table below summarises total sales and profit for our Online business (which includes NEXT
Brand UK, LABEL and Overseas), compared to last year and three years ago.
£m
Jan 2023
Jan 2022
1 year
var %
Jan 2020
3 year
var %
Total sales
3,007
3,065
- 2%
2,147
+40%
Operating profit 467 604
- 23%
417
+12%
Lease interest charge (10) (9)
+11%
(4)
+158%
Online profit including lease interest
457
595
- 23%
413
+11%
Online margin including lease interest
15.2%
19.4%
19.2%
CONTENTSOFTHISSECTION
This part of the document includes the following sections:
● Full price sales by division (page 35)
● Customer analysis (page 36)
● Net margin analysis (page 37)
● Focus on LABEL (page 39)
● Focus on Overseas (page 43)
28
Under IFRS 16, lease interest is reported within the interest line of the P&L. There is no change to Group profit from
this restatement.
34
NEXTONLINE
HEADLINES
● Full price sales were up +42% versus 2019/20 (i.e. pre-COVID).
● Total sales (including markdown sales) were up +40% versus 2019/20.
● Operating profit (including lease interest) was £457m, up +11% versus 2019/20.
● Net margin reduced from 19.2% in 2019/20 to 15.2%. The reduction was mainly due to the
higher participation of our lower margin LABEL and Overseas sales, higher warehouse and
distribution costs and increased spend on technology costs. Detailed margin analysis is given on
page 37.
A Note on Lease Interest and Online Margins
Our Online margin analysis now includes the cost of lease interest that is attributable to the
Online business. We have restated
28
margins for January 2022 and January 2020 to be on the
same basis. This is consistent with how we report the Retail margins on page 30.
We have made this change because lease interest costs in our Online business are now more
material, at £10m in the year to January 2023 compared with £4m in January 2020. This
increase is due to the new leases agreed during the last three years, which include the sale and
leaseback of a warehouse complex and our new Elmsall 3 warehouse.
SUMMARYOFONLINESALES,PROFITANDMARGIN
The table below summarises total sales and profit for our Online business (which includes NEXT
Brand UK, LABEL and Overseas), compared to last year and three years ago.
£m
Jan 2023
Jan 2022
1 year
var %
Jan 2020
3 year
var %
Total sales
3,007
3,065
- 2%
2,147
+40%
Operating profit
467
604
- 23%
417
+12%
Lease interest charge
(10)
(9)
+11%
(4)
+158%
Online profit including lease interest
457
595
- 23%
413
+11%
Online margin including lease interest
15.2%
19.4%
19.2%
CONTENTSOFTHISSECTION
This part of the document includes the following sections:
● Full price sales by division (page 35)
● Customer analysis (page 36)
● Net margin analysis (page 37)
● Focus on LABEL (page 39)
● Focus on Overseas (page 43)
28
Under IFRS 16, lease interest is reported within the interest line of the P&L. There is no change to Group profit from
this restatement.
FULLPRICESALESBYDIVISION
Full price sales compared to three years ago were up +42%, representing a compound annual
growth rate (CAGR) of +12.3%. Online sales experienced a -4% decline against last year, but this
figure is distorted by the surge in Online sales during last year's ten-week lockdown and
subsequently by consumer reluctance to return to stores as the pandemic rumbled on.
Excluding Russia and Ukraine, Online full price sales were down -2% versus last year and up +44%
versus three years ago.
Full price sales £m
Jan 2023
Jan 2022
1 year
var %
Jan 2020
3 year
var %
NEXT Brand UK
1,221
1,360
- 10%
1,022
+19%
LABEL UK
869
777
+12%
434
+100%
Total UK Online 2,090
2,137
- 2% 1,456
+44%
Overseas (nextdirect.com)
463
543
- 15%
398
+16%
Overseas aggregators
126
107
+17%
38
+232%
Total Overseas
589
650
- 9%
436
+35%
Total Online full price sales
2,679
2,787
- 4%
1,892
+42%
Excluding Russia and Ukraine
- 2%
+44%
FullPriceSalesinContext
The chart below shows sales over the last seven years. Online’s CAGR was +13.1% from 2016 up to
the start of the pandemic, and +12.3% over the last three years.
35
Strategic Report Governance Financial Statements
Shareholder Information
CUSTOMERANALYSIS
GrowthinCustomerNumbersandAverageSpendPerCustomer
Customers can be split into three distinct groups:
● UK credit customers who pay through a NEXT credit account
29
(nextpay or next3step).
● UK cash customers who pay using credit, debit or other tender types.
● Overseas customers who shop on our international websites.
The average number of active
30
Online customers in the last year was 8.1m, up +35% versus three
years ago, but down -1% versus last year. The table below shows a three year comparison of
average customer numbers, sales per customer and their total full price sales values. For
completeness, the table also includes sales achieved through our Overseas third-party aggregators,
where we do not have visibility of customer numbers.
Average
customers
Full price
sales per customer
Full price
sales value
Full year
Jan 23
vs Jan 20
Jan 23
vs Jan 20
Jan 23
Jan 20
vs Jan 20
UK Credit 2.8m
+10%
£487 +11%
£1,381m
£1,131m
+22%
UK Cash
3.6m
+78%
£198
+23%
£709m
£325m
+118%
UK Total
6.4m
+40%
£326
+3%
£2,090m
£1,456m
+44%
Continuous overseas 1.6m
+37%
£280 - 7%
£450m
£354m
+27%
Russia & Ukraine
0.1m
- 55%
£127
- 36%
£13m
£44m
- 71%
Total ex. aggregators
8.1m
+35%
£314
+2%
£2,553m
£1,854m
+38%
Aggregators
£126m
£38m
+232%
Total
£2,679m
£1,892m
+42%
SalesPerCustomer
UK sales per customer
In the UK, sales per credit customer increased by +11% versus three years ago and cash customers
increased by +23%. We believe this has been driven by the increasing breadth of our offer. Credit
customers spend over twice as much as our cash customers, resulting in an overall spend per
customer increase of +3% in the UK.
Overseas sales per customer
In our continuous Overseas business, sales per customer decreased by -7% versus three years ago.
This decline is due to a higher proportion of our customers being new customers, who typically
spend less than those who are more established.
29
Both NEXT credit offers are authorised and regulated by the FCA.
30
Active customers are defined as those who have either placed an order or received an account statement in the last
20 weeks.
36
CUSTOMERANALYSIS
GrowthinCustomerNumbersandAverageSpendPerCustomer
Customers can be split into three distinct groups:
● UK credit customers who pay through a NEXT credit account
29
(nextpay or next3step).
● UK cash customers who pay using credit, debit or other tender types.
● Overseas customers who shop on our international websites.
The average number of active
30
Online customers in the last year was 8.1m, up +35% versus three
years ago, but down -1% versus last year. The table below shows a three year comparison of
average customer numbers, sales per customer and their total full price sales values. For
completeness, the table also includes sales achieved through our Overseas third-party aggregators,
where we do not have visibility of customer numbers.
Average
customers
Full price
sales per customer
Full price
sales value
Full year
Jan 23
vs Jan 20
Jan 23
vs Jan 20
Jan 23
Jan 20
vs Jan 20
UK Credit
2.8m
+10%
£487
+11%
£1,381m
£1,131m
+22%
UK Cash
3.6m
+78%
£198
+23%
£709m
£325m
+118%
UK Total
6.4m
+40%
£326
+3%
£2,090m
£1,456m
+44%
Continuous overseas
1.6m
+37%
£280
- 7%
£450m
£354m
+27%
Russia & Ukraine
0.1m
- 55%
£127
- 36%
£13m
£44m
- 71%
Total ex. aggregators
8.1m
+35%
£314
+2%
£2,553m
£1,854m
+38%
Aggregators
£126m
£38m
+232%
Total
£2,679m
£1,892m
+42%
SalesPerCustomer
UK sales per customer
In the UK, sales per credit customer increased by +11% versus three years ago and cash customers
increased by +23%. We believe this has been driven by the increasing breadth of our offer. Credit
customers spend over twice as much as our cash customers, resulting in an overall spend per
customer increase of +3% in the UK.
Overseas sales per customer
In our continuous Overseas business, sales per customer decreased by -7% versus three years ago.
This decline is due to a higher proportion of our customers being new customers, who typically
spend less than those who are more established.
29
Both NEXT credit offers are authorised and regulated by the FCA.
30
Active customers are defined as those who have either placed an order or received an account statement in the last
20 weeks.
ONLINEPROFITANDNETMARGIN
OnlineMarginAnalysis-ThreeYearComparison
Overall Online margin (including lease interest) in the year was 15.2%, down from 19.2% three years
ago. The margin impact of major cost categories is summarised below.
Net margin (including lease interest) on total sales to January 2020 19.2%
Bought-in
gross margin
A higher participation of lower margin third-party LABEL and Overseas
sales reduced margin by -2.5% and higher freight costs eroded margin by
-0.3%.
- 2.8%
Markdown
Surplus stock grew at a slower rate than full price sales, improving
margin. This benefit more than offset the impact of slightly lower
clearance rates.
+0.2%
Warehousing &
distribution
Margin reduced for the following reasons:
● Inflationary cost increases, mainly in wages (-1.5%), fuel and energy (-
0.3%)
● International parcel surcharges and EU admin. fees (-0.3%)
● Increased costs from our new boxed warehouse (Elmsall 3), higher
depreciation and other occupancy costs (-0.6%).
These cost increases were partially offset by operational savings from
handling fewer units, relative to sales, due to higher average selling
prices (+1.2%).
- 1.5%
Marketing &
photography
We stopped printing catalogues in 2020, which improved margin by
+1.4% and photography costs have not increased in line with sales
(+0.4%). This was partly offset by increased spending on digital
marketing (-0.6%).
+1.2%
Technology and
central costs
Spending on software development and maintenance has increased by
+90% versus 2019, compared to the sales increase of +40%.
- 1.1%
Net margin (including lease interest) on total sales to January 2023
15.2%
37
Strategic Report Governance Financial Statements
Shareholder Information
NetMarginbyOnlineDivision
The table below sets out the net margins by Online division (NEXT Brand UK, LABEL UK and
Overseas). Please note that net margins for January 2022 and January 2020 have been restated to
include lease interest.
Online division
Total sales £m
Profit £m
Jan 2023
margin %
Jan 2022
margin %
Jan 2020
margin %
NEXT Brand UK
1,377
273
19.9%
24.6%
22.0%
LABEL UK
1,005
130
12.9%
16.0%
15.4%
Overseas 625
54
8.6%
12.1%
16.5%
Total Online
3,007
457
15.2%
19.4%
19.2%
Margin movements for NEXT Brand UK
One year comparison
Margin increased to 24.6% last year, during the pandemic, mainly due to unusually low returns rates
and lower markdown costs (due to stock shortages). Those margin gains reversed out during the
last twelve months as return rates and surplus stock reverted to more normal levels.
Three year comparison
The -2.1% reduction in margin against three years ago is largely due to the following four factors:
(1) Inflationary costs in warehouse and distribution eroded margins by -1.7%.
(2) Increased spend on Technology eroded margins by -1.5%.
(3) Higher freight costs eroded margins by -0.4%.
(4) Net savings in print, photography and digital marketing improved margins by +1.5%.
Margin movements for LABEL UK and Overseas
Further details on margin movements for LABEL UK and Overseas businesses can be found in the
next two sections.
Online margin by division for the year ahead
Our expected Online net margins, by division, for the year to January 2024 are set out below.
The -2.4% percent reduction in our UK margin is mainly the result of (1) inflationary cost increases,
mainly in wages, (2) increased occupancy costs arising from the opening of our new boxed
warehouse and (3) additional depreciation on new warehouse mechanisation and technology.
Online net margins by division
Jan 2024 (e)
Jan 2023
NEXT Brand UK
17.5%
19.9%
LABEL UK
11.7%
12.9%
Overseas
12.0%
8.6%
Online net margin
14.3%
15.2%
38
NetMarginbyOnlineDivision
The table below sets out the net margins by Online division (NEXT Brand UK, LABEL UK and
Overseas). Please note that net margins for January 2022 and January 2020 have been restated to
include lease interest.
Online division
Total sales £m
Profit £m
Jan 2023
margin %
Jan 2022
margin %
Jan 2020
margin %
NEXT Brand UK
1,377
273
19.9%
24.6%
22.0%
LABEL UK
1,005
130
12.9%
16.0%
15.4%
Overseas
625
54
8.6%
12.1%
16.5%
Total Online
3,007
457
15.2%
19.4%
19.2%
Margin movements for NEXT Brand UK
One year comparison
Margin increased to 24.6% last year, during the pandemic, mainly due to unusually low returns rates
and lower markdown costs (due to stock shortages). Those margin gains reversed out during the
last twelve months as return rates and surplus stock reverted to more normal levels.
Three year comparison
The -2.1% reduction in margin against three years ago is largely due to the following four factors:
(1) Inflationary costs in warehouse and distribution eroded margins by -1.7%.
(2) Increased spend on Technology eroded margins by -1.5%.
(3) Higher freight costs eroded margins by -0.4%.
(4) Net savings in print, photography and digital marketing improved margins by +1.5%.
Margin movements for LABEL UK and Overseas
Further details on margin movements for LABEL UK and Overseas businesses can be found in the
next two sections.
Online margin by division for the year ahead
Our expected Online net margins, by division, for the year to January 2024 are set out below.
The -2.4% percent reduction in our UK margin is mainly the result of (1) inflationary cost increases,
mainly in wages, (2) increased occupancy costs arising from the opening of our new boxed
warehouse and (3) additional depreciation on new warehouse mechanisation and technology.
Online net margins by division
Jan 2024 (e)
Jan 2023
NEXT Brand UK
17.5%
19.9%
LABEL UK
11.7%
12.9%
Overseas
12.0%
8.6%
Online net margin
14.3%
15.2%
FOCUSONLABEL
Overview
LABEL consists of the sale of all the non-NEXT branded products sold through NEXT’s websites
31
. In
the year to January 2023, at £1bn, LABEL’s total Online sales (including markdown sales) accounted
for one third of our Online business and 19% of Group turnover. LABEL’s full price sales have
doubled over the last three years, achieving growth through four different types of business. In this
section, we provide insight into LABEL’s sales and profit margins for each business model.
LABEL’sFourBusinessModels
Each business model has different characteristics, in terms of (1) who is responsible for the design,
(2) who sources and manufactures the product and (3) who takes the stock risk. These are
summarised in the table below along with the net margins of each business.
Business model
Design
Sourcing
Stock risk
Examples
2022/23
Net margin
3rd party Brands sold
on Commission
3rd Party
3rd Party
3rd Party
Fat Face, River Island
Boss, Reiss
10.9%
3rd party Brands
purchased Wholesale
3rd Party
3rd Party
NEXT
Group
Nike, Adidas, Superdry
14.4%
Licensing and
collaborations
3rd Party
NEXT
Group
NEXT
Group
Baker by Ted Baker,
Myleene Klass
14.9%
Wholly-owned
brands
NEXT
Group
NEXT
Group
NEXT
Group
Lipsy, Love & Roses,
Friends Like These
15.7%
TOTAL
12.9%
Although we make lower net margins on the commission model, we encourage our brand partners
to adopt it, because we believe that it will generate higher sales growth. This belief is reinforced by
our full price sales performance, as demonstrated in the table on page 40. The three year growth
rate of commission brands is +135%, compared to +41% on wholesale brands. Unsurprisingly, our
brand partners are better at selecting and merchandising their stock on our website than we are.
Net margins generally increase as the Group takes on more of the workload and risk. The anomaly
is the relatively low margins achieved by our high risk/workload wholly-owned brands which, at
15.7%, compares unfavourably with the NEXT brand’s 19.9% net margin.
The table below bridges the gap between the margin achieved on the wholly-owned brands and
NEXT branded stock. We believe that we have an opportunity to improve margins in this area,
through addressing high levels of faulty and damaged stock and, as sales increase, reducing the
burden of fixed central costs.
NEXT UK 2022/23 net operating margin
Comments
19.9%
Bought-in gross margin
Better margins on high fashion lines
+2.0%
Faulty and damaged
Higher returning fashion lines
- 0.9%
Product teams and central overheads
Fewer economies of scale
- 5.3%
Wholly-owned brands net operating margin
15.7%
31
LABEL does not include branded products sold through Total Platform.
39
Strategic Report Governance Financial Statements
Shareholder Information
FullPriceSalesAnalysis
Growth by business model
The table below sets out full price sales by each LABEL business model, against last year and three
years ago. Wholly-owned brands and licensing accounted for 25% of the growth against three years
ago.
Full price sales category £m
Jan 2023
1 year var %
3 year var %
Third-party brands (commission)
409
+14%
+135%
Third-party brands (wholesale) 311
- 3%
+41%
Total third-party brands
720
+6%
+83%
Licensing and collaborations
39
+58%
-
Wholly-owned brands 110
+50%
+176%
Total LABEL full price sales
869
+12%
+100%
Growth from existing and new brands
The table below explains the contribution new brands have made to LABEL’s three year growth.
New brands accounted for 56% of LABEL’s growth, of which 15% was delivered by new wholly-
owned brands and licensing.
Contribution to 3 year sales growth
New brands
Continuous
brands
Total
Third-party brands
+41%
+34%
+75%
Licensing and collaborations
+9%
+9%
Wholly-owned brands
+6%
+10%
+16%
Total LABEL full price sales
+56%
+44%
+100%
The shape of LABEL’s sales - a three year view
The pie charts below show the participation of full price sales by business model, for 2019/20 and
2022/23.
40
FullPriceSalesAnalysis
Growth by business model
The table below sets out full price sales by each LABEL business model, against last year and three
years ago. Wholly-owned brands and licensing accounted for 25% of the growth against three years
ago.
Full price sales category £m
Jan 2023
1 year var %
3 year var %
Third-party brands (commission)
409
+14%
+135%
Third-party brands (wholesale)
311
- 3%
+41%
Total third-party brands
720
+6%
+83%
Licensing and collaborations
39
+58%
-
Wholly-owned brands
110
+50%
+176%
Total LABEL full price sales
869
+12%
+100%
Growth from existing and new brands
The table below explains the contribution new brands have made to LABEL’s three year growth.
New brands accounted for 56% of LABEL’s growth, of which 15% was delivered by new wholly-
owned brands and licensing.
Contribution to 3 year sales growth
New brands
Continuous
brands
Total
Third-party brands
+41%
+34%
+75%
Licensing and collaborations
+9%
+9%
Wholly-owned brands
+6%
+10%
+16%
Total LABEL full price sales
+56%
+44%
+100%
The shape of LABEL’s sales - a three year view
The pie charts below show the participation of full price sales by business model, for 2019/20 and
2022/23.
Full price sales by product category
Compared to three years ago, we have seen strong growth across all LABEL product categories, with
Clothing, Home and Beauty growing faster than Sportswear as a result of the increases in product
offer: a combination of adding new brands and wider choice within existing brands.
The table below shows the increase in sales against last year and three years ago. The variances to
last year are explained by the sharp reversal of lockdown trends which favoured Home and
Sportswear.
Full price sales by category £m
Jan 2023
1 year var %
3 year var %
Clothing 601
+25%
+119%
Sports
138
- 13%
+31%
Home
84
- 8%
+125%
Beauty
46
+0%
+171%
Total full price sales
869
+12%
+100%
LicensingandCollaborations
Under a licensing agreement, a third-party brand (the licensor) supplies NEXT (the licensee) with
design inspiration and branding. NEXT sources and purchases the stock, which is held at our risk and
the licensor earns a royalty on sales.
We also collaborate with third-parties who provide prints that we use on products that are designed
by the NEXT team. We have included these sales in the analysis below.
Full price sales in the year to January 2023 were £65m (£39m in LABEL UK, £12m Online Overseas
and £14m in NEXT’s Retail stores). The table below shows how this is split across our product
categories.
Licensing and collaborations
Full price sales (VAT ex.) £m
Jan 2023
Jan 2022
Var %
Adult clothing and accessories
27
14
+96%
Childrenswear
30
23
+30%
Home
8
6
+27%
Total full price sales
65
43
+50%
Split as:
Licensing
50
34
+45%
Collaborations
15
9
+71%
Outlook for licensing and collaborations sales
In the year ahead, we expect to take on seven new licences and forecast full price sales to grow by
+32% to £85m.
Full price sales (VAT ex.) £m
Jan 2024 (e)
Jan 2023
Var %
Online LABEL UK
55
39
+43%
Online Overseas
15
12
+28%
Retail
15
14
+5%
Total
85
65
+32%
41
Strategic Report Governance Financial Statements
Shareholder Information
LABELMargin-HistoryandOutlook
The table below shows net margins for each of the four business models within LABEL compared to
last year and three years ago.
Business model
Jan 2023
margin %
Jan 2022
margin %
Jan 2020
margin %
Third-party brands (commission)
10.9%
13.1%
14.8%
Third-party brands (wholesale)
14.4%
17.8%
16.6%
Total third-party brands
12.4%
15.4%
15.8%
Licensing and collaborations
14.9%
18.1%
-
Wholly-owned brands
15.7%
20.7%
12.4%
Total LABEL margin %
12.9%
16.0%
15.4%
Focus on third-party brands margin erosion
Last year, in the aftermath of the pandemic, margins were flattered by unusually low returns rates
and lower markdown costs (arising as a result of stock shortages). However, the 3.4% drop in the
net margins of our third-party branded business against three years ago requires some explanation.
The gap is explained in the table below.
Jan 2020 net margin of third-party brands
15.8%
Higher participation of lower margin brands and reduced commission rates
- 1.4%
Improved wholesale bought in gross margins offset by higher surplus
+0.4%
Inflation in warehouse and distribution costs
- 2.0%
Increased spend in technology
- 1.2%
Catalogue savings, offset partially by increased digital marketing
+0.8%
Jan 2023 net margin of third-party brands
12.4%
Outlook for LABEL margins in the year ahead
As we explained in our Half Year Report in September, we are focussed on a number of initiatives
that will improve LABEL’s margin in the year ahead. However, we anticipate that these margin
improvements will be more than offset by inflationary cost increases. The following table walks
forward our achieved net operating margin in 2022/23 to our anticipated margin in 2023/24.
Jan 2023 net operating margin
12.9%
Control of markdown costs
+0.6%
Renegotiated commission rates on some low profitability brands
+0.5%
Impact of removing low profitability products
+0.3%
Inflationary costs in warehouse and distribution costs
- 1.1%
Technology costs
- 0.7%
Inflationary cost increases, mainly in wages
- 0.8%
Jan 2024 net operating margin (e)
11.7%
42
LABELMargin-HistoryandOutlook
The table below shows net margins for each of the four business models within LABEL compared to
last year and three years ago.
Business model
Jan 2023
margin %
Jan 2022
margin %
Jan 2020
margin %
Third-party brands (commission)
10.9%
13.1%
14.8%
Third-party brands (wholesale)
14.4%
17.8%
16.6%
Total third-party brands
12.4%
15.4%
15.8%
Licensing and collaborations
14.9%
18.1%
-
Wholly-owned brands
15.7%
20.7%
12.4%
Total LABEL margin %
12.9%
16.0%
15.4%
Focus on third-party brands margin erosion
Last year, in the aftermath of the pandemic, margins were flattered by unusually low returns rates
and lower markdown costs (arising as a result of stock shortages). However, the 3.4% drop in the
net margins of our third-party branded business against three years ago requires some explanation.
The gap is explained in the table below.
Jan 2020 net margin of third-party brands
15.8%
Higher participation of lower margin brands and reduced commission rates
- 1.4%
Improved wholesale bought in gross margins offset by higher surplus
+0.4%
Inflation in warehouse and distribution costs
- 2.0%
Increased spend in technology
- 1.2%
Catalogue savings, offset partially by increased digital marketing
+0.8%
Jan 2023 net margin of third-party brands
12.4%
Outlook for LABEL margins in the year ahead
As we explained in our Half Year Report in September, we are focussed on a number of initiatives
that will improve LABEL’s margin in the year ahead. However, we anticipate that these margin
improvements will be more than offset by inflationary cost increases. The following table walks
forward our achieved net operating margin in 2022/23 to our anticipated margin in 2023/24.
Jan 2023 net operating margin
12.9%
Control of markdown costs
+0.6%
Renegotiated commission rates on some low profitability brands
+0.5%
Impact of removing low profitability products
+0.3%
Inflationary costs in warehouse and distribution costs
- 1.1%
Technology costs
- 0.7%
Inflationary cost increases, mainly in wages
- 0.8%
Jan 2024 net operating margin (e)
11.7%
FOCUSONOVERSEAS
SalesPerformance
The table below sets out the sales performance against last year and three years ago. The
comparison with last year is unfavourable because, last year, online trade benefited from various
retail store lockdowns in force across the globe.
Online Overseas VAT Ex. sales
Sales £m
Jan 2023
Versus
Jan 2022
Versus
Jan 2020
Total sales (including markdown)
625
- 7%
+37%
Full price sales
589
- 9%
+35%
Full price sales (excluding Russia and Ukraine) 576
- 3%
+47%
Overseas sales - a five year history
Over the last five years, sales in our Overseas Online business have grown through our own websites
(nextdirect.com) and third-party aggregators. The chart below sets out the full price sales achieved
through both channels over the last five years. It demonstrates the increasing contribution
aggregators have made to growth. Aggregators now account for 21% (£126m) of our Overseas full
price sales.
The compound annual growth rate (CAGR) in full price sales in this period has been +14% (+17%
excluding Russia and Ukraine).
43
Strategic Report Governance Financial Statements
Shareholder Information
Full price sales by region
The table below shows the participation of our sales by region and demonstrates that the vast
majority of our sales overseas come from Europe and the Middle East. Much of our European
business is serviced by our German hub and we are actively investigating opening a hub in the
Middle East.
Region
No. of countries
% of full
price sales
Jan 2023
£m
Europe
34
52%
303
Middle East 12
35%
206
Asia 12
7%
43
Americas and Australia 8
6%
37
Total full price sales
66
100%
589
ProfitPerformance
The table below sets out the profit and margins achieved compared to last year and three years ago.
The main reasons for the decline in margin compared to 2019/20 are also set out below.
Online Overseas operating profit
Jan 2023
Jan 2022
Jan 2020
Profit £m 54
81
65
Net margin %
8.6%
12.1%
16.5%
Overseas net margin on total sales to January 2020
16.5%
Duty & import
VAT
Costs increased largely due to the introduction of duty & import VAT
charges in many Middle East countries.
- 2.4%
Aggregator
participation &
margins
Erosion in operating margin from aggregator sites, along with their
increasing sales participation.
- 1.8%
Delivery costs
This is mainly the result of higher air freight costs and inflationary
increases in UK warehousing costs.
- 1.5%
Technology
Investment in modernising our core systems
- 1.1%
Surplus
Surplus stocks in overseas countries grew faster than sales and
clearance rates reduced.
- 1.1%
Overseas net margin on total sales to January 2023
8.6%
Progress to date on improving overseas margins
At the half year we detailed some of the measures we were planning to improve overseas
profitability. We have concentrated on measuring profitability on an item-by-item and territory-by-
territory basis, to pinpoint unprofitable products. These are typically items with higher returns rates
and lower selling prices. We are also renegotiating numerous delivery agreements, as underlying
distribution costs begin to return to pre-pandemic levels.
In the second half, margin improved to 9.8% and in the year ahead we are planning for margin to
recover further, to around 12%.
44
Full price sales by region
The table below shows the participation of our sales by region and demonstrates that the vast
majority of our sales overseas come from Europe and the Middle East. Much of our European
business is serviced by our German hub and we are actively investigating opening a hub in the
Middle East.
Region
No. of countries
% of full
price sales
Jan 2023
£m
Europe
34
52%
303
Middle East
12
35%
206
Asia
12
7%
43
Americas and Australia
8
6%
37
Total full price sales
66
100%
589
ProfitPerformance
The table below sets out the profit and margins achieved compared to last year and three years ago.
The main reasons for the decline in margin compared to 2019/20 are also set out below.
Online Overseas operating profit
Jan 2023
Jan 2022
Jan 2020
Profit £m
54
81
65
Net margin %
8.6%
12.1%
16.5%
Overseas net margin on total sales to January 2020
16.5%
Duty & import
VAT
Costs increased largely due to the introduction of duty & import VAT
charges in many Middle East countries.
- 2.4%
Aggregator
participation &
margins
Erosion in operating margin from aggregator sites, along with their
increasing sales participation.
- 1.8%
Delivery costs
This is mainly the result of higher air freight costs and inflationary
increases in UK warehousing costs.
- 1.5%
Technology
Investment in modernising our core systems
- 1.1%
Surplus
Surplus stocks in overseas countries grew faster than sales and
clearance rates reduced.
- 1.1%
Overseas net margin on total sales to January 2023
8.6%
Progress to date on improving overseas margins
At the half year we detailed some of the measures we were planning to improve overseas
profitability. We have concentrated on measuring profitability on an item-by-item and territory-by-
territory basis, to pinpoint unprofitable products. These are typically items with higher returns rates
and lower selling prices. We are also renegotiating numerous delivery agreements, as underlying
distribution costs begin to return to pre-pandemic levels.
In the second half, margin improved to 9.8% and in the year ahead we are planning for margin to
recover further, to around 12%.
NEXTFINANCE
Unlike the analysis in the Online and Retail sections of this document, the comparisons used for
sales and profit in this section are given against LAST YEAR. We believe this provides a more
meaningful understanding of the performance of our Finance business because retail lockdown had
much less impact on the performance of the Finance business than it had on the other trading
businesses.
HEADLINES
● Interest income was up +10%, broadly in line with the increase in the average customer
receivables balance.
● Net profit
32
of £171m was up +14%.
● Customer defaults remain lower than pre-COVID levels and payment rates remain higher than
pre-COVID levels, both continuing the trend seen at the half year.
FINANCEPROFIT&LOSSSUMMARY
33
£m
Jan 2023
Jan 2022
Var %
Credit sales 2,035
1,977
+3%
Average customer receivables
note 1
1,179
1,062
+11%
Interest income note 2 274
249
+10%
Bad debt charge
note 3
(26)
(27)
- 3%
Overheads note 4 (43)
(42)
+3%
Profit before cost of funding
205
180
+14%
Cost of funding
note 5
(34)
(31)
+11%
Net profit
171
150
+14%
ROCE (after cost of funding)
14.5%
14.1%
Closing customer receivables
1,255
1,163
+8%
The following paragraphs give further explanation of the movements in each line of the Finance
P&L.
32
The Finance business now includes all the Finance profits generated from Lipsy sales. Half of this profit was
previously reported within the Lipsy division and shown as a cost in NEXT Finance overheads (2023: £11.7m, 2022:
£7.7m). See page 21 and Appendix 1 on page 62 for further detail.
33
Rounding differences are not adjusted in the table.
45
Strategic Report Governance Financial Statements
Shareholder Information
Note 1 Customer receivables - recovering to pre-pandemic levels
Our average customer receivables balance was up +11% compared to last year. The majority of this
increase was due to customers building back their balances after the pandemic, rather than a
growth in credit sales (which were only up +3%).
A return to more normal payment rates
The graph below shows the percentage of outstanding balances paid back each month since 2019.
The payment rate is an indirect measure of the financial health of consumer balance sheets; the
more our customers pay back each month, the less pressure there is likely to be on their finances.
Customers significantly increased the rate at which they paid down their balances from May 2020 as
their other expenditure decreased during the first COVID lockdown. As the economy reopened,
from March 2021, customers’ monthly payments fell back to more normal levels, albeit they have
remained above pre-COVID levels. Over the coming year, we expect payment rates to reduce to
levels closer to, but still above, the 2019 average.
Monthly Payment as a Proportion of Customer Balances
Net customer receivables in perspective
The graph below shows net customer receivables as a percentage of the previous twelve months’
credit sales. This is another indirect measure of the health of consumer balance sheets (the lower
the number, the less financial pressure there is likely to be). It can be seen that customer balances
relative to sales have continued on an upward trajectory over the course of 2022, but they remain
comfortably below pre-pandemic levels.
Net Customer Receivables as a Proportion of 12 Month Rolling Credit Sales
46
Note 1 Customer receivables - recovering to pre-pandemic levels
Our average customer receivables balance was up +11% compared to last year. The majority of this
increase was due to customers building back their balances after the pandemic, rather than a
growth in credit sales (which were only up +3%).
A return to more normal payment rates
The graph below shows the percentage of outstanding balances paid back each month since 2019.
The payment rate is an indirect measure of the financial health of consumer balance sheets; the
more our customers pay back each month, the less pressure there is likely to be on their finances.
Customers significantly increased the rate at which they paid down their balances from May 2020 as
their other expenditure decreased during the first COVID lockdown. As the economy reopened,
from March 2021, customers’ monthly payments fell back to more normal levels, albeit they have
remained above pre-COVID levels. Over the coming year, we expect payment rates to reduce to
levels closer to, but still above, the 2019 average.
Monthly Payment as a Proportion of Customer Balances
Net customer receivables in perspective
The graph below shows net customer receivables as a percentage of the previous twelve months’
credit sales. This is another indirect measure of the health of consumer balance sheets (the lower
the number, the less financial pressure there is likely to be). It can be seen that customer balances
relative to sales have continued on an upward trajectory over the course of 2022, but they remain
comfortably below pre-pandemic levels.
Net Customer Receivables as a Proportion of 12 Month Rolling Credit Sales
Note 2 Interest income
Interest income was up +10% versus last year, broadly in line with the +11% growth in average
customer receivables.
Note 3 Bad debt charge and default rates
Bad debt charge
The bad debt charge of £26m was £1m lower than last year, despite the fact that credit sales rose in
the period and would normally result in an overall increase in bad debt charge. The unexpected
decline in bad debt is explained by a £2m provision release in the first half of the year.
Bad debt walk forward
£m
Bad debt charge January 2022
(27)
Higher credit sales (+3%)
(1)
Bad debt charge before provision release
(28)
Provision release (mainly COVID)
2
Bad debt charge January 2023
(26)
Current default rates in context
The chart below shows:
● Observed annualised default rates
34
since 2009 (blue bars). The default rate in 2022/23 of 3.3%
is marginally higher than 2021/22 but in line with the lower end of observed historical rates.
● The provision for future defaults (green dotted line) remains above pre-COVID rates and makes
allowance for a material deterioration in defaults.
34
Default rates are net of expected recoveries and presented as a percentage of the average customer receivables
balance.
47
Strategic Report Governance Financial Statements
Shareholder Information
Note 4 Overheads
Overheads were up +3% versus last year, mainly due to increased spending on Technology.
Note 5 Cost of funding
The cost of funding is an internal interest recharge from the Group based on the assumption that
85% of customer receivables are funded by debt lent by the Group to the NEXT Finance business.
The year on year growth of +11% is in line with the growth in average customer receivables.
POTENTIALIMPACTOFDETERIORATINGCONSUMERENVIRONMENT
In our Half Year Report, we outlined a number of potential effects on our Finance business of a
deterioration in consumer finances:
● Lower spending (which would decrease balances).
● Increased use of our credit facility versus cash payments (which would increase balances).
● Extended payment times (which would increase balances).
● Increased arrears and default rates (which would reduce profits).
Six months on, we have seen little further evidence of any deterioration. Spending has been
resilient, payment rates have decreased but remained above pre-pandemic levels, and arrears and
default rates have remained at relatively low levels. At present, there is little evidence of distress in
our customer receivables book. As the effects of mortgage rate rises start to flow through into
household budgets and energy bills remain elevated, we may start to see a departure from the
current levels of stability. The risk of this has been provided for in our bad debt provisions, which
allow for a significant increase in default rates compared to today's level.
OUTLOOKFORTHEFULLYEARTOJANUARY2024
In the year ahead, we anticipate that NEXT Finance will generate a profit (before cost of funding) of
£219m, which would be up +7% on 2022/23. After the cost of funding recharge, we anticipate net
profit of £172m which would be up +1% versus 2022/23.
£m
Jan 2024 (e)
Jan 2023
Var %
Credit sales
2,008
2,035
- 1%
Average customer receivables
Note 1
1,242
1,179
+5%
Interest income Note 2 297
274
+8%
Bad debt charge
Note 3
(31)
(26)
+20%
Overheads
Note 4
(47)
(43)
+8%
Profit before cost of funding
219
205
+7%
Cost of funding Note 5 (46)
(34)
+35%
Net profit
172
171
+1%
ROCE (after cost of funding)
13.9%
14.5%
Closing customer receivables
1,345
1,255
+7%
48
Note 4 Overheads
Overheads were up +3% versus last year, mainly due to increased spending on Technology.
Note 5 Cost of funding
The cost of funding is an internal interest recharge from the Group based on the assumption that
85% of customer receivables are funded by debt lent by the Group to the NEXT Finance business.
The year on year growth of +11% is in line with the growth in average customer receivables.
POTENTIALIMPACTOFDETERIORATINGCONSUMERENVIRONMENT
In our Half Year Report, we outlined a number of potential effects on our Finance business of a
deterioration in consumer finances:
● Lower spending (which would decrease balances).
● Increased use of our credit facility versus cash payments (which would increase balances).
● Extended payment times (which would increase balances).
● Increased arrears and default rates (which would reduce profits).
Six months on, we have seen little further evidence of any deterioration. Spending has been
resilient, payment rates have decreased but remained above pre-pandemic levels, and arrears and
default rates have remained at relatively low levels. At present, there is little evidence of distress in
our customer receivables book. As the effects of mortgage rate rises start to flow through into
household budgets and energy bills remain elevated, we may start to see a departure from the
current levels of stability. The risk of this has been provided for in our bad debt provisions, which
allow for a significant increase in default rates compared to today's level.
OUTLOOKFORTHEFULLYEARTOJANUARY2024
In the year ahead, we anticipate that NEXT Finance will generate a profit (before cost of funding) of
£219m, which would be up +7% on 2022/23. After the cost of funding recharge, we anticipate net
profit of £172m which would be up +1% versus 2022/23.
£m
Jan 2024 (e)
Jan 2023
Var %
Credit sales
2,008
2,035
- 1%
Average customer receivables
Note 1
1,242
1,179
+5%
Interest income
Note 2
297
274
+8%
Bad debt charge
Note 3
(31)
(26)
+20%
Overheads
Note 4
(47)
(43)
+8%
Profit before cost of funding
219
205
+7%
Cost of funding
Note 5
(46)
(34)
+35%
Net profit
172
171
+1%
ROCE (after cost of funding)
13.9%
14.5%
Closing customer receivables
1,345
1,255
+7%
Note 1 Customer receivables
We expect average customer receivables to rise by +5%, close to the increase in the year end debt,
which is forecast to rise by +7% to £1,345m.
Note 2 Interest income
Underlying interest income is expected to increase by +8%, this is more than the increase in average
receivables (up +5%). The additional growth is due to a 1%
35
increase in the APR charged on
nextpay accounts, effective from 29 March 2023.
Note 3 Bad debt charge
The bad debt charge is forecast to increase by +20% versus last year. Underlying bad debt is
expected to move in line with credit sales (-1%), but the prior year benefited from (1) net provision
releases of £2m and (2) the £3m sale of insolvent debt
36
, which had been written-off. We do not
expect to repeat this sale in the year ahead.
Note 4 Overheads
Overheads are forecast to be up +8% versus last year, due to inflationary cost increases and
increased spending on Technology.
Note 5 Cost of funding
The cost of funding recharge is expected to increase by +£12m (+35% on last year). Of this, £2m is
due to growth in average receivables and the remaining £10m is due to the effect of higher bank
interest rates. The funding for the Finance business is provided by the NEXT Group
37
which is
forecast to make additional profit of £5m from this lending in the year ahead. This is essentially
because expected average Group borrowings of £851m are lower than its expected average lending
of £1,056m to the Finance business, as explained in the table below.
Group lending to NEXT Finance £m
Year ending
Jan 2024 (e)
Year ending
Jan 2023
Variance
Average Group external borrowing (for reference)
851
859
(8)
Average NEXT Finance borrowing (for reference)
1,056
1,002
54
Group underlying net external interest rate
4.4%
3.4%
+1.0%
Interest charged by Group to NEXT Finance
(46)
(34)
(12)
Underlying net external interest cost for Group
(37)
(30)
(7)
Group profit on its lending to NEXT Finance
9
4
5
35
APR is set to rise from 23.9% to 24.9%.
36
There were similar “non-recurring” recoveries in the year ending January 2022.
37
We assume that the Group funds 85% of the Finance business’s receivables, with the balance being funded by the
Finance business’s notional equity.
49
Strategic Report Governance Financial Statements
Shareholder Information
PART FIVE
TOTAL PLATFORM AND OTHER
BUSINESS ACTIVITIES
TOTALPLATFORMANDINVESTMENTS
We currently have four clients (Reiss, GAP, Victoria’s Secret and Laura Ashley) trading on Total
Platform (TP). JoJo Maman Bébé will commence trading on Total Platform in May 2023. We aim to
launch MADE.com UK website by August 2023. Joules is scheduled to launch in March/April 2024.
FINANCIALPERFORMANCEANDGUIDANCEFORTHEYEARAHEAD
In the year to January 2023 Total Platform generated £144.4m of revenue and £21.8m of profit.
Sales from continuing partners
38
were £125.6m which generated £22.2m of profit
39
.
Total Platform ‘sales’
Total Platform sales are a combination of two different types of revenue streams:
● The value of our clients’ online sales through their Total Platform website (referred to as gross
transaction value).
● Revenue from services charged on a ‘cost plus’ basis, such as retail warehousing and
distribution. Cost plus services are charged on the basis of the full cost we incur to provide the
service plus a percentage of that cost as a profit margin.
Total Platform and equity investment profit
Profit was generated through a combination of:
● Total Platform services delivered a profit of £5.4m, of which £4.7m was generated from
commission on clients’ online sales, with the remainder through services provided on a cost plus
basis (such as retail distribution and online marketing).
● Equity profit, preference share and loan interest totalling £16.8m.
Continuing clients Total Platform - £m
Jan 2024 (e)
Jan 2023
Jan 2022
Gross transaction value of our client sales on the platform
158.1 110.3 12.7
Income from services provided on cost
-plus basis 18.8 15.3 0.0
TOTAL
PLATFORM SALES 176.9 125.6 12.7
Total Platform profit on continuing activities 9.2 5.4 0.2
Total Platform margin % 5.2% 4.3% 1.6%
Underlying equity profit 13.0 10.8 4.8
Deferred tax asset (historical) 1.3 3.5 0.0
Joules equity (7.0) (3.0) 0.0
Preference shares 4.9 4.8 2.4
Loan interest 1.1 0.7 1.0
Total Group profit from continuing clients and equity
22.5 22.2 8.4
38
As explained in our Half Year results, our two lowest turnover clients (Childsplay and Aubin) have now transitioned
away from Total Platform. This section details the Total Platform trading performance of continuing operations.
39
Equity profit includes our equity shares of Swoon, Aubin and Sealskinz, which are not on Total Platform.
50
PART FIVE
TOTAL PLATFORM AND OTHER
BUSINESS ACTIVITIES
TOTALPLATFORMANDINVESTMENTS
We currently have four clients (Reiss, GAP, Victoria’s Secret and Laura Ashley) trading on Total
Platform (TP). JoJo Maman Bébé will commence trading on Total Platform in May 2023. We aim to
launch MADE.com UK website by August 2023. Joules is scheduled to launch in March/April 2024.
FINANCIALPERFORMANCEANDGUIDANCEFORTHEYEARAHEAD
In the year to January 2023 Total Platform generated £144.4m of revenue and £21.8m of profit.
Sales from continuing partners
38
were £125.6m which generated £22.2m of profit
39
.
Total Platform ‘sales’
Total Platform sales are a combination of two different types of revenue streams:
● The value of our clients’ online sales through their Total Platform website (referred to as gross
transaction value).
● Revenue from services charged on a ‘cost plus’ basis, such as retail warehousing and
distribution. Cost plus services are charged on the basis of the full cost we incur to provide the
service plus a percentage of that cost as a profit margin.
Total Platform and equity investment profit
Profit was generated through a combination of:
● Total Platform services delivered a profit of £5.4m, of which £4.7m was generated from
commission on clients’ online sales, with the remainder through services provided on a cost plus
basis (such as retail distribution and online marketing).
● Equity profit, preference share and loan interest totalling £16.8m.
Continuing clients Total Platform - £m
Jan 2024 (e)
Jan 2023
Jan 2022
Gross transaction value of our client sales on the platform
158.1
110.3
12.7
Income from services provided on cost-plus basis
18.8
15.3
0.0
TOTAL PLATFORM SALES
176.9
125.6
12.7
Total Platform profit on continuing activities
9.2
5.4
0.2
Total Platform margin %
5.2%
4.3%
1.6%
Underlying equity profit
13.0
10.8
4.8
Deferred tax asset (historical)
1.3
3.5
0.0
Joules equity
(7.0)
(3.0)
0.0
Preference shares
4.9
4.8
2.4
Loan interest
1.1
0.7
1.0
Total Group profit from continuing clients and equity
22.5
22.2
8.4
38
As explained in our Half Year results, our two lowest turnover clients (Childsplay and Aubin) have now transitioned
away from Total Platform. This section details the Total Platform trading performance of continuing operations.
39
Equity profit includes our equity shares of Swoon, Aubin and Sealskinz, which are not on Total Platform.
Total Platform margin
Total Platform achieved a margin on continuing partners of 4.3%, which was higher than our
previous guidance but lower than our target of between 5% to 7%. We are planning for margin in
the year ahead to be 5.2%.
Deferred tax asset (historical)
One of our acquisitions has access to a deferred tax asset relating to historical trading losses. This
means that they can partially offset these losses against their current trading profits. Under equity
accounting this benefit is reported in NEXT’s pre-tax profits.
Joules
Joules incurred some one-off costs relating to its transition from administration in the year to
January 2023, resulting in the business making a £4m loss, of which NEXT’s share is £3m. The Joules
team is making progress, but we now believe it will take around 12 months to turn the business
around as the business adjusts to much lower levels of discounting and promotion. In the year to
January 2024, we are forecasting Joules to make a loss. NEXT’s share of this loss is £7m.
TOTALPLATFORMCLIENTSANDASSOCIATEDEQUITYINVESTMENTS
Client
Launch
date
Equity interest
Description
Laura Ashley
Mar
2021
None
Iconic British Home and
fashion brand
Victoria’s Secret
(UK and Ireland)
May
2021
51% share of the UK and Ireland
franchise in partnership with Victoria’s
Secret & Co.
Global lingerie, clothing and
beauty brand
Reiss
Feb
2022
Increased to 51% in May 2022 in
partnership with Warburg Pincus and
Reiss family.
Affordable luxury men’s and
women’s apparel brand
GAP
(UK and Ireland)
Aug
2022
51% share of UK and Ireland franchise in
partnership with GAP Inc.
US casual fashion brand
JoJo Maman Bébé
Q2
2023
44% share in partnership with Davidson
Kempner.
Specialist premium maternity
and baby clothing
MADE.com
Q3
2023
100% acquisition of brand name, domain
names and intellectual property.
Design-led homeware and
furniture brand
Joules
Q1
2024
74% share in partnership with Tom Joule.
British countryside lifestyle
fashion brand
Discontinued client
End
date
Equity interest
Description
Childsplay
Feb
2023
None
Luxury childrenswear retailer
Aubin
Sept
2022
29%
40
which we are retaining
Premium authentically British
menswear brand
40
Our equity interest in Aubin was originally 33%, which will reduce to 29% following the completion of a recent equity
raise.
51
Strategic Report Governance Financial Statements
Shareholder Information
OTHERBUSINESSACTIVITIES
The profits and losses in the year from other business activities, including our other Group trading
companies and non-trading activities, are summarised below along with last year, three years ago
(pre-COVID) and our guidance for the year ahead.
There are three large and non-recurring items in the year to January 2023, within property
provisions, foreign exchange and accelerated acquisition costs. For clarity, these are shown
separately in the table below. These non-recurring items largely offset each other and so do not
significantly distort the profitability of the Group. These and other significant changes in profit are
explained below the table.
PLEASE NOTE: In contrast to the analysis of our Online and Retail businesses, the analysis for Group
businesses, which were less affected by lockdown, focuses on the performance versus last year.
£m
Jan 2024 (e)
Jan 2023
Jan 2022
Jan 2020
NEXT Sourcing 25.0 33.1
28.0
32.2
Franchise and Retail international
7.8
7.0
5.8
6.4
Property transaction profit 0.0 14.2
13.8
(0.8)
Central costs and other
(42.0)
(41.9)
(40.5)
(22.0)
Total underlying profit
(9.2)
12.4
7.1
15.8
Non-recurring items
Property provisions 0.0 22.8
(3.0)
(0.9)
Foreign exchange
16.0
(16.3)
2.5
(1.5)
Accelerated acquisition costs
0.0
(5.4)
0.0
-
Total non-recurring items
16.0
1.1
(0.5)
(2.4)
Total profit
6.8
13.5
6.6
13.4
52
OTHERBUSINESSACTIVITIES
The profits and losses in the year from other business activities, including our other Group trading
companies and non-trading activities, are summarised below along with last year, three years ago
(pre-COVID) and our guidance for the year ahead.
There are three large and non-recurring items in the year to January 2023, within property
provisions, foreign exchange and accelerated acquisition costs. For clarity, these are shown
separately in the table below. These non-recurring items largely offset each other and so do not
significantly distort the profitability of the Group. These and other significant changes in profit are
explained below the table.
PLEASE NOTE: In contrast to the analysis of our Online and Retail businesses, the analysis for Group
businesses, which were less affected by lockdown, focuses on the performance versus last year.
£m
Jan 2024 (e)
Jan 2023
Jan 2022
Jan 2020
NEXT Sourcing
25.0
33.1
28.0
32.2
Franchise and Retail international
7.8
7.0
5.8
6.4
Property transaction profit
0.0
14.2
13.8
(0.8)
Central costs and other
(42.0)
(41.9)
(40.5)
(22.0)
Total underlying profit
(9.2)
12.4
7.1
15.8
Non-recurring items
Property provisions
0.0
22.8
(3.0)
(0.9)
Foreign exchange
16.0
(16.3)
2.5
(1.5)
Accelerated acquisition costs
0.0
(5.4)
0.0
-
Total non-recurring items
16.0
1.1
(0.5)
(2.4)
Total profit
6.8
13.5
6.6
13.4
NEXTSourcing
NEXT Sourcing (NS) is our wholly-owned overseas sourcing agent, it procures around 37% of NEXT
branded products. Profit in the year to January 2023 increased by +£5.1m to £33.1m. The table
below sets out the performance of the business in Pounds and in Dollars. Sales in Dollars were down
-3% due to lower NEXT purchases. Profit in Dollars was up +6% largely due to lower incentive costs
and other overhead cost savings.
US Dollars
£ Sterling
Jan 2023
USD m
Jan 2022
USD m
Jan 2023
£m
Jan 2022
£m
Sales (mainly inter-company)
655.9
678.9
- 3%
533.3
495.5
Operating profit
40.7
38.3
+6%
33.1
28.0
Net margin
6.2%
5.6%
6.2%
5.6%
Exchange rate
1.23
1.37
In the year ahead, NS sales, in Dollars, are expected to reduce by -15%, mainly due to the weaker
Pound. This, combined with cost of living increases, means we are forecasting profit for the year
ahead to be around £25m.
PropertyTransactionProfit
Profit of £14.2m in the year ending January 2023 came mainly from two warehouse sale and
leaseback transactions.
CentralCosts
Central costs of £41.9m were £1.4m higher than in the prior year primarily as a result of professional
fees associated with acquisitions.
Non-RecurringItems
Property provisions
The net movement in property provisions was a release of £22.8m.
Our Retail business has performed better than expected in the last twelve months. As a result of
improved sales and profit, and our outlook for sales and profit in the year ahead, we have reduced
our store impairment provisions by £34.9m. After this release, the overall provision remaining is
c.£16m and reflects our projection that only five of our stores will not generate a positive cash flow
over the life of their lease.
We completed a full review of our provisions required for dilapidation costs upon exiting Retail
stores and based on latest estimates we have increased our provisions by -£12.1m.
Foreign exchange (FX)
The loss of £16.3m relates to FX contracts that were entered into earlier in the year when the Pound
was weaker against the Dollar. Since then the Pound has strengthened and therefore the value of
these contracts has decreased. Due to the structure of these FX contracts, we are unable to use
Hedge Accounting, which means (unhelpfully) we see a large debit this year which will be followed
by a large credit next year.
Accelerated acquisition costs
We have accelerated the settlement of an earn-out agreement that was put in place when we
bought Lipsy 15 years ago.
53
Strategic Report Governance Financial Statements
Shareholder Information
INTEREST,TAX,PENSIONSANDESG
INTEREST
The interest charge in the P&L is made up of four categories, as set out below, along with last year
and three years ago. Our forecast for the year ahead is also shown in the left hand column.
£m
Jan 2024 (e)
Jan 2023
Jan 2022
Jan 2020
Net external interest
(37.7)
(30.3)
(35.3)
(43.6)
Reiss preference share income
4.9
4.8
2.4
-
Total Platform loan interest income
1.1
0.7
1.0
-
Lease interest
(46.7)
(47.3)
(50.4)
(61.8)
Total interest
(78.4)
(72.1)
(82.3)
(105.4)
Net external interest
Net external interest of £30.3m was £5m (-14%) lower than last year. This reduction is due to the
repayment of the £325m bond in October 2021, which was partially offset by an increase in the
floating rate interest payable on other instruments. In the year ahead, we expect net external
interest to increase to £37.7m due to higher interest rates, which affect our floating rate debt.
Reiss preference share income and Total Platform loan interest
Reiss preference shares were acquired as part of our investment, accruing interest at a rate of 8%
per annum (£4.8m). This is higher than the £2.4m in the prior year, due to the increase in equity
stake from 25% to 51% in May 2022. We have also made commercial loans to four of our Total
Platform clients, which generated £0.7m of loan interest.
Lease interest
The reduction in lease interest is the result of the fall in average lease debt, from £1,122m (January
2022) to £1,040m (January 2023). Lease debt has decreased due to the net effect of (1) lower rents
and shorter terms when we have renewed store leases, offset by (2) our new warehouse lease,
Elmsall 3, in May 2022.
TAX
Our effective tax rate (ETR) for the year to January 2023 was 18.25%. This is lower than the UK
headline rate of 19%, as set out below.
Jan 2023
Headline UK Corporation Tax rate
19.00%
Provision releases
- 0.50%
Equity profit, which has already been taxed
- 0.45%
Non-deductible items (e.g. acquisition fees)
+0.20%
ETR
18.25%
In the year ahead we forecast an ETR of 23.5%. This increase is mainly due to the UK headline rate
increasing from 19% to 25%, effective April 2023. The Group’s ETR remains lower than the 25%
headline rate because: (1) February and March are at the lower rate of 19% and (2) profit from
equity investments are reported on a post-tax basis in NEXT’s accounts.
PENSIONSCHEMES
On the IFRS accounting basis, the valuation of our defined benefit schemes’ surplus has increased
from £157m as at January 2022 to £157.5m as at January 2023. Further detail is provided in Note 6
of the financial statements.
54
INTEREST,TAX,PENSIONSANDESG
INTEREST
The interest charge in the P&L is made up of four categories, as set out below, along with last year
and three years ago. Our forecast for the year ahead is also shown in the left hand column.
£m
Jan 2024 (e)
Jan 2023
Jan 2022
Jan 2020
Net external interest
(37.7)
(30.3)
(35.3)
(43.6)
Reiss preference share income
4.9
4.8
2.4
-
Total Platform loan interest income
1.1
0.7
1.0
-
Lease interest
(46.7)
(47.3)
(50.4)
(61.8)
Total interest
(78.4)
(72.1)
(82.3)
(105.4)
Net external interest
Net external interest of £30.3m was £5m (-14%) lower than last year. This reduction is due to the
repayment of the £325m bond in October 2021, which was partially offset by an increase in the
floating rate interest payable on other instruments. In the year ahead, we expect net external
interest to increase to £37.7m due to higher interest rates, which affect our floating rate debt.
Reiss preference share income and Total Platform loan interest
Reiss preference shares were acquired as part of our investment, accruing interest at a rate of 8%
per annum (£4.8m). This is higher than the £2.4m in the prior year, due to the increase in equity
stake from 25% to 51% in May 2022. We have also made commercial loans to four of our Total
Platform clients, which generated £0.7m of loan interest.
Lease interest
The reduction in lease interest is the result of the fall in average lease debt, from £1,122m (January
2022) to £1,040m (January 2023). Lease debt has decreased due to the net effect of (1) lower rents
and shorter terms when we have renewed store leases, offset by (2) our new warehouse lease,
Elmsall 3, in May 2022.
TAX
Our effective tax rate (ETR) for the year to January 2023 was 18.25%. This is lower than the UK
headline rate of 19%, as set out below.
Jan 2023
Headline UK Corporation Tax rate
19.00%
Provision releases
- 0.50%
Equity profit, which has already been taxed
- 0.45%
Non-deductible items (e.g. acquisition fees)
+0.20%
ETR
18.25%
In the year ahead we forecast an ETR of 23.5%. This increase is mainly due to the UK headline rate
increasing from 19% to 25%, effective April 2023. The Group’s ETR remains lower than the 25%
headline rate because: (1) February and March are at the lower rate of 19% and (2) profit from
equity investments are reported on a post-tax basis in NEXT’s accounts.
PENSIONSCHEMES
On the IFRS accounting basis, the valuation of our defined benefit schemes’ surplus has increased
from £157m as at January 2022 to £157.5m as at January 2023. Further detail is provided in Note 6
of the financial statements.
ENVIRONMENTAL,SOCIALANDGOVERNANCE(ESG)
During the year we have continued to make progress on our key areas of focus, which are
summarised below.
CodeofPractice
Our Code of Practice team conducted 2,039 audits of the worldwide factories supplying NEXT
products. With travel restrictions eased post-COVID, 93% of audits were conducted in person with
two-thirds of the audits unannounced. 89% of the audits achieved a rating of between 1 to 3
(Excellent to Fair) with steps taken to address any issues identified from the remaining audits.
CarbonEmissionReductions
By 2030 we aim to reduce our direct and indirect absolute carbon emissions (from NEXT energy
consumption) by 55% against a 2016/17 baseline (Scope 1 & 2) and reduce our other indirect
emissions from NEXT’s operations by 40% against a 2019/20 baseline per £1m sales (Scope 3).
In the year to January 2023 our Scope 1 and 2 emissions were reduced by 47% and Scope 3 by 29%
relative to the baseline figures.
ResponsibleSourcing
We aim to source 100% of the main raw materials (Cotton, Polyester, Man-Made Cellulosics, Wool,
Timber and Leather) we use through known, responsible or certified routes by 2025. Progress in
relation to (1) cotton (our most significant raw material) and (2) total main raw materials used is set
out in the table below.
% of raw materials responsibly sourced
Jan 2023
Jan 2022
Var %
Cotton
67%
49%
+18%
Total main raw materials
54%
42%
+12%
Packaging
We have been gathering data to record our progress against a baseline of our plastic usage in 2021.
The targets we are using are aligned with external stakeholder groups, WRAP Plastic Pact and the
Ellen MacArthur Foundation. Our 2025 targets are:
2025 Target
Reduction in the use of virgin plastics
50%
Reduction in overall packaging (relative to sales)
25%
Percentage of packaging to be reusable or recyclable
100%
Plastic packaging to contain at least 30% recycled content
100%
Our initial results are encouraging. One of our targets is for 100% of our packaging to be reusable or
recyclable and, so far, 96% of our packaging meets this target.
55
Strategic Report Governance Financial Statements
Shareholder Information
PART SIX
CASH FLOW, DIVIDENDS & NET DEBT
CASHFLOW
41
In the year to January 2023 we generated £268m of surplus cash. Surplus cash is defined as cash
after interest, tax, capital expenditure and investments, but before distributions to shareholders.
The table below sets out a summarised cash flow for the year, along with last year, three years ago
and our forecast for the year ahead.
Net debt (excluding lease debt) increased in the year by £197m to £797m. For further details on
individual cash flow movements please see the page references given in the table.
In the year ahead, based on the guidance given on page 26, we expect to generate £467m of surplus
cash before distributions.
£m
Jan
2024 (e)
Jan
2023
Jan
2022
Jan
2020
Profit before tax
795
870
823
749
Depreciation/impairment on plant, property and equipment
120
110
111
125
Capital expenditure
(see page 57)
(170)
(206)
(184)
(139)
Tax paid
(165)
(151)
(125)
(138)
Working capital/other
(see page 58)
(18)
(225)
(40)
(72)
Surplus cash from trading activities
562
398
585
525
Customer receivables
(see page 46)
(90)
(92)
(135)
(27)
Investments
Investments in third-party brands
(see page 59)
-
(91)
(33)
42
-
Property stock
(see page 59)
(5)
53
(54)
-
Surplus cash before distribution to shareholders
467
268
363
498
Shareholder returns
(see page 60)
Share buybacks
(220)
(228)
(9)
(300)
Special dividends
-
-
(344)
-
Ordinary dividends
(250)
(237)
-
(214)
Cash flow after distribution to shareholders
(3)
(197)
10
(16)
Bond repayment
-
-
(325)
-
Cash flow after bond repayment
(3)
(197)
(315)
(16)
Closing net debt (excluding lease debt)
(800)
(797)
(600)
(1,112)
Facilities (after repayment of bond)
1,250
1,250
1,250
1,575
Headroom
450
453
650
463
41
The cash flow reflects the impact of IFRS 16. Depreciation on right-of-use assets and lease payments are included in
working capital.
42
A £10m loan to Reiss in the year ending January 2022, previously reported in this line, has been recategorised as
working capital. The loan was repaid in the year ending January 2023.
56
PART SIX
CASH FLOW, DIVIDENDS & NET DEBT
CASHFLOW
41
In the year to January 2023 we generated £268m of surplus cash. Surplus cash is defined as cash
after interest, tax, capital expenditure and investments, but before distributions to shareholders.
The table below sets out a summarised cash flow for the year, along with last year, three years ago
and our forecast for the year ahead.
Net debt (excluding lease debt) increased in the year by £197m to £797m. For further details on
individual cash flow movements please see the page references given in the table.
In the year ahead, based on the guidance given on page 26, we expect to generate £467m of surplus
cash before distributions.
£m
Jan
2024 (e)
Jan
2023
Jan
2022
Jan
2020
Profit before tax
795
870
823
749
Depreciation/impairment on plant, property and equipment
120
110
111
125
Capital expenditure
(see page 57)
(170)
(206)
(184)
(139)
Tax paid
(165)
(151)
(125)
(138)
Working capital/other
(see page 58)
(18)
(225)
(40)
(72)
Surplus cash from trading activities
562
398
585
525
Customer receivables
(see page 46)
(90)
(92)
(135)
(27)
Investments
Investments in third-party brands
(see page 59)
-
(91)
(33)
42
-
Property stock
(see page 59)
(5)
53
(54)
-
Surplus cash before distribution to shareholders
467
268
363
498
Shareholder returns
(see page 60)
Share buybacks
(220)
(228)
(9)
(300)
Special dividends
-
-
(344)
-
Ordinary dividends
(250)
(237)
-
(214)
Cash flow after distribution to shareholders
(3)
(197)
10
(16)
Bond repayment
-
-
(325)
-
Cash flow after bond repayment
(3)
(197)
(315)
(16)
Closing net debt (excluding lease debt)
(800)
(797)
(600)
(1,112)
Facilities (after repayment of bond)
1,250
1,250
1,250
1,575
Headroom
450
453
650
463
41
The cash flow reflects the impact of IFRS 16. Depreciation on right-of-use assets and lease payments are included in
working capital.
42
A £10m loan to Reiss in the year ending January 2022, previously reported in this line, has been recategorised as
working capital. The loan was repaid in the year ending January 2023.
CAPITALEXPENDITURE
CapitalExpenditurebyCategory
The table below sets out our capital expenditure for the year to January 2023 and, for comparison,
the prior three years. The first column shows our outlook for the year ahead.
£m
Jan 2024 (e)
Jan 2023
Jan 2022
Jan 2021
Jan 2020
Warehouse
75
117
124
100
87
Technology
55
53
29
21
9
Total warehouse and Technology
130
170
153
121
96
Retail space expansion
6
8
14
29
24
Retail cosmetic/maintenance capex
26
26
15
8
14
Total Retail expenditure
32
34
29
37
38
Head office infrastructure and other
8
2
2
5
5
Total capital expenditure
170
206
184
163
139
Warehousing
In the year to January 2023 warehouse capex, at £117m, includes the continued investment of
£77m in our new, highly automated, boxed warehouse (Elmsall 3). We plan to deliver Elmsall 3
automation in phases throughout 2023 and 2024 (as shown in the graphic below). The warehouse
building is already being used for conventional manual storage and customer picking, as an overflow
for our existing operations. Elmsall 3, once complete, will deliver an estimated increase in boxed
capacity of 50%, with marginal labour cost per unit around 40% lower than the equivalent cost
today. These savings will not be fully achieved until the automation is completed in the year ending
January 2025.
In the year ahead, we anticipate that warehouse capex will reduce to £75m, which includes the
completion of Elmsall 3 automation projects, the extension of our palletised warehouse in
Doncaster and the refit of our returns operation for hanging garments.
Warehouse Pick and Pack Capacity Volumes (Units), Online Boxed Warehousing
57
Strategic Report Governance Financial Statements
Shareholder Information
Technology
Capex in the year of £53m comprised £15m on hardware and £38m of development costs. The
estimate is higher than the £39m
43
given in September’s Half Year Report, because we have been
able to recruit developers at a faster rate than we had previously thought possible. In addition, we
have accelerated some of our planned hardware upgrades. Around £20m of our technology capex
in the year ahead relates to the software modernisation projects outlined in previous reports (see
Half Year Report, September 2021, pages 14-15), the other main areas of expenditure are set out in
the table below.
Technology capex by category
Jan 2024 (e)
Jan 2023
Modernisation projects
25
20
Total Platform, LABEL and warehouse projects
9
10
Security and head office department projects
4
5
Small development projects
5
3
Hardware
12
15
Total Technology capex
55
53
Retail stores
Capex on Retail space expansion reduced to £8m, down from £14m in the prior year, as a result of
fewer new store openings. Cosmetic and maintenance spend was £26m compared to £15m in the
prior year. Expenditure on cosmetic refits remains focused on those stores where we have
extended the lease. Total store capex in the year ahead is expected to be broadly in line with last
year, at £32m.
Head office infrastructure and other
In the year ahead, expenditure on head office infrastructure is expected to increase by +£6m to
£8m. The majority of this increase relates to a new photo studio, which is being relocated from one
of our regional distribution centres to a new bespoke standalone facility. This move will increase
our studio capacity and allow more of our photography to be completed in-house.
WORKINGCAPITAL
In the year to January 2023 the net cash outflow on working capital and other items totalled -
£225m. The four largest outflows were as follows:
● ESOT (Employee Share Option Trust): There was a larger than normal net cash outflow of -
£89m; in a normal year we would expect to spend around £40m. This unusual net outflow was
mainly the result of fewer employees exercising their options, which is to be expected given the
relatively low price of our shares for much of last year. We also marginally increased our cover
of outstanding options by around £5m.
● Debtors: There was a net outflow of -£65m due to (1) the increased amounts owing from Total
Platform clients, (2) timing of receipts from third-party aggregators and (3) the timing of VAT
payments.
● Stock: Extended lead times at the beginning of the year resulted in earlier stock purchases which
generated a -£23m cash outflow. Our stock levels have now returned to more normal levels
and, as at the end of February, were +1% ahead of last year.
● Staff incentives: There was a -£44m outflow for staff incentives awarded in relation to the prior
year but paid during the year to January 2023.
43
This estimate included £2m of capex for Head Office and other central projects.
58
Technology
Capex in the year of £53m comprised £15m on hardware and £38m of development costs. The
estimate is higher than the £39m
43
given in September’s Half Year Report, because we have been
able to recruit developers at a faster rate than we had previously thought possible. In addition, we
have accelerated some of our planned hardware upgrades. Around £20m of our technology capex
in the year ahead relates to the software modernisation projects outlined in previous reports (see
Half Year Report, September 2021, pages 14-15), the other main areas of expenditure are set out in
the table below.
Technology capex by category
Jan 2024 (e)
Jan 2023
Modernisation projects
25
20
Total Platform, LABEL and warehouse projects
9
10
Security and head office department projects
4
5
Small development projects
5
3
Hardware
12
15
Total Technology capex
55
53
Retail stores
Capex on Retail space expansion reduced to £8m, down from £14m in the prior year, as a result of
fewer new store openings. Cosmetic and maintenance spend was £26m compared to £15m in the
prior year. Expenditure on cosmetic refits remains focused on those stores where we have
extended the lease. Total store capex in the year ahead is expected to be broadly in line with last
year, at £32m.
Head office infrastructure and other
In the year ahead, expenditure on head office infrastructure is expected to increase by +£6m to
£8m. The majority of this increase relates to a new photo studio, which is being relocated from one
of our regional distribution centres to a new bespoke standalone facility. This move will increase
our studio capacity and allow more of our photography to be completed in-house.
WORKINGCAPITAL
In the year to January 2023 the net cash outflow on working capital and other items totalled -
£225m. The four largest outflows were as follows:
● ESOT (Employee Share Option Trust): There was a larger than normal net cash outflow of -
£89m; in a normal year we would expect to spend around £40m. This unusual net outflow was
mainly the result of fewer employees exercising their options, which is to be expected given the
relatively low price of our shares for much of last year. We also marginally increased our cover
of outstanding options by around £5m.
● Debtors: There was a net outflow of -£65m due to (1) the increased amounts owing from Total
Platform clients, (2) timing of receipts from third-party aggregators and (3) the timing of VAT
payments.
● Stock: Extended lead times at the beginning of the year resulted in earlier stock purchases which
generated a -£23m cash outflow. Our stock levels have now returned to more normal levels
and, as at the end of February, were +1% ahead of last year.
● Staff incentives: There was a -£44m outflow for staff incentives awarded in relation to the prior
year but paid during the year to January 2023.
43
This estimate included £2m of capex for Head Office and other central projects.
INVESTMENTSINTHIRD-PARTYBRANDS
44
Investments in third-party brands are listed below, along with NEXT’s equity stake, where
applicable.
£m
Equity stake
Jan 2023
Jan 2022
Reiss
51.0%
(45.3)
(33.0)
Reiss dividend
15.3
-
Joules
74.0%
(15.7)
-
Joules loan
(13.1)
-
Joules head office
(7.4)
-
JoJo Maman Bébé
44.0%
(15.9)
-
Swoon
25.0%
(3.5)
-
MADE.com
n/a
(3.4)
-
Sealskinz
19.9%
(1.9)
-
Total investments
(90.9)
(33.0)
Reiss
In the year to January 2022 we invested £33m in a 25% stake in Reiss. In May 2022 we exercised
our option to buy a further 26% stake for £45m, taking our total shareholding to 51%. During the
year we received our first dividend from the investment in Reiss of £15m.
Joules
In December 2022 we acquired the trade and assets of Joules out of administration for £28.8m. This
was made up of £15.7m for a 74% equity stake and £13.1m in the form of a loan, which was
required by Joules to acquire the trade and assets from the administrators. This acquisition was
done in partnership with Tom Joule, who has a 26% stake in the new business. Joules continues to
trade through its retail stores and its own website and will move onto NEXT’s Total Platform in Q1
2024. We also purchased Joules’ head office property for £7.4m.
JoJo Maman Bébé
In April 2022 we invested £15.9m in a 44% equity stake in JoJo Maman Bebe. The deal was
completed in partnership with Davidson Kempner. Subject to certain contractual conditions a
further £1.3m may be payable as final consideration.
PROPERTYSTOCK
The sale and leaseback of the new Elmsall 3 warehouse was completed in May 2022, resulting in a
net cash inflow of £64m. This inflow is the combination of £91m received on the sale, less £16m of
build costs in the year, less the related profit on property sale of £11m (the cash flow for which is
accounted for in the P&L).
£m
Jan 2023
Jan 2022
Elmsall 3 warehouse sale and leaseback
64.1
(29.6)
Development costs for our palletised warehouse extension in Doncaster
(11.6)
Land acquisition for potential future development
(24.0)
Total
52.5
(53.6)
44
See Appendix 2 for detail on how each of these investments are accounted for in the statutory financial statements.
59
Strategic Report Governance Financial Statements
Shareholder Information
DIVIDENDSANDSHAREHOLDERRETURNS
The Company remains committed to its long term policy of returning surplus cash, that cannot be
profitably invested in the business, to shareholders. Surplus cash (after interest, tax, capital
expenditure, investments or acquisitions and ordinary dividends) will be returned to shareholders
by way of share buybacks or special dividends. Any share buybacks would be subject to achieving a
minimum 8% equivalent rate of return (ERR). As a reminder, ERR is calculated by dividing the
anticipated pre-tax profits by the current market capitalisation
45
. During the year we returned to
our pre-pandemic ordinary dividend cycle.
ShareholderReturnsin2022/23
Ordinary dividends
An ordinary dividend of 127p was paid on 1 August 2022 and an interim dividend of 66p in respect
of the year to January 2023 was paid on 3 January 2023. The Board has proposed a final ordinary
dividend of 140p, to be paid on 1 August 2023, taking the total ordinary dividends for the year to
206p. This is subject to approval by shareholders at the Annual General Meeting to be held on 18
May 2023. Shares will trade ex-dividend from 6 July 2023 and the record date will be 7 July 2023.
Share buybacks
In the year ending January 2023 we purchased 3.5m shares at an average share price of £63.85,
totalling £224m. This reduced the number of shares in issue by 2.6% since the January 2022 year
end and represents an ERR of 10.7%. In addition, in early February 2022, we paid £4m for shares
acquired in January 2022, so total payments for buybacks in the financial year 2022/23 were £228m
.
OutlookforShareholderReturnsin2023/24
Ordinary dividends
Based on achieving our current profit guidance of £795m, it is our intention to maintain our
dividend per share at 206p (66p interim and 140p final), in line with the dividend paid for the year
ending January 2023. This would equate to a total pay-out of £250m and represents 41% of our
forecast post tax profit, a cover of 2.4 times.
Share buybacks
For the purpose of this guidance we have estimated that, after paying ordinary dividends, we will
return £220m of surplus cash to shareholders by way of share buybacks, although this figure may
reduce if we make further investments. We estimate that these buybacks, along with those in the
last year, will boost pre-tax EPS by +2.3%. This enhancement is more than offset by the increase in
the Corporation Tax rate, which reduces EPS by -6.1%. See page 27.
45
Market capitalisation is calculated based on shares in circulation, so excludes shares in the NEXT ESOT.
60
DIVIDENDSANDSHAREHOLDERRETURNS
The Company remains committed to its long term policy of returning surplus cash, that cannot be
profitably invested in the business, to shareholders. Surplus cash (after interest, tax, capital
expenditure, investments or acquisitions and ordinary dividends) will be returned to shareholders
by way of share buybacks or special dividends. Any share buybacks would be subject to achieving a
minimum 8% equivalent rate of return (ERR). As a reminder, ERR is calculated by dividing the
anticipated pre-tax profits by the current market capitalisation
45
. During the year we returned to
our pre-pandemic ordinary dividend cycle.
ShareholderReturnsin2022/23
Ordinary dividends
An ordinary dividend of 127p was paid on 1 August 2022 and an interim dividend of 66p in respect
of the year to January 2023 was paid on 3 January 2023. The Board has proposed a final ordinary
dividend of 140p, to be paid on 1 August 2023, taking the total ordinary dividends for the year to
206p. This is subject to approval by shareholders at the Annual General Meeting to be held on 18
May 2023. Shares will trade ex-dividend from 6 July 2023 and the record date will be 7 July 2023.
Share buybacks
In the year ending January 2023 we purchased 3.5m shares at an average share price of £63.85,
totalling £224m. This reduced the number of shares in issue by 2.6% since the January 2022 year
end and represents an ERR of 10.7%. In addition, in early February 2022, we paid £4m for shares
acquired in January 2022, so total payments for buybacks in the financial year 2022/23 were £228m
.
OutlookforShareholderReturnsin2023/24
Ordinary dividends
Based on achieving our current profit guidance of £795m, it is our intention to maintain our
dividend per share at 206p (66p interim and 140p final), in line with the dividend paid for the year
ending January 2023. This would equate to a total pay-out of £250m and represents 41% of our
forecast post tax profit, a cover of 2.4 times.
Share buybacks
For the purpose of this guidance we have estimated that, after paying ordinary dividends, we will
return £220m of surplus cash to shareholders by way of share buybacks, although this figure may
reduce if we make further investments. We estimate that these buybacks, along with those in the
last year, will boost pre-tax EPS by +2.3%. This enhancement is more than offset by the increase in
the Corporation Tax rate, which reduces EPS by -6.1%. See page 27.
45
Market capitalisation is calculated based on shares in circulation, so excludes shares in the NEXT ESOT.
NETDEBT,BONDANDBANKFACILITIES
Our current bond and bank facilities total £1,250m.
Based on our cash flow guidance for the year ahead, we anticipate that our net debt will peak in
August at £1,020m, comfortably within our bond and bank facilities of £1,250m, and will end the
year at around £800m.
The chart below sets out our bond and bank facilities. For context, our year end forecast for
customer receivables is £1.34bn, significantly higher than the value of our net debt.
FIRSTQUARTERTRADINGUPDATE
Our first quarter Trading Statement will cover the thirteen weeks to Saturday 29 April 2023 and is
scheduled for Thursday 4 May 2023.
Lord Wolfson of Aspley Guise
Chief Executive
29 March 2023
61
Strategic Report Governance Financial Statements
Shareholder Information
APPENDIX 1 - PRIOR PERIOD
RESTATEMENTS
OVERVIEW
As set out on page 21 we have changed how we present the profits for our key divisions in the Chief
Executive’s Review because of the growth of Lipsy and Total Platform, which are now a more
significant part of the overall Group performance. We believe these changes help improve our
reporting, providing greater clarity as the business evolves and different parts of the business
emerge and grow.
To ensure our results in the Chief Executive’s Review and statutory accounts are presented on a
consistent basis, we have restated the comparative periods (January 2022 and January 2020) for
these changes. These changes are to allocations only - there is no impact on overall Group profit.
LipsyAdjustment
In the past we have split the profit we generate from selling Lipsy goods through the NEXT website.
Half the profit was reported in our Online division. The other half we reported in the Lipsy division
which was within Other Group Activities, along with Property and Sourcing. However, because all of
Lipsy’s sales were reported in the Online division, this served to understate the margin of the Online
business. Three years ago, Lipsy’s ‘share’ of Online profit was immaterial at only £6.8m; today the
number would be £27.5m.
To correct this issue, we are now reporting all of Lipsy’s Online sales and profits through the Online
division. We have adjusted the relevant numbers from last year and three years ago, so that
comparisons are on a like-for-like basis. We have also amended our reporting for the Finance
division, where half of the Finance profit on Lipsy sales was previously reported in Lipsy.
The table below summarises how the Lipsy profit on the previous basis has been allocated to each
area of the business. This shows, for example, that of the £20.5m reported profit in January 2022,
£16.7m has now been allocated into LABEL, £1.3m into Overseas, £7.7m into Finance and the
residual central costs of £5.2m have now been allocated into Group other.
£m
Jan 2023
Jan 2022
Jan 2020
Lipsy profit (previous basis)
27.1
20.5
13.0
Allocation on restated basis
LABEL
24.9
16.7
5.9
Overseas
2.6
1.3
0.9
Total Online
27.5
18.0
6.8
Finance
11.7
7.7
6.2
Other
(12.1)
(5.2)
-
Total Lipsy allocation
27.1
20.5
13.0
62
APPENDIX 1 - PRIOR PERIOD
RESTATEMENTS
OVERVIEW
As set out on page 21 we have changed how we present the profits for our key divisions in the Chief
Executive’s Review because of the growth of Lipsy and Total Platform, which are now a more
significant part of the overall Group performance. We believe these changes help improve our
reporting, providing greater clarity as the business evolves and different parts of the business
emerge and grow.
To ensure our results in the Chief Executive’s Review and statutory accounts are presented on a
consistent basis, we have restated the comparative periods (January 2022 and January 2020) for
these changes. These changes are to allocations only - there is no impact on overall Group profit.
LipsyAdjustment
In the past we have split the profit we generate from selling Lipsy goods through the NEXT website.
Half the profit was reported in our Online division. The other half we reported in the Lipsy division
which was within Other Group Activities, along with Property and Sourcing. However, because all of
Lipsy’s sales were reported in the Online division, this served to understate the margin of the Online
business. Three years ago, Lipsy’s ‘share’ of Online profit was immaterial at only £6.8m; today the
number would be £27.5m.
To correct this issue, we are now reporting all of Lipsy’s Online sales and profits through the Online
division. We have adjusted the relevant numbers from last year and three years ago, so that
comparisons are on a like-for-like basis. We have also amended our reporting for the Finance
division, where half of the Finance profit on Lipsy sales was previously reported in Lipsy.
The table below summarises how the Lipsy profit on the previous basis has been allocated to each
area of the business. This shows, for example, that of the £20.5m reported profit in January 2022,
£16.7m has now been allocated into LABEL, £1.3m into Overseas, £7.7m into Finance and the
residual central costs of £5.2m have now been allocated into Group other.
£m
Jan 2023
Jan 2022
Jan 2020
Lipsy profit (previous basis)
27.1
20.5
13.0
Allocation on restated basis
LABEL
24.9
16.7
5.9
Overseas
2.6
1.3
0.9
Total Online
27.5
18.0
6.8
Finance
11.7
7.7
6.2
Other
(12.1)
(5.2)
-
Total Lipsy allocation
27.1
20.5
13.0
TotalPlatformAdjustment
Last year, the profit on Total Platform was reported across two business areas: (1) profit on sales
was reported within the Online division and (2) equity returns were reported within ‘Sourcing and
Other’.
The Total Platform business has grown significantly in the last 12 months and therefore sales and
profits will now be presented within its own segment. As a result, the prior year segment revenue
and profits have been restated so that all Total Platform related profit is presented in its own
segment. Total Platform did not exist in 2019/20 and hence no restatement is required for that
period. The impact is summarised below:
● Total Platform commission profit of £5.1m (2021/22: £2.1m) has been moved from NEXT Online
into the separate Total Platform line.
● Total Platform equity profit of £11.2m (2021/22: £4.7m) has been moved from Sourcing and
Other into the Total Platform line.
The impact of these two restatements by division is set out in the following tables.
63
Strategic Report Governance Financial Statements
Shareholder Information
RestatementofDivisionalProfit-2022/23,2021/22and2019/20
Please note that the figures given in the tables below have not been adjusted for rounding/casting
differences.
2022/23
PROFIT £m
Jan 2023
old basis
Lipsy
adjustment
Total Platform
adjustment
Jan 2023
new basis
Online
444.9
27.5
(5.1)
467.3
Retail
240.5
-
-
240.5
Finance (after funding costs)
158.8
11.7
-
170.5
Profit from Trading
844.2
39.2
(5.1)
878.2
Total Platform (inc equity)
-
-
16.3
16.3
Sourcing, Property, FX & Other
64.0
(39.2)
(11.2)
13.6
Recharge of interest to Finance
34.4
-
-
34.4
Operating profit
46
942.6
-
-
942.6
2021/22
PROFIT £m
Jan 2022
previously reported
Lipsy
adjustment
Total Platform
adjustment
Jan 2022
restated
Online
588.5
18.0
(2.1)
604.4
Retail
107.0
-
-
107.0
Finance (after funding costs)
141.8
7.7
-
149.5
Profit from Trading
837.3
25.7
(2.1)
860.9
Total Platform (inc equity)
-
-
6.9
6.9
Sourcing, Property, FX & Other
37.2
(25.7)
(4.7)
6.8
Recharge of interest to Finance
30.9
-
-
30.9
Operating profit
905.4
-
-
905.4
2019/20
PROFIT £m
Jan 2020
previously reported
Lipsy
adjustment
Total Platform
adjustment
Jan 2020
restated
Online
410.5
6.8
-
417.3
Retail
234.0
-
-
234.0
Finance (after funding costs)
146.7
6.2
152.9
Profit from Trading
791.2
13.0
-
804.2
Total Platform (inc equity)
-
-
-
-
Sourcing, Property, FX & Other
26.4
(13.0)
-
13.4
Recharge of interest to Finance
36.3
-
36.3
Operating profit
853.9
-
-
853.9
46
Operating profit excludes the minority interests in Joules.
64
RestatementofDivisionalProfit-2022/23,2021/22and2019/20
Please note that the figures given in the tables below have not been adjusted for rounding/casting
differences.
2022/23
PROFIT £m
Jan 2023
old basis
Lipsy
adjustment
Total Platform
adjustment
Jan 2023
new basis
Online
444.9
27.5
(5.1)
467.3
Retail
240.5
-
-
240.5
Finance (after funding costs)
158.8
11.7
-
170.5
Profit from Trading
844.2
39.2
(5.1)
878.2
Total Platform (inc equity)
-
-
16.3
16.3
Sourcing, Property, FX & Other
64.0
(39.2)
(11.2)
13.6
Recharge of interest to Finance
34.4
-
-
34.4
Operating profit
46
942.6
-
-
942.6
2021/22
PROFIT £m
Jan 2022
previously reported
Lipsy
adjustment
Total Platform
adjustment
Jan 2022
restated
Online
588.5
18.0
(2.1)
604.4
Retail
107.0
-
-
107.0
Finance (after funding costs)
141.8
7.7
-
149.5
Profit from Trading
837.3
25.7
(2.1)
860.9
Total Platform (inc equity)
-
-
6.9
6.9
Sourcing, Property, FX & Other
37.2
(25.7)
(4.7)
6.8
Recharge of interest to Finance
30.9
-
-
30.9
Operating profit
905.4
-
-
905.4
2019/20
PROFIT £m
Jan 2020
previously reported
Lipsy
adjustment
Total Platform
adjustment
Jan 2020
restated
Online
410.5
6.8
-
417.3
Retail
234.0
-
-
234.0
Finance (after funding costs)
146.7
6.2
152.9
Profit from Trading
791.2
13.0
-
804.2
Total Platform (inc equity)
-
-
-
-
Sourcing, Property, FX & Other
26.4
(13.0)
-
13.4
Recharge of interest to Finance
36.3
-
36.3
Operating profit
853.9
-
-
853.9
46
Operating profit excludes the minority interests in Joules.
APPENDIX 2 - RECONCILIATION TO
STATUTORY RESULTS
OVERVIEW
The financial information presented in pages 4 to 61 is used by management in assessing business
performance. It is also the financial information used to inform business decisions and investment
appraisals. Some of these financial metrics and performance measures are not prepared on a full
IFRS statutory accounting basis. It is common for these performance measures to be called
‘Alternative Performance Measures’ (APMs).
An explanation of the APMs used by the business is provided in the glossary.
In this appendix we provide a reconciliation between APMs and their statutory equivalents for the
following key areas:
1. Total sales (CEO report) and statutory revenue
2. NEXT profit before tax (CEO report) and profit before tax
3. Investments (CEO report) and Statutory accounting for the investments
4. Capital expenditure (CEO report) and capital expenditure for statutory reporting
5. Cash flow (CEO report) and statutory cash flow.
1.SalesandStatutoryRevenue
In common with many retailers, we use ‘Total Sales’ and similar metrics to assess the performance
of the business, and not statutory revenue. We have applied this approach consistently in prior
years and in our Trading Statements. It is our view that this provides both a useful and necessary
basis for understanding the Group’s performance and results.
DefinitionofTotalTradingSales,TotalGroupSalesandStatutorySales
Total Trading sales include the sales of all the stock we own and the gross transaction value of sales
of LABEL products sold on a commission basis.
Total Group sales include sales through Total Platform. Total Platform sales consist mainly of the
gross transaction value of client sales on Total Platform websites, but it also includes £18m of
wholesale, licensing sales and revenue from services provided on a cost plus basis. Group sales also
include sales from our Franchise division, sales through NEXT Sourcing (our sourcing company),
Joules and property income.
Statutory sales are Total Group sales less LABEL commission sales and less Total Platform sales plus
LABEL and Total Platform commissions, plus other income as summarised in the table below:
£m
Jan 2023
Jan 2022
Total Group sales
5,414.5
4,861.8
less LABEL & Overseas commission sales (full price and markdown)
- 553.8
- 450.3
less Total Platform sales
- 144.4
- 39.1
plus commission earned on LABEL sales
+207.5
+169.5
plus commission earned on Total Platform sales
+24.6
+10.6
plus Total Platform wholesale, licensing and cost plus revenues
+18.2
+0.6
plus other income (e.g. delivery charges)
+67.4
+72.8
Total Group statutory sales
5,034.0
4,625.9
65
Strategic Report Governance Financial Statements
Shareholder Information
2.ReportingofJoules
During the year NEXT acquired 74% of Joules with the remaining 26% acquired by Tom Joule. The
share held by Tom Joule is known, for statutory reporting purposes, as a ‘non-controlling interest’ or
sometimes referred to as a ‘minority interest’.
For statutory reporting purposes, 100% of the Joules business is consolidated into the NEXT group
results. At the bottom of the statutory income statement the element of the profit attributable to
NEXT shareholders, being 74% of the Joules profit after tax, is then presented with the residual
element shown as being the profit attributable to non-controlling interests (i.e. the ‘minority
interest’).
For the purposes of the CEO report, the effect of the minority interest is removed from the
divisional profits and the profit before tax. This means that the following lines show 74% of the
Joules results:
● Operating profit
● Net interest
● Profit before tax
This is consistent with how management assesses and measures its performance for internal
reporting and management purposes. The reconciliation between the CEO report and Statutory
operating profit, interest and profit before tax is shown below for reference.
CEO report
Statutory reporting
Difference
Operating profit
942.5
941.5
1.0
Finance income
5.8
5.7
0.1
Finance costs
(77.9)
(77.9)
0.0
Profit before tax
870.4
869.3
1.1
3.InvestmentsinThird-PartyBrands
During the year NEXT has invested in six third-party brands. The table on page 59 of the CEO report
sets out the cash cost of these investments.
The legal structure of these investments differs from transaction to transaction and, as a result, the
statutory reporting for these transactions may differ from the investment summary set out on page
59 of the CEO report. The table below shows how each transaction is accounted for in the statutory
financial statements.
Investment per CEO report
Value as per
CEO report £m
Equity
stake %
Statutory accounting
Note
Reiss
(45.3)
51%
Equity accounting
1
Reiss dividend
15.3
n/a
Equity accounting
1
Joules (equity and loan)
(28.8)
74%
Consolidated
2
Joules head office
(7.4)
n/a
Plant, property & equipment
3
JoJo Maman Bébé
(15.9)
44%
Equity accounting
4
Swoon
(3.5)
25%
Equity accounting
4
MADE.com
(3.4)
n/a
Intangible
5
Sealskinz
(1.9)
19.9%
Investment accounting
6
Total investments
(90.9)
66
2.ReportingofJoules
During the year NEXT acquired 74% of Joules with the remaining 26% acquired by Tom Joule. The
share held by Tom Joule is known, for statutory reporting purposes, as a ‘non-controlling interest’ or
sometimes referred to as a ‘minority interest’.
For statutory reporting purposes, 100% of the Joules business is consolidated into the NEXT group
results. At the bottom of the statutory income statement the element of the profit attributable to
NEXT shareholders, being 74% of the Joules profit after tax, is then presented with the residual
element shown as being the profit attributable to non-controlling interests (i.e. the ‘minority
interest’).
For the purposes of the CEO report, the effect of the minority interest is removed from the
divisional profits and the profit before tax. This means that the following lines show 74% of the
Joules results:
● Operating profit
● Net interest
● Profit before tax
This is consistent with how management assesses and measures its performance for internal
reporting and management purposes. The reconciliation between the CEO report and Statutory
operating profit, interest and profit before tax is shown below for reference.
CEO report
Statutory reporting
Difference
Operating profit
942.5
941.5
1.0
Finance income
5.8
5.7
0.1
Finance costs
(77.9)
(77.9)
0.0
Profit before tax
870.4
869.3
1.1
3.InvestmentsinThird-PartyBrands
During the year NEXT has invested in six third-party brands. The table on page 59 of the CEO report
sets out the cash cost of these investments.
The legal structure of these investments differs from transaction to transaction and, as a result, the
statutory reporting for these transactions may differ from the investment summary set out on page
59 of the CEO report. The table below shows how each transaction is accounted for in the statutory
financial statements.
Investment per CEO report
Value as per
CEO report £m
Equity
stake %
Statutory accounting
Note
Reiss
(45.3)
51%
Equity accounting
1
Reiss dividend
15.3
n/a
Equity accounting
1
Joules (equity and loan)
(28.8)
74%
Consolidated
2
Joules head office
(7.4)
n/a
Plant, property & equipment
3
JoJo Maman Bébé
(15.9)
44%
Equity accounting
4
Swoon
(3.5)
25%
Equity accounting
4
MADE.com
(3.4)
n/a
Intangible
5
Sealskinz
(1.9)
19.9%
Investment accounting
6
Total investments
(90.9)
Note 1: Reiss
NEXT increased its equity stake in Reiss from 25% to 51%. While this provides NEXT with the largest
shareholding, it does not give NEXT control of the Reiss business. Instead, NEXT has joint control as
certain operational decisions require agreement of all shareholders. As a result, the investment in
Reiss is reported using ‘Equity Accounting’. In summary, this means that:
● The original cost of the investment is shown in the balance sheet.
● Each year this is adjusted for NEXT’s share of the performance of the Reiss group.
● Dividends received are set off against the investment in the balance sheet.
The full accounting policy for ‘Equity Accounting’ is set out on page 181 under Basis of
Consolidation. The cost also includes the preference shares which are a financial asset.
Note 2: Joules
NEXT acquired a 74% controlling interest in a company called Harborough Hare Holdings Limited
(‘Joules’). As NEXT has control of Joules (and its subsidiaries) we consolidate their results into the
NEXT Group financial statements. In summary, this means that:
● All of the individual assets and liabilities of the Joules group are shown in the NEXT consolidated
balance sheet.
● All of the profit and loss from Joules group is shown in the consolidated NEXT Income Statement
on a line by line basis.
In the financial year 2022/23, the Joules Group reported a loss of -£4m.
Further details on the Group accounting policy for consolidated investments is included on page
181.
Note 3: Joules Head Office
The acquisition of the Joules head office was carried out at the same time as the wider Joules
acquisition. It has therefore been included in investments. For statutory reporting purposes this is
treated as the acquisition of a property in Plant, Property and Equipment.
Note 4: JoJo Maman Bébé and Swoon
NEXT has taken a non-controlling equity stake in both businesses. However, we consider that from
a statutory reporting perspective NEXT has ‘significant influence’ and therefore, like Reiss, these
have been equity accounted for in the statutory financial statements. The process and basis is
therefore the same as set out for the Reiss equity noted above.
Note 5: MADE.com
NEXT acquired the brand name, domain names and intellectual property of MADE.com for £3.4m.
This is an acquisition of an intangible asset and therefore for statutory reporting purposes has been
included as an addition within the intangible assets line. It will be depreciated over its useful life.
Full detail on the Group accounting policy for intangible assets is included on page 183.
Note 6: Sealskinz
NEXT acquired a 19.9% equity stake in Sealskinz. NEXT does not have ‘significant influence’ over
Sealskinz due to the large number of other shareholders, which dilutes the influence of any one
shareholder. NEXT has therefore recognised this as an investment in its balance sheet and adjusts
this each year for the fair value movement. Any gains or losses are then reported within the Income
Statement.
67
Strategic Report Governance Financial Statements
Shareholder Information
4.CapitalExpenditure
The capital expenditure in the cash flow presented in the CEO report is presented based on the
internal operational view of capital expenditure. From a statutory viewpoint, there are some
differences which are reconciled below.
Jan 2023 £m
Capital expenditure per CEO report
206.0
Add MADE.com
3.4
Add acquisition of Joules head office
7.4
Add property build costs
31.1
Less capital accruals
(1.1)
Capital expenditure per statutory reporting
246.8
In the CEO report, expenditure on MADE.com and Joules head office has been presented as part of
the Investment costs while the Property build costs are shown separately within the Property costs
section. Capital accruals are shown as part of working capital in the cash flow in the CEO report.
5.CashFlow
The cash flow statement presented in the CEO report is consistent with the cash flow statement
used by management in its decision making processes and internal reporting. It is this view of the
cash flows, and in particular the ‘Surplus Cash’ line, that informs decision making on distributions.
However, this approach, while used by management, is not consistent with the presentation of cash
flows on a statutory basis.
In this section we provide a walk forward from Surplus Cash presented in the CEO report cash flow
to ‘net cash from operating activities’ in the statutory cash flow. The overall total cash flow is the
same - the difference is limited to presentation.
The statutory cash flow is split into three main sections:
● Operating activities: Cash flows primarily derived from our revenue-producing activities.
● Investing activities: Cash flows that result in the recognition of an asset in the balance sheet (i.e.
capex or investing in another company).
● Financing activities: Cash flows that result from financing - issue of shares, share buybacks, issue
of bonds, interest payments/receipts, dividends and leases. The cash flow in the CEO report is
presented in a different way, as explained further overleaf.
Note
£m
Surplus cash from trading activities
1
398.4
Add back interest charge to get to Group PBT
2
71.1
Depreciation / impairment on plant, property and equipment
3
(16.7)
Capital expenditure
4
205.8
Purchase of shares by ESOT
5
124.0
Disposal of shares by ESOT
5
(34.3)
Customer receivables
6
(92.0)
Lease payments (net of incentives)
7
157.0
Working capital and other
8
(14.5)
Net cash from operating activities - per statutory cash flow
9
798.8
68
4.CapitalExpenditure
The capital expenditure in the cash flow presented in the CEO report is presented based on the
internal operational view of capital expenditure. From a statutory viewpoint, there are some
differences which are reconciled below.
Jan 2023 £m
Capital expenditure per CEO report
206.0
Add MADE.com
3.4
Add acquisition of Joules head office
7.4
Add property build costs
31.1
Less capital accruals
(1.1)
Capital expenditure per statutory reporting
246.8
In the CEO report, expenditure on MADE.com and Joules head office has been presented as part of
the Investment costs while the Property build costs are shown separately within the Property costs
section. Capital accruals are shown as part of working capital in the cash flow in the CEO report.
5.CashFlow
The cash flow statement presented in the CEO report is consistent with the cash flow statement
used by management in its decision making processes and internal reporting. It is this view of the
cash flows, and in particular the ‘Surplus Cash’ line, that informs decision making on distributions.
However, this approach, while used by management, is not consistent with the presentation of cash
flows on a statutory basis.
In this section we provide a walk forward from Surplus Cash presented in the CEO report cash flow
to ‘net cash from operating activities’ in the statutory cash flow. The overall total cash flow is the
same - the difference is limited to presentation.
The statutory cash flow is split into three main sections:
● Operating activities: Cash flows primarily derived from our revenue-producing activities.
● Investing activities: Cash flows that result in the recognition of an asset in the balance sheet (i.e.
capex or investing in another company).
● Financing activities: Cash flows that result from financing - issue of shares, share buybacks, issue
of bonds, interest payments/receipts, dividends and leases. The cash flow in the CEO report is
presented in a different way, as explained further overleaf.
Note
£m
Surplus cash from trading activities
1
398.4
Add back interest charge to get to Group PBT
2
71.1
Depreciation / impairment on plant, property and equipment
3
(16.7)
Capital expenditure
4
205.8
Purchase of shares by ESOT
5
124.0
Disposal of shares by ESOT
5
(34.3)
Customer receivables
6
(92.0)
Lease payments (net of incentives)
7
157.0
Working capital and other
8
(14.5)
Net cash from operating activities - per statutory cash flow
9
798.8
Note 1: As per the cash flow statement on page 56 of the CEO report, Surplus Cash from Trading
Activities was £398m for the year to January 2023.
Note 2: The cash flow in the CEO report starts with the NEXT Group profit before tax of £870.4m,
which is after interest costs of £72.2m and removes the Joules non-controlling interest of £1.1m.
This differs from the statutory cash flow statement, which starts its cash flow statement with
“operating profit” of £941.5m.
Note 3: The cash flow in the CEO report includes the depreciation, amortisation, impairment and
gains on disposals of our plant, property and equipment including sale and leaseback transactions.
In the statutory cash flow these items are presented within operating cash flows and investing
activities.
Note 4: Management includes the capital expenditure (capex) which it considers to be part of its
trading activity and deducts this capex when calculating Surplus Cash. In the statutory cash flow, all
capex is included within investing activity and hence not part of operating cash flows. Therefore the
capex of £206m in the CEO report has been added back in the bridge above.
Note 5: Surplus cash is recognised after the purchase and disposal of shares in the ESOT. In contrast
they are classified as financing activity in the statutory cash flow.
Note 6: The customer receivables cash movement relates to the nextpay receivables balance. For
management purposes, movements in this balance are excluded from Surplus Cash. In contrast, this
is included within operating cash flow for statutory reporting.
Note 7: The cash flows associated with our leases, which are predominantly store related, are
considered by management to be an integral part of our trading cash flows and hence are included
in the calculation of Surplus Cash. From a statutory perspective, lease cash flows are included in
financing activity (as a lease is deemed a form of debt).
Note 8: The remaining difference relates to immaterial movements on working capital and other
items such as the equity profit from our investments.
Note 9: This value of £798.8m can be reconciled to the line “Net cash from operating activities” in
the statutory cash flow statement.
69
Strategic Report Governance Financial Statements
Shareholder Information
BUSINESS MODEL
For Our Customers
• More product choice – A combination of
NEXT products and third-party brands
means customers can choose from an
extensive range of products.
• Cost and quality control – Our sourcing
structure provides excellent quality and
accessibly priced products.
• Outstanding customer experience – Our
extensive logistics operations provide
quick and cost-effective delivery and
our call centres help maintain great
customer satisfaction.
For Our Third-Party Brand Partners
• Strong relationships – We aim to be the
most profitable route to market for
our partners.
The key elements of our business model are set out here, together with the guiding principles that have shaped the direction in which we have
taken the business. We focus on NEXT and have included those Group companies who have traded in the full period with material values. For this
reason Joules is not included.
OUR OBJECTIVES
Our purpose is to offer beautifully designed, excellent quality
clothing, homeware and beauty products which are responsibly
sourced and accessibly priced, and in doing so build shareholder
value through long term, sustainable growth in Earnings Per Share.
We are, at heart, a fashion, homeware and beauty business with
excellent operations and strong financial disciplines. We have spent
years honing those skills and the supporting infrastructure, building
the trust and confidence of our customers, suppliers and partners
along the way. It is these qualities that we aim to leverage and
develop, supported by our core principles of doing business
responsibly. We look to:
1. Add value
• Use our product skills, distribution networks, systems, services and
sourcing to create goods and provide services that consumers
cannot easily find elsewhere.
• Focus on customers’ satisfaction levels by improving the customer
experience in our stores and continuing to develop and enhance
our Online website and App.
2. Play to our strengths
• Improve and develop our product ranges by using our design
skills to create quality products at affordable prices.
OUR INFRASTRUCTURE
We draw on all of our assets – warehouses,
delivery networks, systems, websites,
stores, marketing, credit facilities – to
support a business selling hundreds of
third-party brands alongside our own
NEXT products.
• Warehousing & Distribution
9 UK warehouses, 7 UK depots and 1
international hub which are fully integrated
with our cost efficient distribution facilities.
Our distribution network serves our Retail
stores and Online customer deliveries for
both NEXT and third-party branded
products. We also facilitate the induction of
products held in third-party warehouses
into NEXT’s distribution network for onward
delivery to customers.
• NEXT Online
Around 7 million UK Online customers and
1.6 million overseas customers.
• Well-Connected Store Network
Around 500 stores in UK & Eire and 206
franchised stores in 33 countries. Our stores
play an important role in supporting our
Online customers; nearly half of our UK
Online orders are collected in-store and the
majority of returns are through our stores.
• Digital Marketing Systems
The development of online marketing
systems to target products and brands to
the customers most likely to want those
items. Our systems have the ability to
manage significant amounts of data and
incorporate sophisticated search facilities
and web based marketing tools that link
with our email and social marketing systems.
• Consumer Credit
NEXT Finance has built a high quality
receivables book with customer credit
balances amounting to £1.5bn. The ability
to sell products on credit has proven to
be an attractive service to customers
which benefits Online sales and Group
profitability. The customer receivables are a
valuable asset, adding to the Group’s
financial strength.
• Call Centres
NEXT operates call centres in the UK and
overseas to support its worldwide customer
service operations for Retail, Online and
NEXT Finance. We also employ multi-
language services to meet the needs of our
international customers.
• Supply Chain
NEXT has a well established supply chain
that is supported by our overseas sourcing
operation, NEXT Sourcing Limited (NSL).
NSL provides buying, sourcing and design
skills which support the product teams in
the UK. NEXT owns a similar, smaller
operation based in Portugal overseeing
sourcing in Europe and North Africa.
HOW WE CREATE VALUE
The combination of NEXT products and third-party brands, coupled with the strong infrastructure and our core principles, enables the business
70
WHAT WE DO
The business has evolved at pace in recent
years and continues to do so. The growth in
our LABEL business and, more recently, the
Total Platform business have expanded the
channels through which we generate sales.
These can be summarised across four
key streams:
• NEXT and Lipsy Branded Products
Our in-house team develops NEXT branded
products offering great design, quality and
value for money. Lipsy is our wholly-owned
subsidiary which designs and sells its own
branded and other branded products.
• Third-Party Brands
Our LABEL business sells third-party
clothing, home and beauty brands online.
These are sold on a commission or
wholesale basis.
• Total Platform
We leverage our infrastructure by offering a
complete suite of services to third-party
brands. We provide services such
as websites, marketing, warehousing,
distribution networks and contact centres.
• Third-Party Brand Licences
Our licensing business creates value by
combining NEXT’s sourcing and quality
expertise with the design inspiration of
partner brands.
For Our Total Platform Clients
• We enable our clients to focus on the areas
where they add most value, such as design
and buying, rather than capital-intensive
areas such as website development
and logistics.
Responsibly
• We source globally to deliver NEXT
products that are responsibly sourced.
We are working closely with suppliers to
fulfil our ambition to source our main raw
materials through known, responsible or
certified routes by 2025.
For Our Shareholders
• We manage financial resources effectively
to maximise shareholder value. NEXT is
highly cash generative; after investing in
the business, surplus cash is returned
to shareholders.
• Increase the number of profitable Online customers and their
spend, both in the UK and internationally. Our Online business is
complemented by our LABEL offering of branded products and, in
the UK, the credit facilities (nextpay and next3step). Our objective
is to be our customers’ first choice online retailer for clothing,
beauty, footwear and home products.
3. Make a margin
• Achieve healthy gross and net margins through efficient product
sourcing, stock management and cost control.
• Healthy margins help create stability that allows the business to
withstand the vagaries of any consumer facing business.
4. Make good returns on capital invested
• Support the Group’s access to low cost finance by maintaining
a strong balance sheet and secure financing structure.
• Make a return on capital commensurate with risk, and using robust
investment appraisal models targeting financial hurdles, including
cash payback and return on capital invested.
• Maximise the profitability of retail selling space.
5. Generate and return surplus cash to shareholders
• This is done by way of share buybacks and/or dividends.
to consistently create value for our stakeholders.
71
Strategic Report Governance Financial Statements
Shareholder Information
KEY PERFORMANCE INDICATORS (KPIs)
4. Based on dividends paid in the Cash Flow Statement. Refer to Note 7 to the financial statements.
5. A total of 3,508,417 shares were purchased in the financial year (2022: 177,500, 2020: 5,376,718) at an average cost per share of £63.85 (2022: £74.04, 2020: £55.83) including stamp
duty and associated costs. The average price before costs was £63.45 (2022: £73.58, 2020: £55.49).
KPIs are designed to measure the development, performance and financial position of the business. The KPIs include Alternative Performance
Measures (APMs).
All KPIs which show a growth metric are based on a year-on-year calculation of growth.
NEXT Sales
APM
NEXT Brand full price sales
1
growth NEXT Total trading sales² growth
1. Full price sales are VAT exclusive sales of stock
items excluding items sold in our sale events, our
Clearance operations, Joules and Total Platform.
It includes interest income on those sales.
2. Total trading sales are VAT exclusive full price and
markdown sales including the full value of
commission based sales and interest income for
our Online, Retail and Finance divisions (as
described in Note 1 to the financial statements).
+6.9% +8.4%
202
3
202
2
202
0
+6.9
+4.0
+32.4
202
3
202
2
202
0
+8.4
+3.5
+32.8
NEXT profitability and Earnings Per Share (EPS)
NEXT profit before tax
APM
EPS (Basic)³
3. For further information on EPS, refer to Note 8 of
the financial statements.
£870.4m 573.4p
202
3
202
2
202
0
870.4
823.1
748.5
202
3
202
2
202
0
573.4
530.8
472.4
Return to shareholders
Special/Ordinary dividends⁴ Share buybacks⁵ Total return to shareholders
£237.4m £224.0m
£461.4m
202
3
202
2
202
0
237.4
213.6
344.5
202
3
202
2
202
0
224.0
300.2
13.1
202
3
202
2
202
0
461.4
513.8
357.6
72
9. Return on Capital Employed is defined as the NEXT Finance net profit (after the interest charge relating to the cost of funding), divided by the average debtor balance.
10. Restated for change in reporting of Lipsy profit.
NEXT Online sales performance
APM
Full price sales growth Average active customers⁶ (000’s) (cash/credit) Online margin (excl. Finance)⁷
-3.9% 5,297/2,833
15.2%
202
3
202
2
202
0
-3.9
+11.9
+29.8
202
3
202
2
202
0
2,8335,297
2,7595,447
3,420 2,582
Cash Credit
202
3
202
2
202
0
15.2
19.2
19.4
APM
The APMs are not defined by IFRS and therefore may not be directly comparable with other companies’ APMs. These measures are not
intended to be a substitute for, or superior to, IFRS measurements. Where appropriate a reconciliation between an APM and its closest
statutory equivalent is provided in the Glossary on page 245 to 248 and Appendix 2.
6. Average active customers are defined as those who have placed an Online order or received a standard account statement in the last 20 weeks. Credit customers are those who order
using an Online credit account, whereas cash customers are those who pay when ordering (including overseas).
7. Restated for change in Lipsy and Total Platform and after deducting allocation of lease interest.
8. Selling space is defined as the trading floor area of a store which excludes stockroom and administration areas and is shown as at the financial year end (excluding Joules). The square
footage excludes 465 sq ft (2022: 421 sq ft) of space occupied by concessions.
NEXT Retail sales performance
APM
Full price sales growth Retail selling space sq ft⁸ (000’s) Retail margin⁷
+30.0% 7,767sq.ft
11.0%
202
3
202
2
202
0
+30.0
+48.6
-4.3
202
3
202
2
202
0
7,767
8,031
7,980
202
3
202
2
202
0
11.0
+4.5
+9.5
NEXT Finance
Interest income Return on Capital Employed
(after cost of funding)⁹
,
¹⁰
APM
Profit (after cost of funding)¹⁰
APM
£274.4m 14.5%
£170.5m
202
3
202
2
202
0
274.4
268.7
249.4
202
3
202
2
202
0
14.5
12.9
14.1
202
3
202
2
202
0
170.5
152.9
149.5
73
Strategic Report Governance Financial Statements
Shareholder Information
RISKS AND UNCERTAINTIES
Risk management and internal control framework
Approach
The Board has overall responsibility for risk management, the supporting system of internal controls and for reviewing their effectiveness. The Group
operates a policy of continuous identification and review of business risks. This includes the monitoring of key risks, identification of emerging risks
and consideration of risk mitigations after taking into account risk appetite and the impact of how those risks may affect the achievement of
business objectives.
The risks and uncertainties that the business faces evolve over time. Executive directors and senior management are delegated the task of
implementing and maintaining controls to ensure that risks are managed appropriately. The risk management process is designed to identify,
evaluate and mitigate, rather than eliminate, the risk of failure to achieve business objectives. This means it therefore can only provide reasonable
and not absolute assurance.
Our framework for risk governance
We have a ‘three lines of defence’ model of risk management, as illustrated below.
First Line Second Line Third Line
Board
• Responsible for ensuring that risk is effectively assessed and
managed across the Group.
• Determines the Group’s risk appetite.
• Overall responsibility for monitoring and reviewing the effectiveness
of risk management and internal control systems.
• Reviews the Group’s emerging and principal risks.
Executive Risk Owners
• Own the corporate risks and perform bi-
annual reviews of these risks.
• Ensure that risks are identified, assessed,
adequately controlled and mitigated.
• Review and identify existing and emerging
risks with the assistance of the risk
management function.
Business Risk Owners
• Responsible for ensuring that risks are
managed within agreed risk appetite limits.
• Drive design and implementation of controls.
• Review, identify and assess existing and
emerging risks with the assistance of the
risk management function twice a year.
Risk Steering Group
• Review and develop Risk Universe and
controls environment.
• Oversee the development of the Group’s
risk monitoring, assessment and reporting
processes.
• Ongoing consideration of horizon scanning
and emerging risks.
• Oversight to ensure effective incident
management processes.
Risk Management Function
• Manage and report on the risk registers.
• Work with and challenge risk owners to
assess risk and identify controls.
• Implement risk management processes and
framework improvements.
Internal Audit
• Agree internal audit programme in
conjunction with Group Risk Register.
• Conduct internal audit programme and
report to the Audit Committee.
• Respond to issues as they arise and amend
the audit programme accordingly.
Audit Committee
• Monitors the Group’s internal financial controls and internal control
and risk management systems.
• Supports the Board’s robust review of the above.
• Approves the internal audit programme.
74
How we identify and monitor risk
Our approach to risk identification is illustrated by the following diagram of our Enterprise Risk Management Universe and is described in more
detail in the following pages. The adoption of an Enterprise Risk Management Universe enables a consistent approach to the identification,
management, reporting and oversight of risks.
Principal Risks
Corporate Risks
Underpinned by an Enterprise Risk Management Universe, assigned executive risk custodians and used to manage our business risk appetite.
Component Risks
Map to corporate risks providing a more granular risk categorisation and reporting capability.
Business Risks
Under the management of and assessed by 20 key business entities, mapped to component risks.
Legal & Compliance
Brand Marketing
eCommerce
Retail
Human Resources
Customer Services
IT Infrastructure & Services
IT Development
Product Operations
Warehousing
Product
Group Property
3rd Party Brands & LABEL
Lipsy Group
NEXT Sourcing
Central Finance
Finance Operations
Treasury
Commercial Finance
Total Platform
Financial
Financial Market
Balance Sheet Strength
& Credit
Financial Processing
& Reporting
Operational
Product Design,
Production & Service
Marketing & Sales
Customer Service
Stock, Warehousing
& Distribution
Key Suppliers &
Supplier Management
People
Critical Systems,
Information Security
Compliance
Legal &
Regulatory Compliance
Health, Safety &
Wellbeing Compliance
Business Development
Business Development
Business Implementation
Brand, Trust & Reputation
Planning, Forecasting
& Performance
75
Strategic Report Governance Financial Statements
Shareholder Information
The business has been divided into 20 operational areas for risk
management, where local business risks are identified, assessed
and managed.
Business risks are identified bottom up through discussions with
operational area owners and mapped to components of our Risk
Universe for reporting purposes. Components are then mapped to
executive owned corporate risks, which in turn are mapped to the
principal risks that may impact our ability to achieve our business
objectives. The principal risks and key business risks are also subject to
a top down review and challenge process.
Business risks are logged in an integrated risk management system and
each business risk has a named owner. A standard 5x5 risk matrix is
used to assess the potential impact of each risk measured in terms of
the financial impact and the likelihood of the risk crystallising within a
two year timeframe. The assessment considers both the inherent risk
(before any mitigating controls) and residual risk (after mitigating
controls are applied).
Each business entity risk register is assessed through a three stage
management sign off process: initially with the relevant business risk
assessor (a senior manager) then via the business entity owner
(operational director level), and finally with the executive director who
is assigned as the corporate risk owner. The assessment includes
consideration of the key controls and the resulting reduction in risk.
The ongoing review and development of the Enterprise Risk
Management Universe and controls environment is the responsibility of
the Risk Steering Group. The Risk Steering Group is chaired by the
Company Secretary & Legal Director and has responsibility for providing
direction and support to the management of risk across the Group.
It meets bi-monthly and its activities include:
• Establishing clear governance and accountability for risk and any
associated (remediation) activities.
• Providing a point of escalation for critical or emerging risks.
• Providing the Board and Audit Committee with sufficient information
to enable them to discharge their risk reporting requirements.
• Reviewing the corporate level risks, informed by the most significant
business risks assessed across all business entities.
• Ongoing consideration of horizon scanning, any gaps and assessment
of significant risk events.
• Annual benchmarking against the published principal risks of peers,
particularly those operating in the retail and consumer credit sectors.
The key features of our risk governance, assessment and monitoring
processes are:
• Robust risk identification processes – the bottom up identification of
risks is supplemented by top down review by executive directors.
The Risk Steering Group also supports the risk identification process
by: (1) ensuring that the risks or control issues that give rise to any
significant incidents are adequately and accurately captured in the
Risk Universe; and (2) assisting with the assessment of emerging risks.
• Clear risk ownership and accountability – each business risk has an
owner and each corporate risk has an executive director owner.
• Target business risk appetite and oversight – as corporate risk owners,
the executive directors are responsible for setting the risk appetite
(subject to Board agreement) and overseeing the appropriateness of
risk mitigation through designated governance groups. Each principal
risk is also mapped to one or more key operational/governance
meetings to ensure there are no gaps in our coverage and monitoring
of those risks.
• Consistency – our 5x5 risk scoring matrix is used to drive consistency
of risk assessment and quantification. Inherent risk and residual risk
is measured, with each business risk assessed both before and after
mitigating controls are applied.
• Key control activities are captured – these are the control activities
the business places reliance on to manage risk within target appetite
and are subject to Internal Audit review and monitoring.
Evaluation of the effectiveness of risk
management and internal control systems
The evaluation of the effectiveness of the Group’s risk management and
internal control systems for all parts of the business has been carried
out twice during the year. This covered all material financial, operational
and compliance controls. The evaluation process involved the following:
• Executive director review – the most significant corporate level risks
of the Group, as identified by the risk management process, and their
associated controls, were assessed in detail by the executive directors.
The objective of this top down review was to ensure that the
appropriate risks had been accurately captured within the risk
management processes described above, that adequate controls
were in place to mitigate these risks and that their potential impact
had been robustly assessed. The executives also considered the
appropriateness of the principal risks identified.
• Audit Committee review – at the November 2022 meeting,
management presented the Committee with details of the risk
management processes, including the Risk Universe, the risk scoring
matrix methodology and the ownership and oversight of risks.
The Committee also considered the nature and circumstances around
significant risk events that had occurred during the year to assess
whether they suggested significant failure or weakness in internal
controls. An internal financial controls matrix summarising the key
processes and oversight of the Group’s financial controls was
reviewed, with input from senior finance management.
The Committee also satisfies itself that management’s response to
any financial reporting or internal financial control issues identified by
the external auditor is appropriate.
• Board review – at the January 2023 meeting, the Board undertook its
formal review of the effectiveness of the risk management systems of
the Group. Management supported this review by presenting
information about the Group’s risk management systems and
processes, the output of the reviews undertaken by the Audit
Committee and the executive directors, information about the most
significant business risks and a summary of the type and regularity of
key executive director led risk governance meetings, mapped to the
principal risks.
RISKS AND UNCERTAINTIES
76
To support the Audit Committee and Board in discharging their
responsibilities, they were provided with the following information:
• Relevant extracts regarding their responsibilities with regard to risk
from the Corporate Governance Code, the FRC Guidance on the
Strategic Report and also on Risk Management, Internal Control and
Related Financial and Business Reporting.
• A review of the Principal Risks identified by other comparable listed
companies. This helps to ensure that there are no material gaps in our
risk identification or impact assessment.
Following the evaluation process described above, the Board is satisfied
that the material controls have been operating effectively for the
financial year to January 2023 and up to and including the date of this
Annual Report (see page 123 for further details). No significant failings
of internal control were identified during these reviews.
The business will continue to review opportunities to develop,
strengthen and improve the effectiveness of our risk management and
internal control systems. Planned improvements in the year ahead
include ensuring that key controls are documented and reviewing how
and when they are tested.
Climate risk
We have identified the risks posed to NEXT by climate change and how
they might impact our business. The risks include the short to medium
term impacts including transitional changes (for example, legislation
and financial) which we closely monitor, as well as the long term
emerging risk of climate change (for example, physical changes including
the increased likelihood of flooding events) for which we have
undertaken an analysis of our key product sourcing locations.
Having assessed and modelled the risks, we believe that the short to
medium term climate-related risks are not material for our business,
although we recognise that we will need to keep abreast of future
climate change legislation as well as consumer preferences. The risks
relating to climate change are therefore an integral part of several of our
principal risks, but are not currently considered to be a separate
principal risk of the business.
The environmental and climate change related risks are overseen by the
ESG Steering Group, supported by the Risk Management team and are
reported to the executives and ultimately the Board. Further details
regarding NEXT’s climate risks are provided in our TCFD disclosures on
pages 89 to 96.
Risk appetite
Our approach to risk management aims to bring controllable risks
within our appetite and enable our decision making to balance
uncertainty against the objective of building shareholder value through
long term, sustainable returns for our shareholders and other
stakeholders. On page 70 we detail our core principles of doing business
and how those principles contribute to managing the business
objectives within the Board’s risk appetite. Our financial disciplines
ensure that each of our business divisions make net margins that are
sufficient to allow them to withstand the inevitable vagaries of any
consumer facing business. We also ensure that we make healthy returns
on capital employed, commensurate with the risks involved in our sector.
Emerging risks
Identification and review of emerging risks are integrated into our risk
review process. Emerging risks are those risks or combinations of risks
which are often rapidly evolving for which the impact and probability of
occurrence have not yet been fully understood and consequently the
appropriate mitigations have not yet been fully identified. All risk
owners and managers within the business are challenged to consider
emerging risks and this is enhanced by formal horizon scans by the
executive directors and the Risk Steering Group, and reviewed by the
Audit Committee and Board. Key emerging risks that we are monitoring
include the uncertain economic and geopolitical external environment
and its potential impact on our business and customers (see page 48 for
further information), and the impact of increasing focus on ESG issues,
particularly carbon emissions reduction (see page 91).
Black swan events
The Audit Committee has reviewed the way in which very large and
disruptive events would be managed by the business. This review
included looking at the learnings from the way the management team
responded to the pandemic, the resilience of the business, the various
liquidity levers available to it (with associated estimated quantums and
timescales), the business impact assessment process and continuity
plans in place. A simulation exercise was successfully undertaken in the
year to test the effectiveness of our major incident processes.
77
Strategic Report Governance Financial Statements
Shareholder Information
Risk trend
↑ Increasing
↔ Unchanged
↓ Decreasing
Link to strategy
Improving and developing our product ranges
Maximising the profitability of retail selling space
Increasing the number of profitable NEXT Online customers
Managing margins
Focusing on customer experience and satisfaction
Maintaining the Group’s financial strength
Generating and returning surplus cash to shareholders
Principal risk and description How we manage or mitigate the risk
Business strategy development and implementation
If the Board adopts the wrong business strategy or does not
implement its strategies effectively, our business may
suffer. The Board, therefore, needs to understand and
properly manage strategic risk, taking into account specific
retail sector risk factors, in order to deliver long term
growth for the benefit of NEXT’s stakeholders.
• The Board reviews business strategy on a regular basis to determine how sales
and profit can be maximised and business operations made more efficient.
• The Chief Executive provides regular updates at Board meetings regarding key
opportunities and progress of major initiatives.
• Our International Online business, third-party LABEL business and Total Platform
provide geographic and product diversification.
• Our disciplined approach to sales, budgeting, stock control, investment returns
and cost control ensures the Company continues to generate strong profits and
cash flows.
• The Board and senior management consider strategic risk factors, wider economic
and industry specific trends that affect the Group’s businesses, the competitive
position of its products and the financial structure of the Group.
• A detailed plan to manage the business going forward and its longer term direction
of travel exists and is clearly articulated to our stakeholders in our annual and half
yearly reports.
• Longer term financial scenarios for our Retail business have been prepared and
stress tested. This process provides a mechanism for ensuring that business
profitability is maximised through efficient allocation of resources and
management of costs.
Link to strategy
Risk trend
↔
Assessment of principal risks
and uncertainties
The directors confirm that they have carried out a robust assessment of
the principal risks and uncertainties facing the Group, including any
emerging risks and those that would threaten its business model, future
performance, solvency or liquidity. Please refer to the Corporate
Governance Report on page 117 for further details. After review, the
Board agreed that no changes were necessary to the principal risks and
uncertainties this year. They did, however, agree to changes to some of
the principal risk trends, as indicated in the following pages.
The principal risks are described below, together with an explanation of
how they are managed or mitigated.
The Board is committed to ensuring that the key risks are managed on
an ongoing basis and the business operates within its risk appetite and
took into consideration the principal risks of the business when it
assessed the long term viability of the business. Although these risks all
have the potential to affect future performance, work is undertaken to
mitigate and manage these risks such that they should not threaten the
overall viability of the business over the three year assessment period
(see the viability assessment on page 83).
RISKS AND UNCERTAINTIES
78
Principal risk and description How we manage or mitigate the risk
Product design and selection
Our success depends on designing and selecting products
that customers want to buy, at appropriate price points and
stocked in the right quantities.
In the short term, a failure to manage this risk may result in
surplus stock that cannot be sold and may have to be
disposed of at a loss.
Over the longer term, a failure to meet the design, quality
and value expectations of our customers will adversely
affect the reputation of the NEXT Brand.
• Executive directors and senior management continually review the design,
selection and performance of NEXT product ranges and those of other brands
sold by NEXT.
• LABEL brands (along with our Beauty business) have served to increase the
breadth of our Online offer far beyond NEXT’s natural design, fashion and price
boundaries. Just as important are the numerous ways in which our own NEXT
product ranges have been extended and diversified.
• Executive directors and senior management regularly review product range
trends to assess and correct any key selection or product issues. Corrections to
significant missed trends or poorer performing ranges are targeted for
amendment, with alternative products being sourced within six months
where necessary.
• Senior product management approve quality standards, with in-house quality
control and testing teams in place across all product areas.
• Senior management regularly review product recalls and product safety
related issues.
Link to strategy
Risk trend
↔
Key suppliers and supply chain management
Reliance on our supplier base to deliver products on time
and to our quality standards is essential. Failure to do so
may result in an inability to service customer demand or
adversely affect NEXT’s reputation.
Changes in global manufacturing capacity, costs and
logistics may impact profit margins.
Non-compliance by suppliers with the NEXT Code of
Practice may undermine our reputation as a
responsible retailer.
• Post pandemic, there is improved product availability with reduced costs.
• Stock availability is reviewed on an ongoing basis and appropriate action taken
where service or delivery to customers may be negatively impacted.
• Management continually seeks ways to develop our supplier base to reduce over-
reliance on individual suppliers and to maintain the quality and competitiveness
of our offer. The Group’s supplier risk assessment procedures establish contingency
plans in the event of key supplier failure.
• Existing and new sources of product supply are developed in conjunction with
NEXT Sourcing, external agents and/or direct suppliers.
• We have Code of Practice Principle Standards that set out the standards we
expect for supplier production methods, employee working conditions, quality
control and inspection processes.
• Our in-house global Code of Practice team carry out regular audits of our product-
related suppliers’ operations to ensure compliance with the standards set out in
our Code. Further details are set out on page 100.
• We train relevant employees and communicate with suppliers regarding our
expectations in relation to responsible sourcing, anti-bribery, human rights and
modern slavery.
• The Audit Committee receives Code of Practice updates from senior management
during the year.
• The Audit Committee receives modern slavery and anti-bribery training progress
updates together with whistleblowing reports at each meeting. Significant
matters are reported to the Board.
Link to strategy
Risk trend
↓
79
Strategic Report Governance Financial Statements
Shareholder Information
Principal risk and description How we manage or mitigate the risk
Warehousing and distribution
Our warehousing and distribution operations are
fundamental to the running of the business. Risks include
business interruption due to physical damage, access
restrictions, breakdowns, capacity and resourcing
shortages, IT systems failure, inefficient and slow processes
and third-party failures.
Increasing choice in the products NEXT sells has been
central to the development of our Online platform but the
proliferation of unique items, along with a shift from Retail
to Online sales has presented our warehouse operations
with significant challenges.
• Our new, boxed warehouse, Elmsall 3 has begun its phased opening to deliver
new capacity and automation.
• Planning processes are in place to ensure there is sufficient warehouse handling
capacity for expected future business volumes over the short and longer terms.
• Service levels, warehouse handling, inbound logistics and delivery costs are
continually monitored to ensure goods are delivered to our warehouses, Retail
stores and Online customers in a timely and cost-efficient manner.
• Our warehouse leadership team meets regularly to assess the opportunities and
risks in our warehouse and distribution network.
• Business continuity plans and insurance are in place to mitigate the impact of
business interruption.
• The Board has approved and keeps under regular review an extensive warehouse
investment programme to accommodate further Online growth and transfer in
customer demand from Retail to Online (see page 57 for further details).
Link to strategy
Risk trend
↓
Business critical systems
NEXT’s performance depends on the engagement,
recruitment and retention of customers and on its ability to
drive and service customer demand. There is a risk that the
business fails to adopt and/or maintain efficient use of
suitable software, hardware and mechanisation to provide
both Retail and Online customers with service levels that
meet or exceed their expectations. These systems, software
and platforms are ever changing as technology continues
to evolve. Keeping customers and users up to date and
managing the implementation and changes that come with
the evolution of these platforms, in addition to maintenance
of existing systems, can be challenging.
As detailed in the Strategic Report, our business has
increased reliance on technology and the development of
business ideas within the Group (such as Total Platform)
increases that reliance further.
• Continued investment in technology that supports the various component parts
of the NEXT Online platform.
• Continual development and monitoring of the performance of NEXT’s UK and
overseas websites, with a particular focus on improving the Online
customer experience.
• A range of key trade and operational meetings keep under review the performance,
evolution, risks and opportunities of the NEXT customer facing systems.
Executive directors are in attendance at each of these key meetings.
• Market research and customer feedback are used to assess customer opinions
and satisfaction levels to help ensure that we remain focused on delivering
excellent customer service and improve our systems to meet these needs.
• Ongoing monitoring of KPIs and feedback from website and call centre
support operations.
Link to strategy
Risk trend
↔
RISKS AND UNCERTAINTIES
80
Principal risk and description How we manage or mitigate the risk
Management of long term liabilities and capital expenditure
Poor management of NEXT’s longer term liabilities and
capital expenditure could jeopardise the long term
sustainability of the business. It is important to ensure that
the business continues to be responsive and flexible to
meet the challenges of a rapidly changing retail sector.
• Our predominantly leased store portfolio is actively managed by senior
management, with openings, refits and closures based on strict store profitability
and cash payback criteria.
• We undertake regular reviews of lease expiry and break clauses to identify
opportunities for exit or renegotiation of commitments. Leases will not be
automatically renewed if acceptable terms are not agreed.
• The Board regularly reviews our lease commitments, new store openings and
potential store closures.
• We ensure that we make healthy returns on capital employed, commensurate
with the risks involved in our sector (in practical terms this means a return of no
less than 15% on capital invested).
• Appropriate amortisation accounting policies reduce the risk of an unexpected
significant write-off.
Link to strategy
Risk trend
↓
Information security, data protection, business continuity and cyber risk
The continued availability and integrity of our IT systems is
critical to successful trading. Our systems must record
and process substantial volumes of data and conduct
inventory management accurately and quickly.
Continuous enhancement and investment are required to
prevent obsolescence and maintain responsiveness.
The threat of unauthorised or malicious attack is an ongoing
risk, the nature of which is constantly evolving and
becoming increasingly sophisticated. Our brand reputation
could be negatively impacted by cyber security breaches.
• We operate an Information Security and Data Privacy Steering Committee.
Its main activities include agreement and monitoring of related key risks, activities
and incidents. The Committee comprises of two executive directors and relevant
senior management.
• Significant investment in systems development and security programmes has
continued during the year, complemented by in-house dedicated information and
physical security resources.
• Systems vulnerability and penetration testing is carried out regularly by both
internal and external resources to ensure that data is protected from corruption
or unauthorised access or use.
• Critical systems backup facilities and business continuity plans are reviewed and
updated regularly.
• Major incident simulations and business continuity tests are carried
out periodically.
• We have reduced our cyber risk vulnerabilities through a dedicated programme of
work with third-party support.
• IT risks are managed through the application of internal policies and change
management procedures, imposing contractual security requirements, service
level agreements on third-party suppliers, and IT capacity management.
• All staff and contractors are required to read, accept and comply with the Group’s
data protection and information security policies, which are kept under regular
review and supported by training.
• Information security and data protection risk exposures are reviewed during the
year by both the Audit Committee and the Board; this informs an executive-
sponsored programme of continuous improvement.
Link to strategy
Risk trend
↓
81
Strategic Report Governance Financial Statements
Shareholder Information
Principal risk and description How we manage or mitigate the risk
Financial, treasury, liquidity and credit risks
NEXT’s ability to meet its financial obligations and to
support the operations of the business is dependent on
having sufficient liquidity over the short, medium and
long term.
NEXT is reliant on the availability of adequate financing
from banks and capital markets to meet its liquidity needs.
NEXT is exposed to foreign exchange risk and profits may be
adversely affected by unforeseen moves in foreign
exchange rates.
NEXT might suffer financial loss if a counterparty with
which it has transacted fails and is unable to fulfil
its contract.
NEXT is also exposed to credit risk, particularly in respect of
our Online customer receivables, which at £1.3bn
represents the largest item on the Group Balance Sheet.
• NEXT operates a centralised Treasury Function which is responsible for managing
liquidity, interest and foreign currency risks. It operates under a Board approved
Treasury Policy. Approved counterparty and other limits are in place to mitigate
NEXT’s exposure to counterparty failure. Further details of the Group’s treasury
operations are given in Note 28 to the financial statements.
• The Group’s debt position, available liquidity and cash flow projections are
regularly monitored and reported to the Board. The Board will agree funding for
the Group in advance of its requirement to mitigate exposure to illiquid
market conditions.
• The Board keeps under review the cash generation levers available to it, including
the potential quantum and timescales of initiatives to reduce debt and realise cash.
• NEXT has a Treasury Committee which includes the Group Finance Director.
The Treasury Committee usually meets weekly to review the Group’s treasury and
liquidity risks including foreign exchange exposures.
• Rigorous procedures are in place with regards to our credit account customers,
including the use of external credit reference agencies and applying set risk
criteria before acceptance. These procedures are regularly reviewed and updated.
• Continual monitoring of our credit customers’ payment behaviours and credit
take-up levels is in place.
• The Board and Audit Committee receive regular updates throughout the year
regarding the customer credit business.
Link to strategy
Risk trend
↔
Legal, regulatory and ethical standards compliance
NEXT must continuously adapt to the increasingly broad,
stringent and fast-evolving regulatory framework applicable
to the operation of the Group’s customer credit business,
e.g. implementation of the Consumer Duty.
With the growing reliance on our digital online and
marketing activities, the Group could inadvertently process
customer or employee data in a manner deemed unethical
or unlawful.
Failure to have appropriate processes for the above in place
could result in significant financial penalties, remediation
costs, reputational damage and/or restrictions on our
ability to operate. This is against a backdrop of:
• The changing attitude of UK consumers toward their
data and how it is used.
• Increasingly complex and fast-evolving data protection
law and regulation.
• Rapid technological advances delivering an enhanced
ability to gather, draw insight from and monetise
personal data.
With regards to climate risk, stakeholder expectations and
regulatory attention could develop at pace, impacting the
rate at which the business may need to cut carbon emissions.
• Policies and training are in place for those employees and contractors working in
the business areas. These are kept under review and updated.
• A dedicated financial regulatory compliance and quality assurance team monitors
compliance and any changing requirements, working with external advisers
as required.
• NEXT has identified a set of conduct and compliance risks, documented in a
business risk register, with owners and associated controls.
• Key risk and control performance indicators are managed through a series of
operational meetings and reported quarterly to the Retail Credit Board.
• We operate an Information Security and Data Privacy Steering Committee.
Its main activities include agreement and monitoring of related key risks, activities
and incidents. The Committee comprises two executive directors and relevant
senior management.
• With regard to climate risks, the transitional (including regulatory requirements)
and physical risks and opportunities presented by rising temperatures, climate-
related policy, and emerging technologies will be kept under review using the
TCFD framework. Climate risk, regulatory changes and stakeholder expectations
are considered on an ongoing basis by our ESG Steering Group and
Audit Committee.
Link to strategy
Risk trend
↑
RISKS AND UNCERTAINTIES
82
VIABILITY ASSESSMENT
Statement of viability
The directors have assessed the prospects of the Group by reference to its current financial position, its recent and historical financial performance
and forecasts, its business model and strategy (pages 70 to 71) and the principal risks and mitigating factors described on pages 76 to 82. In addition,
the directors regularly review the financing position of the Group and its projected funding position and requirements.
The Group is operationally and financially strong and has a long track record of consistently generating profits and cash, which is expected to
continue both in the short and long term. In each of the last three financial years, despite the impact of the pandemic and the enforced closure of
its stores for significant periods the business continued to generate high levels of cash before distributions.
The Group has maintained its net debt (excluding leases) comfortably within its available facilities with headroom of £0.5bn. One of these facilities,
the revolving credit facility of £450m, expires in November 2024 and the 2025 Bond matures during the period of the viability assessment.
The Board expects to replace or renew these facilities well ahead of their maturity and, given the current investment grade credit rating of the
business and its strong recent performance, considers it a reasonable expectation to secure a similar level of financing. The assessment of the
viability of the Group is not, however, dependent on securing this financing.
The Board considers that this headroom, coupled with the highly cash generative nature of the business and the available cash levers (described
overleaf) provide a strong degree of financial resilience and flexibility.
Assessment period
The retail sector is inherently fast paced, competitive and dynamic, particularly in respect of the fashion product cycle. However, as illustrated in
the diagram below, a wide variety of other time horizons are also relevant in the management of the business.
The directors have assessed the viability of the Group over a three year period, as they believe this strikes an appropriate balance between the
different time horizons which are used in the business and is a reasonable period for a shareholder to expect a fashion retail business like NEXT to
be assessed over.
Within its assessment the Board has also given consideration to the maturity profile of its existing debt facilities. In particular, a significant portion
of the Group’s external bond debt matures in 2025 and 2026. If the Group’s current performance was maintained into 2025 and 2026, then the
directors consider the business would have sufficient funds to repay or secure refinancing of the bonds as they mature.
Warehousing and logistics capacity planning
Share-based incentives
Retail space planning
New lease commitments
Pensions
ESG
Currency hedging
Management succession planning
IT systems development
1 year 2 years 3 years 4 years 6 years 10 years+
Detailed budgets
and forecasts
Target payback
period for
new stores
Cash flow
forecasts
Medium term
financing
considerations
Weighted
average remaining
lease life
Long term
investment and
financing
considerations
83
Strategic Report Governance Financial Statements
Shareholder Information
Assessment of viability
Viability has been assessed by:
• Preparation of a three year viability model, with year one based on our profit guidance for the year ending January 2024 (see page 25) of
£795m and a cash generation, before distributions, in excess of £450m. Thereafter it assumes that the Group sales and profit remain flat with a
decline in Retail sales being offset by growth in the Online and Finance divisions. This is considered a base case model for viability testing purposes.
• ‘Top down’ sensitivity and stress testing is then applied to this model. This included a review of the three year cash projections which were then
stress tested to determine the extent to which sales, and hence trading cash flows, would need to deteriorate before breaching the Group’s
facilities or financial covenants. This was both before and after anticipated shareholder distributions, and assuming that any bank facilities which
expire during the period are not replaced. The current facilities of the Group include a revolving credit facility of £450m and it has financial
covenants across its debt relating to interest cover, gearing and an EBIT to debt ratio.
• This testing indicated that the business could withstand a sustained decline in sales, against its base case, across the entire business, of more than
20% over a 12 month period and still remain within its existing financing facilities and covenants. This assessment did not require the business
to seek any additional or new external financing.
• Specific consideration was also given to the impact caused by a “black swan” event which results in a significant and sustained disruption to the
business. This scenario modelled the impact of the total closure of the business for two months followed by a gradual recovery in sales over a six
month period. In this scenario, the business was able to remain within its finance facilities and covenants through the use of mitigating actions,
including the sale of shares in the ESOT and the deferral of non-essential capital expenditure.
• Considering the likelihood and impact of severe but plausible scenarios in relation to each of the principal risks as described on pages 76 to 82.
These principal risks were assessed, both individually and collectively, taking into consideration a broad range of mitigating actions and cash
levers that might be utilised in particular situations. These mitigating actions, some of which the Group used during the COVID pandemic, include
a mix of cost saving measures (such as a deferral of capital expenditure and cancellation of stock purchases) and the ability to realise additional
cash inflows from financing or other initiatives (such as the sale of ESOT shares or assets). Whilst all the principal risks have the potential to affect
future performance, none of them are considered likely either individually or collectively to give rise to a trading deterioration of the magnitude
indicated by the stress testing and to threaten the viability of the business over the three year assessment period.
Viability statement
Based on this review, the directors confirm that they have a reasonable expectation that the Group will continue to meet its liabilities as they fall
due over the three year period.
VIABILITY ASSESSMENT
84
CORPORATE RESPONSIBILITY
What being a responsible business
means to us
As an international fashion, homeware and beauty business, what
we do and how we do it has an impact on the people and the world
around us. Our stakeholder relationships are key to our success and
inform our decision making on Environmental, Social and Governance
(ESG) matters, now a widely recognised term for what we have always
valued – doing the right thing.
Whilst ESG reporting frameworks continue to evolve, we are also making
progress towards the various targets we set ourselves in relation to more
sustainable practices with regard to people and the planet. Behind the
scenes a great deal of work is underway to set solid foundations for a
realistic and achievable transition plan to reach Net Zero.
Global issues such as responsible sourcing, human rights and climate
change remain key areas of focus. Within this report you can read about:
• Our disclosures under the Task Force on Climate-related Financial
Disclosures (TCFD) and the Sustainability Accounting Standards
Board (SASB).
• Our progress towards a number of our environmental strategic
goals, such as our Responsible Sourcing Strategy, which aims to
source 100% of our main raw materials through known, responsible
or certified routes by 2025.
• The progress we have made towards our Science Based Target
Initiative (SBTi) approved carbon emission reductions for Scope 1,
2 and Scope 3.
• The range of commitments and initiatives we are working on to
improve the wellbeing of our people.
• Our progress on waste, packaging and recycling throughout
the business.
• The activities of our internal Code of Practice (COP) team, who
continue to work with our suppliers worldwide to meet appropriate
labour standards.
As always, the safety and wellbeing of our colleagues is always our top
priority. During the year, we continued to increase resources on our
wellbeing website for employees, as well as running face to face chat
sessions with our mental health first aiders and holding a winter wellness
festival to support a wide range of wellbeing events and activities.
More information can be found in the Group’s Corporate Responsibility
Report which is published on our corporate website at nextplc.co.uk.
Our principles
The principles underpinning our aim to do business responsibly are
unchanged; we seek always to:
• Deliver value to our customers.
• Act in an ethical manner.
• Recognise, respect and protect human rights.
• Develop positive relationships with our suppliers and
business partners.
• Recruit and retain high integrity employees.
• Take responsibility for our impact on the environment.
• Provide support through donations to charities and
community organisations.
Our business activities impact a wide range of stakeholders and we
strive to make this impact a positive one. Our purpose is to provide our
customers with beautifully designed, excellent quality products; these
products need to be well made, functional, safe and responsibly sourced
in a way which respects the environment and the people and animals
within our supply chain.
We continue to implement the United Nations Guiding Principles on
Business and Human Rights and align our work with the United Nations
Sustainable Development Goals (SDGs) that are most relevant to our
business operations and products.
The following pages describe how we uphold our principles in relation
to our stakeholders and the work we are doing to reach our SDGs.
Amanda James
Group Finance Director
29 March 2023
We are a member of several leading forums, where we collaborate with
others to adopt more sustainable ways of working. These include:
The ZDHC Foundation
85
Strategic Report Governance Financial Statements
Shareholder Information
Contents
Environment page 86 Our Customers and Products page 103
Our People page 98 Community page 104
Our Suppliers page 100 Human Rights and Modern Slavery page 105
ENVIRONMENT
Our commitment
We are committed to minimising our environmental impact by reducing
the carbon intensity of our activities and the natural resources we use.
Rankings
Our efforts around ESG are reflected in the following
external benchmarks:
• Constituent of the FTSE4Good Index.
• Sustainalytics: 15.7 risk rating (low risk), ranked 125 out of 493 in our
industry (retail).
• MSCI: ESG rating AA (Leader).
• CDP: Climate change: B, Forests: B-, Water security: B.
CORPORATE RESPONSIBILITY
Greenhouse gas emissions – Streamlined Energy and Carbon Reporting (SECR)
In accordance with the disclosure requirements for listed companies under the Companies Act 2006, the table below shows the Group’s SECR
disclosure across Scope 1 and 2 together with an appropriate intensity metric and our total energy use of gas, electricity and other fuels during the
financial year. The reported emissions data includes NEXT plc and its wholly owned subsidiaries only.
2023 2022
Greenhouse Gas (GHG) Emissions
1
Unit UK Global UK Global
Scope 1
2
tonnes CO
2
e 42,170 43,165
A
41,832 42,616
Scope 2 – Location Based
3
tonnes CO
2
e 39,085 43,323
A
42,229 47,334
Scope 2 – Market Based
4
tonnes CO
2
e 1,443 5,638
A
1,274 6,379
Total Scope 1 & 2 Location Based tonnes CO
2
e 81,255 86,488
A
84,061 89,950
Total Scope 1 & 2 Market Based tonnes CO
2
e 43,613 48,803
A
43,106 48,995
Energy consumption
5
Electricity Purchased kWh 202,113,133 209,139,917 200,219,142
208,580,301
Renewable Electricity Generated kWh 5,369,622 5,369,622 1,592,402 1,592,402
Natural Gas kWh 42,609,114 42,784,844 54,217,977 54,675,195
Gas Oil kWh 1,418,671 1,418,671 2,146,797 2,146,797
Diesel kWh 135,689,785 137,171,470 127,356,106 127,798,783
Petrol (including plug-in hybrid) kWh 3,671,175 3,909,360 3,116,535 3,305,531
LPG kWh – 282,823 – 371,036
Total Energy Consumption kWh 390,871,500 400,076,707
A
388,648,959 398,470,045
Intensity metric
6
Location Based tonnes of CO
2
e/total sales (£m) 15 16
A
17 19
Market Based tonnes of CO
2
e/total sales (£m) 8 9
A
9 10
1. The methodology used to calculate our emissions is set out in our Reporting Principles and Criteria which can be found on our corporate website at nextplc.co.uk.
2. Scope 1 being emissions from combustion of fuel and refrigerant gas losses.
86
Our environmental reporting comprises a number of sections:
Our Commitment page 86
Greenhouse gas emissions – SECR page 86
Carbon emissions calculations page 87
Carbon footprint – including Scope 3 page 88
TCFD page 89
 Governance page 89
 Strategy page 91
 Risk Management page 93
 Metrics and Targets page 94
SASB page 97
3. Scope 2 being electricity (from location based calculations), heat, steam and cooling purchased for the Group’s own use.
4. The calculation of market based emissions is based on our energy suppliers fulfilling their contractual obligations under the terms of renewable tariffs to back all energy supplied to all
of its customers on such tariffs by Renewable Energy Guarantees of Origin (REGOs). We have no oversight over that process.
5. Energy from electricity, natural gas, gas oil, transport fuel and LPG have been included. We have used the conversion factors published in 2022 Defra GHG conversion factors for
company reporting to convert from passenger miles in company-owned vehicles to kWh.
6. We use tonnes of CO
2
e/Total Sales (£m) sales as our intensity metric with sales of £5.4bn. Our intensity metric has reduced year-on-year as a result of both energy efficiency initiatives
and an increase in our total sales.
A
Pricewaterhouse Coopers LLP (‘PwC’) have performed an Independent Limited Assurance engagement on selected balances for the year ended 28 January 2023, shown with the
symbol
A
, in accordance with the International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other than Audits or Reviews of Historical Financial
Information’ and International Standard on Assurance Engagements 3410 ‘Assurance engagements on greenhouse gas statements’, issued by the International Auditing and Assurance
Standards Board. The Independent Limited Assurance Report can be found on our corporate website at nextplc.co.uk along with our 2023 Reporting Principles and Criteria, the basis
on which the KPIs are calculated and on which the limited assurance is given, at nextplc.co.uk/corporate-responsibility/a-summary-of-our-approach.
Restated from prior year due to improved data availability and a further breakdown between purchased and generated electricity.
Energy consumption data is captured through monthly bills showing actual or estimated consumption. We continue to look for ways to improve
energy efficiency as this reduces both carbon emissions and costs for our business. We actively track and review energy performance via a central
data collection facility to ensure our properties are operating efficiently. The following initiatives were undertaken during the year:
• Continued to invest in high efficiency LED lighting which are now in 55% of our retail stores. These reduced our lighting energy consumption by
around 75% in comparison to the lighting replaced. The LED lighting solutions are fitted in new stores as standard. During the year we plan to
refit 100 stores, and aim to have the balance of stores’ lighting replaced in 2024/25.
• Solar panel installation is complete at our Elmsall 3 warehouse. The renewable electricity generated in the year increased by 3.78m KwH relative
to 2021/22.
• Maintained our Energy Forums, working closely with our energy provider and other parties to actively identify opportunities in energy efficiency
measures and technology to help reduce our environmental impact and deliver savings for the business. This included looking at Power Purchase
Agreements for longer term commitment to renewable energy usage.
Renewable energy
NEXT is a signatory to the RE100 initiative and has committed to using 100% renewable energy by 2030. Our UK and Eire operations have been run
using 100% renewable energy since April 2017 and we continue to work towards achieving this target in our direct operations overseas.
Carbon emissions calculations
Last year was our first year reporting our non-assured Scope 3 emissions, since then, data sources have increased and our ability to differentiate on
a more granular level has improved our accuracy. This year we have been working to make our process for calculating emissions more efficient and
scalable. This was necessary as, over time, our product ranges and the materials used increased in number and complexity.
During that work we identified an error in our calculation method where we had been double counting the weight of some items leading to both a
higher Scope 3 baseline and higher calculated figures since that baseline was established. This error had no impact on our Scope 1 , Scope 2 and in
relation to Scope 3, business travel, downstream transportation and distribution and waste generated in operations, data.
We have also improved our methodology for calculating emissions. The overall impact of the double counting and improved methodology is that we
believe our baseline for Scope 3 is 25% lower than initially calculated and our Scope 3 emissions for 2022 were 30% lower than previously calculated.
The journey to reduce the carbon intensity of NEXT has also been more successful than previously understood. From our baseline 2019/20 figures
to January 2022 we improved by 22% and at the end of this financial year in January 2023 that figure had further improved to a total reduction of
30% against our restated 2019/20 baseline.
The figures in the SECR table on page 86, the GHG emissions table on page 88 and the metrics and targets table on page 94 use our improved
calculation methods. Where necessary we have restated prior year figures for an accurate reflection of our progress. Where a number has been
restated, it is marked with the symbol
.
87
Strategic Report Governance Financial Statements
Shareholder Information
Carbon footprint – including Scope 3
Due to the nature of our business, most of our carbon footprint falls outside of our direct control and is reported under our Scope 3 emissions.
Our Scope 3 total emissions disclosure (CO
2
e) covers the complete lifecycle of all the products we sell, including branded items sold through
LABEL and Total Platform. This extends from the production of raw materials through to the manufacture, transport, how our customers use and
care for them and the eventual end of life treatment of the products we sell. The emissions have been estimated in line with the GHG Protocol
Corporate Accounting and Reporting Standard and are based on a combination of internal data coupled with the best available public sources on
CO
2
emissions factors using conservative assumptions.
Our total Scope 3 emissions are reported in the table below, together with our Scope 1 and 2 (location based) emissions. Our carbon reduction
targets are set out on page 94.
Greenhouse Gas (GHG) Emissions
1
2023 Tonnes 2022 Tonnes Var %
Scope 1 43,165 42,616 1.3%
Scope 2 – Location Based 43,323 47,334 -8.5%
Scope 3 2,119,736 2,102,748
0.8%
Total Carbon 2,206,224 2,192,698
0.6%
Scope 1
Gas Heating (stores, offices, warehouses) 7,810 10,014 -22.0%
NEXT Owned Distribution Vehicles 32,054 29,881 7.3%
NEXT Owned Cars 1,450 1,490 -2.7%
Building (diesel, oil, refrigerant gases) 1,789 1,231 45.4%
Machinery (LPG) 61 80
-24.2%
Scope 2
NEXT Group Energy Consumption 43,323 47,334 -8.5%
Scope 3
Purchased Goods and Services 1,316,108 1,299,030
1.3%
Use of Sold Products 559,223 528,952
5.7%
Upstream Transportation and Distribution 81,087 108,947
-25.6%
Downstream Transportation and Distribution 65,813 71,585 -8.1%
Employee Commuting 20,933 20,336 1.6%
Fuel and Energy Related Activities 26,811 26,384 -5.5%
End of Life Treatment of Sold Products 19,268 19,748
-2.4%
Capital Goods 23,576 24,951 -5.5%
Business Travel 5,428 1,533 254.1%
Waste Generated in Operations 1,489 1,283
16.1%
1. The methodology used to calculate our emissions is set out in our Reporting Principles and Criteria which can be found on our corporate website at nextplc.co.uk.
Restated from prior year due to improved data availability.
CORPORATE RESPONSIBILITY
88
Task Force on Climate-Related Financial Disclosures (TCFD)
Index of TCFD recommended disclosures
1. Governance
a) Describe the board’s oversight of climate-related risks and opportunities
b) Describe management’s role in assessing and managing climate-related risks and opportunities
page 89
page 90
2. Strategy
a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C
or lower scenario
page 91
page 91
page 92
3. Risk Management
a) Describe the organisation’s processes for identifying and assessing climate-related risks
b) Describe the organisation’s processes for managing climate-related risks
c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s
overall risk management
page 93
page 93
page 93
4. Metrics and Targets
a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk
management process
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets
page 94
page 94
page 94
NEXT recognises that climate change poses challenges for our business
and supply chain. We are looking at the ways in which we can best
support the Paris Agreement on climate to limit the rise in global
temperatures to well below 2⁰C. Accurate and relevant disclosures
are essential to demonstrate progress and ensure stakeholder
accountability. Whilst reporting frameworks surrounding sustainability
are still being developed and are evolving, reporting helps us set a
baseline from which appropriate and meaningful actions can be taken.
Statement of compliance
NEXT’s climate-related disclosures are consistent with the
recommendations and recommended disclosures of the TCFD, and
in compliance with the requirements of LR 9.8.6R (UK Listing Rules).
These disclosures set out how NEXT incorporates climate-related risks
and opportunities into governance, strategy, risk management, what
we are doing to reduce our environmental impact and our key metrics
and targets.
BOARD
• Has delegated oversight of ESG
matters to the Audit Committee.
• Is updated after each Committee meeting.
GROUP FINANCE DIRECTOR
• Executive sponsor of ESG matters.
• Receives updates on ESG matters throughout
the year from key stakeholders.
REMUNERATION
COMMITTEE
• Considers if and how ESG metrics
should be included in variable pay
arrangements of executive directors,
see page 135.
ESG STEERING GROUP
• Meets quarterly, focusing on
ESG targets, responsible business
activity, reporting and calibrating
ESG performance against peers.
• Chaired by the Company Secretary
and attended by Product teams and
Heads of Supplier Ethical Compliance
and Product Legislation and
Sustainable Development.
AUDIT COMMITTEE
• Considers ESG risks (including
materiality), opportunities and any
impact on financial statements.
• Monitors progress against goals/targets
and adherence to sustainability principles.
• Receives an ESG report from the
business at each meeting.
• Makes recommendations on all
ESG matters to the Board.
1. Governance – Disclose the organisation’s governance around climate-related risks and opportunities
Our governance structure around ESG-related activities is relatively simple. This allows emerging issues and matters for decisions to be
escalated quickly.
a) Describe the Board’s oversight of climate-related risks and opportunities
89
Strategic Report Governance Financial Statements
Shareholder Information
The Board has delegated primary oversight of ESG activities to the
Audit Committee. It decided this was appropriate given the increasing
focus on the potential risks and financial impacts associated with
climate change. ESG is a standing agenda item at each Audit Committee
meeting and the Committee’s remit includes:
• Monitoring progress against climate-related goals and targets.
• Overseeing the Company’s ESG risks and opportunities.
• Keeping under review the materiality of climate-related risk and its
impact on the financial statements.
• Monitoring adherence to externally applicable sustainability codes
and principles.
Wider governance arrangements
There are wider governance arrangements in place to support the
Audit Committee and the Board in discharging their responsibilities.
These include:
• The Nomination Committee is responsible for ensuring the Board
has appropriate knowledge and expertise to assess the climate-
related issues NEXT face in the short, medium and longer term;
• The Remuneration Committee considers whether the inclusion of
ESG-related targets should be included in pay arrangements. While a
specific ESG metric is not included in targets for performance related
pay for executive directors, the Remuneration Committee reserves
the discretion to reduce variable pay in certain circumstances which
could be evoked if any material ESG failure came to light.
• An ESG Steering Group meets quarterly to oversee our ESG
workstreams, targets and emerging ESG risks. Climate-related issues
are central to the ESG matters the Steering Group considers.
The Steering Group is chaired by the Company Secretary & Legal
Director. It is cross-functional; members include senior management
from the Central Finance and Product teams as well as the Head of
Supplier Ethical Compliance and the Head of Product Legislation &
Sustainable Development.
The Group Finance Director, Amanda James, is the executive sponsor of
ESG activities and directs the activities of the Steering Group. She meets
regularly with the key members of the Steering Group, receives regular
updates throughout the year and is present at Audit Committee and
Board meetings to discuss ESG matters that arise. The Committee
updates the Board and makes recommendations as appropriate.
ESG STRATEGY
Meet business objectives whilst ensuring we “do the right thing”
on Environmental, Social and Governance matters.
ESG TARGETS
Underpinning the
commitment
to do the right thing
with transparent,
challenging but
achievable targets.
RESPONSIBLE
BUSINESS ACTIVITY
Prioritising, engaging and
supporting the business
to move forward
initiatives that assist in
meeting our targets.
REPORTING
Internal and external
reporting to measure
progress and provide a
level of accountability
on our actions.
CALIBRATING
AND ADJUSTING
Taking regular stock of
how we are performing
against our peers and
ensuring we are positioned
where we want to be and
where our stakeholders
would expect us to be.
b) Describe management’s role in assessing and
managing climate-related risks and opportunities.
Senior management are responsible for managing on a day-to-day basis
the climate-related risks and opportunities of the business. In 2021
NEXT engaged an external climate risk consulting firm to help us
undertake a gap analysis against TCFD recommendations, complete a
climate opportunity and risk assessment, quantify the financial impacts
of those risks and opportunities and conduct a scenario analysis of
business resilience under a range of climate scenarios. We explain more
about the risks and opportunities on page 91 and our findings of the
scenario analysis on page 92. We intend to repeat that gap analysis and
risk assessment in the 2024/25 financial year.
Climate-related risks are assessed as part of our overarching risk
management framework; for further information please see page 77.
Senior management hold quarterly calls with the Company’s broker to
obtain market updates and stay informed of the views of institutional
shareholders on ESG matters, as well as regularly engaging directly
with shareholders, banks, credit rating agencies and proxy advisors.
During the year, we engaged directly with many of our shareholders
specifically to discuss ESG matters, such as carbon emissions and
responsible sourcing.
CORPORATE RESPONSIBILITY
90
2. Strategy – disclose the actual and potential impacts of climate-related risks and opportunities
on the organisation’s businesses, strategy, and financial planning where such information
is material
a) Describe the climate-related risks and opportunities
the organisation has identified over the short, medium
and long term.
During our initial review, we considered the transitional and physical risks
and opportunities presented by rising temperatures, climate-related
policy and emerging technologies and agreed on the methodology for
assessing and quantifying financial impacts.
Physical risks arise out of the physical aspects of climate change, for
example extreme weather events or global temperature increase.
Market risks refer to changes in demand of certain products and
commodities due to climate change. Transition risks are those which
arise from the transition to a lower-carbon economy, such as policy
changes. For the purposes of our assessment, the time horizons we
used were as follows:
• Short term: present day to 2025.
• Medium term: from 2025 to 2030.
• Long term: from 2030 to 2040.
The risks identified during our analysis are more likely to present
themselves in the medium or long term. Having assessed and modelled
the risks, we believe that there is no material financial risk or threat
to our business model in the short term. In this context, materiality, in
terms of potential impact, is the threshold at which we believe a risk
becomes sufficiently important to our investors and other stakeholders
that it should be publicly reported. We will continue to review this as we
develop our transition plan towards net zero.
The risk management recommendations arising from our climate
change scenario analysis (further details on page 93) were:
Policy/Regulation: It is likely that increased policy and regulation will
have the most significant financial impact on NEXT over the longer
term. Incoming regulation and requirements such as digital product
passports, corporate net zero and transition plans and Taskforce on
Nature-related Financial Disclosures are expected to come into force in
the next two to five years. We are already considering the investment
required to meet our future obligations.
The majority of NEXT’s exposure to the impact of increased policy and
regulation and the area where greater understanding is being developed
is in our supply chain, so continuing our supply chain mapping and
engagement through the Higg Index is key to identifying and reducing
our exposure. We are members of the Sustainable Apparel Coalition
and this membership gives us access to a range of tools to support the
standardised measurement of sustainability from our supply chain,
using the Higg Index. The most significant thing the business can do
to reduce exposure to this risk is to reduce the carbon intensity of its
supply chain and operations.
Market: Climate change is expected to impact the supply and demand
for certain commodities, products and services. NEXT continues to
mitigate this risk by continuing to maintain balanced and diverse
sourcing routes and product suppliers.
During the year we have continued to participate in industry-wide
initiatives, such as the British Retail Consortium’s Climate Action
Roadmap and Textiles 2030. These forums have enabled us to share
learnings as well as contribute to the development of metrics and
measurement of improvement actions across the supply chain; for
example, our active role in the Textiles 2030 Metrics Working and
Advisory groups. In addition, we have begun collecting data from
our supply chain using the Higg Index, and have started to use this
information to identify our biggest risks and opportunities.
Physical: It is through playing our part in reducing the carbon intensity
of our operations, that we will in turn reduce the physical climate-
related risks that impact our business. Our diverse sourcing routes
and product suppliers can also be a mitigating factor against physical
climate-related risks.
b) Describe the impact of climate-related risks and
opportunities on the organisation’s businesses, strategy
and financial planning.
Risks
We have considered the potential for the financial statements to be
impacted by climate change, with a particular focus on long term assets.
Of the assets on our balance sheet which might be considered to be
at risk from climate change, the majority of our plant, property and
equipment are warehouses, retail stores, plant and machinery and shop
fittings in the UK. These assets have a useful remaining life of less than
10 years other than the leases on our Head Office and warehouses.
These assets are not considered to be at material risk of any physical
impacts or transitional risks arising from climate change.
Even though there is uncertainty around the time horizon over which
climate risks will materialise, stakeholder expectations and regulatory
attention could develop at pace, impacting the rate at which the
business may need to cut carbon emissions. We recognise that we will
need to keep abreast of future climate change legislation as well as
consumer preferences. The retail sector is faster paced than many and
there are likely to be changes in the way retailers do business in the next
few years. However, we have a strong track record of evolving at pace
and we are confident that we can react accordingly.
Industry trends can create shorter term risks and opportunities, as was
evident during the pandemic, the current cost of living challenges and
in response to the conflict in Ukraine.
Opportunities
We are considering the following opportunities in the medium to
long term:
• Reduced energy spend through energy-saving measures which
incorporate renewable energy.
• ESG related financing.
• Customer product donation schemes.
• To be seen as a climate conscious clothing producer.
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c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related
scenarios, including a 2
o
C or lower scenario.
Our climate change scenario analysis
To further understand and explore how potential climate risks and
opportunities could evolve and impact our business over the medium
to longer term, the TCFD recommends undertaking climate scenario
analysis, which we carried out in 2021.
Climate scenarios are hypothetical plausible future states under
different levels of global warming and states of transition to a low carbon
world. They provide a forward looking view of how different types of
climate-related risks and opportunities may impact an organisation.
There are a number of scenarios that have been developed by scientific
organisations which are publicly available and widely used within TCFD
scenario analysis.
Scenarios and timeframes assessed
The TCFD specifically recommends that organisations consider a set of
scenarios, including a ‘2°C or lower scenario’ in line with the 2015 Paris
Agreement. This low carbon scenario is centred on ‘transition’ risks
and looks at the rapid changes, such as policy, technology, market and
reputational risks, that will be needed to cut emissions in line with the
Paris Agreement. The scenario analysis should also consider ‘physical’
risks, such as temperature rise, sea level rise, and changes to the
frequency and severity of extreme weather events, including droughts
and storms. This is most relevant to our supply chain, the majority of
which is based in Asia.
We examined three climate scenarios against two timeframes for the
purposes of our analysis. The time frames we selected were to 2030
and 2040, to align with our long term planning horizons and with the
British Retail Consortium commitment to net zero by 2040.
The three scenarios we considered were as follows:
Scenario Description Reference data
1
used in analysis
Late transition Sudden shift towards low carbon economy with governments making dramatic
policy interventions to make up for a late start. Global average temperature
increase to be kept within 2°C by 2100.
Scenario based: UNFCCC’s SSP1/
UNFCCC’s SSP2
Physical risk scenario: RCP 2.6
Early transition Gradual and deliberate shift towards a low carbon economy with the outcome
of successfully limiting global average temperature increase within 2°C by 2100.
Scenario based: UNFCCC’s SSP1
Physical risk scenario: RCP 2.6
Hothouse world Continuation of current projection of carbon emissions without any significant
abatement or mitigation. Likely to result in average global temperature increase
of >4°C.
Scenario based: UNFCCC’s SSPs 2-5 w
Physical risk scenario: RCP8.5
1. The reference data refers to existing published scenarios in relation to socioeconomic data and climate projections that we have used to base our forward looking scenarios on.
As NEXT grows and changes, and the reference data evolves, we intend to periodically review the scenarios and timeframes we choose to apply
in our analysis and refine them as needed. Our next review is scheduled for 2024/25 by which time we expect to see enough change to make the
next scenario analysis meaningful.
Overview of our findings
The headline implications for the resilience of our business, as summarised by reference to our scenarios, are:
Scenario Description
Late transition Most impactful scenario, driven by the potential for the introduction of the most severe forms of carbon taxation.
Early transition In this scenario, the impact from the introduction of carbon taxation is still significant but carbon prices are predicted to stay
at lower levels. Therefore, this is the middle impact scenario.
Hothouse world This is the least impactful analysis, however, it is acknowledged that this is in part due to the physical impacts under this
scenario not being severe until post-2050 in the hothouse world scenario.
The analysis suggests that NEXT is most exposed to transition risk up to 2040. This is due to:
• The potential for significant exposure to Scope 3 emissions costs.
• The ability to manage physical risks to the supply chain via a diverse supplier base and agile procurement practices. NEXT already has this ability,
therefore it does not require any investment or changes in approach.
CORPORATE RESPONSIBILITY
92
The scenario analysis has confirmed that our mitigation actions to 2040 should focus on transitional risks, and critically on the reduction of
carbon and environmental impacts on which NEXT may be taxed or regulated. The impacts of the physical risks under all scenarios are relatively
modest under both time horizons.
Type of risk Risk Potential impact Mitigation/Business response
Transition Increased regulation
on product
composition or mix
Increase in the raw material costs across
the core fabrics we use.
We already closely monitor the implementation of any
policies related to products to ensure we comply with
appropriate safety regulations. We will continue to monitor
product legislation policies with a view to identifying
potential direct operating costs of the business that relate
to climate change.
Transition
and Market
Introduction of
climate sanctions
Tax levied on imports from countries with
a less environmentally friendly regime.
Balanced sourcing of product suppliers should reduce
exposure to this risk.
Transition Increased pricing
of greenhouse
gas emissions
Failure to comply with regulations to
reduce our environmental footprint.
Pay attention to any future policy proposed which may
increase direct operating costs of the business through
carbon taxes. Working to achieve the climate goals will
reduce any cost risks.
Physical Increasing extreme
weather events
affecting suppliers’
operations
Factories located in low-lying areas could
be at risk of flooding. A severe weather
event could lead to supply disruption
and loss of materials in the short term
and increased insurance costs over the
long term.
NEXT Sourcing, our overseas sourcing operation, undertook
an environmental impact assessment for supplier factories
in China, Bangladesh and India to model the potential
impact of flooding. It was noted that the Bangladesh floods
in 2004, which covered two thirds of the country, primarily
impacted regions in which NEXT Sourcing had no presence.
Assuming that future floods impacted the same regions,
it is considered that there would be little production risk
but likely delays in getting product to ports for onward
transportation. The key mitigation would be to send critical
stock by air freight where necessary. The financial impact
of doing so would be immaterial. The potential increase
in costs to insure buildings in those areas or move them
altogether is a long term risk.
In addition to NEXT Sourcing, we source from a number
of suppliers which provides us with a diversity across
different geographies.
Physical Severe crop failure in
cotton supply chain
A severe adverse weather event could
cause widespread crop failure. This could
lead to supply disruption, increased raw
material prices, and a decrease in the
quality of products in the short term.
In order to have a significant impact on the business, there
would need to be a significant systemic global failure of
crops. Mitigations would include passing on the increased
cost to the consumer or blending materials together.
3. Risk Management – Describe how the organisation identifies, assesses and manages
climate-related risks.
a) Describe the organisation’s processes for identifying
and assessing climate-related risks.
Climate-related risks are embedded within our overall integrated risk
management framework and any risks identified are subject to the
same process and managed in line with all other risks. For further detail
on our risk management framework and processes please see pages
74 to 77.
b) Describe the organisation’s processes for managing
climate-related risks.
Senior management conduct formal assessments of the key risks
relevant to their areas of responsibility twice a year. Climate is discussed
as part of that process but is not currently a material matter in respect
of any risk identified.
c) Describe how processes for identifying, assessing and
managing climate-related risks are integrated into the
organisation’s overall risk management.
The Audit Committee, under delegated authority from the Board, is
accountable for overseeing the effectiveness of our risk management
process, including identification of the principal and emerging risks.
Our ESG Steering Group supports this process and helps to identify,
monitor and assess current and emerging climate risks and report these
to the Audit Committee. Valuable input is received from the Head of
Product Legislation and Sustainable Development who is a member
of the ESG Steering Group. The output of all climate-related risk
assessments is considered by the Board when they assess the principal
risks of the business and is also used to direct focus to our ESG work.
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4. Metrics and Targets – Disclose the metrics and targets used to assess and manage relevant
climate-related risks and opportunities where such information is material.
a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities
in line with its strategy and risk management process.
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions and the related risks.
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and
performance against targets.
NEXT’s metrics and targets are used to help us understand our progress and to identify opportunities and risks. These span a number of topics set
out in more detail below and are collectively used to assist in the determination of our priorities. Our primary current targets are set out in the table
below and pages 86 to 88 for our SECR and GHG disclosures.
Metrics and targets
Strategic goal Deadline Progress achieved at January 2023 Measures
Responsible Sourcing
Strategy 2025
1
2025 In progress – 54% (2022: 42%) Source 100% of main raw materials
through known, responsible or certified
routes by 2025.
Reduce Scope 1 &
2 absolute carbon
emissions by 55%
2030 In progress – 47% reduction
(2022: 45%)
Reduce Scope 1 & 2 emissions by 55%
against an absolute baseline of 2016/17.
Reduce Scope 3 carbon
emissions by 40%
2
2030 In progress – 29% Reduce Scope 3 emissions by 40% per
£1m of sales against a relative baseline
of 2019/20.
Divert more than 95%
of operational waste
from landfill
2020
Achieved – 95% (2022: 96%
)
Divert at least 95% of operational waste
from landfill through recycling.
EV100 Pledge
3
2030 We currently have 731 Company Cars on
our fleet, of which 63 are fully electric
(8.6%).
We currently have 242 charging points
across our network with 6 at Head Office.
We have workplace e-charging available
at 9 sites.
100% of vehicles up to 3.5 tonnes to
be electric.
Charging points across all staff sites.
Charging points across all customer sites
(car parks with sole use).
RE100 Pledge 2030 In progress – 95% (2022: 94%) 100% of electricity purchased to be
certified renewable globally.
1. Source 100% of main raw materials through known, responsible or certified routes by 2025
We do not source raw materials directly, so our main focus is on supporting our commercial buying teams and working closely with them to influence positive sourcing and
manufacturing decisions. In 2022 we relaunched our ‘2025 Responsible Sourcing Manual’ which gives our commercial teams guidance on more sustainable materials. In addition,
we are increasing our visibility of the different tiers of our supply chain to ensure the materials used in our products are sourced and manufactured responsibly. We have a clear
responsible sourcing strategy to source 100% of main raw materials through known, responsible or certified routes by 2025.
In 2021, we started labelling most NEXT products containing at least 50% of a 2025 approved raw material. This makes it easier for customers to identify products that contain
these materials.
2. Reduce our Scope 3 emissions by encouraging our supply chain to improve energy efficiency and reduce carbon emissions
To help support our work on encouraging and supporting our key suppliers to decarbonise their operations, we joined the Sustainable Apparel Coalition. This gives us access to a
suite of tools to support the standardised measurement of sustainability from our supply chain, using the Higg Index. In addition, we supported the creation of the BRC’s Climate
Action Roadmap. This is a framework to guide the retail industry to net zero by 2040. As a founding signatory to the Roadmap we commit to working with other retailers, suppliers,
Governments and stakeholders, and to support customers, to collectively deliver the industry’s net zero ambition.
Our next step is to incorporate the data we collect from the Higg Index sustainability tool into the different tiers of our supply chain, identify the areas where there is the biggest
opportunity, for example switching energy sources and communicate the importance of our progress to our suppliers.
3. Reduce emissions caused by transport
One of the main elements within our control is around our Scope 1 transport emissions. We have set up a working group in our Retail Distribution Transport team to develop a
strategy for fleet decarbonisation, covering both electric and alternative fuel vehicles. Currently, we are constrained by the range of electric vehicles which do not yet meet our
operational requirements. We have continued to review and test EVs with a view to replacing our existing fleet as soon as possible. Unfortunately technology does not appear to be
developing as fast as we anticipated, as the distance range of the vehicles currently available means that EVs cannot meet our needs. We will continue to review the position with the
intention to move to EV or alternatives as soon as vehicles are available that are viable and commercially reasonable.
We recognise that technology may move away from electric in the future and we are therefore also investigating hydrogen as an alternative fuel.
Restated from prior year due to improved data availability.
CORPORATE RESPONSIBILITY
94
Our Scope 1, 2, 3 and GHG emissions are disclosed on pages 86 to 88. A further breakdown of our 2022/23 emissions is set out in the chart below.
BREAKDOWN OF OUR 2022/23 EMISSIONS
Purchased goods
& services
Scope 3Scope 2Scope 1
70%
53%
35%
18%
0%
6.7%
Upstream &
downstream
transportation/
distribution
Business travel
& employee
commuting
Emissions
from energy
consumption
Emissions
from
distribution
vehicles &
cars owned
by NEXT
Gas and other
fuel heating
Use of
products sold
3.2%
Other
CORPORATE EMISSIONS PRODUCT LIFE CYCLE EMISSIONS
59.7%
1.2%2.0%
1.5%
25.3%
0.4%
Strategy
We are at the start of a complex and challenging journey and our
strategy will continue to be refined. Our environmental strategy is
informed and driven by:
• The direct and potential impact of climate change on our operations,
identified through assessing our risks and opportunities in the short,
medium and long term and also climate change scenario analysis.
• Our commitment to reducing our Scope 1, 2 and 3 emissions,
which have been set to align with the SBTi footprint approach
and methodology. Our Scope 1 and 2 targets are consistent with
achieving a 1.5 degree reduction in line with the SBTi pathway.
We also commit to reduce Scope 3 emissions by 40% per £m of sales
and Scope 3 emissions from indirect use of sold products by 40%
per £m of sales by 2030. We gained SBTi approval for our targets in
July 2021.
• Industry trends with a potential environmental impact.
• Regulation, guidance and stakeholder expectations.
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CORPORATE RESPONSIBILITY
Net zero
Our net zero transition plan feasibility involves horizon scanning, gap
analysis and implementation planning. We want to ensure our transition
plan is realistic, credible and deliverable and that we have completed
the key stages as set out in existing and emerging guidance, such as the
Transition Plan Taskforce Disclosure Framework and Implementation
Guidance, to be in a position to share it.
The SBTi developed the first science-based standard for corporate net
zero targets in late 2021. This aims to translate companies’ net zero
targets into action that is consistent with achieving a net zero world by
no later than 2050 and we continue to review the standard.
We are a signatory to the British Retail Consortium’s Climate Action
Roadmap, a framework to guide the industry to net zero emissions
by 2040. Through the Roadmap we commit to working with other
retailers, suppliers, Government and other stakeholders, and to support
customers to collectively deliver to the industry’s net zero ambition.
Illustrated below are some of the many carbon reduction initiatives we
are working on.
Packaging and recycling
Packaging
By 2025 we aim to eliminate avoidable plastics in product packaging and
we are also investigating opportunities to reduce packaging throughout
our operations.
• We have trialled the installation of collection points in-store for
customers to return their plastic packaging for recycling. This has
been rolled out to all stores and our Head Office, however, we
are seeing a broad mix of plastic packaging and other materials
being deposited so are considering how to improve the efficiency
of this method of packaging take-back. We are working with our
UK packaging suppliers to reuse the collected materials which are
appropriate for use in new packaging.
• We are working with our packaging suppliers to increase the
recycled content of plastic packaging to be 100% where possible,
and in particular on the clear protective bags received by customers.
• We have conducted a trial to deliver single items ordered Online to
stores without the usual additional plastic outer packaging. The trial
was successful and this process has just been rolled out to all stores.
We estimate that this will reduce the amount of outer packaging
used for Online by around 20%.
Recycling
All our packaging is recyclable, although not all local authorities recycle
all materials. We use 100% recycled content carrier bags (excluding the
handles) in our retail stores and we recycle any bags returned to us by
our customers.
In addition, we reuse or recycle all hangers used in our retail stores,
and accept back unwanted hangers from our customers for recycling.
The recycled hangers are either reprocessed for reuse or made into new
hangers. In 2022, we collected 328 tonnes of hangers for reprocessing
with 46 tonnes of hangers reused within the supply chain and 282
tonnes remade into new hangers.
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Sustainability Accounting Standards Board (SASB)
The following sets out how we comply with the SASB metrics.
More information can be found on our website at nextplc.co.uk/
corporate-responsibility.
The Apparel metrics cover four broad areas:
• The Management of Chemicals in Products (Chemicals).
• Environmental Impacts in the Supply Chain (Environment).
• Labour Conditions in the Supply Chain (Labour).
• Raw Materials Sourcing (Raw Materials).
In the areas of Chemicals, Labour and Raw Materials we are well on our
way to full compliance.
Having developed a programme to prioritise our suppliers, last year
was year one of a three year plan to benchmark our suppliers against
the standards within the Zero Discharge of Hazardous Chemicals
(ZDHC) requirements.
For Labour and Raw Materials, our main efforts were around improving
our existing policies and internal metrics to align more closely to the
SASB requirements. While our compliance in these areas is good,
we continue to work on disclosure which is covered in more detail
within our Corporate Responsibility Report at nextplc.co.uk/corporate-
responsibility. Our policies are available to our suppliers via our Supplier
Communication platform, and we also host key policies on our corporate
website at nextplc.co.uk.
We are in the process of significantly improving how we measure our
suppliers’ environmental performance across energy use, chemicals,
waste and water use and discharge, through our membership of the
Sustainable Apparel Coalition (SAC), where the main impact is at Tier 3
in our supply chain. SAC allows us to capture the required level of data in
a standardised format.
The table below reflects our progress towards compliance with SASB and sets out details of where to find further information.
Topic Sub-topic Reference
Management of Chemicals
in Products
Processes to maintain compliance with restricted substances
regulations.
Discussion of processes to assess and manage risks and/or hazards
associated with chemicals in products.
See page 103
Environmental Impacts in the
Supply Chain
Percentage of (1) Tier 1 supplier facilities and (2) supplier facilities
beyond Tier 1 in compliance with wastewater discharge permits and/
or contractual agreement.
Percentage of (1) Tier 1 supplier facilities and (2) supplier facilities
beyond Tier 1 that have completed the Sustainable Apparel Coalition’s
Higg Facility Environmental Module assessment or an equivalent
environmental data assessment.
Read our SASB Report at
nextplc.co.uk/corporate-
responsibility
Labour Conditions in the
Supply Chain
Percentage of (1) Tier 1 supplier facilities (2) supplier facilities
beyond Tier 1, that have been audited to a labour code of conduct,
(3) percentage of total audits conducted by a third-party auditor.
Priority non-conformance rate and associated corrective action rate for
suppliers’ labour code of conduct audits.
Description of the greatest risks in the supply chain concerning:
1) Labour.
2) Environmental, health, and safety.
(1) 71%
(2) 6%
(3) 100%
See pages 100 and 101
See page 105
See pages 77, 91 and 98
Raw Materials Sourcing Description of environmental and social risks associated with sourcing
priority raw materials.
Percentage of raw materials third-party certified to an environmental
and/or social sustainability standard, by standard.
See page 101
Cotton: 65% Better Cotton
Timber: 50% certified and
responsible of which 35% certified
by Forest Stewardship Council
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CORPORATE RESPONSIBILITY
Our commitment
Our colleagues are integral to NEXT’s success, their safety and wellbeing
is always our top priority. We want to ensure we provide a workplace in
which everyone is:
• Supported.
• Treated fairly and with respect.
• Listened to.
• Motivated to achieve their full potential.
Our approach
We aim to deliver on our commitment by focusing on the
following elements:
• Health, safety and wellbeing.
• Equal opportunities and diversity.
• Reward, fair pay and employee share ownership.
• Training and development.
Health, safety and wellbeing
Good health and wellbeing is one of our most relevant SDGs. We want
to ensure NEXT is an exciting and rewarding place to work and allow
everyone to work in an environment where they are able to maximise
their creativity, productivity and engagement. It is important therefore
to have a culture that enables all our colleagues to maintain positive
mental wellbeing. We have a Mental Wellbeing Charter, aimed at
encouraging an environment where mental wellbeing is discussed
openly, improving how we can identify and help those suffering from
mental ill-health, ensuring that people are treated fairly and with care
and compassion. In recognition of the fact that retail is the largest
private sector employer in the UK, we collaborated with the Samaritans
and our peers to develop Wellbeing in Retail, an initiative that supports
the mental health and wellbeing of retail workers.
Actions during the year
We have maintained a regular flow of communication with our
colleagues to keep them safe and well. During the year we:
• Continued to update our employee hub to provide support,
health and wellbeing advice, useful information, hints, tips and
monthly initiatives.
• Offered a free flu vaccination programme for all employees.
• Raised awareness of the support services available to employees
should they need them. For example, during World Mental Health
Day we featured THRIVE, a free NHS-approved app.
• Continued to grow our Mental Health First Aider population where
there are now 140 MHFAs trained and upskilled through our network
group Open Minds.
• Maintained discounts on fees for several gyms, personal training
sessions, nutrition sessions and wellbeing apps.
Equal opportunities and diversity
Alongside our wellbeing activities we have embedded our approach to
diversity and inclusion in the business:
• We have Pride@Next, an employee-led LGBT+ network which works
to raise awareness of LGBT+ issues at NEXT and helps shape our
policies. With input from Pride@Next, we developed a policy to
support transgender colleagues.
• We continued to focus on women returning from maternity leave
and now run group workshops and coaching to help new mums
achieve a sustainable work/life balance.
• Our Unity network, an employee-led group, continued to focus on
celebrating the diversity of cultural backgrounds represented at
NEXT. This included special events created to inspire and learn from
others. One such event saw us invite the ‘Black Farmer’ to attend an
inspirational workshop session open to all employees to hear more
about his career story and background. This event was recorded
and distributed across the Unity Network. We are a signed up to the
Race at Work Charter to underpin the work of Unity.
• We are a Level 2 Disability Confident Scheme Employer.
• We launched a new network called ‘Able’. Able at NEXT is a staff
network aiming to give a voice to disabled people, people who
care for someone with a disability and those who support our aims
within the organisation. Able hopes to open up the conversation
about disability and how we can move forward to achieve a more
inclusive and diverse organisation for all.
Actions during the year
• We continue to work with our partner, Business in the Community,
on the Mentoring Circles programme which offers young people
from ethnic minority backgrounds the chance to connect with
mentors in their chosen industry to share their experiences of the
workplace and help mentees with their own career progression.
• We partnered with an external training provider to create a
diversity and inclusion awareness training session for managers.
This training has been completed by managers across the
business and now e-learning sessions are available for the non-
management population.
• Following last year’s success of the first ever product collaboration
with one of our charity partners, Parkinson’s UK (where all proceeds
raised went to the charity) we have broadened the project,
recruiting a designer from within the business to partner with other
charities to explore further collaborations which will be available on
our website.
• We continued to support pregnant employees and those returning
from maternity leave at Head Office by partnering with an external
organisation to offer a programme of pregnancy yoga alongside
maternity coaching. We also launched support for pregnancy loss.
• We continued to champion the recruitment and development of
female talent in IT by building on initiatives including a scheme to
attract talent who may have left the workplace due to childcare
responsibilities, and a mentoring scheme to develop leadership skills.
OUR PEOPLE
98
NEXT is an equal opportunities employer and we offer career
opportunities without discrimination. Job vacancies are filled by
the candidates who have the most relevant skills and competencies
to succeed. Our policy is to treat all employees fairly and equally
regardless of gender, sexual orientation, marital status, race, colour,
nationality, religion, ethnic or national origin, age, disability or union
membership status. Further details of our diversity policy are included
in our Nomination Committee Report on page 124.
Full consideration is given to applications for employment from disabled
persons, having regard to their particular aptitudes and abilities.
We continue the employment wherever possible of anyone who
becomes disabled during their employment, providing assistance and
modifications to their environment where possible. Opportunities for
training, career development and promotion do not operate to the
detriment of disabled employees.
We continue to look at ways to improve gender diversity. Women are
well represented throughout the Group, with half of our executive
directors and 40% of our Board being female at the financial year end.
In relation to our senior management and their direct reports, NEXT
was ranked second in the 2023 FTSE Women Leaders Review, Achieving
Gender Balance.
Recognising that women can be disproportionately affected by
childcare commitments, our Head Office (where over 4,000 of our
colleagues are based) has a purpose-built nursery onsite. This is part
of our ongoing commitment to support our employees with their pre-
school childcare arrangements.
Gender equality is a fundamental human right and is another SDG
that we focus on. Gender equality continues to be particularly
challenging in less developed countries where we are looking at ways
to support improvements.
The gender mix of the Group’s employees at the end of the financial year is set out in the table below.
2023 2022
Male Female Male Female
Directors of NEXT plc 6 4 6 4
Operational directors and other senior managers
1
26 20 25 16
Total employees 13,335 30,713 13,851 30,775
1. Other directors of the Company’s subsidiary undertakings comprise 13 male and 6 female employees.
Reward, gender pay and employee
share ownership
We aim to reward all employees with fair and competitive salaries and
provide the opportunity to earn additional pay in the form of a bonus.
Our annual Gender Pay Report can be found at nextplc.co.uk.
We operate a Sharesave scheme to encourage employees to own
shares in NEXT. All UK employees have the opportunity to save money
over three or five years to buy NEXT plc shares at a discounted price.
We also operate a share option scheme which extends to more than
2,000 participants.
Approximately 11,380 employees (circa 27% of our total UK and
Irish employees) held options or awards at the end of January 2023.
These options or awards were held in respect of 7.0m shares in NEXT,
being 5.4% of the total shares then in issue. NEXT’s Employee Share
Ownership Trust (ESOT) purchases shares for issue to employees when
their options are exercised or awards vest. At the year end the ESOT
held 6.5m shares. The ESOT Trustee does not vote on any resolution at
General Meetings.
Pension provision
Details of the pension benefits we provide to participating employees
are set out in the Remuneration Report and in Note 20 to the financial
statements. At January 2023, there were 590 (2022: 636) active
members in the defined benefit section of the 2013 NEXT Group
Pension Plan and 3,414 (2022: 3,761) UK active members of the defined
contribution section. In addition, 21,350 employees (2022: 15,235)
participate in the Group’s auto enrolment defined contribution scheme.
Training and development
We have a good track record of promoting from within; all our
executive directors were promoted to the Board having previously
served as employees. We aim to realise our employees’ potential by
supporting their career progression wherever possible. The Group
invests significantly in the training and development of staff and in
education programmes which contribute to the promotion prospects
of employees. We believe these opportunities help employees feel
supported and equipped to carry out their role to the best of their ability.
Our employees can access a range of development tools and appropriate
job-specific training through the integrated training teams within each
area of the business. This includes:
• Job role-specific training covering professional, technical, operational
and skills training.
• Individually tailored training to address an employee’s individual
needs and specific business requirements.
• In 2022 we introduced a new Learning Hub for our Head Office
population that offers additional training and development support
on management and recruitment topics.
• Training in areas such as health and safety, first aid and manual
handling to ensure our employees work in a safe environment.
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OUR SUPPLIERS
Our commitment
We focus on ethical trading, traceability and responsible sourcing to
ensure our products are made by workers who are treated fairly and
whose safety, human rights and wellbeing are respected.
Our approach
In common with other retailers, NEXT’s product supply chain is
both diverse and dynamic. During the year, NEXT products were
manufactured in around 42 countries through over 600 suppliers.
Our Tier 1 supply chain comprises circa 1.8 million workers.
Diversity of supply provides us with a cost-effective supply chain and an
extensive range of products for our customers. It also increases the risk
of sourcing from unethical suppliers, particularly in the lower tiers of
the supply chain where visibility is more limited.
Payment practices
NEXT calculates and uploads relevant supplier data onto the
Government portal under the ‘Duty to report on payment practices
and performance’ legislation under section 3 of the Small Business,
Enterprise and Employment Act 2015.
Ethical trading
Infringement of workers’ rights like safety, human rights, employment
and working conditions are a key risk. We induct, train and support
our suppliers to make sure they understand what is expected of them
and to help them raise standards. Working with suppliers to raise their
standards rather than terminating the relationship delivers a better
outcome for workers and the supply chain as a whole. Our aim is to
support factories in resolving issues, but we will not continue to work
with them indefinitely if there is no willingness to improve.
Our drive to support ethical trading in our supply chain includes:
• Working with our suppliers to ensure they understand our
requirements and COP Principle Standards.
• Holding regular meetings with individual suppliers to share
information and develop relationships.
• Our in-house global COP team which comprises 48 employees that
administer our COP programme based on the Ethical Trading Initiative
Base Code (ETI) and International Labour Organisation Conventions.
Our COP team works directly with new and existing suppliers and their
factories. They are based in key sourcing locations around the world.
This enables the team to respond quickly if issues occur. It also allows us
to develop trust and build strong relationships with suppliers by offering
meetings, training and support, even before orders are placed by our
product teams.
Compliance with our COP Principle Standards is monitored through
audits by our COP team which generally take place unannounced.
Our auditing standards provide detailed information to help our
suppliers fulfil their obligations. Our audit plan prioritises the human
rights of workers in our supply chain and is risk-based, taking into account
geographic location, ethical reputation, the type of manufacturing
process and the factory’s most recent audit rating. Where we find areas
for improvement during an audit, we create a Corrective Action Plan
which is agreed with the supplier and factory management. Follow up
reviews are undertaken to monitor progress against the Corrective
Action Plan.
CORPORATE RESPONSIBILITY
100
Actions during the year
During the year, the COP team:
• Carried out over 2,000 audits. The team encountered fewer travel
restrictions and factory closures than in the previous year, however
local lockdowns continued in some regions. In person audits have
continued as often as possible, supported by virtual audits as
necessary. Of the audits conducted, 87% related to Tier 1 suppliers
and 13% related to Tier 2 suppliers.
• Supported 30 factories to successfully remediate critical issues found.
A further 17 sites are participating in an active remediation process.
• Disengaged with 31 factories that refused to satisfactorily rectify
their critical non-compliance with our COP Principle Standards.
A breakdown of audits by rating is provided in the illustration on the
previous page.
Traceability
Traceability and transparency of our suppliers’ factories are an important
part of NEXT’s overall approach. Suppliers are categorised into five tiers:
• Tier 1 are suppliers’ factories where bulk production of NEXT
branded products takes place.
• Tier 2 are factory sites declared and used by a Tier 1 supplier
which include subcontractor locations that manufacture or process
materials, components or parts of a finished product for processing
by a Tier 1 supplier.
• Tier 3 suppliers are fabric and yarn suppliers who spin, knit, weave,
dye and print to produce finished fabric.
• Tier 4 suppliers process the raw materials into a fibre.
• Tier 5 is where the raw materials are sourced.
Tier 1 and Tier 2 suppliers are contractually bound by our COP Principle
Standards that apply to all their declared sites from which they operate
and source. These standards cover workers’ safety, human rights,
employment and working conditions. Our contracts mean we can visit a
supplier (often unannounced) to undertake an audit to ensure it is, and
remains, compliant.
Actions during the year
We have updated our lists of our Tier 1, Tier 2 supplier manufacturing
sites which produce NEXT branded products and Tier 3 suppliers on our
corporate website, nextplc.co.uk. We are continuing our work to extend
the visibility of our supply chain to include Tier 4 and 5.
Responsible sourcing
Each stage of our supply chain has an environmental and social impact,
from sourcing the materials through to post consumer use and disposal.
The majority of the environmental impact lies in the fibre and fabric
production stage. While we do not source raw materials directly, we
work with our suppliers to ensure we can trace their supply routes.
This enables us to source products in ways which support their
replenishment, respect human rights and protect natural habitats.
The main raw material fibres used in our products include
cotton, polyester, manmade cellulosic (such as viscose), and
wool. Timber and leather are also significant raw materials for
us. These materials can have wide-ranging environmental and
social risks associated with their production and extraction if not
managed correctly.
PRINTER
T I E R 5 T I E R 4 T I E R 3 TIE R 2 T I E R 1
R a w M a t eri a l
Sou r c e
Fib r e P r o c e s s o r s
• G i nne r s
• F i l a m e n t / S tapl e Fi b r e
S u p p l i e r s
F a bric & Ya r n
S upplie r s
• S p inne r s
• W e a v e r s /Kn i t t e r s
• D y e r s / P r i n t e r s /
F i n i s h e r s
• Tann e r i e s
S u b c o n t r a c t o r
t o T ier 1 F a c t o r y
• L aundr i e s
• P r i n t e r s / E m b r o i d e r e r s
• P a c k a g i n g /La b e l s /
Tr i m Sup p l i e r s
G a r m e n t/P r o d u c t
F a c t o r y
• C u t t i n g / S e win g /
A s s e m b l y
• F i n i s h i n g /In s p e c t i o n
VISCOSE
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Environmental collaborative initiatives
Solutions to reduce environmental and social impacts can really only be achieved with collaborative global actions. NEXT, along with other retailers,
is involved in a number of initiatives to minimise these adverse impacts. These include:
Zero Discharge of
Hazardous Chemicals
(ZDHC) Roadmap to Zero
NEXT is a signatory to the ZDHC programme to collaborate on promoting industry-wide change in responsible chemical
management in textile and leather production processes (dyeing, printing and laundering of textiles, and tanning
and dyeing of leather) to protect workers, customers and the environment. NEXT has its own Restricted Substances
Standards which ban or state the limits for harmful chemicals used in or during the manufacture of our products.
We provide specially designed online chemical management training modules to our suppliers (notably our key fabric
mills and wet processors) to educate on good practices to reduce and eliminate the discharge of hazardous chemicals
from production processes into the environment.
Better Cotton Initiative
(BCI)
NEXT joined the BCI in 2017 and in 2022/23 sourced 65% (2021/22: 44%) of its cotton as Better Cotton. Our target is to
source 100% of cotton from certified sources including BCI, recycled or Certified Organic cotton by 2025.
NEXT bans the use of cotton from Uzbekistan, Turkmenistan and the Xinjiang region of China in our textile products
due to concerns over the mistreatment of the Uyghur people, child labour and working conditions in these territories.
Changing Markets
Foundation’s Roadmap
Towards Responsible
Viscose and Modal
Fibre Manufacturing
This Roadmap focuses on the chemicals used to break down timber to make viscose pulp which is spun to create fibre.
It aims to minimise the effects of harmful chemicals in the manufacturing process. NEXT works with its viscose and
modal manufacturers to help them adopt closed-loop production systems to ensure emissions controls and chemical
recovery rates are in line with the EU Best Available Technique standards.
CanopyStyle NEXT is working with Canopy through its CanopyStyle initiative to ensure wood based fabrics are responsibly sourced.
We are committed to ensuring cellulosic fibres used in our products do not come from ancient and endangered forests,
endangered species or illegal sources and that the rights and wishes of indigenous communities are respected. We have
updated our Manmade Cellulosics Policy to only accept wood based fabrics sourced from Canopy ‘Green Shirt’ approved
suppliers for 2021 onwards.
Sustainable Apparel
Coalition (SAC)
In 2021, NEXT joined the SAC, a global non-profit alliance of more than 250 members working together to reduce
the environmental and social impacts of the apparel, footwear and textile supply chains. SAC’s work includes the
development of the Higg Index, a suite of tools to measure environmental and social performance in a standardised
way. We encourage our suppliers to adopt the Higg Index which allows NEXT to monitor and improve standards at
factory level. NEXT has rolled out the Higg Facility Environment Module to our supply chain.
Timber sourcing NEXT aims to contribute to zero net deforestation and forest degradation through our sourcing decisions. We risk
assess all timber products to verify that the material used was harvested, traded and transported in compliance with
the applicable legislation in the country of origin in line with the UK Timber Regulations and our detailed Timber
Sourcing Policy.
The Microfibre
Consortium (TMC)
In 2017, NEXT joined TMC to collaborate on solutions to minimise microfibres being released into the marine
environment. NEXT provides resources from its in-house laboratory, to develop fibre shedding testing methods which
are helping TMC to work towards a robust industry-based solution. The testing methodology is being used to assess
fabrics and create standards for the sector.
Waste Resources Action
Plan – The UK Plastics
Pact
The UK Plastics Pact brings together businesses across the entire plastics supply chain, the UK Government and NGOs
to tackle plastic waste. It is striving to create a circular economy for plastics, capturing their value by keeping them in
the economy and out of the natural environment. Pact members are committed to eliminating problematic plastics,
reducing the total amount of packaging and helping to build a stronger recycling system in the UK. NEXT has been an
associate member since October 2020.
Waste Resources Action
Plan – Textiles 2030
(Replacing the
Sustainable Clothing
Action Plan which is
now closed)
Textiles 2030 is a UK textile sector collaboration making rapid, science-based progress on circularity and climate action.
Launched in April 2021, the voluntary agreement builds on the learning and success of the Sustainable Clothing Action
Plan 2020 and has over 100 signatories across the retail, recycling and reuse sectors. As a founding signatory partner, by
2030 NEXT aims to reduce its combined greenhouse gas emissions by 50%, sufficient to limit global warming to 1.5oC in
line with the UN trajectory to reduce climate change. It also aims to reduce the water footprint of new products sold by
30%, and develop a clear pathway to improve the sustainability of textiles across their entire life cycle.
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OUR CUSTOMERS AND PRODUCTS
Our commitment
Our commitment is to offer beautifully designed, excellent quality
clothing, homeware and beauty products that are well made, functional
and safe, sourced responsibly and provide outstanding value to meet or
exceed our customers’ expectations.
Our approach
Understanding what our customers want is essential in the design
and manufacture of our products. 'NEXT Loves to Listen' is our online
survey and is available to every customer who collects an order or
shops in our stores. We also conduct customer interviews and online
surveys, accompanied store visits and run customer discussion groups.
We have processes in place to monitor, evaluate and respond to
customer feedback.
Continuing our circular
economy journey
The circular economy is an economic system aimed at designing out
waste and maximising the reuse and recycling of resources along the
whole supply chain.
As part of our Responsible Sourcing Strategy, we recognise we must
work to reduce the environmental impact of our business activities.
This will be achieved by supporting the transition to a more circular
economy by designing, producing and selling products which limit
pollution and waste and help to keep materials in use for longer.
Examples of our activities include:
• Working to reduce the packaging we use, both in store and online,
and starting to reuse customers’ returned packaging to create
new packaging.
• Signatory to Textiles 2030, collaborating on carbon, water and
circular textile targets to support the development of solutions
which help to limit the impact clothing and home textiles have on
climate change.
• Membership of the Circular Fashion Partnership in partnership with
Reverse Resources, an initiative to capture and reuse textile waste in
Bangladesh. The initiative brings brands and retailers, manufacturers
and recyclers together to find circular processes that help to reduce
textile waste, typically the small pieces of fabric from the cutting
room in a factory. This waste is currently exported or downcycled,
but through the initiative it is given a value which is helping to
generate economic benefits in Bangladesh by accelerating the fibre
recycling market. The materials are being used to create recycled
cotton or being used as an alternative feedstock to timber for man-
made cellulosic fibres.
• Developing takeback schemes to ensure valuable resources are kept
in circulation, including a mattress recycling programme and help for
customers to donate unwanted furniture for reuse. We recognise
there is much more to do and that collaboration across the industry
is vital.
During 2023, we will bring our existing work together to start to
develop our circularity framework for NEXT. To support this we became
one of the founding signatories of WRAP’s Textile 2030 initiative.
Signatories have committed to a collaborative approach to accelerate
progress towards a circular economy for textiles as well as working to
reduce the climate impact of the industry. We will consider the impact
our designs and product development can have on the environment
and what choices we can make when developing our products, such as:
• Product durability and longevity.
• Responsibly sourced materials.
• Safe processing to protect workers and the environment.
The framework will provide a practical tool to support our Product teams
and help to set future product category specific circular economy plans.
Product safety and
legislation compliance
Our product safety standards are based on a range of legislation and
compliance requirements. Technologists in our Product teams work
closely with our suppliers to provide expert guidance to ensure the right
materials are chosen to manufacture high quality, durable products in
factories with robust product safety processes. Suppliers to NEXT have
direct access via our online Supplier Portal to our full range of technical
manuals and quality, safety, ethical and responsible sourcing standards.
Products are inspected on receipt into our UK warehouses by our
quality assurance team to ensure they meet our required standards.
NEXT also works with our LABEL third-party brands to ensure all products
offered for sale are safe for their intended use. Third-party brands need
to demonstrate compliance with legislation as well as being able to
show the product has been sourced from factories which are compliant
with the ETI Base Code and NEXT’s own COP Principle Standards.
Chemical management
Many products contain chemicals in one form or another, most of them
harmless. To make sure our products do not contain chemicals which
could be harmful to our customers, the workers who make them, or
the environment, we require our suppliers to adhere to our Restricted
Substance Standards (RSS) which are part of our Chemical policy.
The RSS bans or limits harmful chemicals used in the manufacture of our
products. We also have a thorough due diligence programme in place
to support compliance with the RSS. If products fail our requirements,
they are removed from sale and may be recalled from customers.
Actions during the year
As a baseline, all of our online shipping plastic packaging and carrier bags, excluding handles, have a minimum of 30% recycled content.
We have rolled out customer packaging collection points in all of our stores and are now looking at ways to improve customer take-up and
providing clarity around the types of packaging we are looking to take back.
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COMMUNITY
Our commitment
We support charities and organisations that positively impact the
countries in which we operate and source our products. This can be
in the form of financial and product donations, sharing our expertise,
knowledge and time.
Our approach
We support a wide range of charities and organisations, working with
them to provide donations that are of most benefit. In particular, we
support organisations that have a positive impact on the following areas:
• Environment: environmental protection or improvement.
• Reducing inequality: supporting the promotion of diversity, inclusion
and human rights and preventing or relieving poverty.
• Health: advancement and promotion of health and supporting
emergency care services.
• Education, skills and amateur sport: advancement of education, life
and work skills and the development of youth amateur sports.
Where possible, we support charities over a number of years with
a specified annual donation as this commitment helps them to
plan their work with confidence and allows us to become long term
strategic partners.
Long term partnerships – helping to
reuse products
Disposal of products such as mattresses, sofas and furniture when they
are no longer needed, can be difficult for our customers with many going
unnecessarily to landfill. We have long term partnering relationships
with a number of charitable organisations to reuse products where
possible. These strategic partnerships include:
• Doncaster Refurnish, a social enterprise charity located near our
main warehouses, which has partnered with us for more than ten
years. It aims to help the local community by creating sustainable
employment and training opportunities. Through NEXT’s donation
of safe but unsellable or damaged furniture and home accessories,
Refurnish generates funding by converting items for reuse and sale.
This funding provides much needed services in the community with
the additional benefit of diverting tonnes of product from landfill.
• The British Heart Foundation (BHF). We offer our customers a free
furniture collection service for unwanted items such as mattresses
and sofas that can often be difficult to move and would otherwise
be sent to landfill. All donated items are sold to raise vital funds; our
customers’ donated furniture and home products have helped BHF
raise over £1.6m with over 12,400 items collected from customers’
homes since we first partnered with them in 2016. It has also
diverted hundreds of tonnes of furniture from landfill.
Actions during the year
During the year, we developed our Giving at NEXT website to support
employees both at work and in their own time to make donations to
help their chosen charities. The website, accessible to both colleagues
and the public via https://giving.go.next/home, enables our people
to volunteer online or physically, get involved with sustainability and
wellbeing challenges, run fundraisers on behalf of their chosen charities
and take part in payroll giving.
We provided the following financial support during the year:
2023
£000
2022
£000
Registered charities 1,177 1,126
Individual requests, local and national groups and organisations 5 1
Commercial support 60 60
This support was supplemented by the following additional activities:
2023
£000
2022
£000
Gifts in kind – product donations 1,608 1,482
Charity linked sales 298 211
Employee fundraising 74 20
NEXT charity events 3 2
The proceeds from the sale of our reusable carrier bags go to our nominated charities across England, Scotland and Wales. We support both
environmental charities and health charities that focus on care for life-limited children, young people and their families. In Northern Ireland, the
monies raised are paid to the Government who use the proceeds to fund environmental projects.
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104
HUMAN RIGHTS AND MODERN SLAVERY
Our commitment
We will not tolerate any instance of modern slavery in our business or
in our supply chain.
The key human rights are:
Salient issue Why it is important to NEXT
Freedom of association In a number of countries that we source from, the freedom to join an independent trade union is restricted
either by law or not recognised by management attitudes and practices. This restricts the ability for
workers to have a voice within their place of work.
Health & Safety Fire and industrial accidents are a risk within our extended supply chain, impacted by the quality and
management of building design and structure, fire prevention, machinery, chemicals and abrasives.
Children’s rights As part of new supplier inductions, we carry out training on child labour risks and our approach to
managing any cases, including our Child Labour Policy and supplier guidelines, to ensure we minimise the
risk of child labour within our extended supply chain.
Modern slavery Some of our sourcing countries hire migrant workers from overseas and such workers can be vulnerable
to the risks of exploitation, such as forced labour or retention of wages by suppliers.
Wage levels All workers in our supply chain should be entitled to fair wages for the work they do.
Harassment and
discrimination
Women represent the majority of workers in our supply chain. In many countries, the risk of discrimination
against women is greater in relation to equal opportunities, age or marital status.
Water, sanitation and health We source products from places which frequently encounter periods of water scarcity. This can lead to an
increased risk that communities may not have access to clean, safe water.
Our extended supply chain includes operations such as laundries, mills, dye houses and tanneries; these
facilities carry a particularly high risk of water contamination where untreated effluent can be discharged
into rivers used by local communities.
Working hours We rely on the workforce of our suppliers to meet order requirements, and those workers want to work
to earn money. These factors can lead to excessive working hours that can impact workers’ wellbeing.
Our approach
Respect for human rights is a cornerstone of any responsible business.
The violation of human rights in our operations is unacceptable and we
deal firmly with any infringements identified in our supply chain.
Human rights abuse and modern slavery are complex issues which
can take many forms. To help us prioritise our efforts, we focus on our
salient human rights – those human rights that stand out because they
are at risk of the most severe negative impact through our activities or
business relationships. We identify our salient human rights taking into
account the severity and scale of the risk and how difficult it would be
for us to put right any harm, as set out in the UN Guiding Principles
Reporting Framework.
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CORPORATE RESPONSIBILITY
Collaboration and education – response to
the war in Ukraine
In early 2022, the war in Ukraine had an immediate and significant
impact on its citizens. As a business we had one active factory in
Ukraine at the time and wanted to work alongside other brands as
part of a streamlined approach.
Through our membership of the Ethical Trading Initiative (ETI),
we participated in a working group to share learnings and agree
collective actions. A set of supplier guidelines were developed and
translated into Ukrainian, English, Romanian, Polish and Italian,
with the intention of providing clear guidance and communication
to our suppliers in Ukraine and the surrounding countries which
were likely to be impacted by the migration of displaced people.
The Guidelines for employment and integration of people displaced
from Ukraine are available at https://www.ethicaltrade.org/
programmes/people-displaced-ukraine and were also circulated
to our suppliers via our bespoke supplier communication platform.
In our work on human rights, we:
• Implement the ‘Protect, Respect and Remedy’ framework of the
United Nations Guiding Principles on Business and Human Rights.
• Use the United Nations Guiding Principles Reporting Framework
to help us identify and manage the risk of harm associated with
unsatisfactory working conditions, discrimination, modern slavery,
human trafficking and forced or bonded labour, particularly to the
most vulnerable and exploited, such as women and children.
• Uphold internationally recognised human rights principles, including
those encompassed in the Universal Declaration of Human Rights
and the International Labour Organisation’s Declaration on
Fundamental Principles and Rights at Work.
More information on our salient risks is available at nextplc.co.uk/
corporate-responsibility.
Code of Practice
The standards expected of our suppliers which are integral to our ethical
trading are clearly set out in our COP Principle Standards and Auditing
Standards, further details of which can be found on page 100 and at
nextplc.co.uk/corporate-responsibility/code-of-practice.
Our COP programme is based on the Ethical Trading Initiative Base Code
(ETI) and International Labour Organisation Conventions.
Actions during the year
With many restrictions lifted during the year, we have continued to
work with our partners to develop programmes in support of human
rights and to understand the complex issues around modern slavery to
ensure that all those working within our Group and our supply chain
are treated with dignity and respect. We are committed to building
knowledge and awareness and have developed a range of training
initiatives for our employees, suppliers, business partners and service
providers to help promote human rights.
Our global teams were able to monitor supply chain issues and work
with suppliers and factories to ensure that our standards were met.
Collaboration and partnering is key to achieving change. Our in-country
COP teams have direct links with locally based representatives of NGOs
and trade unions. This helps to broaden our understanding of root
causes and solutions.
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SECTION 172 STATEMENT
This section describes how we have engaged with and considered the interests of our key stakeholders when exercising our duty to promote the
success of the Company under section 172(1) of the Companies Act 2006. The principles underpinning section 172 are not only considered at Board
level, they are embedded throughout NEXT. Sometimes decisions must be made based on competing priorities of stakeholders. We describe below
how the Board seeks to understand what matters to stakeholders and carefully considers all the relevant factors when selecting the appropriate
course of action.
Our stakeholders
Our key stakeholder groups are set out below, with an explanation of why we have identified each as key to NEXT’s business. Our many and
varied engagement processes help lead us to a better understanding of what matters to our stakeholders. Their views and needs, as well as the
consequences of any decision in the long term, are then considered in the business decisions made by the Board and across the entire Company,
at all levels. We do this through various methods, including: direct engagement by Board members; receiving reports and updates from members
of management who engage with such groups; and coverage in our Board papers of relevant stakeholder interests with regard to proposed plans.
Our workforce – see pages 107 to 108
The strength of our business is built on the hard work and dedication of all of NEXT’s people.
We also consider the interests of former employees who are members of a Group pension
scheme. Our colleagues rely on us to provide stable employment and opportunities to realise
their potential in a working environment where they can be at their best.
Regulators – see page 109
We seek to enjoy a constructive and co-operative relationship with the bodies that authorise
and regulate our business activities. This helps us maintain a reputation for high standards of
business conduct.
They expect us to comply with applicable laws, regulations and licence conditions.
Communities and the
Environment – see page 109
Communities and the wider public expect
us to act as a responsible company and
neighbour, and to minimise any adverse
impact we might have on local communities
and the environment.
Customers – see page 109
Our customers are the reason we exist.
It is essential to our future that we can
consistently and continuously design and
offer attractive, stylish products of high
quality to new and existing customers at an
accessible price. In doing so, we build our
brand value and customer loyalty.
Suppliers – see page 109
We rely on our suppliers to make and
distribute our products, provide the real
estate through which we store, sell and
display our products, and provide essential
services we need to operate our business.
Our suppliers rely on us to generate revenue
and employment for them.
Investors – see page 110
We rely on our shareholders and providers of
debt funding as essential sources of capital to
further our business objectives.
They rely on us to protect and manage their
investments in a responsible and sustainable
way that generates value for them.
Our workforce
As at the year end, each of our executive directors joined NEXT as employees over 25 years ago, prior to being promoted to the Board. This gives
them extensive knowledge of the business as well as an acute insight into the mood, culture and views of their colleagues. All of our executive
directors have a high degree of personal oversight and engagement in the business. The Board also engages in the following ways:
• Annual Business Review Meetings, which were rebranded this year from the former Recruit, Reward and Retain forums.
• Discussing the output of employee engagement surveys and agreeing follow up actions.
• Presentations on performance and strategy from the Chief Executive and the Group Finance Director following the announcements of our
trading results. Where possible, the directors present to the business in person, but a video link is sent to all employees so everyone really is
invited. This year, we followed up in each business area to see how the presentation to employees was received, and how it could be improved
in the future. Our employees told us that they like to hear from the directors, and new starters in particular appreciate the opportunity these
presentations give them to understand the business. This feedback was presented to the Board.
• Visits to stores and warehouses.
• Online performance, development and feedback tools.
Engagement with our employees has always been vital to the success of our business. We continued to engage with our workforce about their
health and safety as COVID safety measures were lifted and business areas in which employees were able to work effectively under NEXT’s hybrid
working model were identified. Business areas were encouraged to review the working from home principles produced by the executive directors
in line with department needs.
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Shareholder Information
SECTION 172 STATEMENT
Business Review Meetings
During the year we introduced new Business Review Meetings, which replaced our annual Recruit, Reward and Retain (RRR) workforce forums.
These meetings form the workforce advisory panels as referred to in the UK Corporate Governance Code and focus on specific business outputs
such as efficiencies and ideas to improve engagement. Dame Dianne Thompson, one of our non-executive directors, attended the meetings along
with Lord Wolfson (Chief Executive), the HR Director and workforce representatives for each division of the business. These meetings offer our
employees the chance to voice their opinions on the issues that are important to them. Following discussion on the key issues in different parts of
the business, actions were agreed and feedback was reviewed by the Board. Agreed actions from matters raised in 2022 included:
• Improving transparency around pay to assist with conversations about development.
• To review NEXT’s Family Friendly Policies.
• Developing a new manager training programme for certain Head Office departments.
The matters raised at the 2021 forums are being addressed, including a return of staff engagement activities such as our Sports and Social groups
and making improvements to the onboarding experience of remote workers.
Our Business Review Meetings were supplemented by Your Team Voice meetings which take place regularly throughout the year. Each business
function and area has a nominated Your Team Voice representative, and employees are able to submit question to Business Review Meetings via
Your Team Voice meetings. One purpose of Your Team Voice meetings is to agree initiatives coming out of the Business Review Meetings.
Employee engagement surveys
In 2022, we undertook our second annual employee engagement survey, “Your Voice Counts”, which spanned the majority of our business.
The survey was sent to over 40,000 employees and response rates were improved from the year before. The survey was conducted anonymously
using a third-party tool. The overall score for the whole NEXT Group was almost identical to our score in 2021.
Employees believe that our main strengths as a Group are: management support; peer relationships; and goal setting. Areas identified for
improvement included support for mental wellbeing, following which we have launched a Wellbeing site for employees as well as mental health
training for managers.
The Board considered results of the survey as well as the initiatives planned to address the matters raised.
Continuous performance management and feedback
Our online performance and development tool provides a forum for positive and constructive feedback by individuals, peers and managers.
The HR Director attended a meeting of the Board to brief the directors on employee-related matters, including workforce demographics,
engagement activities, the results of employee engagement survey, staff retention rates, diversity, whistleblowing, disciplinary and grievance
procedures, learning and development activity, pay and reward including gender pay gap and HR initiatives.
The Board considers that, taken together, these arrangements deliver an effective means of ensuring the Board stays alert to the views of
the workforce.
With regard to health, safety and wellbeing, during the year the Audit Committee received an update from the Group Health and Safety Manager
on safety performance, safety risk management and mental health wellbeing initiatives.
Case study: workforce
During the year the Board had to consider areas of the business where recruitment continues is difficult. Our Technology department was an
area of focus.
Attracting and retaining Tech talent continues to be a challenge. The UK market remains highly competitive with a limited talent pool in the
local area. The Tech team headcount grew 23.5% from last year, which had a significant impact on how we induct, integrate, communicate and
manage the talent coming through. We are looking to recruit from more diverse gender and cultural groups and geographical locations and
timezones. Part of the recruitment challenge is the need to be innovative and create cost effective campaigns to meet our ambitious growth
plans in this area. This led to the Board considering and agreeing to the opening of overseas hubs in Sri Lanka and India.
108
Our relationships with suppliers, customers and others
Suppliers
Throughout the year the Board approved major contract renegotiations and strategy with key suppliers, notably with the Group’s new warehouse
suppliers, construction and technology companies relating to the development of the new Elmsall 3 warehouse, providers of freight forwarding
services and certain landlords. We balanced the benefits of maintaining strong partnerships with key suppliers alongside the need to obtain value
for money for our investors and excellent quality and service for our customers. Further details on how we engage with our suppliers can be found
on pages 100 to 101.
Customers
As a large retail business, the sentiment of customers can be seen in the Company’s underlying sales performance figures, which the Board reviews
regularly. The executive directors provide updates to the Board on their perceptions and the market view of consumer sentiment. The interests of
customers are considered in key decisions, e.g. relating to: store portfolio changes; selection of product lines including third-party brands; selection
and monitoring of suppliers to ensure quality and safety standards are met; freight and logistics arrangements to maximise efficiencies from order
to delivery; the availability of customer credit products; and the development of the NEXT Online platform.
With the interests of customers in mind, during the year the Board reviewed proposals in respect of capital expenditure on warehouses, major
freight forwarding and customer order delivery contracts.
Regulators
The business is subject to a wide range of regulations. Of particular note is our Finance business which is regulated by the Financial Conduct
Authority (FCA) in respect of the provision of consumer credit. As a responsible authorised company, we seek always to co-operate and engage
constructively with the FCA and meet its standards. The Audit Committee exercises independent oversight over the regulated Finance business that
includes updates on matters under discussion with the FCA.
During the year we received a supervisory visit from the FCA. Having interviewed various key stakeholders they commented on our excellent culture.
NEXT manages its tax affairs responsibly and proactively to comply with tax legislation. The Company’s approach is to seek to build solid and
constructive working relationships with all tax authorities. NEXT’s UK tax policy can be found at nextplc.co.uk and was reviewed and approved
by the Board during the year. This policy includes that the Company engages with HMRC constructively, honestly and in a timely and professional
manner, and seeks to resolve disputed matters through active and transparent engagement. Engagement with HMRC is led by the Company’s
in-house tax team of qualified tax professionals. The Group Finance Director provides regular updates to the Board on tax matters.
Debt capital/credit facility providers and credit reference agencies
The Group Finance Director and the Company’s Treasury team are responsible for managing the relationships with our banks, bond investors and
credit rating agencies, and the management of the Group’s cash/debt and financing activities. The Group Finance Director provides regular reports
to the Board on these activities including the Company’s access to liquidity, monitoring the headroom and maturity schedules of our primary credit
facilities and future financing plans. The Board approves the Company’s Treasury Policy annually.
Our impact on the community and the environment
We have a number of targets and initiatives aimed at reducing any adverse impact of our business on the environment and the communities in
which we operate. The ways in which we engage with these communities are set out in more detail on page 104 of our Corporate Responsibility
Report. During the year we considered our approach to climate change and agreed further measures we can take to reduce our impact on the
environment. Details can be found on pages 86 to 97 of the Corporate Responsibility Report.
Doing the right thing – maintaining high standards of business conduct
Corporate governance
We have a robust corporate governance framework in place, details of which are set out in our Corporate Governance Report on pages 117 to 123.
Ethical trading and responsible sourcing
The Audit Committee exercises strong oversight over the Group’s activities in these areas including reviewing the work of the COP team and
receiving regular updates on Environmental, Social and Governance issues. It reports to the Board on these topics as appropriate. For further details
on our approach to ethical trading and responsible sourcing, please see pages 100 to 101 as well as our standalone Corporate Responsibility Report
which is available on our corporate website.
Political donations
No donations were made for political purposes (2022: £nil).
109
Strategic Report Governance Financial Statements
Shareholder Information
Shareholders
The Company has just one class of share in issue and so all shareholders benefit from the same rights. The Board does not take any decisions or
actions, such as selectively disclosing confidential or inside information, that would provide any shareholder or group of shareholders with any
unfair advantage or position compared to the shareholders as a whole.
How the Board engages:
• Regular calls and meetings between shareholders and the Chief Executive and Group Finance Director.
• Roadshows and conferences with institutional investors.
• Major shareholders are invited to the annual and half year results presentations.
• Meetings and calls between major shareholders and the Chairman and Remuneration Committee Chairman on governance and
remuneration matters.
• Regular communication with institutional investors by the Company Secretary and senior management, particularly on Environmental,
Social and Governance matters.
Shareholder engagement
During 2022 we engaged with investors on a range of topics including:
• The directors’ remuneration policy.
• Governance including Board composition.
• Human rights and ethical trading.
• The environment, sustainability and responsible sourcing.
• Company performance against its strategy.
The Board receives regular information on investor views through a number of different channels:
• The Group’s corporate broker provides written feedback on market reaction and investor views after full and half year results announcements
and investor roadshows.
• Reports from the Chairman and other non-executive directors who have direct dialogue with shareholders.
• Analyst/broker reports and views.
• Shareholder feedback reports and statements made by representative associations.
All shareholders have an opportunity to ask questions or represent their views formally to the Board at the AGM, or with directors after the meeting.
The interests of investors were considered as part of the Board’s decisions throughout the year including with regard to the resumption of dividends.
Long term decisions
Within the fast-moving fashion retail sector, the operational cycle is short and has become even shorter within recent years. Despite this, we
are mindful that our strategic decisions can have long term implications for the business and its stakeholders and these implications are
carefully assessed.
The most prevalent example of this is in the Board’s decisions with regard to capital allocation. The Board balances:
• The expectations of long term investors on dividends and the return of capital to shareholders via the share buyback programme; with
• The increased need for capital expenditure on warehouses, systems, stores, and our Total Platform investments to support the growth of
the business.
We recognise the importance of providing our shareholders with consistent and reliable dividend returns and in 2022 we returned to our
pre-pandemic ordinary dividend cycle, following the payment of two special dividends for the 2021 financial year.
SECTION 172 STATEMENT
110
NON-FINANCIAL INFORMATION STATEMENT
The table below sets out where the information required to be disclosed under sections 414CA and 414CB Companies Act 2006 can be found in
this Annual Report.
Reporting requirement Relevant information Policies and Standards
Information, to the extent necessary for an understanding of the Company’s development,
performance and position and the impact of its activity, relating to:
1. Environmental matters (including
the impact of the Company’s
business on the environment)
• Our principles – page 85
• Environment – pages 86 to 97
• Section 172 Statement – Having regard to the impact
of the Company’s operations on the community and
the environment – page 109
• Environment Policy
• Timber Sourcing Policy*
• Protecting Forests Through Fabric
Choices Policy*
• Cotton Sourcing Policy*
2. The Company’s employees • Our principles – page 85.
• Our People – pages 98 to 99.
• Section 172 Statement – Having regard to the interests
of the Company’s employees – pages 107 to 108
• Staff Handbook
• Diversity and Inclusion Policy
• HR Policies including Flexible Working,
Safeguarding, Adoption Leave, Parental
Leave, Continuing Education and
Equal Opportunities
• Whistleblowing Policy
• Group Health and Safety Policy*
3. Social matters • Our principles – page 85
• Environment, Our People, Our Suppliers, Our Customers
and Products, Community, Human Rights and Modern
Slavery – pages 86 to 106
• Section 172 Statement – Having regard to the
desirability of the Company maintaining a reputation for
high standards of business conduct – page 109
4. Respect for human rights • Our principles – page 85
• Human Rights and Modern Slavery – pages 105 to 106
• Section 172 Statement – Having regard to the
desirability of the Company maintaining a reputation
for high standards of business conduct – page 109
• Human Rights and Modern
Slavery Policy*
• Data Retention Policy
• Customer Privacy Policy*
• Employee Data Privacy Policy
5. Anti-corruption and
anti-bribery matters
• Our principles – page 85
• Section 172 Statement – Having regard to the
desirability of the Company maintaining a reputation
for high standards of business conduct – page 109
• Whistleblowing – Audit Committee Report – page 132
• Staff Handbook
• Anti-Bribery and Anti-Corruption Policy*
• Competition Law Policy
• Supplier Code of Practice Standards*
• Whistleblowing Policy*
Required information
6. Business model • Business model – pages 70 to 71
7. Policies in relation to (1) to (5)
above, related due diligence
processes and a description of
the outcome of those policies*
• Our principles – page 85
8. Principal risks in relation to (1)
to (5) above
• Risks and Uncertainties – pages 74 to 82
• Viability assessment – pages 83 to 84
9. Relevant non-financial KPIs • Section 172 Statement – Having regard to the impact of
the Company’s operations on the community and the
environment – page 109
• Environment, Our People, Community – pages 86 to 99
and 104
Further information regarding our employees, social, community, human rights and environmental matters is provided in our Corporate
Responsibility Report available on our corporate website at nextplc.co.uk.
* Our latest policies are available at nextplc.co.uk.
On behalf of the Board
Amanda James
Group Finance Director
29 March 2023
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Strategic Report Governance Financial Statements
Shareholder Information
GOVERNANCE
114 Directors’ Biographies
116 Directors’ Responsibilities Statement
117 Corporate Governance Report
124 Nomination Committee Report
125 Audit Committee Report
133 Remuneration Report
163 Directors’ Report
165 Independent Auditors’ Report
112
113
Strategic Report Governance Financial Statements
Shareholder Information
DIRECTORS’ BIOGRAPHIES
Directors and Officers
Michael Roney
CHAIRMAN
Lord Simon Wolfson
of Aspley Guise
CHIEF EXECUTIVE
Executive Director
Amanda James
GROUP FINANCE DIRECTOR
Executive Director
KEY SKILLS AND EXPERIENCE:
Michael joined the Board as Deputy Chairman
in February 2017 and became Chairman
in August 2017. Michael brings significant
international leadership experience to the
Board; he was previously the Chief Executive
of Bunzl plc from 2005 until his retirement
in April 2016, Chief Executive of Goodyear
Dunlop Tires Europe BV and non-executive
director of Johnson Matthey plc.
PRINCIPAL EXTERNAL APPOINTMENTS:
Chairman of Grafton Group plc
Non-Executive Director of Brown-Forman
Corporation (US firm)
KEY SKILLS AND EXPERIENCE:
Simon has deep knowledge of all areas of the
NEXT business, together with strong leadership
and strategic expertise, having led as Chief
Executive since 2001. He joined the Group in
1991 and was appointed Retail Sales Director
in 1993. He became responsible for NEXT
Directory in 1995 and was appointed to the
Board in 1997 with additional responsibilities
for Systems. Simon was appointed Managing
Director of the NEXT Brand in 1999 before his
appointment as Chief Executive.
KEY SKILLS AND EXPERIENCE:
Amanda brings extensive financial knowledge
to the Board, having joined the Group in
1995 and led the management accounting
and commercial finance teams since 2005.
In 2009, Amanda was appointed Commercial
Finance Director and was promoted to
NEXT Brand Finance Director in 2012.
Amanda has comprehensive knowledge of
NEXT’s operations and has played a central
role in the financial management of the
business. Amanda also has responsibility for
Legal and Compliance.
APPOINTED TO THE BOARD
February 2017
APPOINTED TO THE BOARD
February 1997
APPOINTED TO THE BOARD
April 2015
COMMITTEE MEMBERSHIP
Remuneration and Nomination (Chairman)
Jane Shields
GROUP SALES, MARKETING
AND HR DIRECTOR
Executive Director
Richard Papp
GROUP MERCHANDISE
AND OPERATIONS DIRECTOR
Executive Director
Jeremy Stakol
GROUP INVESTMENTS,
ACQUISITIONS AND THIRD PARTY
BRANDS DIRECTOR
Executive Director
KEY SKILLS AND EXPERIENCE:
Jane has profound understanding of NEXT’s
operations, having joined NEXT Retail in 1985
as a sales assistant in one of our London
stores. Jane worked her way through store
management to be appointed Sales Director
in 2000, responsible for all store operations
and training. In 2006 Jane was given additional
responsibility for Retail Marketing and in 2010
was appointed Group Sales and Marketing
Director, adding Directory and Online
Marketing to her portfolio. She assumed
responsibility for Human Resources and
the Customer Service Contact Centre in
August 2020.
KEY SKILLS AND EXPERIENCE:
Richard has a wealth of operational and
merchandising experience. He joined NEXT
in 1991 as a merchandiser. Richard worked
his way through management, becoming
Menswear Product Director in 2001. In 2005
he gained valuable experience in a similar
role at another retailer. Richard returned to
NEXT in 2006 as Group Merchandise Director,
responsible for NEXT’s Merchandising function,
Product Systems, International Franchise, and
Clearance operations. On appointment to the
Board, Richard took on additional responsibility
for Warehousing, Logistics and Systems within
the Group.
KEY SKILLS AND EXPERIENCE:
Jeremy holds a Masters in Professional
Accounting and spent his early career in the
finance department of a large media company.
In 2004 Jeremy joined Lipsy as Managing
Director. Jeremy joined the NEXT Group in
that role 14 years ago when the company
was acquired by NEXT. In more recent years
Jeremy has successfully led many of the new
investment deals and related Total Platform
opportunities (such as Joules, Victoria’s Secret,
Gap and others).
APPOINTED TO THE BOARD
July 2013
APPOINTED TO THE BOARD
May 2018
TO BE APPOINTED TO THE BOARD
April 2023
114
Jonathan Bewes
Senior Independent
Non-Executive Director
Soumen Das
Independent
Non-Executive Director
Tom Hall
Independent
Non-Executive Director
KEY SKILLS AND EXPERIENCE:
After qualifying as a Chartered Accountant
with KPMG, Jonathan spent 25 years as an
investment banking adviser, with Robert
Fleming, UBS and Bank of America Merrill
Lynch. As a senior banker, he provided advice to
the boards of many UK and overseas companies
on a wide range of financial and strategic
issues, including financing, M&A, shareholder
engagement and corporate governance.
Jonathan is a Fellow of the Institute of Chartered
Accountants of England and Wales.
PRINCIPAL EXTERNAL APPOINTMENTS:
Non-Executive Director and Chair of the Audit
and Risk Committee of The Sage Group plc
KEY SKILLS AND EXPERIENCE:
Soumen is Chief Financial Officer of SEGRO
plc, the largest UK and European Real Estate
Investment Trust and a constituent of the
FTSE 100. He has over 12 years’ board level
experience with listed companies, having
been Managing Director and Chief Financial
Officer of Capital & Counties Properties plc
prior to joining SEGRO, and was previously
an executive director with UBS within the
investment bank. Soumen is also Co-Chair of
the Parker Review.
PRINCIPAL EXTERNAL APPOINTMENTS:
Chief Financial Officer of SEGRO plc
KEY SKILLS AND EXPERIENCE:
Tom is a partner at Apax Partners, the global
private equity firm. He joined Apax in 1998 and
leads its Internet/Consumer investing activities
in Europe. In that role, he serves on the board of
a number of retailers and digital marketplaces.
He has considerable experience of working
with businesses dealing with the strategic,
operational and managerial challenges and
opportunities created by rapidly changing
consumer behaviour. Prior to joining Apax, Tom
worked at S.G. Warburg and Deutsche Bank.
PRINCIPAL EXTERNAL APPOINTMENTS:
Advisory Board Director of Takko Fashion
Supervisory Board Director of Wehkamp
Non-Executive Director of MATCHESFASHION
Non-Executive Director of Baltic Classifieds
Group PLC, Partner at Apax Partners
APPOINTED TO THE BOARD
October 2016
APPOINTED TO THE BOARD
September 2021
APPOINTED TO THE BOARD
July 2020
COMMITTEE MEMBERSHIP
Audit (Chairman), Remuneration
and Nomination
COMMITTEE MEMBERSHIP
Audit, Remuneration and Nomination
COMMITTEE MEMBERSHIP
Audit, Remuneration (Chairman)
and Nomination
Tristia Harrison
Independent
Non-Executive Director
Dame Dianne Thompson
Independent
Non-Executive Director
Ian Blackwell
COMPANY SECRETARY
KEY SKILLS AND EXPERIENCE:
Tristia is Chief Executive Officer of TalkTalk
Telecom Group Ltd and as such has experience
of running a large-scale consumer and B2B
facing company and knowledge of digital
and cyber security. Tristia was Managing
Director of TalkTalk’s consumer business when
it demerged from Carphone Warehouse,
which she joined in 2000 and held a number
of senior management and executive
positions. Tristia is also Chair of the national
homelessness charity Crisis.
PRINCIPAL EXTERNAL APPOINTMENTS:
Chief Executive of TalkTalk
Trustee at Crisis
Trustee at Ambitious about Autism
KEY SKILLS AND EXPERIENCE:
Dianne has a wealth of marketing experience
gained in retail companies as well as significant
senior management experience. Her 42 year
career has included 14 years as Chief Executive
Officer of Camelot Group. More recently she
was Chairman of RadioCentre and a non-
executive director of the Home Office.
PRINCIPAL EXTERNAL APPOINTMENTS:
Chairman and Non-Executive Director of
Sanderson Design Group plc
Non-Executive Director of Pagefield
Communications Ltd
Past Company Secretary
Seonna Anderson
APPOINTED TO OFFICE
February 2014
RETIRED FROM OFFICE
March 2023
APPOINTED TO THE BOARD
September 2018
APPOINTED TO THE BOARD
January 2015
COMMITTEE MEMBERSHIP
Audit, Remuneration and Nomination
COMMITTEE MEMBERSHIP
Audit, Remuneration and Nomination
115
Strategic Report Governance Financial Statements
Shareholder Information
The directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have prepared
the Group financial statements in accordance with UK-adopted
International Accounting Standards and Parent Company financial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising
FRS 101 “Reduced Disclosure Framework”, and applicable law).
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and Parent Company and of the profit
or loss of the Group and Parent Company for that period. In preparing
the financial statements, the directors are required to:
• Select suitable accounting policies and then apply them consistently.
• State whether applicable UK-adopted International Accounting
Standards have been followed for the Group financial statements
and United Kingdom Accounting Standards, comprising FRS 101
have been followed for the Parent Company financial statements,
subject to any material departures disclosed and explained in the
financial statements.
• Make judgements and accounting estimates that are reasonable
and prudent.
• Prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and Parent Company
will continue in business.
The directors are responsible for safeguarding the assets of the Group
and Parent Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group and Parent Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and Parent Company and enable them
to ensure that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006.
The directors are also responsible for the maintenance and integrity of
the NEXT plc website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors’ confirmations
The directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and Parent
Company’s position and performance, business model and strategy.
Each of the current directors, whose names and functions are listed on
pages 114 to 115, confirm that, to the best of their knowledge:
• the Group financial statements, which have been prepared in
accordance with UK-adopted International Accounting Standards,
give a true and fair view of the assets, liabilities, financial position
and profit of the Group;
• the Parent Company financial statements, which have been
prepared in accordance with United Kingdom Accounting Standards,
comprising FRS 101, give a true and fair view of the assets, liabilities,
financial position and profit of the Parent Company; and
• the Strategic Report includes a fair review of the development and
performance of the business and the position of the Group and
Parent Company, together with a description of the principal risks
and uncertainties that it faces.
On behalf of the Board
Lord Wolfson of Aspley Guise Amanda James
Chief Executive Group Finance Director
29 March 2023
DIRECTORS’ RESPONSIBILITIES STATEMENT
Directors’ Responsibilities
116
CORPORATE GOVERNANCE REPORT
Chairman’s Introduction
On behalf of the Board, I am pleased to introduce our Governance
Report for the year ended 28 January 2023. This report sets out our
approach to effective corporate governance and explains the key
features of the Group’s governance structure.
Good corporate governance runs along the foundations of a well run
organisation and the external governance landscape, guides and rules
continue to evolve. NEXT continues to prioritise doing the right thing
in promoting the success of the Company, and through its governance
structure, always seeks to do so in the right way.
Stakeholder engagement
Uncertainty is known to breed challenges and the environment over
the past few years has put the spotlight on a number of our key
stakeholders. The Board has been required to exercise its judgement
on numerous occasions to ensure that the Group’s stakeholders are
treated as fairly as possible in a year which has remained challenging.
Key engagement pieces this year have been:
• With our customers and employees, who are especially sensitive to
inflationary pressures;
• Consultation with our investors on this year’s Remuneration Policy.
Given the strong performance of the business, we were pleased to be
able to return to our pre-pandemic ordinary dividend cycle and the
Board has proposed an ordinary dividend to be paid in August 2023,
subject to approval by our shareholders at the AGM in May.
Further details on how we have engaged with our stakeholders can be
found on pages 107 to 110.
Directors’ Remuneration Policy
This year our Directors’ Remuneration Policy is to be put forward for a
binding shareholder vote at our 2023 AGM.
Following consultation with our major shareholders, we are not
proposing any changes to the policy. You can read more about our
proposed Policy in the Remuneration Report on pages 133 to 162.
Board effectiveness and diversity
It is important that the Board, its Committees and individual directors
rigorously review their performance and embrace the opportunity to
develop where necessary. Having undertaken an externally facilitated
annual effectiveness review of our Board and Committees last year, this
year’s review was facilitated internally with support from the Company
Secretary. The review concluded that the Board continues to operate
effectively; further details can be found on page 122.
The Company has once again taken part in the Parker Review and
the FTSE Women Leaders Review in relation to its gender and ethnic
diversity. We talk about this more on page 124.
Continuing governance commitment
We believe that good governance provides the framework for stronger
long term value creation for all our stakeholders. We apply corporate
governance in a way that is relevant and meaningful to our business and
consistent with our culture and values.
With the Economic Crime (Transparency and Enforcement) Act coming
in to force earlier this year, we have reviewed our sanctions policies
and frameworks and taken steps to better understand our beneficial
shareholder base, in line with the new requirements.
A watching brief is being kept on the BEIS corporate governance and
audit reform as we wait to see how the proposals and timelines for
their implementation unfold. Environmental, Social and Governance
(ESG) remains a key area of focus for stakeholders who want to work for,
shop with or invest in companies who do business responsibly. We are
carefully assessing our ESG metrics, targets and reporting with a view
to setting out how we will decarbonise as part of a Net Zero Transition
Plan in next year’s report. You can read our Corporate Responsibility
Report on pages 85 to 106 and our corporate governance compliance
statement and supporting disclosures on pages 118 to 123.
Michael Roney
Chairman
29 March 2023
117
Strategic Report Governance Financial Statements
Shareholder Information
CORPORATE GOVERNANCE REPORT
Corporate Governance Statement
The statement below, together with the rest of the Corporate
Governance Report, provides information on how NEXT has applied the
principles in the UK Corporate Governance Code 2018 (the Code), which
is the version of the Code that applies to its 2022/23 financial year.
For the year ended 28 January 2023, the Board considers that it
has complied in full with the provisions of the Code (available at
www.frc.org.uk). Given the external interest in pension alignment as
recommended by provision 38 of the Code, the Board notes that the
executive directors at NEXT have very long service at the Company.
Whilst the pension provision offered to new joiners has changed
over time (which is consistent with wider market practice), the Board
considers it more relevant to consider the alignment of the pension
contribution rates of the executives in the context of the workforce
recruited at the same time. Each executive director is provided with
pension contributions no more generous than those provided to
colleagues recruited at the same time. Full details of the pension
arrangements of the executive directors are given on page 154 of the
Directors’ Remuneration Report.
Disclosures required by the Disclosure Guidance and Transparency
Rules DTR 7.2.6, with regard to share capital are presented in the
Directors’ Report on page 163. Disclosures required by DTR 7.2.8
relating to diversity policy are presented in the Nomination Committee
Report on page 124.
Directors’ biographies and membership of Board Committees are set
out on pages 114 to 115.
Board leadership and
company purpose
The Board’s role is to promote the long term sustainable success of the
Company. It does this through:
• Discussions with the executive directors and other members of the
senior management team on industry trends.
• Evaluating business development proposals and considering
how these will support and strengthen components of the
business model.
• A policy of continuous identification and review of principal business
risks, including identifying key and emerging risks, determining
control strategies and considering how those risks may affect
the achievement of business objectives, taking into account risk
appetite, as detailed on pages 74 to 82.
• Our annual viability assessment which is undertaken by reference to
the business model, strategy and the principal risks and mitigating
factors as well as the current financial position and historical financial
performance and forecasts – see pages 83 to 84.
In particular, during 2022/23 the Board:
• Assessed a number of potential acquisitions and investment
opportunities with a view to enhancing the Company’s offering to
customers. In assessing these opportunities, the Board had regard
to strict financial criteria. We approved a number of opportunities
which are discussed in more detail in the Chief Executive’s Review.
• Considered and approved significant capital expenditure including
the pallet extension of our Dearne Valley warehouse.
• Agreed the assessment period for the statement of viability at the
recommendation of the Audit Committee – see page 129.
At its heart, the purpose of the Company is to source and trade excellent
quality clothing, homeware and beauty products in order to make a
profit for its shareholders. We aim to do this in a responsible way and to
do the right thing by our employees, our customers, our suppliers and
our wider stakeholders. Our Corporate Responsibility Report sets out
the way in which we fulfilled our responsibilities this year.
Culture
The directors are responsible for ensuring a healthy and supportive
culture within the Group. We monitor this through direct employee
engagement activities (see pages 107 to 108) and discussions with
the executive directors, the HR Director and other members of
management. We assess and monitor this in the following ways and it
is through these activities we ensure that the company’s culture aligns
with its purpose, value and strategy:
• Dedicated time at Board meetings, supported by the HR Director, to
hold discussions on culture and employee/workforce matters.
• Reviewing the results of the Group’s employee engagement surveys.
• Monitoring the levels and nature of whistleblowing reports and
grievance and disciplinary hearings.
• Monitoring absenteeism and employee turnover.
• Reporting by Internal Audit on fraud and compliance breaches to the
Audit Committee.
• Reviewing induction and training policies and practices.
• Engaging with employees directly during site visits.
• Overseeing management’s plans to respond to matters raised by
the workforce.
• Reviewing the Group’s key policies and HR initiatives.
During the year we continued with our employee engagement activities,
in particular the workforce Business Review Meetings.
Our values are set out in the Corporate Responsibility Report on
page 85 and the Non-Financial Information Statement summarises
the Company’s supporting policies on page 111. Our Whistleblowing
Policy encourages workers to report concerns or suspicions about
any wrongdoing or malpractice, and provides a number of ways to
do this, including via the confidential NEXT Integrity line (managed
by Crimestoppers). The Audit Committee Report contains more
details of the Company’s whistleblowing procedures and the Audit
Committee’s oversight.
Our Board members also strive, through their own behaviours, to set
the tone from the top in conducting themselves appropriately and in
line with the Group’s values.
Information on the Company’s approach to investing in and rewarding
its workforce is set out in the Strategic Report on pages 98 to 99.
118
Resourcing
The Board ensures that the necessary resources are in place for the
Company to meet its objectives and measure performance against
them. They have an integral role in setting and approving the Company’s
budget and capital allocation processes and in monitoring availability
of debt capital facilities and the Company’s credit ratings. In regard to
people, they receive reports from management on any development
gaps in key roles and the plans to address these.
Risk management and internal controls
The Board is responsible for keeping the effectiveness of the systems
of risk management and internal controls under review – see page 123.
Engagement with shareholders
Significant time and effort is invested in providing detailed and
transparent information to shareholders and maintaining regular and
effective dialogue. Rather than delegation to an investor relations team,
Lord Wolfson and Amanda James, as Chief Executive and Group Finance
Director, engage directly with investors on a regular basis throughout
the year. Full year and other public announcements are presented
in a consistent format and are made as meaningful, understandable,
transparent and comparable as possible. This information is also made
publicly available on the Company’s corporate website nextplc.co.uk.
This year also involved consultation with our major shareholders as we
reviewed our Directors’ Remuneration Policy.
Our Section 172 Companies Act Statement on page 107 details how
the views of shareholders have been taken into account during the year.
Engagement with other stakeholders
The views of other providers of capital and key stakeholders are also
considered. Please see the Section 172 Statement on page 107 for
information on how the Board does this.
With regard to engagement with the workforce, the Board uses various
methods including engagement with a workforce panel and attendance
by a non-executive director at those panels. More details can be found
in the Section 172 Statement on page 107. The Board considers that,
taken together, the arrangements described deliver an effective means
of ensuring the Board stays alert to the views of the workforce.
Division of responsibilities
Chairman and Chief Executive
There is a clear division of responsibilities between the Chairman and
Chief Executive which is set out in writing and agreed by the Board.
The Chairman manages the Board to ensure that:
• The Group has appropriate objectives and an effective strategy.
• There is a high calibre Chief Executive with a team of executive
directors able to implement the strategy.
• There are procedures in place to inform the Board of performance
against objectives.
• The Group is operating in accordance with a high standard of
corporate governance.
The Board sets objectives and annual targets for the Chief Executive.
It is responsible for general policy on how the objectives are achieved
and delegates the implementation of the policy to the Chief Executive.
The Chief Executive reports at each Board meeting all material matters
affecting the Group and its performance.
The Chairman sets the Board’s agenda and is also responsible for
promoting a healthy culture of openness, challenge and scrutiny,
and ensuring constructive relations between executive and non-
executive directors.
Independence of non-executive directors
More than half of the directors at our financial year end, and half of
the directors following the appointment of Jeremy Stakol, excluding
the Chairman, are non-executive directors. The Board considers
that all of its non-executive directors, except for the Chairman, are
independent when assessed against the requirements of the Code and
their knowledge, diversity of experience and other business interests
continue to enable them to contribute significantly to the work of
the Board. Michael Roney, the Chairman, met the independence
requirements set out in the Code on his appointment in 2017.
Directors’ conflicts of interest
In accordance with the Company’s Articles of Association, the Board has
a formal process in place for situational conflicts to be authorised by
non-conflicted directors. In deciding whether to authorise a situational
conflict, the non-conflicted directors take into account their general
duties under the Companies Act 2006. Limits or conditions can be
imposed when giving an authorisation or subsequently if considered
appropriate. Any situational conflicts considered by the Board, and
any authorisations given, are recorded in the Board minutes and in a
register of conflicts which is reviewed annually by the Board.
Senior Independent Director
Jonathan Bewes is the Company’s Senior Independent Director. In this
role Jonathan is available to provide a sounding board for the Chairman
and to serve as an intermediary for the other directors and shareholders.
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Shareholder Information
CORPORATE GOVERNANCE REPORT
Noting of directors’ concerns
The Chairman encourages openness and debate at Board meetings to
enable better decision making. Any director who has concerns about
the operation of the Board or the management of the Company that
cannot be resolved would ordinarily (and especially if requested by that
director or the Chairman) be recorded in the minutes of the relevant
meeting. If, on resignation, any non-executive director had any such
concerns they would be invited to provide a written statement to the
Chairman that would be circulated to the Board. No concerns have
been raised in the year.
Review of directors’ performance
As Senior Independent Director, Jonathan Bewes led the appraisal
of Michael Roney’s performance as Chairman in the year through
individual discussions with the other directors. Michael Roney appraised
the performance of Lord Wolfson as Chief Executive.
The performance of the executive directors is monitored throughout
the year by the Chief Executive and the Chairman. The Chairman
also monitors the performance of the non-executive directors.
Appropriate feedback is provided where necessary. For more
information on the Board effectiveness evaluation process, please see
page 122.
At each Board meeting the Board receives reports from the Chief
Executive on the performance of the business. This includes scrutiny of
performance against clear financial objectives.
Governance framework
The structure of the Board and its governance framework is set out
below. The Board believes that it facilitates the operation of an open
and straightforward culture without complex hierarchies and over-
delegation of responsibilities.
Chief Executive
Responsible for the day-to-day running of the Group’s business and performance, and for the development and implementation of business strategy.
Executive/operational management
The Chief Executive has delegated authority for the day-to-day management of the business to operational management comprising other executive directors and senior
management who have responsibility for their respective areas.
This includes important weekly NEXT Brand trading and capital expenditure meetings which consider the performance and development of the NEXT Brand through its different
distribution channels. This and other meetings also focus on risk management of business areas in respect of the NEXT Brand, including product, sales, customer experience,
property and stores, warehousing, systems and personnel.
Committee Report
on page 124
Committee Report
on pages 125 to 132
Committee Report
on pages 133 to 162
Shareholders
Chairman
Responsible for the leadership of the Board and ensuring that it operates effectively through a healthy culture of openness, challenge and scrutiny.
Board of Directors
Responsible for providing effective leadership by setting business strategy and overseeing delivery in a way that delivers long term growth for the benefit of NEXT’s shareholders.
The Board maintains a balanced approach to risk within a framework of effective controls and taking into account the interests of a diverse range of stakeholders.
Board Committees
The terms of reference for each Committee are documented and agreed by the Board.
They are reviewed regularly and updated as necessary and are available on the corporate website
nextplc.co.uk.
Their key responsibilities are set out below.
Other Key Governance Steering Groups
These meetings have specific areas of responsibility.
Each of the below steering groups held meetings during the year to
review and monitor specific risks, activities and incidents:
Risk Steering Group – Risk identification and risk
management activities.
Treasury – Group’s treasury policy, treasury operations and
funding activities.
Information Security and Data Protection – Group’s information
security and cyber-related activities.
Health and Safety – Group’s health and safety activities.
ESG Steering Group – ESG risk monitoring and setting of
ESG priorities.
Nomination
Committee
• Keep under review the
composition, size, structure
and diversity of the Board and
its Committees.
• Evaluate the balance of skills,
experience and diversity of
the Board.
• Provide succession planning
for the Board and
senior management.
• Lead the process for new
Board appointments.
Audit
Committee
• Review and monitor the
integrity of the Group’s
Financial Statements.
• Review and monitor the
adequacy and effectiveness
of the risk management
framework and the systems of
internal controls (including
whistleblowing procedures).
• Review and monitor
the effectiveness and
independence of the external
and internal auditors.
Remuneration
Committee
• Responsible for setting the
Remuneration Policy for
all executive directors and
the Chairman, including
pension rights and any
compensation payments.
• Recommend and monitor
the level and structure
of remuneration for
senior management.
• Review the ongoing
appropriateness and
relevance of the
Remuneration Policy when
setting remuneration.
120
Matters reserved for the Board
There is a formal schedule of matters reserved for the Board.
These include investments, significant items of capital expenditure,
share buybacks, dividend and treasury policies. The Board is also
responsible for:
• The long term success of the Company, setting and executing the
business strategy and overseeing its delivery.
• Providing effective leadership.
• Setting and monitoring the Group’s risk appetite and the system of
risk management and internal control.
• Monitoring implementation of its policies by the Chief Executive.
• Approving semi-annual Group budgets and regular review of
performance against budget. Forecasts for each half year are revised
and reviewed monthly.
Certain other matters are reported weekly or monthly including sales,
treasury operations and capital expenditure programmes.
Board attendance
The table below shows the attendance at Board and Committee
meetings during the year to 28 January 2023. All independent non-
executive directors are members of the Nomination, Audit and
Remuneration Committees. This allows the non-executive directors
to deepen their understanding of the NEXT business, control and
risk environment and enhance their contribution to the Board and
its Committees.
The Board is satisfied that each of the directors is able to allocate
sufficient time to the Company to discharge their responsibilities
effectively. Contracts and letters of appointment of directors are made
available at the AGM, and are available for inspection at the Company’s
registered office during normal business hours or on request.
Board Committees
As detailed in the diagram opposite, the Board has appointed
Committees to carry out certain aspects of its duties. Each is chaired by a
different director and has written terms of reference which are available
on the Company’s corporate website nextplc.co.uk. Each Committee
Chairman reports regularly to the Board on how that Committee has
discharged its responsibilities.
External appointments during the year
During the year, the Board approved Soumen Das’ appointment as
Co-chair of the Parker Review Committee. After confirming that there
were no conflicts of interest and considering the likely time commitment
required to fulfil this role, the Board was satisfied that this appointment
would not inhibit Soumen’s ability to continue to effectively discharge
his duties and responsibilities as a non-executive director of NEXT.
Information and support
There is a regular flow of information between all directors. The former
Company Secretary attended all Board meetings; she advised the Board
on corporate governance matters and facilitated the flow of information
within the Board. The Board approved the appointment of the new
Company Secretary.
The Company has an open culture; its non-executive directors meet on
a formal and informal basis with a broad range of NEXT management
and have unrestricted access to the business and its employees.
If directors decide it is necessary to seek independent advice about
the performance of their duties with the Company, they are entitled
to do so at the Company’s expense. Details of professional assistance in
relation to Remuneration Policy matters are shown on page 162.
Directors Role Board Nomination Audit Remuneration
Number of meetings held in the year 8 2 5 8
Lord Wolfson Chief Executive 8/8 – – –
Amanda James
1
Group Finance Director 8/8 – – –
Richard Papp Group Operations & Merchandising Director 8/8 – – –
Jane Shields Group Sales, Marketing & HR Director 8/8 – – –
Michael Roney
1
Chairman 8/8 2/2 – 8/8
Jonathan Bewes Senior Independent Director 8/8 2/2 5/5 8/8
Soumen Das Non-executive director 8/8 2/2 5/5 8/8
Tom Hall Non-executive director 8/8 2/2 5/5 8/8
Tristia Harrison Non-executive director 8/8 2/2 5/5 8/8
Dame Dianne Thompson Non-executive director 8/8 2/2 5/5 8/8
1. Michael Roney and Amanda James are not members of the Audit Committee, however they attend Audit Committee meetings during the year by invitation.
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Shareholder Information
CORPORATE GOVERNANCE REPORT
Composition, succession
and evaluation
Director appointments
The Nomination Committee Report on page 124 contains information
on the procedure for appointment of new directors to the Board,
succession planning for Board and senior management positions and
information on the Company’s diversity approach.
Board composition
The Board comprised five independent non-executive directors
(including the Senior Independent Director), the Chairman and four
executive directors who all bring considerable knowledge, skills and
experience to the Group. As is best practice, the Board is continually
assessed and periodically refreshed to ensure it maintains an
appropriate balance of skills and experience.
The Board approved the appointment of Jeremy Stakol as an executive
director with effect from 3 April 2023 (see page 124).
Re-election and election of directors
Under the Company’s Articles of Association, directors are required
to stand for re-election at least once every three years. However, in
accordance with the Code, all directors stand for re-election or election
at each AGM.
The specific reasons why the Board considers that each director’s
contribution is, and continues to be, important to the Company’s long
term sustainable success are set out in the directors’ biographies on
pages 114 to 115.
Board induction and development
On joining the Board, new members receive a personalised induction,
tailored to their experience, background and understanding of the
Group’s operations. The induction programme includes:
• Visits to warehouses and stores.
• Attendance at key operational meetings.
• Meetings with operational directors and senior managers, giving an
overview of the key areas of the business.
• Meetings with the Chairs of each of the Board and its Committees
and the external audit partner.
• A briefing from the Company Secretary, the Group’s corporate broker
and external lawyers on the duties of a public company director.
• Access to past Board, Committee and other key governance papers.
Individual training and development needs are reviewed as part of
the annual Board evaluation process and training is provided where
appropriate, requested or a need is identified. All directors receive
frequent updates on a variety of issues relevant to the Group’s business,
including legal, regulatory and governance developments, with visits
to stores and warehouse operations organised periodically to help
directors’ understanding of the operational aspects of the business.
Board effectiveness evaluation
An outcome of last year’s externally facilitated board evaluation was
the independent quality assessment of the Internal Audit function (see
page 130).
This year’s annual evaluation of the Board and its Committees was
internal and facilitated by the Company Secretary. Following a briefing
provided by the Chairman and Company Secretary, each of the directors
completed a questionnaire designed to elicit their views on all aspects
of the effectiveness of the Board, its members and its Committees.
The questions covered eleven main areas, covering composition,
experience, dynamics, the Chairman’s leadership, directors’
contribution and the extent to which the Board fulfils its role and
responsibilities with particular regard to strategy, risk oversight
and succession planning. The review concluded that the Board has
continued operating effectively, offering a good balance of support and
challenge and adding value to an increasing extent. Examples of areas
positively reported include:
• The high quality of debate leading to objective and collaborative
decision making.
• A valuable and thorough induction programme for new directors.
Areas identified as possible opportunities to develop the Board’s
effectiveness further include:
• Clearer articulation of the Board’s risk appetite.
• Further consideration and communication of the succession and
development plans for Board and senior management.
The Chairman and Company Secretary are putting in place appropriate
action plans in response to the evaluation findings and will review
progress during the course of 2023/24.
122
Audit, risk and internal control
Audit Committee and independent auditor
For further information on the Company’s compliance with the Code
provision relating to the Audit Committee and auditors, please refer
to the Audit Committee Report on pages 125 to 132. The independent
auditors’ responsibilities are set out on page 173 and the Board’s
statement as to the Annual Report and Accounts being fair, balanced
and understandable can be found on page 116.
Going concern and viability assessment
The Group’s business activities, together with the factors likely to affect
its future development, performance and position are set out in the
Strategic Report, which also describes the Group’s financial position,
cash flows and borrowing facilities. Further information on these areas
is detailed in the financial statements. Information on the Group’s
financial management objectives and how derivative instruments are
used to hedge its capital, credit and liquidity risks is provided in Note 28
of the financial statements.
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 financial statements. The directors have also assessed the
prospects of the Company over a three year period. Further details of
the viability assessment are provided on pages 83 to 84.
Risk management and internal control
The Board is responsible for the Group’s risk management process and
delegates responsibility for its implementation to the Chief Executive
and senior management best qualified in each area of the business.
The Board sets guidance on the general level of risk which is acceptable
and has a considered approach to evaluating risk and reward and
promoting a risk aware culture throughout the business.
Risk management and internal control is a continuous process and has
been considered by the Board on a regular basis throughout the year
(see the description of the Group’s risk management and internal control
framework on page 74 for more information). This includes identifying
and evaluating ESG, principal and emerging risks, determining control
strategies and considering how they may impact on the achievement
of business objectives.
The Board has carried out a robust assessment of the principal and
emerging risks facing the Company and has also conducted an annual
review of the effectiveness of the systems of internal control during
the year – see page 76 in the Strategic Report for further information.
The Board promotes the development of a strong control culture within
the business. The Audit Committee regularly reviews strategic and
operational risk and the Audit Committee and Board have reviewed
the principal risks (described on pages 76 to 82) and the associated
financial, operational and compliance controls and mitigating factors.
The Audit Committee discusses these risks with the relevant directors
and senior management both at Committee meetings and via other
face to face meetings held during the year where required.
The Board considers that the Group’s management structure and
continuous monitoring of key performance indicators are able to identify
promptly any material areas of concern. Business continuity plans,
procedure manuals and codes of conduct are maintained in respect of
specific risk areas and business processes. The management of business
risk is an integral part of Group policy and the Board will continue to
develop risk management and internal controls where necessary.
The use of a Group accounting manual and prescribed reporting
procedures for finance teams throughout the Group ensures that the
Group’s accounting policies are clearly established and consistently
applied. Information is appropriately reviewed and reconciled as part of
the reporting process and the use of a standard reporting package by all
entities in the Group ensures that information is presented consistently
to facilitate the production of the consolidated financial statements.
Remuneration
The Company’s remuneration policies and practices are designed
to support strategy and promote long term sustainable success.
They are aligned to the Company’s purpose and values and linked
to the successful delivery of the Company’s long term strategy. You can
read about the Company’s proposed Remuneration Policy including
considerations taken on board and the work of the Remuneration
Committee in the Remuneration Report on pages 133 to 162.
The Remuneration Report also contains information on the Company’s
compliance with the Code provisions relating to remuneration.
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Shareholder Information
NOMINATION COMMITTEE REPORT
Membership and meetings
Members
Michael Roney (Committee Chairman)
Jonathan Bewes
Soumen Das
Tom Hall
Tristia Harrison
Dame Dianne Thompson
The Committee member attendance table is shown on page 121.
Lord Wolfson also attends the Nomination Committee meetings by
invitation. In addition to formal meetings during the year, there were
regular informal discussions on succession plans and appointments at
the senior leadership team level.
The Committee’s roles and responsibilities are covered in its terms of
reference which are available on our corporate website nextplc.co.uk.
An annual evaluation of the Nomination Committee’s performance
was undertaken as part of the Board evaluation process. Having been
externally facilitated in 2021/22, an internal process was undertaken
this year. Further details are set out on page 122. The review concluded
that the Committee continues to operate effectively.
Committee activities in 2022/23
Board appointments
The Committee adopts a formal and transparent procedure for the
appointment of new directors to the Board.
External consultants are used to assist in identifying suitable external
Board candidates, based on a written specification for each appointment.
The Chairman is responsible for providing a shortlist of candidates
for consideration by the Nomination Committee which then makes
its recommendation to the Board for final approval. The Nomination
Committee is led by the Senior Independent Director when dealing with
the appointment of a successor to the Board chairmanship.
In February 2023, the Company announced the appointment of Jeremy
Stakol as an executive director with effect from 3 April 2023 and he will
stand for election at the upcoming AGM. Jeremy will take on the role
of Group Investments, Acquisitions and Third Party Brands Director.
Jeremy joined Lipsy as Managing Director in 2004 and joined the NEXT
Group in that role 14 years ago when the company was acquired by
NEXT. In more recent years Jeremy has successfully led many of the new
investment deals and related Total Platform opportunities. NEXT has a
good track record of internal promotions to the Board and has not made
an external appointment of an executive director for over 34 years.
Succession planning
During the year, the Committee considered the succession arrangements
for the Board and for the operational directors below Board level.
We reviewed a skills matrix which captured the core skills, knowledge,
experience and diversity represented by the Board members.
This provides a framework for considering the skills we wish to focus on
when preparing role specifications and evaluating potential new Board
candidates. Our current Board members each bring a broad range of
individual skills, knowledge and experience. A summary of the skills of
our directors is shown below.
Skills and experience Number of directors
Retail/Commercial/Operational
8
Listed market experience and governance 8
CEO experience 4
Brand marketing 4
Cyber risk/Digital 3
Finance/Accounting 3
Property
2
Dame Dianne Thompson is our longest serving non-executive director,
having been appointed to the Board in 2015. It is intended that Dianne
will stand down from the Board next year and a search for a replacement
non-executive director will commence in due course.
Crisis situation succession
During the year, we also considered crisis situation succession
arrangements in the event of sudden changes in the availability of
executives and key operational director personnel. The business
has a strong track record of successful internal promotions to both
operational director and executive director positions, and we were able
to clearly identify potential candidates to immediately cover for key
personnel should the need arise.
Diversity and inclusion
Appointments to the Board, as with other positions within the Group,
are made on merit according to the balance of skills and experience
offered by prospective candidates. As a company, we acknowledge
the benefits of diversity in terms of business experience and individual
appointments are made irrespective of personal characteristics such as
race, religion or gender. The Committee will always seek to appoint the
candidate with the most appropriate skills and experience.
Employment positions throughout the Company are filled with the
candidates who possess the most appropriate skills and competencies
relevant for the particular job role.  We have a policy to treat all
employees fairly and equally regardless of gender, sexual orientation,
marital status, race, colour, nationality, religion, ethnic or national
origin, age, disability or union membership status. Although we do
not set specific targets for diversity, we satisfy the Parker Review
recommendations to have at least one Board director from an ethnic
minority background, and at the financial year end, women represented
40% of our Board. In terms of the combined executive committee and
their direct reports, NEXT was ranked second in the FTSE 100 Rankings
for 2022 Women on Boards and in Leadership in the Women Leaders
Review: Achieving Gender Balance (February 2023).
Further analysis of employees by gender is given in the Strategic Report
on page 99.
Michael Roney
Chairman of the Nomination Committee
29 March 2023
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AUDIT COMMITTEE REPORT
Chairman’s Introduction
I am pleased to present the Audit Committee’s report for the year ended
28 January 2023. This report explains the Committee’s responsibilities
and how it has discharged them over the course of the year.
On the following page is a summary of the activities undertaken by
the Committee during the year, which broadly fall into five categories:
financial reporting, external audit, internal control, risk management
and internal audit. The Committee assists the Board through overseeing,
challenging and monitoring the Company’s frameworks and disclosures,
along with management’s judgements in these areas.
It was another busy year for NEXT, which saw a partial reversal in the
shift from Online to Retail as well as the acquisition of equity stakes
in a number of new Total Platform clients and other businesses.
The Committee challenged management on its associated accounting
judgements, and further information about this can be found on pages
127 to 128.
The Committee is mindful of the imminent formation of ARGA (the
Auditing, Reporting and Governance Authority).
Good work is also underway within the NEXT Internal Audit function,
which is working to implement some of the recommendations
identified by another external review in the year. The Company has also
taken the opportunity to conduct an externally facilitated review of its
key financial reporting controls environment, and the Committee was
pleased to receive reports from management of the current position
and the proposed improvements to be made.
All that remains is for me to thank the management team at NEXT and
all Committee members for their valuable contributions which support
the work of the Committee.
Jonathan Bewes
Chairman of the Audit Committee
29 March 2023
Role of the Committee
The Committee’s roles and responsibilities are covered in its terms
of reference which are available on our corporate website at nextplc.
co.uk. These terms of reference were most recently reviewed by the
Board in November 2022.
The Committee focuses on ensuring the integrity of the financial
reporting and audit processes and the maintenance of sound internal
control and risk management systems in order to safeguard shareholder
interests. In particular, it focuses on monitoring and/or reviewing:
• The integrity of financial and narrative reporting.
• The going concern and viability statements.
• NEXT’s systems of risk management and internal control.
• The activities and effectiveness of the Internal Audit function.
• The effectiveness of whistleblowing arrangements.
• The effectiveness of the external audit process and the
appropriateness of the relationship with the external auditor.
Membership and meetings
During the year the Committee comprised the following independent
non-executive directors:
Member
Jonathan Bewes (Committee Chairman)
Soumen Das
Tom Hall
Tristia Harrison
Dame Dianne Thompson
The Committee held five scheduled meetings during the year.
The meeting attendance table is shown on page 121. In advance of
each meeting the Committee Chairman met with the Group Financial
Controller, the Company Secretary and Central Finance Director, and
the external audit partner to discuss their reports as well as any relevant
issues. He also had regular meetings with the Heads of Internal Audit
and Compliance where the Group’s internal controls, governance
framework and the progress of the internal audit work programme
is reviewed.
The Group Finance Director and the Chairman attended all of this
year’s meetings by invitation. Executive directors and senior managers
are invited to attend and present at Committee meetings regularly in
order to reinforce a strong culture of risk management and to keep
the Committee up to date with events in the business. The Committee
meets without management present on a regular basis, and meets
privately with the Heads of Internal Audit and Compliance and the
external auditor as necessary and at least annually.
Details of the directors’ skills, experience and qualifications can be found
in the biographies on pages 114 and 115. The Committee’s wide range
of financial and commercial skills and experience serves to provide the
necessary knowledge and ability to work as an effective committee and
to robustly challenge the Board and senior management as and when
appropriate. The Audit Committee Chairman and Soumen Das, both
Chartered Accountants, possess recent and relevant financial experience
and the Committee as a whole continues to have competence relevant
to the sector. None of the Committee’s members has a connection to
PwC, the external auditor.
Committee evaluation
During the year, the Committee’s performance was assessed as part of
the annual Board evaluation process. Following an externally facilitated
assessment in 2021/22, this year’s assessment was conducted
internally and concluded that the Committee continues to operate
effectively. One area identified was the length and focus of some papers
submitted to the Committee and it was agreed that contributors would
be provided with a new template to use for papers. Further details of
this year’s evaluation can be found on page 122.
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Shareholder Information
Summary of key Committee activities during the year
Financial reporting
• Reviewed the annual report and interim financial statements.
• Reviewed the going concern and viability statements.
• Conducted a fair, balanced and understandable assessment.
• Considered the key accounting judgements and estimates.
• Reviewed the appropriateness and implementation of the
accounting policies.
• Reviewed the appropriateness and application of Alternative
Performance Measures (APMs).
• Noted new accounting and reporting requirements.
• Reviewed material non-standard transactions.
• Reported and made recommendations to the Board on
financial reporting matters.
External audit
• Reviewed audit approach and planning, including significant
audit risks. This also included an assessment of how the revised
auditing standard ISA 315 would impact on the audit process.
• Reviewed audit findings and challenged management on its
views and actions to address the findings.
• Assessed external auditor effectiveness and independence.
• Reviewed the findings of the FRC’s audit quality review
inspection of NEXT’s 2021/22 audit.
• Approved the audit and non-audit fee policy and fees.
• Received auditor views on management and controls.
• Reported to the Board on the audit process, the effectiveness
of the external auditor, the results of the external audit, and
made a recommendation to the Board on the re-appointment
of the external auditor.
Internal control, risk management and internal audit
• Oversight of the risk management systems.
• Reviewed the principal risks.
• Considered risk reviews from business areas including
information security, data protection, product operations, FCA
compliance and treasury.
• Approved the Internal Audit plan, including amendments to
the plan during the year.
• Reviewed the results of Internal Audit’s work and proposed
remediation plans.
• Met with Internal Audit without management.
• Reviewed a new Assurance Map.
• Assessed the effectiveness of the Internal Audit function.
• Oversight of progress of the Internal Audit improvement
workstreams following an externally facilitated review.
Other matters
• Received reports and presentations from senior management
in other significant business areas such as health and safety,
pensions, the new payroll system, legal, and taxation.
• Received regular updates on ESG matters, including TCFD
requirements, climate-related risks and Code of Practice.
• Reviewed fraud risk and mitigation.
• Reviewed whistleblowing reports.
• Assessed compliance with the UK Corporate Governance Code.
Financial reporting
FRC Audit Quality Review
During the year we were informed that the Financial Reporting Council
(FRC) had selected the audit of NEXT plc’s January 2022 Annual Report
and Accounts for review by its Audit Quality Review team as part of
their routine sampling activity. Audit quality review is undertaken by the
FRC as part of its annual inspection of audit firms.
The Committee reviewed the FRC’s findings and PwC’s response
and discussed with PwC those actions that will be taken as a result
of the review. The FRC review considered the audit of key areas of
judgement and estimation, including the application of key judgements
and assumptions for the expected credit loss model (on the nextpay
receivables), the net realisable value of inventory and the impairment
assessment associated with the Retail stores and related assets.
The review highlighted some limited findings for improvement and,
having reviewed these and PwC’s response, the Audit Committee is
satisfied the findings will be appropriately resolved.
Review of financial statements
The Committee reviews the financial statements of the Group, assesses
whether suitable accounting policies have been adopted and whether
management has made appropriate estimates and judgements.
In order to assist with this review the Committee requested that
management present detailed papers explaining and substantiating
the basis for the Group’s accounting policies, APMs and key areas of
judgement and estimation. These papers included a sensitivity analysis
on key estimates so that the potential impact of these could be viewed
in the context of the financial statements as a whole.
The Committee also recognises the importance of the views of the
external auditor and consequently made enquiries to ensure that
suitably robust challenges and audit procedures had been performed
on these judgements during the course of the audit. There were no
significant differences between management and the external auditor.
Having reviewed management’s papers and considered the procedures
and findings of the external auditor, the Committee is satisfied that the
judgements are reasonable, and that suitable accounting policies have
been adopted and disclosed in the accounts.
AUDIT COMMITTEE REPORT
126
Significant matters and judgements for the year ending 28 January 2023
The following areas of significance were all subject to review and challenge by the Committee and were discussed and addressed with our external
auditor throughout the external audit process.
Area of focus Details of Committee review
Reference to
financial statements
1. Online customer receivables and
related allowance for expected
credit losses (ECL)
This represents the largest asset class on the Group’s Balance Sheet (2023: Gross
value £1.5bn and allowance for expected credit losses of £202m).
Based on detailed reports and thorough discussions with management and the
external auditor, including the appropriate ECL model specialists, the Committee
reviewed the basis and level of provisions under IFRS 9 “Financial instruments”
and the sensitivity of key judgements.
Specific consideration was given to the impact of the increase in interest rates
and forecast UK inflation on customer indebtedness and expected default rates.
Sensitivity analysis on the key assumptions, including management overlays to the
base ECL model, has also been reviewed and, where significant, has been disclosed
in the Annual Report and Accounts.
The Committee is satisfied that the judgements made, and the sensitivities
disclosed in the Annual Report and Accounts, are reasonable and appropriate.
Page 192-193 and
Note 13
2. Pension scheme funding
and accounting
The Group Balance Sheet shows a funding surplus of £157.5m (2022: £156.9m),
comprising £780.6m assets and £623.1m defined benefit pension schemes’
obligation.
The Committee reviewed the actuarial assumptions underlying the calculations,
discussed with the auditor its view on these assumptions, and was satisfied that
they are reasonable.
The schemes’ funding position is highly sensitive to small changes in discount
and inflation rates and, as a result, the financial statements include a sensitivity
analysis on these inputs.
Note 20
3. Inventory valuation The Group Balance Sheet shows a net valuation of £662.2m (2022: £633.0m).
Both management and the external auditor provided the Committee with updates
on the work they performed to validate the appropriateness of key estimates used
in respect of inventory provisions. Particular consideration was given to the overall
increase (year on year) and forecast sales for the year ahead.
The Committee concluded that the methodology for calculating the net realisable
values of inventories, including management’s estimates on provisions, was
balanced and appropriate.
Page 193
4. Impairment of store assets During the year the Group has recognised a net reversal of the impairment on its
store related assets of £37.6m.
In recognising the impairment charge and reversal, management applied the
requirements of IAS 36 to:
• Determine whether there have been any trigger events which require a
reassessment of the store impairment provision; and
• Where a trigger event is present, prepare a forecast of the store cash
flows to assess and measure the effect of any impairment/reversal of
previous impairments.
The Audit Committee reviewed and discussed papers from management, including
the key assumptions and sensitivities within the forecast model. It also reviewed
the results of the external audit and concluded that the reversal was balanced
and appropriate.
Page 194 and
Note 3
127
Strategic Report Governance Financial Statements
Shareholder Information
Area of focus Details of Committee review
Reference to
financial statements
5. Acquisition of 26% interest
in Reiss
The acquisition of a further 26% equity interest in Reiss resulted in a total
shareholding of 51% and a cash outflow of £45.3m.
The accounting for this additional equity stake was reviewed and specific
consideration was given to the reserved matters within the shareholders
agreement to assess whether this additional equity provided NEXT with control of
Reiss. Management concluded that it did not as NEXT did not obtain operational
control. Instead it has joint control with the other major shareholder.
Having reviewed accounting papers from management and considered the views
of the external auditor, the Committee concluded that the accounting treatment
of the acquisition was appropriate.
Note 12
6. Sale and leaseback The sale and leaseback on the new Elmsall 3 warehouse development represents
a significant capital investment programme and required management to exercise
judgement on whether the work met the recognition criteria for a “sale” as defined
under IFRS 15, Revenue with contracts with customers.
In the prior year a gain of £7m was recognised on this transaction.
This gain represented a proportion of the total gain expected on the sale and
leaseback transaction.
As expected the remaining performance obligations relating to the sale were
completed in the year and the residual gain of £10m was recognised in 2022/23.
As a result the total gain under the sale and leaseback, recognised across the two
years was £17.8m.
Based on the explanations and analysis provided by management, and the review
by the external auditor, the Committee concluded that the recognition of the gain
and related judgements on revenue recognition were balanced and appropriate.
Note 11
7. Acquisition of trade and assets
from Joules
During the year the Group partnered with Tom Joule to acquire, out of
administration, the majority of the assets of Joules via a newly formed company.
The cash consideration paid by NEXT was £28m.
The accounting for the acquisition, including a provisional assessment of the fair
value of the assets and liabilities acquired, has been performed by management.
This process required management judgement in assessing the fair value of the
assets and liabilities acquired.
Having reviewed accounting papers from management, and considered the views
of the external auditor, the Committee concluded that the accounting treatment
of the acquisition was appropriate.
Note 32
AUDIT COMMITTEE REPORT
128
The Committee
reviews the
Annual Report during
the drafting process and
receives regular updates
on progress.
By facilitating input
at an early stage,
there is adequate
time for review
and amendments.
The reporting is led by
a small team of senior
management which
coordinates the input
into the Annual Report.
Senior management
reviews the Report as
a whole to ensure that
the information
presented is accurate
and the narrative
is consistent with the
fact pattern.
Management
accounts and KPIs
are considered at
Board meetings
to ensure that the
business performance
is appropriately
assessed, reported
and understood.
The Internal
Audit function
undertakes a thorough
review process,
verifying information
within the report.
The Committee
considers the views of
the external auditor.
The Committee
receives a report from
management on the
steps it has taken
to ensure that the
report is fair, balanced
and understandable.
The Committee
discusses this with
management, and
challenges any
significant judgements
or estimates made,
as well as the use of
any APMs.
Step 1 Step 4Step 2 Step 5Step 3 Step 6
Going concern and viability statement
The Committee reviewed the appropriateness of preparing the accounts
on a going concern basis and the viability assessment for the business.
To inform its assessment of these, the Committee:
• Received a presentation from management which set out the Group’s
financial position and performance, its three year cash projections
and the Group’s available borrowing facilities and covenants,
including the repayment profile of its existing debt structure.
• Reviewed the process behind the preparation of the cash projections,
assessing the completeness of the inputs and appropriateness of key
assumptions made by management.
• Reviewed the stress tests and reverse stress test prepared by
management. The stress tests included the possible cash impact of
a "black swan" event which forced the temporary closure of all the
warehouses and retail stores.
• Took into consideration recent updates they had received on the
Group’s principal and emerging risks.
• Noted that while net debt (excluding leases) had increased during
the year, that actions taken in the preceding three years had
significantly strengthened the liquidity of the Group (net debt
excluding leases reduced from £1,112m in January 2020 to £797.3m
at January 2023). Furthermore the Group continued to have access
to significant cash levers which it could utilise if required to support
the viability of the business.
Further details of the scenario testing, including the cash levers available
to the business, are provided in the Viability Statement on page 84.
Based on these procedures the Committee approved the disclosures
in relation to both the going concern and viability assessment and
recommended to the Board the preparation of the financial statements
on a going concern basis.
Fair, balanced and understandable
Each year the Committee advises the Board on whether the Annual
Report and Accounts taken as a whole are fair, balanced and
understandable and provide the information necessary for shareholders
to assess NEXT’s position, performance, business model and strategy.
In reaching its conclusion, the Committee considers the Annual Report
in line with the steps set out in the diagram below.
There are two particular areas of the Annual Report which changed
this year. Detailed consideration was given to these changes by
the Committee:
• The Group’s segmental reporting was amended so that the profit
from the Lipsy segment is now presented within the NEXT Online
and Finance business segments. In addition, a new segment has
been added for the Total Platform business which continues to
grow and is therefore now presented as a segment in its own
right. In order to ensure comparability of segmental profits, the
prior periods have been restated. This change had no impact on
the overall Group profit. Further details, including a reconciliation
between the previous and revised segmental reporting, is set out
on page 195.
• The Group has presented its KPIs for each of the years 2023, 2022
and 2020. Usually only the KPIs for the prior year would have been
presented. However, the KPIs for 2020 have also been included as
this was the last year in which the results were not impacted by
the disruption caused by COVID. They therefore provide a useful
comparative in which to assess the Group’s performance in 2023.
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Strategic Report Governance Financial Statements
Shareholder Information
Risk management, internal control
and internal audit
Risk management
While the Board retains ultimate responsibility for risk management,
the Committee reviews the overall effectiveness of risk management
within the business on a regular basis and at least annually. At each
meeting during the year the Committee received presentations from
management detailing risks and risk management in various areas of
the business. More information about the Committee’s risk oversight
during the year can be found below.
Further details regarding NEXT’s risk framework and approach to
risk management, together with details of the principal risks and risk
assessment can be found on pages 74 to 82.
The Committee’s risk management activities
during the year
IT systems, cyber security and data privacy
• The Committee received progress reports on IT control observations
made by the external auditor during the 2022 audit.
• At every meeting the Committee received updates from the Director
of Technology Infrastructure on a significant IT ransomware defence
and recovery project.
• Management presented to the Committee on work being done to
enhance information security processes and procedures.
• The Committee reviewed information security and data privacy
(GDPR) key risk indicator and key controls dashboards and
enhancement plans.
• Cyber security benchmarking results were presented to the
Committee, as well as the results of a number of phishing simulation
exercises and an externally facilitated crisis simulation which two of
the executive directors participated in.
Consumer credit
• During the year the Committee received regular briefings on the
Finance business, including reporting on the financial outlook,
work on new customer management scorecards and affordability
assessments and updates on credit account fraud.
• The Committee received regular updates on payment and default
rates, bad debt, and arrears and whether the macroeconomic
uncertainty had been appropriately considered.
• The Committee has oversight of the credit business’ FCA conduct
risk dashboard and has the opportunity to challenge management
as appropriate.
Other risk activities
The Committee also:
• Reviewed the key current and emerging risks (including ESG risks),
together with the associated controls and mitigating factors.
• Considered management’s scoring of inherent and residual risks,
and challenged assumptions and methodology to ensure these are
appropriate and robust.
• Considered the output of work undertaken by management,
including its work with an external advisor, to further improve the
documentation around its financial controls matrix.
• Reviewed the 2023 risk governance schedule.
• Reported to the Board on its evaluation of the effectiveness of the
Group’s systems of internal control and risk management, informed
by reports from Internal Audit and PwC.
• Appraised the controls and procedures in place to prevent and detect
fraud, and received regular updates on steps taken to prevent fraud.
• Considered progress on the E3 warehouse expansion and
reorganisation project.
• Received regular updates from senior management on the
implementation of its new payroll system which went live during
the year.
• Received updates on material legal matters.
• Received updates from the operations team on key projects such as
Total Platform, including consideration of the associated risks.
Internal audit
The Internal Audit function is an integral feature of the Group’s control
framework. The work undertaken by the team provides invaluable
insight into the practices, processes, systems and controls of the
business. As such, the internal audit plan is approved by the Committee
annually, and the Head of Internal Audit provides a detailed update to
the Committee at each meeting. This update provides insight into the
results of audits, including proposed improvement plans where relevant.
The Committee has oversight of the Internal Audit function’s resource,
experience and expertise. The Committee as a whole and the
Committee Chairman each meet with the Head of Internal Audit without
management present on a regular basis to allow for open discussion.
During 2021/22, an externally facilitated quality assessment of
the Internal Audit function was undertaken by Ernst & Young LLP.
No significant issues were raised and the key recommendation to
produce an assurance map had been addressed and approved by the
Committee in the January 2023 meeting. The Committee received
progress updates on improvements arising from the assessment from
the Head of Internal Audit at each meeting during the year.
The Committee is satisfied that the Internal Audit function has
continued to perform effectively during the year.
AUDIT COMMITTEE REPORT
130
External audit
The Audit Committee is responsible for recommending to the Board
the appointment, re-appointment, remuneration and removal of the
external auditor. A resolution to propose the re-appointment of PwC
was approved by shareholders at the 2022 AGM. When considering
whether to recommend the re-appointment of the external auditor, the
Committee considers a range of factors, including the effectiveness of
the external audit, the period since the last audit tender was conducted,
and the ongoing independence and objectivity of the external auditor.
Independence and objectivity
PwC conducted its first audit of NEXT’s financial statements in 2018,
following a competitive tender process. The Committee will conduct
an audit services tender at least every ten years to ensure that the
independence of the external auditor is safeguarded. It is currently
expected that the next tender process will take place in 2026 for audit
services to begin in the year ending January 2028. When considering
the appropriate time to conduct an audit tender, the Committee takes
into account the benefit of an incumbent firm with deep knowledge
of the Group’s operations enabling an efficient and high quality audit,
the independence and objectivity of the appointed auditor and audit
partner and the results of the assessment of audit effectiveness.
The Committee currently believes that it is in the best interests of
the shareholders of NEXT to conduct the competitive tender process
in 2026.
NEXT confirms that it was in compliance with the provisions of The
Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014 throughout the financial year ended
28 January 2023.
Mark Skedgel was appointed as the new Lead Audit Partner for the
2022/23 audit and will serve a maximum term of five annual audit cycles.
PwC has reported to the Committee that, in its professional judgement,
it is independent within the meaning of regulatory and professional
requirements and the objectivity of the audit engagement partner and
audit staff is not impaired.
The Audit Committee has assessed the independence of the auditor
by considering, amongst other things, the length of tenure of the
audit firm and the audit partner, the value of non-audit fees provided
by the external auditor, the relationship with the auditor as a whole,
and management responses to the independence questions in the
questionnaire conducted at the end of the audit process. It also
considers the external auditors’ own assessment of its independence.
The Committee is satisfied that PwC meets the required standard of
independence to safeguard the objectivity and integrity of the audit.
Non-audit work carried out by the
external auditor
In order to ensure the continued independence and objectivity of the
Group’s external auditor, the Board has a strict policy regarding the
provision of non-audit services by the external auditor.
• The Committee’s approval is required in advance of any non-audit
services to be provided by the external auditor.
• In any one year the aggregate non-audit fees will not exceed
£150,000.
• Over a rolling three year period, non-audit fees are limited to 50% of
the average audit fee paid in the previous three years.
• Only permitted non-audit services may be provided by the auditor.
The policy was last reviewed in March 2020 and deemed to remain
appropriate. The Committee reviews PwC’s audit and non-audit fees
twice a year. These procedures also ensure that the regulatory cap on
permitted non-audit services of 70% of the average Group audit fee
paid on a rolling three year basis is not exceeded.
Proposed assignments of non-audit services with anticipated fees
in excess of £50,000 are generally subject to competitive tender and
decisions on the award of work are made on the basis of competence
and cost-effectiveness. A tender process may not be undertaken where
existing knowledge of the Group enables the auditor to provide the
relevant services more cost-effectively than other parties. The Group’s
external auditor is prohibited from providing any services that would
conflict with their statutory responsibilities or which would otherwise
compromise their objectivity or independence.
During the year, PwC’s audit fee amounted to £1.3m and its non-audit
fees were £0.1m in total. In line with the above policy, appropriate
advance approval was obtained from the Committee. Non-audit
fees related to services to provide limited assurance over parts
of our corporate responsibility reporting from PwC as they have
existing knowledge of the Company and were able to provide the
services in a cost effective manner. Further details are provided in
Note 3 to the financial statements.
131
Strategic Report Governance Financial Statements
Shareholder Information
The findings of the FRC’s Audit Quality Review of the audit of NEXT’s
2021/22 Annual Report and Accounts provided further comfort to the
Committee of the quality and effectiveness of PwC’s audit (see page
126 for further detail).
The Committee Chairman attended the audit close meeting between
the external auditor and management to ensure that he was fully
aware of:
• The issues that arose during the course of the audit and
their resolution.
• The level of errors identified during the audit.
• The interaction between management and the auditor.
• The views of the external auditors’ technical specialists and NEXT’s
subject area experts.
The external auditor attended all of this year’s Committee meetings.
Based on these reviews, the Committee concluded that PwC had applied
appropriately robust challenge and professional scepticism throughout
the audit, that it possessed the skills and experience required to fulfil its
duties effectively and efficiently, and that the audit was effective.
Having reviewed the auditors’ independence and the effectiveness
of its audit the Committee is satisfied that a resolution to re-appoint
PwC be proposed at the 2023 AGM which the Board has accepted
and endorsed.
Other matters
ESG
ESG is a standing item on the Audit Committee’s agenda and during the
year the Committee:
• Reviewed the proposed TCFD and SASB disclosures.
• Received updates on new regulatory developments as well as
significant environmental initiatives within the business.
• Had presentations from the Code of Practice team, which works
with NEXT’s suppliers worldwide to uphold and improve labour
standards in our supply chain.
• Received updates at every meeting from the Company Secretary on
ESG governance matters.
Whistleblowing
The Company’s whistleblowing procedures ensure that employees,
suppliers and other third parties are able to raise concerns about
possible improprieties on a confidential basis. Concerns can be raised
via telephone or online directly to NEXT or to an independently provided
third-party service. The policy also provides for concerns to be reported
directly to the Committee Chairman.
During the year, the Committee received updates at every meeting
of reported issues, investigation details and follow up actions.
The Committee also received updates in relation to anti-bribery and
modern slavery training and awareness programmes.
1
Reviewing audit plans early in
the planning stages and
discussing audit planning,
audit quality, fees, accounting
policies, audit findings
and internal control with PwC.
5
Considering the manner
in which the audit was
conducted and the
audit areas in which
most time was spent.
7
Considering the areas in which
PwC had challenged
management’s assumptions
in key areas of judgement and
the number and nature of the
accounting and
control observations raised by
the auditor.
2
Reviewing the findings from
the FRC’s annual audit
inspection and the actions
PwC was taking as
a consequence of
the inspection, particularly in
relation to the audit
of retail companies.
6
Reviewing the results of a
detailed survey completed by
NEXT management on their
experience with the external
auditor in respect of areas
such as audit strategy,
professional scepticism,
technical strength,
communication and planning.
4
Attendance by the Committee
Chairman at the audit close
meeting (see below).
3
Reviewing PwC’s report
on its own internal
quality procedures.
AUDIT COMMITTEE REPORT
Effectiveness
It is the Committee’s responsibility to assess the effectiveness of the external audit.
The Committee kept the effectiveness of the external audit under continuous review throughout the year. It did this through:
132
REMUNERATION REPORT
Contents
Part 1: Annual Statement from the Remuneration Committee Chairman
Part 2: Proposed Directors’ Remuneration Policy
Part 3: Annual Remuneration Report
page 133
page 138
page 150
Remuneration compliance
This report complies with Schedule 8 of the Large and Medium-sized Companies and Group (Accounts and Reports) Regulations, the UK Corporate
Governance Code (Code) and the Listing Rules.
Part 1: Annual Statement
As Chairman of the Remuneration Committee and on behalf of the Board, I am pleased to present our report on directors’ remuneration for
2022/23.
Pay and performance outcome for 2022/23
Total remuneration
Pay arrangements at NEXT are simple, have been broadly consistent over many years and – in part as a consequence of this consistency – are well
understood by the executive team, the wider workforce and shareholders. Although the Remuneration Policy is explicitly for executive directors,
the principles which underlie it are used more widely in the business, at the operational director level and below.
Pay arrangements are also moderate – overall remuneration levels for executive directors are some way below the FTSE 100 median. They are
also objective: variable pay is a result only of clear and objective financial performance measures, without any subjective or personal component.
Consequently, these arrangements serve shareholders well; there is a long track record of NEXT’s variable pay paying out when performance is
good, and not paying out when performance is weaker.
As outlined in our Strategic Report, NEXT performed well during the year in the face of continued macroeconomic and geopolitical uncertainty and
the executive directors helped to deliver NEXT profit before tax of £870m (up +5.7% versus 2021/22 and +16.3% against 2019/20) and post tax
EPS of 573.4p (+8.0% versus 2021/22 and +21.4% versus 2019/20).
Annual bonus
Annual bonus is calculated with reference to pre-tax EPS, as described on page 151. In accordance with the bonus formula, 54% of bonus opportunity
was earned, resulting in a bonus of 81% of salary for Lord Wolfson and 54% of salary for the other executive directors. Maximum bonus payments
were earned for 2021/22. The out-turn reflects the formulaic result without the exercise of any discretion.
Long Term Incentive Plan (LTIP)
LTIP awards are granted twice a year, each grant being at 112.5% of base salary for executive directors. Two LTIP awards reached the end of
their three year performance period during the year. Of these, the first vested at 62% as NEXT’s total shareholder return (TSR) ranked 7th out
of 20 companies in the comparator group and the second vested at 30% as NEXT’s TSR ranked 10th in the comparator group of 21 companies.
The out-turn reflects the formulaic result without the exercise of any discretion. These grants were made in September 2019 and March 2020.
The Committee noted that some investor guidelines encourage further disclosures of grants made in the immediate aftermath of the onset of
COVID. As the long-standing approach at NEXT has been to determine the number of shares awarded by reference to a daily average of mid-
market closing prices on trading days during the three month period prior to the start of the performance period, the Committee considers that its
approach inherently adjusts for abnormal share price movements such as caused by COVID.
133
Strategic Report Governance Financial Statements
Shareholder Information
REMUNERATION REPORT
Key remuneration decisions
The Committee addressed the following matters during the year:
Committee assessment of performance-related remuneration
The Committee is mindful of the need to ensure that executive pay is inextricably linked to performance. This scrutiny is particularly important
when a company either performs below expectations or exceeds expectations. While mathematical outcomes give a strong indication of the
appropriate remuneration, it is the Committee’s role to assess this in the context of the wider environment in which the Company operates.
In allowing the executives’ performance-related pay to vest without adjustment, the Committee took into account the following:
• Our executive directors are high performing, with an excellent track record in delivering strong and resilient Company performance and growth,
as evidenced by the results this year and a TSR of 136% over a ten year period.
• The strong performance of the business is a result of the significant work to continue to develop our product ranges and our technology which
has been led by the executives and includes growing our LABEL business by 100% over the last three years and the development of our Total
Platform business. This work has placed NEXT in a strong position to take advantage of the ongoing structural shift in spending from retail stores
to online as well as investment and acquisition opportunities.
• That it was consistent with the approach to performance-related remuneration across the wider workforce – bonus was earned by employees
across all key divisions of the Company.
The Committee believes therefore that the executive director remuneration earned this year is proportionate and aligned to business performance
and, therefore, approved the formulaic outcomes without the exercise of any discretion.
Remuneration Policy renewal
Our current Directors’ Remuneration Policy will reach the end of its normal three year life at the 2023 AGM and accordingly a new policy will be
submitted for shareholder approval at that meeting. During the year the Committee carried out a comprehensive review of the current Policy.
The overall objective of the Committee in this regard was to ensure the Company has a pay policy that leads to appropriate levels of senior
executive remuneration (both as to amount and structure); that such remuneration is directly linked to both short and long term performance
and, finally, that pay is also aligned with the interests of shareholders. The Committee also considered the alignment of the proposed Policy with
Principle P of the Code (that is, that pay structures support Company strategy and promote long-term sustainable success) as well as with Provision
40 of the Code. The review included consultation with NEXT’s 20 largest shareholders (who hold just over 50% of our issued share capital) and
leading proxy advisers.
The Committee was also conscious that NEXT’s pay policies have remained consistent for a long period of time, over which they have served both
shareholders and executives well; so, in the view of the Committee, there would need to be very good reasons to change such a policy.
The executive remuneration framework appropriately addresses the following factors:
• Clarity – NEXT’s incentive pay arrangements are based entirely on objective financial performance targets. This provides clarity to all stakeholders
on the relationship between pay and performance.
• Simplicity – Remuneration arrangements for our executives are simple and the principles which underpin them are applied at management
levels below the Board and are well understood by both participants and shareholders. Careful consideration is given to ensuring there is an
appropriate balance in the remuneration structure between annual and long term rewards, as well as between cash and share-based payments.
• Risk – The Committee considers that the incentive arrangements do not encourage inappropriate risk-taking. Malus and clawback provisions are
in the service contracts of all executive directors and apply to annual bonus and LTIP awards, so the Committee has discretion to adjust formulaic
outcomes to ensure that they are appropriate.
• Predictability and proportionality – Our Policy provides for potential total remuneration below the median levels for companies of our size and
has a strong history of delivering value when performance merits this and of nil payouts when performance has been weaker. Variable pay is
linked to measures which are aligned with the Company’s long term strategy and objectives.
• Alignment to culture – The remuneration performance targets set by the Committee are designed to drive the right behaviours across the
business. The arrangements encourage our executives to focus on making the right decisions for the creation of long term shareholder value.
In light of this and after taking into account workforce remuneration and related policies, the Committee proposes no changes from our current
Directors’ Remuneration Policy, which we believe has served our shareholders well over many years.
Rationale for proposal not to change the existing Remuneration Policy
The key points of our rationale to keep the Remuneration Policy unchanged are set out below.
Annual Bonus
Bonus payout at NEXT is entirely a function of pre-tax EPS performance, adjusted for special dividends (paid in lieu of share buybacks) excluding
exceptional gains. The Chief Executive’s maximum bonus opportunity is 150% of base salary with any payout above 100% paid in shares, deferred
for two years. The other executive directors have a maximum bonus opportunity of 100% of base salary, all in cash. These bonus arrangements
are very modest compared with FTSE norms. More typical bonus arrangements for FTSE 100 companies have a maximum payout of 200% for the
Chief Executive and of 160% – 170% for executive directors. The Committee discussed increasing these bonus levels to ones more in line with the
market but considers, on balance, that the current levels are aligned with the cost-conscious, performance-oriented culture of NEXT and to that
end serve shareholders well.
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The Committee also discussed increasing the proportion of the bonus which is deferred and the possible introduction of an ESG component to
the bonus calculation. On the first of these two topics, NEXT is compliant with the Investment Association’s guidelines: “Deferring a portion of the
entire bonus into shares is expected for bonus opportunity of greater than 100% of salary”. This, together with the Committee’s preference to
keep bonus levels at their current moderate levels, led the Committee to recommend the introduction of no further deferral element to the bonus
scheme believing that the current arrangements benefit shareholders compared with a significant increase in bonus levels with a deferred element
to align with market norms more closely.
On ESG, the Committee is very conscious of the focus that this topic receives in the investment community, and of the importance that is placed
on it in wider society. And it is equally clear to the Committee that the Company focuses a great deal of attention on this area – for instance, on the
working conditions of the factories in which NEXT’s garments are manufactured. Pages 85 to 106 of this Annual Report, sets out in considerable
detail the large number of activities that NEXT pursues in this area. These activities are, in the view of the Committee, well thought-through,
wide-ranging, and interwoven with how NEXT runs its business day-to-day. In this context, it seemed to the Committee unnecessary to introduce
an ESG metric into bonus arrangements in an attempt to motivate activity and behaviour that is already well advanced and widespread. It also
seemed to the Committee that picking one or two particular metrics on which to judge and reward management, in an area that is wide-ranging
and touches on many different aspects of the business, would be arbitrary and subjective. In the context of pay arrangements that have as one of
their principal merits the widespread use of clear and objective financial performance measures, the Committee did not see this as a sensible step
forward. So, on balance, the Committee’s proposal is not to include any ESG metrics in pay arrangements explicitly, when many of the behaviours
that are the focus of such metrics are already well embedded and implicit at the Company. It should be noted that, while its use should be rare,
the Committee reserves discretion to reduce bonus and LTIP payments if material ESG failures arose. Based on experience elsewhere, where ESG
related measures and personal objectives tend to pay-out at a higher level than financial measures, the effect of this decision is likely to reduce our
executive directors’ pay levels.
LTIP
The LTIP maximum grant was increased in the last Policy renewal from 200% of salary to 225% of salary. Grants are awarded twice a year (so at
112.5% every six months), at a price calculated as the average three-month price in the run up to the start of the performance period. Vesting is
calculated as a function of NEXT’s TSR relative to that of a basket of approximately 20 LSE-quoted retailers.
Again, the grants are subject to a general underpin permitting the Committee to reduce vesting if the formulaic outcome is not considered
appropriate.
Shareholding guidelines
NEXT introduced shareholding guidelines post-cessation of employment into the Policy in 2020, in part as a consequence of consultation with
shareholders. The requirement is for serving executive directors to hold 225% of salary in shares for one year post cessation. These guidelines will
be enforced through the retention in a suitable holding account of all shares that vest from the 2020 LTIP grants onwards, until the threshold has
been met. As we pointed out last time, operational cycles in fashion retailing are short, and it does not seem appropriate to ask executive directors
to tie material amounts of wealth to other people’s decisions on range, style etc. Nonetheless, given the sensitivity of shareholders to this issue,
we agreed in the last Policy review to introduce a one year post-cessation guideline. It does not seem appropriate to now ask executive directors
to have to retain a NEXT shareholding for more than one year after leaving, particularly noting that overall variable pay at NEXT is low compared
to market norms and one element of executive directors’ willingness to accept this lower quantum is that they should have recourse to their NEXT
shares as a source of income after a more limited period.
Pensions
The Committee understands that market guidance with regards to pension arrangements is that the pensions of executive directors should not be
more generous than those of the wider workforce – a reaction to, and against, the practice in many companies of pension arrangements for senior
executives being enhanced on promotion to the Board. This has not been the case here: NEXT for many years has not increased pension benefits
for newly appointed Board directors. In other words, the practice at which these elements of pay guidance is targeted is not one that was followed
at NEXT.
Different executive directors do have different contribution levels both to one another and to the current workforce – but at NEXT this is a function
of the interplay of (a) all executive directors are very long serving and (b) there are differences in director tenure (from the shortest serving
executive director at 26 years and the longest serving executive director at 37 years) and (c) NEXT pension arrangements have changed over time.
Pensions was a key area of discussion with shareholders, and change to our Policy, in the last Policy review, specifically changes to the pension
arrangements of Lord Wolfson, the Chief Executive.
As a reminder, Lord Wolfson joined the NEXT Defined Benefit pension scheme shortly after joining the Company in 1991. In 2012 he agreed to a
reduction in his DB pension entitlements when, for the purposes of its calculation, the final salary element was frozen at his salary in 2012 (so his
DB accrual is limited to a salary of £710k being 82% of his 2022/23 salary), rather than what his final salary will actually be. In exchange for this, Lord
Wolfson receives a 15% salary supplement.
Lord Wolfson then accepted, in the last Policy review, a further reduction of his DB entitlements when he agreed to a cap on the service accrual
element (the salary component already frozen), which continues to accrue with his continued service, at 9% of salary. Consequently, for the
purposes of the single figure table, his pension entitlement will never be greater than 24% of his base salary.
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At the time of the last Policy review, we noted that “if external expectations and/or market practice develop further in the future, we will not ask
Lord Wolfson to take any further reduction in his terms.”
NEXT’s other executive directors receive pension contributions and/or salary supplements of 15% (Jane Shields) and of 5% (Richard Papp and
Amanda James). None of these rates are ‘top hat’ arrangements for executives and align with the wider workforce if looked at from the perspective
of colleagues with an equivalent length of service. However, the prevailing rate of employer pension contribution for new joiners to NEXT is 3% of
pensionable salary, again regardless of seniority.
Acknowledging the sensitivity of this issue, we committed in 2017 that “Any newly appointed executive directors, whether internal or external
appointments, will be invited to join a NEXT Defined Contribution pension arrangement at the prevailing rate for staff across NEXT at the time.”
However, asking existing executive directors to reduce their pension entitlements would disadvantage our directors compared to other senior
executives of similar tenure who do not serve on the Board, and would also penalise long service – all this in the context of pay arrangements
overall that are modest. We would much rather keep pension arrangements as they are than have to consider offsetting any reduction in pensions
with material changes to bonus arrangements – which in turn would both increase overall costs for shareholders and have a cascading impact on
the wider workforce.
Annual base salary review for 2023/24
The Committee reviewed and set the remuneration for the Chairman, executive directors and senior management. Whilst the wider workforce’s
base salary increase was on average 8.7%, the executive directors received a pay increase of 5%.
In April 2023, Jeremy Stakol will be promoted to the Board as Group Investments, Acquisitions and Third Party Brands Director. The Committee’s
typical approach to salary progression for those executive directors who are appointed to the Board from an internal senior managerial position
is to award salary increases which are timed to reflect performance and contribution at Board level, rather than automatically applied in full
immediately on promotion. Salary progression is therefore usually phased over a period of approximately 1 to 4 years after promotion to the
Board, subject to proven performance and development during that period. This prudent approach is in the interests of shareholders (saving
money on salary as well as bonus and LTIP grants which are correspondingly less) and is consistent with both the approach taken with other internal
promotions to the Board and with the approved Remuneration Policy.
EPS and performance measurement
Each year the Committee reviews the basis and performance measures used for the annual bonus and LTIP. The performance measure for the
annual bonus continues to be based on pre-tax EPS. The principal reasons for using EPS are:
• It is consistent and transparent to participants and shareholders.
• The primary financial objective of the Group is to deliver long term, sustainable returns to shareholders through a combination of growth in EPS
and payment of cash dividends.
• The use of EPS is complemented by the application of relative TSR for the LTIP.
As set out in previous years, we consider it right that the impact of share buybacks on EPS (or adjustments for special dividends) should be
included in performance measurement, as share buybacks (and special dividends) have been one of NEXT’s primary strategies in delivering value
to shareholders. Share buybacks or special dividends are regularly considered by the Board. Shares are only bought when the Board is satisfied that
the ability to invest in the business and to grow the ordinary dividend will not be impaired.
Malus and clawback
The triggers for malus and clawback have sufficient scope to capture circumstances in which the Committee may wish to exercise these rights,
including discretion to reduce variable pay at the point of determination which is in the executive directors’ service agreements (as set out on page
144). The Committee considers these provisions at the year end as part of its normal review and concluded that it was not appropriate to exercise
such provisions.
Other activity during 2022/23
Further information about the work of the Committee is on page 161.
Wider employee considerations and employee engagement
The Committee reviews remuneration arrangements across the Group and considers pay and employment conditions elsewhere in the Group
to ensure that differences for executive directors are justified. This includes performance-related pay which is designed to attract and retain high
quality employees as well as ensure that all employees have the potential to benefit from the success of NEXT. The Committee is responsible for
approving the remuneration of the Group’s senior management. It is also responsible for determining the targets for performance-related pay
schemes, approving any award of the Company’s shares under employee share option or incentive schemes, and overseeing any major changes in
employee benefit structures.
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Rewarding our workforce
There are bonus structures throughout NEXT and employee share ownership is strongly encouraged. Market value options over NEXT shares
are granted each year to approximately 2,000 middle management in our Head Office, call centres and warehouses, as well as senior store staff.
Participation in our Sharesave scheme is open to all our UK employees and we saw a record take up of our 2022 Sharesave offer.
Around 11,400 employees (circa 27% of our total UK and Eire employees) held options or awards in respect of 7.0 million shares in NEXT at the
financial year end.
Knowing our workforce
Our annual employee forum meetings for our Head Office, Warehousing & Distribution, Retail and Online areas were held in person during
2022. Lord Wolfson, Dame Dianne Thompson (non-executive director), our HR Director and a cross-section of workforce representatives from
the relevant business divisions with operational director sponsors attended the meetings. NEXT Sourcing had a representative attend an annual
employee forum meeting and Lipsy company works councils held meetings during the year.
For further details regarding the feedback to the Board on employee views, please see page 107.
Along with the employee forum feedback, earlier this year the Committee reviewed and discussed a range of ‘dashboard’ information on important
employee matters such as pay and reward, bonuses, benefits, diversity, equality of pay, internal promotions, culture and behaviours (including data
on staff turnover by business division, absences, redundancies, disciplinaries and grievances), and learning and development. The remuneration
framework works best when decisions are made in the context of the workforce as a whole rather than in isolation, and so the Committee
considered the output of the workforce dashboard to ensure the executive directors’ pay policy is aligned to the Company’s strategy and, where
relevant, to performance-related pay for managers below Board level. Following the dashboard review and at the conclusion of the Committee’s
Remuneration Policy review, I circulated a letter to all our employees setting out our approach and inviting them to email me with any queries or
comments they had via a dedicated email address.
Shareholder engagement
The Committee consulted with our largest 20 shareholders (who hold over 50% of our shares in issue) and their representative bodies in 2022
regarding our proposed Remuneration Policy. This consultation commenced with a letter explaining our proposal to keep the Policy unchanged.
This was followed up with individual meetings to further explain the rationale behind the proposals and obtain feedback and understand the views
of our investors. We were pleased by the level of engagement and overall feedback was positive.
For further details regarding the feedback to the Board on shareholder views, please see page 110.
2023 AGM
The Committee has continued to be mindful of the requirements of the Code when determining the Remuneration Policy and practices. It considers
that the simplicity and transparency of our remuneration arrangements and their consistent application have contributed positively to NEXT’s
management team delivering strong and resilient performance, despite the continued externally challenging situation. The Remuneration Policy
structure continues to provide a strong and transparent link between pay and performance and has operated as intended. We hope that this report
provides clear insight into the Committee’s decisions and look forward to receiving your support at the 2023 AGM for our proposed Remuneration
Policy and the 2022/23 Directors’ Annual Remuneration Report.
Tom Hall
Chairman of the Remuneration Committee
29 March 2023
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Part 2: Proposed Directors’ Remuneration Policy
for the period 2023 to 2026
The proposed Remuneration Policy is set out in this section. As explained on pages 134 to 136, no changes are proposed to the Policy from
the current Remuneration Policy which expires at the 2023 AGM. At the AGM to be held on 18 May 2023 a resolution to adopt the proposed
Remuneration Policy will be put to shareholders for approval. The Policy is set to apply, subject to shareholders’ approval, for three years from the
2023 AGM.
The table below summarises the Company’s policies with regard to each of the elements of remuneration for existing directors and the approach
to payments on external recruitment and termination.
Base salary
Purpose and link to strategy
To attract, motivate and retain high calibre individuals,
while not overpaying. To provide a satisfactory base salary
within a total package comprising salary and performance-
related pay.
Performance-related components and certain benefits are
calculated by reference to base salary. The level of salary
broadly reflects the value of the individual, their role, skills
and experience.
Operation
Normally reviewed annually, generally effective 1 February.
The Committee focuses particularly on ensuring that an
appropriate base salary is paid to directors and senior
managers. The Committee considers salaries in the context
of overall packages with reference to individual experience
and performance, the level and structure of remuneration
for other employees, the external environment and market
data. External benchmarking analysis is only occasionally
undertaken and the Committee has not adopted a
prescribed objective of setting salaries by reference to
a particular percentile or benchmark.
Maximum opportunity
There is no guaranteed annual increase. The Committee considers it important
that base salary increases are kept under tight control given the multiplier effect
of such increases on future costs. In the normal course of events, increases in
executive directors’ salaries would be in line with the wider Company cost of
living awards.
The Committee reserves flexibility to grant larger increases where considered
appropriate. For instance, where a new executive director, being an internal
promotion, has been appointed to the Board with an initial salary which is
considered below the normal market rate, then the Committee may make staged
increases to bring the salary into line as the executive gains experience in the role.
Also if there have been significant changes in the size and scope of the executive’s
role then the Committee would review salary levels accordingly.
Under the reporting regulations, the Company is required to specify a maximum
potential value for each component of pay. Accordingly, for the period of
this Policy, no base salary paid to an executive director in any year will exceed
£850,000 subject to the amount of the maximum base salary that may be paid
to an executive director in any year increasing in line with the growth in RPI from
the date of approval of that limit in accordance with the Remuneration Policy
approved in 2017.
Performance measures and targets
Not applicable.
Key changes to last approved policy
No change.
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Annual bonus
Purpose and link to strategy
To incentivise delivery of stretching annual goals.
To provide focus on the Company’s key financial objectives.
To provide a retention element in the case of the Chief
Executive as any annual bonus in excess of 100% of base
salary is payable in shares, deferred for a period of two
years and subject to forfeiture if he voluntarily resigns
prior to the end of that period.
Operation
Performance measures and related performance targets
are set at the commencement of each financial year by
the Committee. Company policy is to set such measures by
reference to financial measures (such as pre-tax EPS) but the
Committee retains flexibility to use different performance
measures during the period of this Policy if it considers it
appropriate to do so, although at least 75% of any bonus will
continue to be subject to financial measures.
At the threshold level of performance, no more than 20%
of the maximum bonus may be earned (the Committee
will determine the appropriate percentage each year and
recent awards have been set at a lower level). Typically, a
straight sliding scale of payments operates for performance
between the minimum and maximum levels. There is no in-
line target level although, for the purposes of the scenario
charts on pages 147 to 148, 50% of maximum bonus has
been assumed.
Dividend accruals (both in respect of special and ordinary
dividends) may be payable on any deferred bonus awards
which vest.
The Company has the flexibility within the rules of the
Deferred Share Bonus Plan to grant nil cost options as an
alternative to conditional share awards or exceptionally to
settle in cash.
Maximum opportunity
At present, Company policy is to provide a maximum bonus opportunity of 150%
of salary for the Chief Executive and 100% of salary for other executive directors.
Although the Committee has no current plan to make any changes, for the period
of this Policy the Committee reserves flexibility to:
• Increase maximum bonus levels for executive directors in any financial
year to 200% of salary. This flexibility would be used only in exceptional
circumstances and where the Committee considered any such increase to be
in the best interests of shareholders and after appropriate consultation with
key shareholders.
• Lessen the current differentials in bonus maximums which exist between the
Chief Executive and other executive directors.
• Introduce or extend an element of compulsory deferral of bonus outcomes if
considered appropriate by the Committee.
Performance measures and targets
Currently performance is assessed against pre-tax EPS targets set annually,
which take account of factors including the Company’s budgets and the wider
background of the UK economy. Pre-tax EPS has been chosen as the basic metric
to avoid executives benefiting from external factors such as reductions in the rate
of corporation tax. The Committee reserves flexibility to apply discretion in the
interests of fairness to shareholders and executives by making adjustments it
considers appropriate.
The Committee reserves flexibility to apply different performance measures and
targets in respect of the annual bonus for the period of this Policy but a financial
measure will continue to be used for at least 75% of the award. The Committee
will consult with major shareholders before any significant changes are made to
the use of performance measures.
The basis of performance measurement incorporates an appropriate adjustment
to EPS growth to reflect the benefit to shareholders from special dividends paid in
any period in lieu of share buybacks.
Key changes to last approved policy
No change.
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Long Term Incentive Plan (LTIP)
Purpose and link to strategy
To incentivise management to deliver superior total
shareholder returns (TSR) over three year performance
periods relative to a selected group of retail companies,
and align the interests of executives and shareholders.
Retention of key, high calibre employees over three
year performance periods and encouraging long term
shareholding, through post vesting holding requirement,
and commitment to the Company.
Operation
A variable percentage of a pre-determined maximum
number of shares can vest, depending on the achievement
of performance conditions.
The maximum number of shares that may be awarded
to each director is a percentage of each director’s base
salary at the date of each grant, divided by NEXT’s average
share price over the three months prior to the start of the
performance period.
LTIP awards are made twice a year to reduce the volatility
inherent in any TSR performance measure and to enhance
the portfolio effect for participants of more frequent, but
smaller, grants.
The Company has the flexibility within the rules of the LTIP
to grant nil cost options as an alternative to conditional
share awards and to settle vested LTIP awards in cash.
Dividend accruals (both in respect of special and ordinary
dividends) may be payable on any vested LTIP awards.
Maximum opportunity
The maximum possible aggregate value of awards granted to all executive
directors will be 225% of annual salary (i.e. typically 112.5% every six months)
and up to 300% in exceptional circumstances.
The Committee reserves the right to vary these levels within the overall annual
limits described above. In addition, awards granted to executive directors which
vest must be taken in shares and the net shares (after payment of tax and NIC)
must be held for a minimum period of two further years. The Committee reserves
the right to lengthen (but not reduce) the performance period and to further
increase the holding period or to introduce a retention requirement.
Performance measures and targets
Performance is measured over a period of three years. Currently performance is
measured based on NEXT’s TSR against a group (currently 19 other UK listed retail
companies) which are, in the view of the Committee, broadly comparable with
NEXT in size or nature of their business. Comparison against such a group is more
likely to reflect the Company’s relative performance against its peers, thereby
resulting in awards vesting on an appropriate basis.
Relative performance Percentage vesting
Below median 0%
Median 20%
Upper quintile 100%
If no entitlement has been earned at the end of a three year performance period
then that award will lapse; there is no retesting. The Committee may set different
performance conditions for future awards subject to consulting with major
shareholders before any significant changes are made.
Key changes to last approved policy
No change.
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Pension
Purpose and link to strategy
To provide for retirement through Company sponsored
schemes or a cash alternative for personal pension
planning and therefore assist attraction and retention.
Operation
Lord Wolfson, Jane Shields and Richard Papp are deferred
members of the defined benefit (DB) section of the 2013
NEXT Group Pension Plan (the Plan).
In addition to being a deferred member of the DB section of
the Plan, Lord Wolfson is accruing service (subject to a cap,
see opposite) in an unfunded, unapproved supplementary
pension arrangement (SPA), described on page 154.
His future pension is calculated by reference to his October
2012 salary, rather than his final earnings, and any future
salary changes will have no effect.
Jane Shields and Richard Papp ceased to contribute to the
Plan in 2011 and 2004 respectively. Their DB pensions are no
longer linked to salary and will increase in line with statutory
deferred revaluation only (i.e. in line with CPI).
Lord Wolfson and Jane Shields receive salary supplements of
15% in lieu of past changes to their pension arrangements.
This arrangement was in line with other senior employee
members of the DB section of the Plan.
Amanda James participates in a defined contribution
pension scheme and the Company currently makes a
contribution equal to 5% of her salary into her pension
plan. Amanda James can opt to receive an equivalent
cash supplement in lieu of this Company contribution.
Richard Papp is a deferred member of the same defined
contribution pension scheme and receives a 5% cash
equivalent supplement. The arrangements for Amanda
James and Richard Papp are consistent with the pension
provision and alternatives available to employees who
joined the DC scheme at a similar time. The 5% cash
equivalent supplement is only available to members who
have exceeded the Annual or Lifetime Allowance limits.
Bonuses are not taken into account in assessing pensionable
earnings in the Plan.
New employees of the Group can join the auto enrolment
pension plan.
Maximum opportunity
Under the DB section and the SPA, the maximum potential pension is only
achieved on completion of at least 20 years of pensionable service at age 65,
when two thirds of the executive director’s annual pensionable salary at October
2012 (plus any element of pension which was accrued on bonus payments made
prior to 2006, when bonus was removed from the definition of pensionable
earnings) could become payable.
The lump sum payable on death in service is four times base salary under the SPA,
three times base salary under the DB and DC sections and one times base salary
under the auto enrolment plan.
No DC contributions, or equivalent cash supplement payments, will be made to
an executive director in any year that will exceed the level offered to the wider
colleague population recruited at or about the same time as them.
Lord Wolfson has volunteered to cap the service accrual under his DB pension
annually so that the single figure attributed to the DB portion of his pension is no
more than 9% of salary (giving single figure of DB pension and salary supplement
in aggregate of up to 24% of salary).
Any newly appointed executive directors, whether internal or external
appointments, will be invited to join a NEXT Defined Contribution pension
arrangement at the prevailing rate for staff across NEXT at the time. This is
currently an employer pension contribution of 3% of pensionable salary.
Performance measures and targets
Not applicable.
Key changes to last approved policy
No change.
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Other benefits
Purpose and link to strategy
To provide market competitive non-cash benefits to attract
and retain high calibre individuals.
Operation
Executive directors receive benefits which may include
the provision of a company car or cash alternative, private
medical insurance, subscriptions to professional bodies and
staff discount on Group merchandise. A driver is also made
available to the executive directors.
The Committee reserves discretion to introduce new
benefits where it concludes that it is in the interests of
NEXT to do so, having regard to the particular circumstances
and to market practice, and reserves flexibility to make
relocation related payments.
Whilst not considered necessarily to be benefits, the
Committee reserves the discretion to authorise attendance
by directors and their family members (at the Company’s cost
if required) at corporate events and to receive reasonable
levels of hospitality in accordance with Company policies.
Reasonable business-related expenses will be reimbursed
(including any tax thereon).
Maximum opportunity
During the Policy period, the value of benefits (other than relocation costs) paid
to an executive director in any year will not exceed £150,000. In addition, the
Committee reserves the right to pay up to £250,000 relocation costs in any year to
an executive director if considered appropriate to secure the better performance
by an executive director of their duties. Relocation benefits would normally only
be available for up to 12 months and the Committee would make appropriate
disclosures of any provided.
During the Policy period, the actual level of taxable benefits provided will be
included in the single total figure of remuneration.
Performance measures and targets
Not applicable.
Key changes to last approved policy
No change.
Save As You Earn Scheme (Sharesave)
Purpose and link to strategy
To encourage all employees to make a long term
investment in the Company’s shares.
Operation
Executive directors can participate in the Company’s
Sharesave scheme which is HMRC approved and open to
all employees in the UK. Option grants are generally made
annually, with the exercise price discounted by a maximum
of 20% of the share price at the date an invitation is issued.
Options are exercisable three or five years from the date
of grant. Alternatively, participants may ask for their
contributions to be returned.
Maximum opportunity
Investment is currently limited to a maximum amount of £250 per month.
The Committee reserves the right to increase the maximum amount in line with
limits set by HMRC (currently £500 per month).
Performance measures and targets
Not applicable.
Key changes to last approved policy
No change.
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Termination payments
Purpose and link to strategy
Consistent with market practice, to ensure NEXT can
recruit and retain key executives, whilst protecting the
Company from making payments for failure.
Operation
The Committee will consider the need for and quantum of
any termination payments having regard to all the relevant
facts and circumstances at that time.
Future service contracts will take into account relevant
published guidance.
Maximum opportunity
Each of the executive directors has a rolling service contract. Dates of appointment
and notice periods are disclosed on page 147. The contract is terminable by
the Company on giving one year’s notice and by the individual on giving six
months’ notice. For directors appointed prior to the 2017 Remuneration Policy,
the Company has reserved the right to make a payment in lieu of notice on
termination of an executive director’s contract equal to their base salary and
contractual benefits (excluding performance-related pay). For directors appointed
after that time, any payment in lieu of notice is limited to their base salary only.
For directors appointed prior to the date of approval of the 2017 Remuneration
Policy, if notice of termination is given immediately following a change of control
of the Company, the executive director may request immediate termination of
his/her contract and payment of liquidated damages equal to the value of his/her
base salary and contractual benefits. Liquidated damages provisions will not be
present in any service contract for executive directors appointed after that date
and any service contract since that time will include provision for any termination
payments to be made on a phased basis.
In normal circumstances executive directors have no entitlement to compensation
in respect of loss of performance bonuses and all share awards would lapse
following resignation. However, under certain circumstances (e.g. “good leaver”
or change in control), and solely at the Committee’s discretion, annual bonus
payments may be made and would ordinarily be calculated up to the date of
termination only, based on performance. In addition, awards made under the LTIP
would in those circumstances generally be time pro-rated and remain subject to
the application of the performance conditions at the normal measurement date.
The Committee also has a standard discretion to vary the application of time pro-
rating in such cases. “Good leaver” treatments are not automatic.
In the event of any termination payment being made to a director (including
any performance-related pay elements), the Committee will take full account
of that director’s duty to mitigate any loss and, where appropriate, may seek
independent professional advice and consider the views of shareholders as
expressed in published guidance prior to authorising such payment.
Consistent with market practice, in the event of removal from office of an
executive director, the Company may pay a contribution towards the individual’s
legal fees and fees for outplacement services as part of a negotiated settlement
and such other amounts as the Committee considers to be necessary, having taken
legal advice, in settlement of potential claims. Any such fees would be disclosed
with all other termination arrangements. The Committee reserves the right, if
necessary, to authorise additional payments in respect of such professional fees
if not ascertained at the time of reporting such termination arrangements up to
a maximum of £10,000.
A departing gift may be provided up to a value of £10,000 (plus related taxes)
per director.
Performance measures and targets
Not applicable.
Key changes to last approved policy
No change.
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Recovery and withholding provisions
Purpose and link to strategy
To ensure the Company can recover any payments made or
potentially due to executive directors under performance-
related remuneration structures.
Operation
Recovery and withholding provisions are in the service
contracts of all executive directors and will be enforced
where appropriate to recover or withhold performance-
related remuneration which has been overpaid due to: a
material misstatement of the Company’s accounts; errors
made in the calculation of an award; a director’s misconduct;
insolvency of any group company; or circumstances that
would lead to a sufficiently significant negative impact on
the reputation and likely financial strength of the Company.
These provisions allow for the recovery of sums paid and/or
withholding of sums to be paid.
Maximum opportunity
Not applicable.
Performance measures and targets
Not applicable.
Key changes to last approved policy
No change.
Chairman and non-executive director fees
Purpose and link to strategy
To ensure fees paid to the Chairman and non-executive
directors are competitive and comparable with other
companies of equivalent size and complexity so that the
Company attracts non-executive directors who have
a broad range of experience and skills to oversee the
implementation of our strategy.
Operation
Remuneration of the non-executive directors is normally
reviewed annually and determined by the Chairman and the
executive directors. The Chairman’s fee is determined by the
Committee (excluding the Chairman).
Additional fees are paid to non-executive directors who
chair the Remuneration and Audit Committees, and act as
the Senior Independent Director. The structure of fees may
be amended within the overall limits.
External benchmarking is undertaken only occasionally and
there is no prescribed policy regarding the benchmarks used
or any objective of achieving a prescribed percentile level.
If the Chairman or non-executive directors are required to
spend time on exceptional Company business significantly
in excess of the normal time commitment, the Chairman
will be paid £1,500 and the non-executive directors £1,000
for each day spent. These are subject to an annual review
by the Board. Reasonable business related expenses will be
reimbursed (including any tax thereon).
Maximum opportunity
The total of fees paid to the Chairman and the non-executive directors in any year
will not exceed the maximum level for such fees from time to time prescribed by
the Company’s Articles of Association (currently £1,000,000 per annum).
Performance measures and targets
Non-executive directors receive the normal staff discount on Group merchandise
but do not participate in any of the Group’s bonus, pension, share option or other
incentive schemes.
Key changes to last approved policy
No change.
The policies as set out above would apply to the promotion of an existing Group employee to the Board.
144
The following principles will be applied on an internal appointment
or the recruitment of an external candidate to the Board
For internal appointments, and unless agreed otherwise with the new director, the Company will honour the contractual entitlements and other
incentives (e.g. options granted under the NEXT Share Matching Plan) awarded prior to the Board appointment.
For external recruits, the Committee will also aim to structure and agree a package which is in line with the same policies for existing executive
directors as set out above. However, the Committee reserves the right not to apply the caps contained within the Policy for fixed pay (i.e. base salary,
pension and other benefits), either on joining or for any subsequent review within the life of this Policy, although the Committee would not
envisage exceeding these caps in practice.
In terms of variable pay, the Committee may offer cash or share-based incentives when considered to be necessary to secure a candidate and in
the best interests of the Company and its shareholders. It may be necessary to make such awards on more bespoke terms which differ from NEXT’s
existing annual and share-based pay structures. Depending on the timing of an appointment it may be necessary to use different performance
criteria to other executive directors for any initial incentive awards. However, the Committee will not authorise the payment of more than it
considers necessary and will abide by the caps for such elements within the general policy.
Additional awards may be made to compensate for forfeiture of incentive awards in the previous employer, and may not be subject to the caps
applied to NEXT’s annual bonus plan or the LTIP. All such awards for external appointments, whether made under the annual bonus plan, LTIP or
otherwise, will be limited to the commercial value of the amounts forfeited and will take account of the nature, time periods and performance
requirements of those awards. In particular, the Committee’s starting point will be that any forfeited awards which are subject to continued service
or performance requirements are replaced by NEXT awards with broadly equivalent terms. However, the Committee may relax these requirements
in exceptional circumstances and where the Committee considers it to be less expensive for shareholders, for example where service periods
are materially complete and/or the replacement awards are materially discounted to reflect the conditions on forfeited awards. The Committee
will only authorise guaranteed or non pro-rated awards under the annual bonus plan where the Committee considers it is necessary to secure
recruitment and these would be limited to no more than the first year of appointment.
For external and internal appointments, the Committee may agree that the Company will meet such reasonable relocation expenses it considers
appropriate and/or make a contribution towards legal fees in agreeing employment terms.
The Company has not made an external appointment of an executive director for over 30 years and therefore this Policy, which remains materially
unchanged from the last approved Policy, has not been used since its implementation. All such appointments during this time have been through
internal promotions, so it is challenging to set out principles for an event that has not occurred in recent practice. Therefore, the above broad policy,
particularly for external appointments, represent guidelines considered to be reasonable by the Committee, but which will be considered on the
merits of each potential appointment on a case by case basis and taking account of evolving best practice.
Exercise of discretion
In line with market practice, the Committee retains discretion in relation to the operation and administration of the annual bonus, Deferred Share
Bonus Plan and LTIP. This discretion includes, but is not limited to:
• The timing of awards and payments
• The size of awards, within the overall limits disclosed in the Policy table
• The determination of vesting
• The treatment of awards in the case of change of control or restructuring
• The treatment of leavers within the rules of the plan and the termination policy summary shown on page 143
• Adjustments needed in certain circumstances (for example, rights issue, corporate restructuring or special interim dividend).
While performance conditions will generally remain unchanged once set, the Committee has the usual discretions to amend the measures,
weightings and targets in exceptional circumstances (such as a major transaction) where the unamended conditions would cease to operate as
intended. Any such changes would be explained in the subsequent Annual Remuneration Report and, if appropriate, be the subject of consultation
with the Company’s major shareholders. Consistent with best practice, the LTIP rules also provide that any such amendment must not make the
amended condition materially less difficult to satisfy than the original condition was intended to be prior to the occurrence of such event.
Adjustment to number of shares under deferred bonus and LTIP
The number of shares subject to deferred bonus and LTIP awards may be increased to reflect the value of dividends that would have been paid in
respect of any dates falling between the grant of awards and the date of vesting.
The terms of incentive plan awards may be adjusted in the event of a variation of the Company’s share capital, demerger or a similar event that
materially affects the price of the shares or otherwise in accordance with the plan rules.
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Shareholder Information
REMUNERATION REPORT
Share ownership guidelines
The minimum shareholding is 225% of salary for all executive directors. An executive director has up to five years from date of appointment to
acquire the minimum shareholding. Shares in which the executive director, their spouse/civil partner or minor children have a beneficial interest
count towards the shareholding.
Post-cessation shareholding guidelines apply to all executive directors. Directors must hold a minimum of 225% of salary for one year post-
cessation. The Committee will have the normal discretion to disapply this in exceptional circumstances. The post-cessation guidelines apply and
will be enforced through the retention of any (after-tax) shares vesting in respect of 2020 LTIP grants onwards into an escrow account until an
amount equal to 225% of salary is held.
Legacy commitments
The Committee reserves the right to honour all historical contractual entitlements and other incentives provided they were consistent with the
shareholder approved Policy in place at the time they were agreed. Any such payments would be disclosed in the relevant Annual Remuneration
Report as necessary.
Stating maximum amounts for each element of remuneration
Where the Policy refers to the maximum amounts that may be paid in respect of any element of the Policy (as required under the Regulations)
these will operate simply as caps and will not be indicative of any aspiration.
Consideration of shareholder views
During the year, the Committee consulted extensively with our largest shareholders and their representative bodies on our proposed changes to
the Remuneration Policy (as detailed on pages 134 and 137). The specific shareholder views about remuneration are also communicated to the
Committee on an ongoing basis through inclusion in Board reports of shareholder feedback and statements made by representative associations.
The Committee remains committed to ongoing dialogue and shareholders and representative bodies are able to contact the Committee Chairman
directly if they wish to do so.
Service contracts
Executive directors
The Company’s policy on notice periods and in relation to termination payments is set out in the Policy table on page 143. Apart from their service
contracts, no director has had any material interest in any contract with the Company or its subsidiaries.
The executive directors’ service contracts do not contain fixed term periods.
146
Non-executive directors
Letters of appointment for the Chairman and non-executive directors do not contain fixed term periods; however, they are appointed in the
expectation that they will serve for a minimum of six years, subject to satisfactory performance and re-election at Annual General Meetings.
Dates of appointment and notice periods for directors are set out below:
Date of
appointment
to Board
Notice period
where given
by the Company
Notice period
where given
by the director
Chairman
Michael Roney 14 February 2017* 12 months 6 months
Executive directors
Lord Wolfson 3 February 1997 12 months 6 months
Amanda James 1 April 2015 12 months 6 months
Richard Papp 14 May 2018 12 months 6 months
Jane Shields 1 July 2013 12 months 6 months
Jeremy Stakol 3 April 2023 12 months 6 months
Non-executive directors
Jonathan Bewes 3 October 2016 1 month 1 month
Soumen Das 1 September 2021 1 month 1 month
Tom Hall 13 July 2020 1 month 1 month
Tristia Harrison 25 September 2018 1 month 1 month
Dame Dianne Thompson 1 January 2015 1 month 1 month
* Appointed Chairman 2 August 2017
Total remuneration opportunity
The Committee’s objective is to ensure that the remuneration paid to senior executives is appropriate in both amount and structure, is directly
linked to the Company’s annual and longer term performance and is aligned with the interests of shareholders. Careful consideration is given to
ensuring there is an appropriate balance in the remuneration structure between annual and long term rewards, as well as between cash and share-
based payments.
The following charts indicate the level of remuneration that could be received by each executive director in accordance with the Directors’
Remuneration Policy at different levels of performance. The overall level of executive director pay remains modest compared with that available at
other equivalently sized FTSE 100 companies and the maximum remuneration indicated in the charts below reflects the Committee’s conservative
approach to executive pay.
18%
100%
52%
30%
30%
45%
18%
25%
22%
Total £1,177k
AMOUNT £000
Total £4,582k
Total £2,267k
Total £5,603k
Lord Wolfson (Chief Executive)
Mid-point/
median
Maximum
Fixed pay
Annual bonus LTIP (multiple period) Additional 50% increase
in LTIP share price
Maximum
(inc. 50% increase
in share price)
Fixed
0 1,000 2,000 3,000 5,000 6,000
24% 36%
4,000
500 1,000 1,500 2,000 2,500 3,0000
100%
53% 25%
52%25%
Total £604k
AMOUNT £000
Total £2,401k
Total £1,129k
Amanda James (Group Finance Director)
23%
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
Fixed
41%
20% Total £3,023k18% 21%
22%
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Strategic Report Governance Financial Statements
Shareholder Information
REMUNERATION REPORT
500 1,000 1,500 2,000 2,500 3,0000
100%
55% 24%
51%
41%
26%
21%
Total £626k
AMOUNT £000
Total £2,368k
Total £1,135k
Total £2,971k
Jane Shields (Group Sales, Marketing and HR Director)
23%
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
Fixed
21%
18% 20%
Fixed pay
Annual bonus LTIP (multiple period)
Additional 50% increase
in LTIP share price
500 1,000 1,500 2,000 2,500 3,0000
100%
54%
24%
52%
41%
25%
20%
Total £587k
AMOUNT £000
Total £2,329k
Total £1,096k
Total £2,932k
Richard Papp (Group Merchandise and Operations Director)
23%
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
Fixed
22%
18% 21%
500 1,000 1,500 2,000 2,500 3,0000
100%
52%
25%
52%
42%
25%
19%
Total £504k
AMOUNT £000
Total £2,064k
Total £960k
Total £2,604k
Jeremy Stakol (Group Investments, Acquisitions and Third Party Brands Director)
23%
Mid-point/
median
Maximum
Maximum
(inc. 50% increase
in share price)
Fixed
23%
18% 21%
148
In the charts on the previous page, the following assumptions have been made¹:
Fixed/minimum Base salaries and salary supplement values as at 2023/24, and benefits values as shown in 2022/23 single figure of
remuneration. The pension value for Lord Wolfson has been capped at 24% of his salary (see page 154).
Mid-point/median Includes the performance-related pay a director would receive in the scenario where:
• 50% of maximum annual bonus is earned.
• LTIP performance results in a median TSR ranking and therefore 20% of the maximum award would vest.
Maximum Includes the performance-related pay a director would receive in the scenario where performance equalled or exceeded
maximum targets:
• 100% of the annual bonus.
• LTIP performance results in an upper quintile TSR ranking and therefore 100% of the maximum award would vest.
Maximum inc.
50% growth in share
price across relevant
performance period
As for the maximum scenario above, plus an increase in the value of the LTIP of 50% across the relevant performance
period to reflect possible share price appreciation. Consistent with the reporting regulations, this does not separately
include the impact of dividend accrual.
1. Jeremy Stakol will be appointed with effect from 3 April 2023. In the charts on the previous page the information is presented on a full year equivalent basis.
NEXT employment conditions generally
Pay structures and employment conditions for other Group employees are driven by market and role comparatives and are also considered by the
Committee to ensure that any differences for directors are justified. Salary increases for the wider employee group are taken into consideration
when determining increases for executive directors and senior management.
In common with executive directors, all other employees are eligible to participate in annual bonus arrangements. The targets for these are linked
to performance of the Group, their operating function or personal performance.
These other employees are provided with a competitive package of benefits that includes the opportunity to participate in the Group’s pension
arrangements and staff discount on Group merchandise. In addition, the NEXT Management Share Option Plan provides for options over shares,
exercisable between three and ten years following their grant, to be allocated to Group employees. This plan is primarily aimed at middle
management and senior store staff. Options are set at the prevailing market price at the time of grant and are generally granted annually.
The Company also operates a Share Matching Plan for certain senior managers below Board level to encourage them to invest in shares in the
Company and receive a related matching award of shares based on certain underlying fully diluted post-tax EPS targets being achieved which are
set by the Remuneration Committee.
In order to encourage wider employee share ownership, the Company also operates all-employee Save As You Earn schemes in the UK, in which all
permanent employees (including executive directors) are eligible to participate. As shareholders, these employees have the opportunity to express
their views in the same way as other shareholders.
The Company did not consult with employees when drawing up the Directors’ Remuneration Policy but has communicated its recommended
approach to all employees. The Committee does not generally use any formal internal comparison metrics when setting directors’ remuneration,
other than the consideration of employee pay as described above, but has sought advice from FIT Remuneration Consultants LLP from time to time
on the appropriateness and competitiveness of remuneration structures in place within the Company.
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Shareholder Information
REMUNERATION REPORT
PART 3: ANNUAL REMUNERATION REPORT
This Annual Remuneration Report comprises a number of sections:
Implementation of Remuneration Policy
Single total figure of remuneration
Executive directors’ external appointments
Pension entitlements
Directors’ shareholding and share interests
Scheme interests awarded during the financial year
Deferred bonus
Performance targets for outstanding LTIP awards
Payments to past directors
Payments for loss of office
page 150
page 152
page 154
page 154
page 155
page 157
page 157
page 158
page 158
page 158
Performance and CEO remuneration comparison
Analysis of Chief Executive’s pay over 10 years
Annual change in remuneration of each director
compared to employees
Pay ratios
Relative importance of spend on pay
Dilution of share capital by employee share plans
Consideration of matters relating to directors’
remuneration
Voting outcomes at General Meetings
page 159
page 159
page 160
page 160
page 161
page 161
page 161
page 162
Annual Remuneration Report
This Annual Remuneration Report, together with the Chairman’s Introduction on pages 133 to 137, will be put to shareholders for an advisory (non-
binding) vote at the AGM to be held on 18 May 2023. Sections which have been subject to audit are noted accordingly.
Implementation of Remuneration Policy
The Committee has implemented the Remuneration Policy in accordance with the Policy approved by shareholders at the AGM in May 2020.
The table below sets out the way that the Policy was implemented in 2022/23 and any significant changes in the way it will be implemented in
2023/24.
Element of remuneration Policy implemented during 2022/23 and changes in 2023/24
Base salary Base salaries for the executives increased by 5% in February 2023, compared with base salary increases on
average of 8.7% for the wider Company award. In April 2023, Jeremy Stakol will be promoted to the Board
as Group Investments, Acquisitions and Third Party Brands Director (see page 124). The base salaries for the
executive directors from February 2023 (and from April 2023 for Jeremy Stakol) are:
£000 2023/24 2022/23
Lord Wolfson 908 865
Amanda James 553 527
Richard Papp 536 510
Jane Shields 536 510
Jeremy Stakol 480 –
150
Element of remuneration Policy implemented during 2022/23 and changes in 2023/24
Annual bonus For the year to January 2023, performance targets were set based on requiring pre-tax EPS of at least 659.5p (+2.3%
on 2021/22), adjusted for special dividends and excluding exceptional gains. At this threshold, a 12% of maximum
bonus was payable. The anticipated EPS in the 2022/23 budget did not account for any potential share buybacks
in the year (as disclosed in our January 2022 Trading Statement), so the Committee decided that the executive
directors should not receive any benefit in their annual bonus from the EPS enhancement from share buybacks
made from the budgeted free cash flow of £220m. A maximum bonus of 100% and 150% of salary for the executive
directors and Chief Executive respectively was payable if pre-tax EPS growth was +11.1% (716.5p).
Underlying pre-tax EPS growth achieved in the year, adjusted down for the impact of £220m of share buybacks
(reducing the level of bonus earned), was +6.5% versus 2021/22, being an EPS of 687.2p. In accordance with the
bonus formula, a bonus of 54% of the maximum was earned which the Committee considered to be appropriate
and approved without adjustment, for the reasons set out on page 134.
For the year to January 2024, no changes to the bonus structure will be made (save that the estimated benefit
from share buybacks has been included in the 2023/24 budget). Bonus performance targets for the year ahead
have been set but are not disclosed in advance for reasons of commercial sensitivity. The targets and performance
will be disclosed in next year’s Remuneration Report and, the Committee ensures that a mechanism exists so
that executive directors are not incentivised to recommend share buybacks to the Board in preference to special
dividends, or vice versa. This is achieved by making a notional adjustment to EPS growth for special dividends, on
the basis that the cash distributed had instead been used to purchase shares at the prevailing share price on the
day of the special dividend payment.
LTIP No change.  See Note 5 to the single total figure of remuneration table for details of LTIP vestings in the year.
LTIP grants in 2023/24 will be made on the same basis as the 2022/23 grants, with any changes to the TSR
comparator group considered immediately prior to each grant.
Consistent with market practice, the LTIP awards increase to reflect dividends paid over the period to vesting
(assuming reinvestment at the prevailing share price).
Recovery and
withholding
provisions
No change. The Committee previously introduced recovery and withholding provisions in the service contracts of all
executive directors to cover the bonus and LTIP, and a five year from grant holding period (comprising a three year
vesting period and a two year holding period for the retention of any net of tax shares that vest) under the LTIP for
executive directors. See page 144 for details of the malus and clawback provisions in the service contracts of the
executive directors.
Chairman and
non-executive
director fees
The fees of the Chairman and non-executive directors were increased by 5% in February 2023. The Chairman,
Michael Roney, will be paid an annual fee of £381,646 (2022/23: £363,472). The basic non-executive director fee
for 2023/24 will increase to £73,500 (2022/23: £70,000), with a further £21,000 (2022/23: £20,000) paid to the
Chairman of each of the Audit and Remuneration Committees respectively, and £12,600 (2022/23: £12,000) paid
to the Senior Independent Director.
Pension No change. The value of overall pension provision is consistent with the wider workforce for each director when
compared with colleagues with an equivalent length of service. Consistent with the Policy approved by shareholders
in 2020, additional caps on Lord Wolfson’s potential benefits were added even though these do not apply to other
colleagues with his length of service.
Shareholding requirement No change.
Post cessation
shareholding requirement
No change.
Other benefits No change.
Save As You Earn scheme
(Sharesave)
No change.
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Strategic Report Governance Financial Statements
Shareholder Information
Single total figure of remuneration (audited information)
Directors’ remuneration
£000 Salary/fees Benefits
1
Pension
2
Salary supplement
3
Total Annual bonus
4
LTIP
5
Sharesave Total Total remuneration
2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23
2021/22
Chairman
Michael Roney 363 346 – – – – – – 363 346 – – – – – – – – 363 346
Executive directors
Lord Wolfson 865 824 51 52 78 74 130 124 1,124 1,074 701 1,236 682 1,838 – – 1,383 3,074 2,507 4,148
Amanda James 527 502 23 22 2 2 24 23 576 549 285 502 415 1,052 – 1 700 1,555 1,276 2,104
Richard Papp 510 486 24 23 – – 26 24 560 533 275 486 403 1,035 – 2 678 1,523 1,238 2,056
Jane Shields 510 486 10 9 – – 77 73 597 568 275 486 403 1,035 – 1 678 1,522 1,275 2,090
Non-executive directors
Jonathan Bewes 102 80 – – – – – – 102 80 – – – – – – – – 102 80
Soumen Das* 70 25 – – – – – – 70 25 – – – – – – – – 70 25
Tom Hall 90 68 – – – – – – 90 68 – – – – – – – – 90 68
Tristia Harrison 70 59 – – – – – – 70 59 – – – – – – – – 70 59
Dame Dianne Thompson 70 59 – – – – – – 70 59 – – – – – – – – 70 59
3,177 2,935 108 106 80 76 257 244 3,622 3,361 1,536 2,710 1,903 4,960 – 4 3,439 7,674 7,061 11,035
* Soumen Das was appointed to the Board as a non-executive director on 1 September 2021.
Total emoluments paid to directors (salary/fees, benefits, salary supplements and annual bonus) for the year to January 2023 were £5,078,000 (2022: £5,995,000).
REMUNERATION REPORT
Fixed remuneration Variable remuneration
152
Note 1: Benefits
Car/chauffeur
charges/cash allowance Fuel
Medical insurance
and NEXT
clothing allowance Total
2022/23
£000
2021/22
£000
2022/23
£000
2021/22
£000
2022/23
£000
2021/22
£000
2022/23
£000
2021/22
£000
Lord Wolfson 44 45 4 4 3 3 51 52
Amanda James 20 15 1 5 2 2 23 22
Richard Papp 21 20 – – 3 3 24 23
Jane Shields 6 5 2 2 2 2 10 9
Note 2: Pension
Lord Wolfson is accruing pensionable service under the defined benefit supplemental pension
arrangement. See page 154 for details, including Lord Wolfson’s voluntary cap of the service
accrual under his defined benefit (DB) pension plan which was effective from February 2020.
DB pension values are calculated using the method required by remuneration regulations, i.e.
the total pension accrued at January 2023 less the total pension accrued at the end of the previous
year, adjusted for inflation and multiplied by a factor of 20, less the director’s own contribution.
It does not necessarily represent the economic value of the pension rights accrued and this benefit
is not immediately available to the director. Consistent with other staff participating in the plans,
Lord Wolfson’s salary was frozen for DB pension purposes at October 2012 although he continues
to accrue service related benefits.
The DB pension entitlement of Lord Wolfson accrued during the year, after the impact of the cap,
is as follows:
Age at
January 2023
Years of
pensionable
service
Accrued
annual pension
£000
Change in accrued
annual pension
£000
Change in accrued
annual pension
net of inflation
£000
Lord Wolfson 55 28 459 19 6
Directors’ DB pension arrangements are subject to the same actuarial reduction as other employees
on termination or early retirement.
Amanda James is a member of a NEXT defined contribution scheme. For one month of the year
Amanda made a contribution equal to 5% of her salary into her pension plan which was matched
by the Company (2021/22: just over one month of that year). For the remainder of the year, as
Amanda had reached the annual pension allowance limit (i.e., the total amount of contributions
that can be paid to defined contribution pension schemes and the total amount of benefits that
can build up in DB pension schemes each year, for UK income tax relief purposes), she opted to
receive an equivalent cash supplement in lieu of this Company contribution. This is consistent
with the Remuneration Policy and with the pension provision and alternatives available to other
members of the same defined contribution scheme who have exceeded the Annual or Lifetime
Allowance limits.
Note 3: Salary supplement in lieu of pension
Supplements of 15% of base salary are paid to Lord Wolfson and Jane Shields in lieu of past
changes to their pension arrangements. Jane Shields has received this supplement from 2011 and
Lord Wolfson from 2012. Richard Papp is a deferred member of both the defined benefit scheme
and a NEXT defined contribution pension scheme and receives a supplement of 5% of base salary.
See Note 2 opposite for information regarding Amanda James.
Note 4: Annual bonus
For the year to January 2023, performance targets were set based on requiring pre-tax EPS of at
least 659.5p (+2.3% on 2021/22), adjusted for special dividends and excluding exceptional gains. At
this threshold, a 12% of maximum bonus was payable. The anticipated EPS in the 2022/23 budget
did not account for any potential share buybacks in the year (as disclosed in our January 2022
Trading Statement), so the Committee decided that the executive directors should not receive
any benefit in their annual bonus from the EPS enhancement from share buybacks made from
the budgeted free cash flow of £220m. A maximum bonus of 100% and 150% of salary for the
executive directors and Chief Executive respectively was payable if pre-tax EPS growth was +11.1%
(716.5p).
Underlying pre-tax EPS growth achieved in the year, adjusted down for the impact of £220m of
share buybacks (reducing the level of bonus earned), was +6.5% versus 2021/22, being an EPS
of 687.2p. In accordance with the bonus formula, a bonus of 54% of the maximum was earned
which the Committee considered to be appropriate and approved without adjustment, for the
reasons set out on page 134.
Note 5: LTIP
Performance targets for the LTIP are set out on page 140.
For the three year period to July 2022, NEXT’s TSR ranked 7th in the comparator group of 20
resulting in 62% of the grant made in the second half of 2019 vesting. This award vested on
3 October 2022, when the share price was £48.36. For the three year period to January 2023,
NEXT’s TSR ranked 10th in the comparator group of 21 resulting in 30% of the award granted in
March 2020 vesting. The Committee concluded that the indicative formulaic levels of vesting were
appropriate and allowed such vesting without adjustment. The executives are required to retain
LTIP shares that vest, net of any tax, for a period of two years.
LTIP values included in the 2022/23 single figure table comprise the actual value of awards that
have vested for the performance period ended July 2022 plus the estimated value of awards
that will vest for the performance period ended January 2023 based on the average NEXT share
price over the final three months of the financial year of £58.76. None of the reported figure is
attributable to share price appreciation.
LTIP values included in the single figure table for the 2021/22 comparative figures have been
updated to reflect the actual market values of the LTIP awards that vested on 28 March 2022 of
£63.06.
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Strategic Report Governance Financial Statements
Shareholder Information
REMUNERATION REPORT
Executive directors’ external appointments
Lord Wolfson stepped down from the Board of Deliveroo as a non-executive director on 9 August 2022.
Pension entitlements (audited information)
Lord Wolfson, Jane Shields and Richard Papp are deferred members of the defined benefit 2013 Plan, which has been approved by HMRC.
Amanda James is an active member and Richard Papp is a deferred member of a NEXT defined contribution scheme. In addition, Lord Wolfson is
accruing service in an unfunded, unapproved supplementary pension arrangement (see below).
Lord Wolfson and a small number of senior employees are entitled to receive a pension of two thirds of pensionable earnings as at October 2012
on retirement at age 65, which accrues uniformly throughout their pensionable service, subject to completion of at least 20 years’ pensionable
service by age 65. The deferred defined benefit pensions for Jane Shields and Richard Papp are based on their pensionable earnings at the time
they became deferred pensioners and accrued uniformly throughout their pensionable service.
Since shortly after joining NEXT in 1991, Lord Wolfson has been a member of a DB pension scheme, as was the normal practice at NEXT and across
the market more widely at the time. In 2012, the value of Lord Wolfson’s DB pension benefits was reduced when his salary was frozen for DB
pension purposes and he began to receive a 15% salary supplement as part of this renegotiation of terms by the Company.
With effect from February 2020, Lord Wolfson volunteered to cap the service accrual under his DB pension annually so that the single figure value
attributed to the DB portion of his pension is no more than 9% of salary (giving a single figure of DB pension and salary supplement in aggregate
of up to 24% of salary). The Committee is appreciative of Lord Wolfson’s offer to cap his pension in this way, acknowledging that he has now twice
taken a material reduction in the terms of his pension. The Committee considers that it would not be reasonable for him to take a third reduction.
After introduction of the cap on the service accrual under Lord Wolfson’s DB pension, all the executive directors are on pension arrangements no
more generous than those offered to the wider colleague population recruited at the same time as them so that the pension proposals align with
the relevant all-employee populations.
Our other executive directors receive pension contributions and/or salary supplements of 15% of salary and 5% of salary respectively. These are
consistent with the levels available to staff at the time they joined and, therefore, consistent with the benefits enjoyed by other staff with an
equivalent length of service. For many years, employees promoted to the Board have not received any enhancement to their pension provision on
joining the Board.
The DB Plan provides a lump sum death in service benefit and dependants’ pensions on death in service or following retirement. In the case of
ill-health retirement, only the accrued pension is payable. All benefits are subject to 2013 Plan limits. Increases to pensions in payment are at the
discretion of the Trustee although pensionable service post 1997 is subject to limited price indexation. From 2006, sales and profit related bonuses
were excluded from pensionable earnings and the normal retirement age was increased from 60 to 65. There are no additional benefits payable
to directors in the event of early retirement.
Active members of the DB scheme contribute 3% or 5% of pensionable earnings as at October 2012, while the Company makes contributions
at the rate of 38%. Certain members (including Lord Wolfson) whose accrued or projected pension fund value exceeds their personal lifetime
allowance are provided with benefits through an unfunded, unapproved supplementary pension arrangement. Lord Wolfson contributes towards
the additional cost of providing these benefits by a payment of 5% on pensionable earnings as at October 2012. Since April 2011, where existing
members have reached either the annual or lifetime pension contributions limits, the Company has offered those members the choice of leaving
the DB Plan and either joining the defined contribution scheme (with an enhanced Company contribution) or taking a salary supplement, in both
cases equal to 10% or 15% of their salary (depending on their existing contributions and benefits).
Further information on the Group’s DB and defined contribution pension arrangements is provided in Note 20 to the financial statements.
154
Directors’ shareholding and share interests (audited information)
Directors’ interests
Directors’ interests in shares (including those of their connected persons) at the beginning and end of the financial year were as follows:
Ordinary shares Deferred Bonus Shares
1
LTIP
2
Sharesave
3
2023 2022 2023 2022 2023 2022 2023 2022
Lord Wolfson
4
1,441,859 1,265,359 6,938 – 85,331 88,546 344 344
Jonathan Bewes 1,750 1,750 – – – – – –
Soumen Das 1,289 1,289 – – – – – –
Tom Hall 10,000 nil – – – – – –
Tristia Harrison 1,000 1,000 – – – – – –
Amanda James 44,381 36,806 – – 51,959 53,917 287 287
Richard Papp 24,732 17,389 – – 50,369 52,266 139 139
Michael Roney 54,821 44,321 – – – – – –
Jane Shields 53,552 46,209 – – 50,369 52,266 323 323
Dame Dianne Thompson nil nil – – – – – –
1. Full details of the basis of allocation and terms of the deferred bonus are set out on page 157.
2. The LTIP amounts above are the maximum potential conditional share awards that may vest subject to performance conditions described on page 140.
3. Executive directors can participate in the Company’s Sharesave scheme (see details on page 142) and the amounts above are the options which will become exercisable at maturity.
4. The connected persons of Lord Wolfson include The Charles Wolfson Charitable Trust who held 164,058 shares as at 28 January 2023 (2022: nil).
There have been no changes to the directors’ interests in the shares of the Company from the end of the financial year to 28 March 2023.
Share ownership guidelines
The minimum shareholding is 225% of salary for all executive directors. An executive director has up to five years from date of appointment to
acquire the minimum shareholding. Shares in which the executive director, their spouse/civil partner or minor children have a beneficial interest
count towards the shareholding.
As at the 2022/23 financial year end, the value of shareholdings of the executives, based on the average share price over the preceding three
months, was as follows:
Date of appointment
to Board
Shareholding %
of base salary as
at Feb 2023
Shareholding
guidelines achieved
Lord Wolfson February 1997 8,268% Yes
Amanda James April 2015 472% Yes
Richard Papp May 2018 271% Yes
Jane Shields July 2013 587% Yes
Post-cessation shareholding guidelines also apply to all executive directors. Directors must hold a minimum of 225% of salary for one year post-
cessation. The Committee will have the normal discretion to disapply this in exceptional circumstances. The post-cessation guidelines will apply
and will be enforced through the retention of any (after-tax) shares vesting in respect of 2020 LTIP grants onwards into an escrow account until an
amount equal to 225% of salary is held.
155
Strategic Report Governance Financial Statements
Shareholder Information
REMUNERATION REPORT
The table below shows share awards held by directors and movements during the year. LTIPs are conditional share awards and Sharesaves are
options. All awards are subject to performance conditions except for Sharesave options. LTIP awards granted to executive directors which vest must
be taken in shares and the net shares (after payment of tax and NIC) must be held for a minimum period of two further years.
Date of award
Maximum
receivable
at start of
financial
year
Awarded
during
the year
Dividend
accrual
shares
awarded in
the year
Shares
vested/
exercised
in the
year
Lapsed
Maximum
receivable
at end of
financial
year
Calculated
price
at award
date
1
£
Option/
award
price
£
Market price
on date
of vesting/
exercise
£
Vesting date/
exercisable dates
2
Lord Wolfson
LTIP Mar 2019 16,727 – 867 14,249 3,345 – 48.11 nil 63.06 Jan 2022
Sept 2019 14,314 – 577 9,452 5,439 – 56.22 nil 48.36 Jul 2022
3
Mar 2020 11,955 – – – – 11,955 68.49 nil – Jan 2023
3
Sept 2020 20,757 – – – – 20,757 49.31 nil – Jul 2023
Apr 2021 13,178 – – – – 13,178 70.32 nil – Jan 2024
Sept 2021 11,615 – – – – 11,615 79.78 nil – Jul 2024
Mar 2022 – 12,245 – – – 12,245 79.46 nil – Jan 2025
Sept 2022 – 15,581 – – – 15,581 62.45 nil – Jul 2025
88,546 85,331
Deferred bonus Apr 2022 – 6,938
4
– – – 6,938 59.36 nil – Apr 2024
Sharesave Oct 2018 344 – – – – 344 – 43.48 – Dec 2023– Jun 2024
Amanda James
LTIP Mar 2019 10,185 – 527 8,675 2,037 – 48.11 nil 63.06 Jan 2022
Sept 2019 8,716 – 351 5,755 3,312 – 56.22 nil 48.36 Jul 2022
3
Mar 2020 7,280 – – – – 7,280 68.49 nil – Jan 2023
3
Sept 2020 12,639 – – – – 12,639 49.31 nil – Jul 2023
Apr 2021 8,024 – – – – 8,024 70.32 nil – Jan 2024
Sept 2021 7,073 – – – – 7,073 79.78 nil – Jul 2024
Mar 2022 – 7,456 – – – 7,456 79.46 nil – Jan 2025
Sept 2022 – 9,487 – – – 9,487 62.45 nil – Jul 2025
53,917 51,959
Sharesave Oct 2018 249 – – – – 249 – 43.48 – Dec 2023– Jun 2024
Oct 2021 38 – – – – 38 – 64.53 – Dec 2024– Jun 2025
287 287
Richard Papp
LTIP Mar 2019 9,873 – 510 8,409 1,974 – 48.11 nil 63.06 Jan 2022
Sept 2019 8,449 – 341 5,579 3,211 – 56.22 nil 48.36 Jul 2022
3
Mar 2020 7,057 – – – – 7,057 68.49 nil – Jan 2023
3
Sept 2020 12,252 – – – – 12,252 49.31 nil – Jul 2023
Apr 2021 7,779 – – – – 7,779 70.32 nil – Jan 2024
Sept 2021 6,856 – – – – 6,856 79.78 nil – Jul 2024
Mar 2022 – 7,228 – – – 7,228 79.46 nil – Jan 2025
Sept 2022 – 9,197 – – – 9,197 62.45 nil – Jul 2025
52,266 50,369
Sharesave Oct 2021 139 – –
– – 139 – 64.53 – Dec 2024– Jun 2025
156
Date of award
Maximum
receivable
at start of
financial
year
Awarded
during
the year
Dividend
accrual
shares
awarded in
the year
Shares
vested/
exercised
in the
year
Lapsed
Maximum
receivable
at end of
financial
year
Calculated
price
at award
date
1
£
Option/
award
price
£
Market price
on date
of vesting/
exercise
£
Vesting date/
exercisable dates
2
Jane Shields
LTIP Mar 2019 9,873 – 510 8,409 1,974 – 48.11 nil 63.06 Jan 2022
Sept 2019 8,449 – 341 5,579 3,211 – 56.22 nil 48.36 Jul 2022
3
Mar 2020 7,057 – – – – 7,057 68.49 nil – Jan 2023
3
Sept 2020 12,252 – – – – 12,252 49.31 nil – Jul 2023
Apr 2021 7,779 – – – – 7,779 70.32 nil – Jan 2024
Sept 2021 6,856 – – – – 6,856 79.78 nil – Jul 2024
Mar 2022 – 7,228 – – – 7,228 79.46 nil – Jan 2025
Sept 2022 – 9,197 – – – 9,197 62.45 nil – Jul 2025
52,266 50,369
Sharesave Oct 2018 282 – – – – 282 – 43.48 – Dec 2023– Jun 2024
Oct 2021 41 – – – – 41 – 64.53 – Dec 2026– Jun 2027
323 323
1. The calculated LTIP price at award date is NEXT’s average share price over the three months prior to the start of the performance period.
2. For LTIP awards, the date in this column is the end of the three year performance period. Actual vesting will be the date on which the Committee determines whether any performance
conditions have been satisfied, or shortly thereafter.
3. See page 153 for details of the performance conditions and vesting levels applicable to the LTIP schemes with performance periods ending in the financial year 2022/23. For grants vesting
from September 2020, the award may be increased to reflect dividends paid over the period to vesting (assuming reinvestment at the prevailing share price) with such shares added
on vesting.
4. The face value of the deferred bonus award to Lord Wolfson equated to £411k, being the portion of his annual bonus for the year to January 2022 in excess of 100% of base salary.
The share price used to determine the award was the closing NEXT plc share price on 26 April 2022, which was the date the cash element of the bonus was paid.
The aggregate gains of directors arising from the LTIP conditional share awards that vested in the 2022/23 year totalled £3,781,000
(2021/22: £6,330,000 which included gains from Sharesave exercises). At the end of the year there were no options that had vested but not yet
been exercised.
Scheme interests awarded during the financial year ended January 2023
(audited information)
LTIP
Face value In respect of the LTIP conditional share awards granted during the year 2022/23, the maximum “face value” of awards (i.e.
the maximum number of shares that would vest if all performance measures are met, multiplied by the average share price used to
determine the award) is summarised below. Awards are granted twice a year at 112.5% of base salary.
Mar 2022
£000
Sept 2022
£000
Total
£000
Lord Wolfson 973 973 1,946
Amanda James 592 592 1,184
Richard Papp 574 574 1,148
Jane Shields 574 574 1,148
Vesting if minimum
performance achieved
20% of the entitlement will be earned for relative TSR at median. Full vesting requires relative TSR in the upper quintile.
Performance period March 2022 grant: three years to January 2025.
September 2022 grant: three years to July 2025.
Performance measures The LTIP performance measures are detailed on page 140. The companies in the TSR comparator group for awards granted during the
financial year are in the table on page 158.
Dividend roll-up The award may be increased to reflect dividends paid over the period to vesting (assuming reinvestment at the prevailing share price).
Deferred bonus
In addition to the scheme interests detailed above, any annual bonus in excess of 100% of base salary payable to the Chief Executive is payable
in shares, deferred for a period of two years and subject to forfeiture if he voluntarily resigns prior to the end of that period. The award may
be increased to reflect dividends paid over the period to vesting (assuming reinvestment at the prevailing share price) with such shares added
on vesting.
157
Strategic Report Governance Financial Statements
Shareholder Information
Performance targets for outstanding LTIP awards (audited information)
Details of the comparator groups for the LTIP three year performance periods commencing August 2019 are shown below.
Performance period commencing:
Comparator Group Companies
Aug 19 Feb 20 Aug 20 Feb 21 Aug 21 Feb 22 Aug 22
AO World X
ASOS
B&M European Value Retail
Boohoo
Burberry
Currys
DFS X
Dr Martens X X X X X X
Dunelm
Halfords
J Sainsbury
JD Sports Fashion
Kingfisher
Marks and Spencer
Morrisons¹ X¹ X¹ X X X
Mothercare
X X X X X X
N Brown
Pets at Home
Superdry X X X X X
Studio Retail Group² X X
X X
Ted Baker³
X³ X³ X
Tesco
Watches of Switzerland X X X X
WH Smith
1. Morrisons was delisted in October 2021. Following our established practice, it was removed from the comparator group for awards where less than 18 months of the performance period
had elapsed (i.e. performance periods commencing August 2020 and February 2021).
2. Studio Retail Group went into administration in February 2022, for all in-flight schemes its TSR will be set to -100%.
3. Ted Baker was delisted in October 2022. Following our established practice, it was removed from the comparator group for awards where less than 18 months of the performance period
had elapsed (i.e. performance periods commencing August 2021 and February 2022).
Payments to past directors (audited information)
There were no payments made to past directors during the 2022/23 financial year.
Payments for loss of office (audited information)
There were no payments made to any director in respect of loss of office during the 2022/23 financial year.
REMUNERATION REPORT
158
Performance and CEO remuneration comparison
Performance graph
The graph below illustrates the TSR performance of the Company when compared with the FTSE All Share and FTSE General Retailers indices.
These have been selected to illustrate the Company’s total shareholder return performance against a wide UK index and a sector specific index
over the ten year period ended January 2023.
NEXT plc performance chart 2013 to 2023 Total Shareholder Return
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Re-based to 25 January 2013 = 100
NEXT FTSE All Share FTSE General Retailers
300
60
260
220
180
140
100
Analysis of Chief Executive’s pay over 10 years
The table below sets out the remuneration for Lord Wolfson who has been the Chief Executive throughout this period.
Financial year
to January
Single figure of total
remuneration £000
Annual bonus pay-out
against maximum
opportunity
1
LTIP pay-out against
maximum opportunity
SMP pay-out against
maximum opportunity
2014 4,646 100% Two semi-annual awards vested at 100% each and
total value capped at £2.5m
Entitlement waived
2
2015 4,660 100% Two semi-annual awards vested at 100% each and
total value capped at £2.5m
Did not participate in
2012–15 SMP
2016 4,295 45% Two semi-annual awards vested at 76% and 77% 100%
2017 1,831 0% Two semi-annual awards vested at 61% and 20% n/a
2018 1,153 0% Two semi-annual awards vested at nil n/a
2019 1,327 13%
3
Two semi-annual awards vested at 20% and nil n/a
2020 2,639 29% Two semi-annual awards vested at 67% and 100% n/a
2021 3,582 0% Two semi-annual awards vested at 90% and 100% n/a
2022 4,148 100% Two semi-annual awards vested at 83% and 80% n/a
2023 2,507 54% Two semi-annual awards vested at 62% and 30% n/a
1. The maximum bonus for the Chief Executive is 150% of salary.
2. Lord Wolfson waived his entitlement to SMP awards in this year. Had he not done so, his total remuneration would have been £8,947k for the financial year to January 2014.
3. Lord Wolfson waived his entitlement to a portion of his annual bonus. Had he not done so, his bonus pay-out against maximum opportunity would have been 40% and his total
remuneration would have been £1,642k for the financial year to January 2019.
159
Strategic Report Governance Financial Statements
Shareholder Information
Annual change in remuneration of each director compared to employees
The table below shows the year on year percentage changes in the directors’ remuneration (i.e. salary, taxable benefits and annual bonus) over
the last three years compared with the percentage changes in the average of each of those components of pay for Group employees in the
UK and Eire. This group has been selected because we believe it is the most appropriate comparator group and represents 85% of the Group’s
workforce. The Company has chosen to voluntarily disclose this information, given that NEXT plc employs only the directors, not others in our group
of companies.
Base salary Taxable benefits Bonus
2022/23 2021/22 2020/21
1
2022/23 2021/22 2020/21 2022/23 2021/22 2020/21
Executive directors
Lord Wolfson 5% 6% -3% -1% 26% -13% -43% 100% -100%
Amanda James 5% 6% -3% 5% – -8% -43% 100% -100%
Richard Papp 5% 6% -3% 1% – – -43% 100% -100%
Jane Shields 5% 6% -3% 14% -78% – -43% 100% -100%
Non-executive directors
Michael Roney 5% 6% -3% – – – – – –
Jonathan Bewes
2
28% 18% -3% – – – – – –
Soumen Das
3 5
18% n/a n/a – – – – – –
Tom Hall
4 5
33% 21% n/a – – – – – –
Tristia Harrison 18% 6% -3% – – – – – –
Dame Dianne Thompson 18% 6% -3% – – – – – –
UK/Eire Employees (average per FTE) 8% 5% 2% -7% -10% 4% -51% 510% -73%
1. The directors took a 20 per cent voluntary reduction in salary/fees during the initial lockdown period between April and June 2020.
2. Jonathan Bewes was appointed as Senior Independent Director during 2021/22.
3. Soumen Das was appointed to the Board as a non-executive director on 1 September 2021.
4. Tom Hall was appointed Remuneration Committee Chairman during 2021/22.
5. The 2021/22 percentage changes in base salary for Tom Hall and Soumen Das are calculated on an annualised basis.
Pay ratios
Set out below are ratios which compare the total remuneration of Lord Wolfson (as included in the single total figure of remuneration table on
page 152) to the remuneration of the 25th, 50th and 75th percentile of our UK employees. The disclosure will build up over time to cover a
rolling ten year period. We expect the pay ratio to vary from year to year, driven largely by the variable pay outcome for Lord Wolfson, which will
significantly outweigh any other changes in pay.
Year Method
25th percentile
pay ratio
50th percentile
(median) pay ratio
75th percentile
pay ratio
2022/23 Option B 126:1 113:1 79:1
2021/22 Option B 265:1 232:1 190:1
2020/21 Option B 203:1 188:1 168:1
2019/20 Option B 151:1 148:1 106:1
We have used Option B in the legislation to calculate the full-time equivalent remuneration for the 25th, 50th and 75th percentile UK employees,
leveraging the analysis completed as part of our most recent UK gender pay gap reporting as at 5 April 2022. As we have a very significant employee
base, it was felt to be overly complicated to prepare single figure calculations for each individual. Having identified the employees at these three
percentiles using the gender pay gap data, we have then used base contract salaries and grossed these up to the full-time equivalents to which
we have added actual benefits, bonus, long term incentives and pension (if applicable) of the UK employees falling at these three percentiles.
The Committee has considered the methodology and is confident the employees identified are reasonably representative since the structure of
their remuneration arrangements is in line with that of the majority of the UK workforce. We consider that these ratios are broadly appropriate in
the context of comparison with other retailers.
REMUNERATION REPORT
160
The base salary and total remuneration received during the financial year by the indicative employees on a full-time equivalent basis used in the
above analysis are set out below:
25th percentile 50th percentile (median) 75th percentile
Base salary £19,822 £21,070 £26,562
Total remuneration £19,852 £22,190 £31,795
The ratios disclosed above are affected by the following factors:
• Of our UK workforce of 38,000, around 90% work in our retail stores, customer contact centres and warehouses where, in line with the retail
sector more generally, rates of pay will not be as high as management grades and those employees based at our Head Office in more technical
roles. The three indicative employees used in the calculations are either retail sales consultants or warehouse operatives.
• The decrease in the pay ratios in 2022/23 as compared to 2021/22 is largely attributable to the decrease in the amount of variable remuneration
received by Lord Wolfson, who has received shares relating to vesting of two LTIPs in the year. NEXT’s share price affects the value of these
incentive plans whereas typically incentive plans provided to our non-management employees are unaffected by our share price movements.
Relative importance of spend on pay
The table below shows the total remuneration paid to or receivable by all employees in the Group together with other significant distributions and
payments (i.e. for share buybacks and dividends).
Total wages and salaries Buybacks Dividends
2022/23 £771.3m £224.0m £237.4m
2021/22 £703.2m £13.1m £344.5m
% change 9.7% 1,609.9% -31.1%
Dilution of share capital by employee share plans
The Company monitors and complies with dilution limits in its various share scheme rules and has not issued new or treasury shares in satisfaction
of share schemes in the last 10 years. Share-based incentives are in most cases satisfied from shares purchased and held by the ESOT (refer to Note
25 to the financial statements).
Consideration of matters relating to directors’ remuneration
Remuneration Committee
During the year, the Committee comprised the following independent non-executive directors:
Member
Tom Hall (Committee Chairman)
Jonathan Bewes
Soumen Das
Tristia Harrison
Michael Roney
Dame Dianne Thompson
Attendance at Committee meetings is shown on page 121.
Role and work of Remuneration Committee
The Committee determines the remuneration of the Group’s Chairman and executive directors, and approves that of senior executives (consistent
with the Code). It is also responsible for determining the targets for performance-related pay schemes, approves any award of the Company’s
shares under share option or incentive schemes to employees, and oversees any major changes in employee benefit structures. The Committee
members have no conflicts of interest arising from cross-directorships and no director is permitted to be involved in any decisions as to his or her
own remuneration. The remuneration of non-executive directors is decided by the Chairman and executive directors of the Board. The Committee’s
terms of reference are available on our corporate website nextplc.co.uk or on request from the Company Secretary.
161
Strategic Report Governance Financial Statements
Shareholder Information
REMUNERATION REPORT
Assistance to the Committee
During the period, the Committee received input from the Chief Executive and the Group Finance Director. The Committee engaged FIT
Remuneration Consultants LLP and FIT Remuneration Implementation LLP (together FIT) to provide independent external advice, including updates
on legislative requirements, best practice, and other matters of a technical nature and related to share plans. FIT have no other connection with the
Company. Deloitte LLP provided independent verification services of total shareholder returns for NEXT and the comparator group of companies
under the LTIP. Deloitte provides other consultancy services to the Group on an ad hoc basis. FIT and Deloitte were appointed by the Committee
based on their expertise in the relevant areas of interest.
During the year FIT was paid circa £57k and Deloitte was paid circa £5k for the services described above, charged at their standard hourly rates.
Both are members of the Remuneration Consultants Group, the body that oversees the Code of Conduct in relation to executive remuneration
consulting in the UK and have confirmed to us that they adhere to its Code. Based on the nature of the advice, and the relatively modest fees, the
Committee was satisfied that the advice received was objective and independent.
Voting outcomes at General Meetings
AGM Votes for
%
for
Votes
against
%
against
Total
votes cast
% of shares
on register
Votes
withheld
To approve the Remuneration Policy 2020 92,690,078 91.8 8,252,433 8.2 100,942,511 75.9 393,732
To approve the 2021/22
Remuneration Report 2022 92,593,169 92.5 7,515,888 7.5 100,109,057 76.4 16,254
On behalf of the Board
Tom Hall
Chairman of the Remuneration Committee
29 March 2023
162
Information contained in the
Strategic Report
As permitted by section 414C of the Companies Act 2006, certain
information required to be included in the Directors’ Report has been
included in the Strategic Report. Specifically, this relates to:
• Information in respect of employee matters (including actions
taken to introduce, maintain or develop arrangements aimed
at employees, details on how the directors have engaged with
employees and had regard to employee interests, our approach to
investing in and rewarding the workforce, employee diversity and
the employment, training and advancement of disabled persons)
(see page 98).
• Likely future developments.
• Risk management (see pages 74 to 82).
• Details on how the directors have had regard to the need to foster
business relationships with stakeholders (see page 107).
• Greenhouse gas emissions (see page 86 for our Streamlined Energy
and Carbon Reporting (SECR) disclosures and page 88 for our
GHG Emissions).
Financial instruments
Information on financial instruments and the use of derivatives is given
in Notes 26 to 29 to the financial statements.
Annual General Meeting
The 2023 Annual General Meeting (AGM) of NEXT plc will be held at
Leicester Marriott Hotel, Smith Way, Grove Park, Leicester LE19 1SW
on Thursday 18 May 2023 at 9.30 am. The Notice of Annual General
Meeting, which includes the business to be transacted at the meeting,
is set out from page 249.
Dividends
Information regarding dividends during 2022/23 is provided in the
Strategic Report on page 60.
The Trustee of the NEXT ESOT has waived dividends paid in the year on
the shares held by it. Please refer to Note 25 to the financial statements
for further information.
Share capital and major shareholders
Details of the Company’s share capital are shown in Note 22 to the financial statements.
The Company was authorised by its shareholders at the 2022 AGM to purchase its own shares. During the financial year the Company purchased
and cancelled 3,508,417 ordinary shares with a nominal value of 10 pence each (none of which were purchased off-market), at a cost of £224m
and representing 2.64% of its issued share capital at the start of the year.
At the financial year end 28 January 2023, the Company had 129,263,359 shares in issue. Subsequent to the end of the financial year the Company
purchased for cancellation 526,099 of its own shares at a cost of £36.2m and as at 28 March 2023 the number of shares in issue was 128,737,260.
As at 28 January 2023, the Company had been notified under the Disclosure and Transparency Rules (DTR 5) of the following notifiable interests
in the Company’s issued share capital. The information provided below was correct at the date of notification. These holdings are likely to have
changed since the Company was notified; however, notification of any change is not required until the next notifiable threshold is crossed.
Notifications received as at 28 January 2023
No. of voting
rights at date of
notification
% of voting rights at
date of notification
Nature of
holding
Date of
notification
FMR LLC (Fidelity) 12,924,297 9.99 Indirect interest 21 July 2022
BlackRock, Inc. 12,691,696 9.68 Indirect interest 17 May 2022
Invesco Limited 7,008,384 5.42 Indirect interest 13 October 2022
NEXT plc Employee Share Option Trust 6,592,270 5.10 Direct interest 21 October 2022
Norges Bank 3,862,059 2.99 Direct interest 21 October 2022
The following notifications were received after 28 January 2023 up to 28 March 2023.
No. of voting
rights at date of
notification
% of voting rights at
date of notification
Nature of
holding
Date of
notification
NEXT plc Employee Share Option Trust 6,415,949 4.96 Direct interest 7 February 2023
FMR LLC (Fidelity) 12,924,005 10.01 Indirect interest 15 February 2023
DIRECTORS’ REPORT
163
Strategic Report Governance Financial Statements
Shareholder Information
Additional information
Shareholder and voting rights
All members who hold ordinary shares are entitled to attend and vote
at the AGM. Voting on all resolutions at the 2023 AGM will be by way
of a poll. On a poll, every member present in person or by proxy has
one vote for every ordinary share held or represented. The Notice of
Meeting specifies the deadlines for exercising voting rights.
The Company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of securities and voting
rights. There are no restrictions on the transfer of ordinary shares in
the Company other than certain restrictions imposed by laws and
regulations (such as insider trading laws and market requirements
relating to closed periods) and requirements of internal rules and
procedures whereby directors and certain employees of the Company
require prior approval to deal in the Company’s securities.
The Company’s Articles may only be amended by a special resolution
at a General Meeting. Directors are elected or re-elected by ordinary
resolution at a General Meeting; the Board may appoint a director but
anyone so appointed must be elected by ordinary resolution at the
next General Meeting. Under the Articles, directors retire and may
offer themselves for re-election at a general meeting at least every
three years. However, in line with the provisions of the UK Corporate
Governance Code, all directors stand for re-election annually.
Change of control
The Company is not party to any significant agreements which take
effect, alter or terminate solely upon a change of control of the
Company. However, in the event of a change of control of the Company
or NEXT Group plc, NEXT Group plc’s medium term borrowing facilities
will be subject to early repayment in full if a majority of the lending
banks give written notice, or in part if a lending bank gives written
notice following a change of control. In addition, the holders of NEXT
Group plc’s corporate bonds will be entitled to call for redemption of the
bonds by NEXT Group plc or the Company as guarantor at their nominal
value together with accrued interest in the following circumstances:
• Should a change of control cause a downgrading in the credit rating
of the corporate bonds to sub-investment grade and this is not
rectified within 120 days after the change of control, or
• If already sub-investment grade, a further credit rating downgrade
occurs and this is not rectified within 120 days after the change of
control, or
• If the bonds at the time of the change of control have no credit rating
and no investment grade rating is assigned within 90 days after the
change in control.
The Company’s share option plans and its Long Term Incentive Plan
contain provisions regarding a change of control. Outstanding options
and awards may vest on a change of control, subject to the satisfaction
of any relevant performance conditions.
Directors’ service contracts are terminable by the Company on giving
one year’s notice. There are no agreements between the Company and
its directors or employees providing for additional compensation for
loss of office or employment (whether through resignation, redundancy
or otherwise) that occurs because of a takeover bid.
Branches
NEXT, through various subsidiaries, has established branches in a
number of different countries in which the business operates.
Corporate governance
The corporate governance statement as required by the UK Financial
Conduct Authority’s Disclosure Guidance and Transparency Rules (DTR
7.2.6) comprises the Additional Information section of this Directors’
Report and the Corporate Governance statement included in this
Annual Report.
The following disclosures are required under Listing Rule 9.8.4 R:
Publication of unaudited
financial information
On 4 January 2023, NEXT published a Profit Before Tax (PBT) guidance forecast for the year to
January 2023 of £860m. Actual PBT for the period was £869.3m.
Shareholder waivers of dividends The NEXT Employee Share Ownership Trust typically waives its rights to receive dividends during
the year.
No further LR 9.8.4 disclosures are required.
In the case of each director in office at the date the Directors’ Report is approved:
• So far as the director is aware, there is no relevant audit information of which the Group and Parent Company’s auditors are unaware; and
• They have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information
and to establish that the Group and Parent Company’s auditors are aware of that information.
This Directors’ Report, comprising pages 114 to 164, has been approved by the Board and is signed on its behalf by
Amanda James
Group Finance Director
29 March 2023
DIRECTORS’ REPORT
164
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF NEXT PLC
Report on the audit of the financial statements
Opinion
In our opinion:
• NEXT plc’s group financial statements and parent company financial statements (the “financial statements”) give a true and fair view of the state
of the group’s and of the parent company’s affairs as at 28 January 2023 and of the group’s profit and the group’s cash flows for the 52 week
period then ended;
• the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards as applied in
accordance with the provisions of the Companies Act 2006;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report & Accounts (the “Annual Report”), which comprise: consolidated and
parent company balance sheets as at 28 January 2023; the consolidated income statement, the consolidated statement of comprehensive income,
the consolidated and parent company statements of changes in equity and the consolidated cash flow statement for the period then ended; the
group accounting policies; and the notes to the financial statements.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in note 3 to the consolidated financial statements, we have provided no non-audit services to the parent company or
its controlled undertakings in the period under audit.
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Strategic Report Governance Financial Statements
Shareholder Information
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF NEXT PLC
Our audit approach
Overview
Audit scope
• We conducted an audit of the complete financial information of one financially significant component as well as one other component.
Targeted specified procedures were performed over a further component.
• The financially significant component was audited by the UK group engagement team with the remaining component subject to an audit of the
complete financial information audited by an overseas component team located in Hong Kong.
• In addition, the group engagement team performed audit procedures over centralised functions including the group consolidation, financial
statement disclosures and areas of estimate / judgement including goodwill, intangible assets, business combinations, leases, taxation, treasury,
post-retirement benefits and equity accounted investments.
• The components on which full scope audits, targeted specified procedures and centralised work was performed accounted for 87% of revenue,
86% of profit before tax and 94% of total assets.
Key audit matters
• The application of key judgements and assumptions in relation to applying expected credit loss (ECL) provisioning on customer receivables
(group)
• Net realisable valuation of inventories (group)
• Impairment of right-of-use assets and property, plant and equipment associated with Retail stores (group)
• Accounting for the Reiss and Joules investments (group)
• Defined benefit pension assumptions (group)
• Recoverability of investments (parent company)
Materiality
• Overall group materiality: £43,500,000 (2022: £41,000,000) based on 5% of profit before tax.
• Overall parent company materiality: £26,700,000 (2022: £26,500,000) based on 1% of total assets.
• Performance materiality: £32,625,000 (2022: £30,750,000) (group) and £20,000,000 (2022: £19,875,000) (parent company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
This is not a complete list of all risks identified by our audit.
Accounting for sale and leaseback transactions, which was a key audit matter last year, is no longer included because the complexities of the
transaction were specific to the prior year. Otherwise, the key audit matters below are consistent with last year.
166
Key audit matter How our audit addressed the key audit matter
The application of key judgements and assumptions in
relation to applying expected credit loss (ECL) provisioning
on customer receivables
Group
Refer to the audit committee report, the major sources of estimation uncertainty
and judgement within the group accounting policies and note 13 for customer and
other receivables.
As at 28 January 2023, the group has gross customer receivables of £1,457m
(Jan-22: £1,352m), with ECL provisions of £201.9m held against them
(Jan-22: £190.8m).
The determination of ECL provisions is inherently judgemental and involves
setting assumptions using forward looking information reflecting the group’s view
of potential future economic events. This can give rise to increased estimation
uncertainty, which is compounded by the inflationary and interest rate environment
in the UK and therefore affordability.
Having assessed the economic outlook and the limitations of any provisioning
model to fully reflect inherent risk in the current economic environment, the group
holds an affordability post-model adjustment of £24.4m. This adjustment applies
an increased level of provision coverage to those customers identified as being at
the greatest risk of going into default due to the rising cost of living.
We consider the following elements of the determination of modelled ECL for
customer receivables to be significant:
• The application of forward-looking unemployment assumptions used in the
models and the weightings assigned to those scenarios; and
• The completeness and appropriateness of post-model adjustments that are
recorded to take into account latent risks and known model limitations, in
particular those addressing the risk associated with customer affordability.
With the support of our financial services and credit risk modelling specialists
and our economics experts, we performed the following procedures:
We understood and critically assessed the appropriateness of the ECL
accounting policy, model methodologies, and mathematical accuracy of the
models used by management.
We tested model performance by replicating, on a sample basis, key model
components and comparing actual outcomes with those previously predicted
by the models.
We assessed the reasonableness and likelihood of the forward looking economic
assumptions and weightings assigned to the scenarios using a benchmarking
tool developed by our economic experts. We assessed their reasonableness
against known or likely economic, political and other relevant events.
The severity and magnitude of the unemployment forecasts were compared to
external forecasts and data from historical economic downturns.
Based on our knowledge and understanding of the limitations in management’s
models and emerging industry risks, we evaluated the appropriateness and
completeness of the post model adjustments proposed by management.
We tested the £24.4m customer affordability post-model adjustment by
critically assessing the methodology applied and testing the underlying
assumptions used in the calculation to supporting evidence. We also
independently quantified and sensitised a customer affordability post-model
adjustment, based on our own view of latent and inherent credit risk.
We tested the ECL disclosures made by management to assess compliance
with accounting standards.
We found the application of key judgements and assumptions relating to the
ECL provision to be consistent with the evidence obtained.
Net realisable valuation of inventories
Group
Refer to the audit committee report and the other areas of estimation uncertainty
and judgement within the group accounting policies.
The valuation of inventory involves judgement in the recording of provisions for
shrinkage, obsolescence and inventory that may have a lower net realisable value
than cost.
Management have calculated the provision using a top down model, using their
knowledge of the following:
– the forecast sell through rates of current and prior season inventory to determine
inventory expected to be sold via clearance channels;
– the forecast cash recovery rates on inventory sold via clearance channels; and
– expectations of future customer behaviour and the wider economic impact.
We validated the integrity of the provision model and inputs and ensured
that it was using the underlying data correctly and calculating provision
amounts accurately.
We examined inventory write-offs in the financial period to ensure they are
consistent with the key assumptions used in the inventory provision model at
the year end.
We recalculated the provision based on coverage levels seen in previous years,
including pre-COVID and benchmarked against other retailers.
We challenged management on the inclusion of specific judgemental parts of
the provisions, in excess of calculations from recent historical data models, in
response to expected consumer behaviour changes.
We have performed sensitivity analysis over key judgements taken by
management and assessed the impact of this sensitivity analysis on the
provision value.
We found that the provisions recorded were consistent with the
evidence obtained.
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Strategic Report Governance Financial Statements
Shareholder Information
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF NEXT PLC
Key audit matter How our audit addressed the key audit matter
Impairment of right-of-use assets and property, plant and
equipment associated with Retail stores
Group
Refer to the audit committee report, the other areas of estimation uncertainty and
judgement within the group accounting policies and note 3 for operating profit.
In accordance with IAS 36 (impairment of assets), the group is required to assess
the recoverability of right-of-use assets and property, plant and equipment where
there are indicators of impairment. The group is also required to assess whether
there are any indicators that an impairment loss recognised in prior periods may
have reversed.
For the purposes of impairment assessments, management determines each store
to be a cash generating unit (“CGU”).
The group has identified certain CGUs which were impaired in previous periods
and have indicators of impairment reversal. A net impairment reversal of £37.6m
was recognised as a result of improved cash flow forecasts compared to the prior
period. Impairment indicators have only been identified in a small number of CGUs.
We assessed management’s determination that each store is a CGU and found
this to be appropriate.
We evaluated management’s methodology when assessing which CGUs either
have an impairment or an impairment reversal indicator with reference to the
requirements of IAS 36.
In addition to this work, we formed an independent expectation of whether
impairment or impairment reversal indicators were apparent with reference to:
• trading results of the Retail segment and individual CGUs; and
• lease modifications which have resulted in an increase in the right-of-
use asset.
For CGUs determined to have either an impairment or impairment reversal
trigger, we tested the calculation of recoverable amount by:
• ensuring that assets were appropriately allocated to these CGUs;
• testing the integrity of management’s model, as well as agreeing underlying
data to source documents; and
• testing the forecast cash flows and assumptions, noting that these were not
materially sensitive to reasonable changes.
We found that the accounting for impairment of right-of-use assets and
property, plant and equipment was consistent with the evidence obtained.
Accounting for the Reiss and Joules investments
Group
Refer to the audit committee report, the major sources of estimation uncertainty
and judgement within the group accounting policies, note 12 for associates, joint
ventures and other investments and note 32 for acquisition of subsidiary.
On 28 February 2022, NEXT exercised its option to acquire a further 26% indirect
interest in Reiss Limited (“Reiss”) which increased its overall interest to a 51% equity
stake. Whilst NEXT owns a majority equity interest, the shareholder agreement
includes a series of matters which give rights to minority shareholders (“reserved
matters”). The extent of these reserved matters resulted in NEXT concluding that
it does not have the power to direct the relevant activities of Reiss and so does not
have control over Reiss. Reiss has therefore been accounted for as a Joint Venture
rather than a subsidiary.
On 1 December 2022, NEXT acquired 74% of the trade and assets of Joules.
A shareholder agreement was also entered into with the other equity investors,
including certain reserved matters. NEXT has determined that these reserved
matters do not impact NEXT’s power to direct the relevant activities of Joules.
NEXT has concluded that it has control over Joules and it has been accounted for as
a subsidiary and as a business combination in the financial year.
For both the Reiss and Joules investments, we obtained the shareholder
agreement and accounting memorandum prepared by management.
We reviewed the shareholder agreements and verified that management had
accurately extracted the pertinent information, including the reserved matters,
in their accounting papers.
With regards to the investment in Reiss, we were satisfied that the reserved
matters confer sufficient rights to the minority shareholder such that NEXT is
not able to direct the relevant activities of Reiss and certain operational and
financial matters require joint agreement from all shareholders. We therefore
found management’s conclusion that it does not control Reiss to be reasonable.
With regards to the investment in Joules, we were satisfied that the reserved
matters do not constrain NEXT in its ability to direct the relevant activities of
Joules. We therefore found management’s conclusion, that NEXT controls
Joules, to be reasonable.
We assessed the disclosures included in the Major Sources of Estimation
Uncertainty and Judgement section of the Group Accounting Policies and
found them to be reasonable.
168
Key audit matter How our audit addressed the key audit matter
Defined benefit pension assumptions
Group
Refer to the audit committee report, the major sources of estimation uncertainty and
judgement within the group accounting policies and note 20 for pension benefits.
The defined benefit pension schemes obligation is calculated based on actuarial
assumptions which are subject to significant estimation uncertainty and are also
sensitive to changes.
We used actuarial specialists to review the key actuarial assumptions for the
Original Plan, the 2013 Plan and the SPA.
We found that the assumptions utilised by NEXT in the pension obligation
valuation were reasonable and within our expected ranges. We also ensured
the sensitivity analysis disclosed in the financial statements was consistent
with the actuarial report.
Recoverability of investments
Parent company
Refer to note C2 of the parent company financial statements for Investments.
In accordance with IAS 36, the parent company’s investments balance of £2,475.7m
(Jan-22: £2,475.7m) should be carried at no more than its recoverable amount,
being the higher of fair value less costs to sell and its value in use.
We evaluated whether there were any indicators of an impairment trigger
in relation to the parent company’s investments balance, with specific
consideration given to the following:
• the market capitalisation of the group, which is significantly in excess
of the investments balance, noting that substantially all of the market
capitalisation is considered to be in relation to one indirect subsidiary (NEXT
Retail Limited) of the parent company;
• the trading results of NEXT Retail Limited, which are no worse than expected
and are not expected to be worse in future periods; and
• any significant changes with an adverse impact in relation to the
technological, market, economic or legal environment in which NEXT Retail
Limited operates, noting that there were no such changes.
We consider management’s conclusion that there are no indicators of
impairment to be appropriate.
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Strategic Report Governance Financial Statements
Shareholder Information
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF NEXT PLC
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the group and the parent company, the accounting processes and controls, and the industry in which
they operate.
Our scoping is based on the group’s consolidation structure. We define a component as a single reporting unit which feeds into the group
consolidation. Of the group’s 45 components, we identified one component which, in our view, required an audit of its complete financial
information both due to its size and risk characteristics (forms the majority of the NEXT Retail, NEXT Online and NEXT Finance segments).
In addition, a full scope audit was performed over one other component, Next Sourcing Limited, by an overseas component audit team in Hong
Kong, although this was not considered to be individually significant either financially or due to risk characteristics. The overseas component audit
team worked under instruction of the group engagement team and were in regular contact with the group engagement team throughout the audit
cycle from planning to completion. In particular, the group engagement team held video calls with the component audit team and performed a
working paper review.
Targeted specified procedures were also performed over one other component which held balances of significance to the group financial statements.
Further, the Group engagement team performed audit procedures over centralised functions including the Group consolidation, financial statement
disclosures and areas of estimate / judgement including goodwill, intangible assets, business combinations, leases, taxation, treasury, post-retirement
benefits and equity accounted investments. The Group engagement team also performed analytical procedures on all insignificant components.
The components on which full scope audits, targeted specified procedures and centralised work was performed accounted for 87% of revenue,
86% of profit before tax and 94% of total assets.
The parent company is comprised of one reporting unit which was subject to a full scope audit for the purposes of the parent company
financial statements.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the process adopted to assess the extent of the potential impact of climate
risk on the financial statements and to support the disclosures made within the Strategic Report.
Our risk assessment was based on this enquiry as well as review of NEXT’s most recent corporate responsibility reporting and climate-
related commitments.
As detailed in the group accounting policies, management considers that the impact of climate risk does not give rise to a material financial
statement impact.
We evaluated management’s disclosures based on our knowledge of the business, including from our testing of right-of-use assets and property
plant and equipment, which were considered to be the assets at most risk of the effects of climate change.
We also considered the consistency of the disclosures in relation to climate change (including the disclosures in the Task Force on Climate-related
Financial Disclosures (TCFD) section) within the Annual Report with the financial statements and our knowledge obtained from our audit.
Our procedures did not identify any material impact in the context of our audit of the financial statements as a whole, or our key audit matters for
the year ended 28 January 2023.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements – Group Financial statements – Parent Company
Overall materiality £43,500,000 (2022: £41,000,000). £26,700,000 (2022: £26,500,000).
How we determined it 5% of profit before tax 1% of total assets
Rationale for benchmark applied Profit before tax is the primary measure used by
the shareholders in assessing the performance
of the group and is a generally accepted
auditing benchmark.
The parent company does not trade and
therefore total assets is considered to be the most
appropriate benchmark.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was £12,000,000 to £39,000,000. Certain components were audited to a local statutory audit materiality
that was also less than our overall group materiality.
170
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature
and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance
materiality was 75% (2022: 75%) of overall materiality, amounting to £32,625,000 (2022: £30,750,000) for the group financial statements and
£20,000,000 (2022: £19,875,000) for the parent company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk
and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £2,200,000 (group audit)
(2022: £2,000,000) and £1,335,000 (parent company audit) (2022: £1,325,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the parent company’s ability to continue to adopt the going concern basis of
accounting included:
• We obtained management’s going concern assessment which included a base case and other scenarios including a reverse stress test;
• We ensured the base case was consistent with Board approved budgets and we assessed the appropriateness of this budget and other
assumptions during the going concern period;
• We assessed the mathematical accuracy of the calculations for liquidity headroom for the base case and reverse stress test scenarios. We also
tested the forecast covenant compliance for the base case and were satisfied it was not a critical factor in the reverse stress test;
• We have evaluated management’s ability to budget based on historical budgets/forecasts and the resulting performance;
• We considered the mitigating actions available to NEXT to increase liquidity, if required, with the key actions being reductions in stock purchases,
capex and share purchases, as well as cessation of dividends; and
• We assessed management’s reverse stress test and were satisfied it was a scenario that, in our view, was not plausible.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the parent company’s
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.
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Strategic Report Governance Financial Statements
Shareholder Information
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF NEXT PLC
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the
period ended 28 January 2023 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we did
not identify any material misstatements in the Strategic report and Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the parent company’s compliance with the provisions of the UK Corporate Governance Code specified for our
review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on
other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement
is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw
attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting
in preparing them, and their identification of any material uncertainties to the group’s and parent company’s ability to continue to do so over a
period of at least twelve months from the date of approval of the financial statements;
• The directors’ explanation as to their assessment of the group’s and parent company’s prospects, the period this assessment covers and why
the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the parent company will be able to continue in operation
and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group and parent company was substantially less in scope than
an audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is
in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the
financial statements and our knowledge and understanding of the group and parent company and their environment obtained in the course of
the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the group’s and parent company’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the parent company’s compliance with
the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.
172
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements
in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for
such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related
to breaches of consumer credit regulations and tax legislation, and we considered the extent to which non-compliance might have a material
effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such
as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls), and determined that the principal risks were related to posting of inappropriate journal entries to
manipulate revenue and/or profits and management bias in significant accounting estimates and judgements. The group engagement team shared
this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work.
Audit procedures performed by the group engagement team and/or component auditors included:
• Discussions with management, internal audit, internal legal counsel, compliance managers and the Audit Committee, including consideration
of known or suspected instances of non-compliance with laws and regulation or fraud;
• Assessment of matters reported on the group’s whistle-blowing log and the results of management’s investigation of such matters;
• Review of filings and correspondence with the Financial Conduct Authority and tax authorities;
• Searches for news articles which would highlight potential non-compliance with laws and regulations;
• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or posted by senior
management; and
• Challenging assumptions and judgements made by management in their significant accounting estimates and judgements, in particular in
relation to recoverability of customer receivables (see related key audit matter above).
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with
laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a
material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment
by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target
particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent
in writing.
173
Strategic Report Governance Financial Statements
Shareholder Information
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the parent company financial statements and the part of the Remuneration Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 18 May 2017 to audit the financial statements for
the year ended 27 January 2018 and subsequent financial periods. The period of total uninterrupted engagement is six years, covering the years
ended 27 January 2018 to 28 January 2023.
Other matter
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements will
form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance
with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report will
be prepared using the single electronic format specified in the ESEF RTS.
Mark Skedgel (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
29 March 2023
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF NEXT PLC
174
GROUP
FINANCIAL
STATEMENTS
176 Consolidated Income Statement
177 Consolidated Statement of Comprehensive Income
178 Consolidated Balance Sheet
179 Consolidated Statement of Changes in Equity
180 Consolidated Cash Flow Statement
181 Group Accounting Policies
195 Notes to the Consolidated Financial Statements
175
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
CONSOLIDATED INCOME STATEMENT
Notes
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Continuing operations
Revenue (including credit account interest) 1, 2 5,034.0 4,625.9
Cost of sales (2,827.7) (2,625.3)
Impairment losses on customer and other receivables 13 (31.0) (28.6)
Gross profit 2,175.3 1,972.0
Distribution costs (750.0) (693.7)
Administrative expenses (481.8) (380.2)
Other (losses)/gains 3 (16.3) 2.5
Trading profit 927.2 900.6
Share of results of associates and joint ventures 12 14.3 4.8
Operating profit 3 941.5 905.4
Finance income 5 5.7 4.2
Finance costs 5 (77.9) (86.5)
Profit before taxation 869.3 823.1
Taxation 6 (158.6) (145.6)
Profit for the year 710.7 677.5
Profit attributable to:
– Equity holders of the Parent Company 711.7 677.5
– Non-controlling interests (1.0) –
710.7 677.5
Earnings Per Share
Basic 8 573.4p 530.8p
Diluted 8 570.5p 524.0p
The Notes 1 to 33 are an integral part of these consolidated financial statements.
176
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
Notes
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Profit for the period 710.7 677.5
Other comprehensive income and expenses:
Items that will not be reclassified to profit or loss
Actuarial gains on defined benefit pension scheme 20 0.6 55.1
Tax relating to items which will not be reclassified 6 (0.1) (13.8)
Subtotal items that will not be reclassified 0.5 41.3
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations 1.2 (2.4)
Foreign currency cash flow hedges:
– fair value movements 79.2 36.9
Cost of hedging
– fair value movements (0.4) 0.8
Tax relating to items which may be reclassified 6 (19.7) (7.2)
Subtotal items that may be reclassified 60.3 28.1
Other comprehensive income for the period 60.8 69.4
Total comprehensive income for the period 771.5 746.9
Total comprehensive income attributable to:
– Equity holders of the Parent Company 772.5 746.9
– Non-controlling interests (1.0) –
771.5 746.9
177
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
Notes
28 January
2023
£m
29 January
2022
£m
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment 9 644.8 601.1
Intangible assets 10 137.1 79.3
Right-of-use assets 11 662.0 639.1
Associates, joint ventures and other investments 12 114.6 46.2
Defined benefit pension asset 20 157.5 156.9
Other financial assets 14 – 18.0
Deferred tax assets 6 33.3 34.0
1,749.3 1,574.6
Current assets
Inventories 662.2 633.0
Customer and other receivables 13 1,425.5 1,280.9
Right of return asset 32.7 24.8
Other financial assets 14 9.1 35.5
Cash and short term deposits 15 105.0 433.0
2,234.5 2,407.2
Total assets 3,983.8 3,981.8
Current liabilities
Bank loans and overdrafts 16 (102.3) (233.1)
Trade payables and other liabilities 17 (791.1) (798.4)
Lease liabilities 11 (146.2) (162.6)
Other financial liabilities 18 (40.8) (1.0)
Current tax liabilities (12.9) (13.0)
(1,093.3) (1,208.1)
Non-current liabilities
Corporate bonds 19 (790.7) (815.7)
Provisions 21 (33.8) (21.9)
Lease liabilities 11 (877.1) (894.9)
Other financial liabilities 18 (9.5) –
Other liabilities 17 (14.3) (31.2)
(1,725.4) (1,763.7)
Total liabilities (2,818.7) (2,971.8)
NET ASSETS 1,165.1 1,010.0
TOTAL EQUITY 1,165.1 1,010.0
The financial statements were approved by the Board of directors and authorised for issue on 29 March 2023. They were signed on its behalf by:
Lord Wolfson of Aspley Guise Amanda James
Chief Executive Group Finance Director
CONSOLIDATED BALANCE SHEET
178
Attributable to equity holders of the Parent Company
Share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
ESOT
reserve
£m
Cash flow
hedge
reserve
£m
Cost of
hedging
reserve
£m
Foreign
currency
translation
£m
Other
reserves
(Note 23)
£m
Retained
earnings
£m
Total
£m
Non-
controlling
interests
£m
Total
equity
£m
At 30 January 2021 13.3 0.9 16.6 (271.2) (19.7) 0.1 (2.5) (1,443.8) 2,367.2 660.9 – 660.9
Profit for the period – – – – – – – – 677.5 677.5 – 677.5
Other comprehensive
income/(expense) for
the period – – – – 29.9 0.6 (2.4) – 41.3 69.4 – 69.4
Total comprehensive
income/(expense) for
the period – – – – 29.9 0.6 (2.4) – 718.8 746.9 – 746.9
Share buybacks
and commitments
(Note 22) – – – – – – – – (13.1) (13.1) – (13.1)
ESOT share purchases
(Note 25) – – – (151.3) – – – – – (151.3) – (151.3)
Shares issued by ESOT
(Note 25) – – – 90.8 – – – – (24.4) 66.4 – 66.4
Share option charge – – – – – – – – 19.9 19.9 – 19.9
Reclassified to cost
of inventory – – – – 21.7 – – – – 21.7 – 21.7
Tax recognised directly
in equity (Note 6) – – – – (4.0) – – – 7.1 3.1 – 3.1
Equity dividends
(Note 7) – – – – – – – – (344.5) (344.5) – (344.5)
At 29 January 2022 13.3 0.9 16.6 (331.7) 27.9 0.7 (4.9) (1,443.8) 2,731.0 1,010.0 – 1,010.0
Profit for the period – – – – – – – – 711.7 711.7 (1.0) 710.7
Other comprehensive
income/(expense)
for the period – – – – 59.4 (0.3) 1.2 – 0.5 60.8 – 60.8
Total comprehensive
income/(expense) for
the period – – – – 59.4 (0.3) 1.2 – 712.2 772.5 (1.0) 771.5
Share buybacks
and commitments
(Note 22) (0.4) – 0.4 – – – – – (224.0) (224.0) – (224.0)
ESOT share purchases
(Note 25) – – – (124.0) – – – – – (124.0) – (124.0)
Shares issued by ESOT
(Note 25) – – – 59.0 – – – – (18.2) 40.8 – 40.8
Share option charge – – – – – – – – 24.3 24.3 – 24.3
Reclassified to cost
of inventory – – – – (128.7) – – – – (128.7) – (128.7)
Non-controlling
interest on acquisition
of subsidiary – – – – – – – – – – 5.6 5.6
Gain on disposal of
investment – – – – – – – – 0.8 0.8 – 0.8
Tax recognised directly
in equity (Note 6) – – – – 30.1 – – – (4.2) 25.9 – 25.9
Equity dividends
(Note 7) – – – –
– – – – (237.1) (237.1) – (237.1)
At 28 January 2023 12.9 0.9 17.0 (396.7) (11.3) 0.4 (3.7) (1,443.8) 2,984.8 1,160.5 4.6 1,165.1
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
179
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Cash flows from operating activities
Operating profit 941.5 905.4
Depreciation, reversal of impairment and (profit)/loss on disposal of property, plant and equipment 80.6 90.3
Depreciation and impairment reversal on right-of-use assets 72.7 112.6
Amortisation and impairment of intangible assets 12.5 4.3
Amortisation, impairment & disposals of investments 1.1 –
Share option charge 24.3 19.9
Share of profit of associates and joint ventures (14.3) (4.8)
Exchange movement (0.8) (1.6)
Increase in inventories and right of return asset (22.8) (96.5)
Increase in customer and other receivables (156.5) (165.4)
Increase in trade and other payables 12.0 235.2
Net pension contributions less income statement charge – (2.7)
Cash generated from operations 950.3 1,096.7
Corporation taxes paid (151.5) (125.3)
Net cash from operating activities 798.8 971.4
Cash flows from investing activities
Additions to property, plant and equipment (207.1) (239.2)
Movement in capital accruals 2.0 (4.4)
Payments to acquire property, plant and equipment (205.1) (243.6)
Proceeds from sale of property, plant and equipment – 3.4
Proceeds from sale and leaseback transactions 41.7 15.5
Purchase of intangible assets (41.0) (22.7)
Amounts repaid/(lent) to associates and joint ventures 11.3 (10.8)
Disposal of other investment 1.8 –
Investment in subsidiaries (28.8) –
Investment in associates and joint ventures (64.7) (34.3)
Acquisition of other investments (1.9) –
Dividend from jointly controlled entity 9.8 –
Disposal of preference shares in jointly controlled entity 5.5 –
Net cash from investing activities (271.4) (292.5)
Cash flows from financing activities
Repurchase of own shares (228.5) (8.7)
Purchase of shares by ESOT (124.0) (151.3)
Disposal of shares by ESOT 34.3 72.5
Repayment of bond – (325.0)
Incentives received for leases within the scope of IFRS 16 0.1 11.9
Lease payments (157.1) (172.3)
Interest paid (including lease interest) (74.1) (91.1)
Interest received 0.3 0.8
Proceeds from sale and leaseback transactions 59.3 14.3
Dividends paid (Note 7) (237.4) (344.5)
Net cash from financing activities (727.1) (993.4)
Net decrease in cash and cash equivalents (199.7) (314.5)
Opening cash and cash equivalents 199.9 514.8
Effect of exchange rate fluctuations on cash held 2.5 (0.4)
Closing cash and cash equivalents (Note 30) 2.7 199.9
CONSOLIDATED CASH FLOW STATEMENT
180
GROUP ACCOUNTING POLICIES
General Information
NEXT plc and its subsidiaries (the “Group”) is a UK based retailer selling beautifully designed, excellent quality clothing, homeware and beauty
products which are responsibly sourced and accessibly priced. The Company is a public limited company, which is listed on the London Stock Exchange
and incorporated in England and Wales and domiciled in the UK. The address of the registered office is Desford Road, Enderby, Leicester LE19 4AT.
Basis of Preparation
The financial statements of NEXT plc and the Group have been prepared in accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.
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. As is common in the retail sector, the Group operates a weekly accounting
calendar and this year the financial statements are for the 52 weeks to 28 January 2023 (last year 52 weeks to 29 January 2022).
In adopting the going concern basis for preparing the financial statements, the directors have considered the business activities including the
Group’s principal risks and uncertainties. The Board also considered the Group’s current cash position, the repayment profile of its obligations, its
financial covenants and the resilience of its 12 month cash flow forecasts to a series of severe but plausible downside scenarios such as further
enforced store closures. Having considered these factors the Board is satisfied that the Group has adequate resources to continue in operational
existence and therefore it is appropriate to adopt the going concern basis in preparing the consolidated financial statements for the 52 weeks
ended 28 January 2023 (see also the Going Concern and Viability Statements in the Annual Report and Accounts).
These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of NEXT plc (the “Company”) and its subsidiary undertakings.
Subsidiaries are entities over which the Group has control. Control is achieved when the Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the investee. All intra-group assets and liabilities,
equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Associates and joint ventures are all entities over which the Group has significant influence but not control. Significant influence is the power to
participate in the financial and operating policy decisions of the investee, but is not control of those policies. Investments in associates and joint
ventures are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and
the carrying amount is increased or decreased to recognise the Group’s share of the change in net assets of the associate or joint venture after the
acquisition date.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling shareholders
are initially measured at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. Subsequent to
acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’
share of subsequent changes in equity.
Fair Value Measurement
The Group measures financial instruments such as derivatives and non-listed equity investments at fair value at each Balance Sheet date.
The fair value is the price that would have been received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorised within the fair value hierarchy described in Note 27.
Foreign Currencies
The consolidated financial statements are presented in Pounds Sterling, which is the Company’s functional and presentation currency.
The Group includes foreign entities whose functional currencies are not Sterling. On consolidation, the assets and liabilities of those entities are
translated at the exchange rates at the Balance Sheet date and income and expenses are translated at weighted average rates during the period.
Translation differences are recognised in other comprehensive income.
Transactions in currencies other than an entity’s functional currency are recorded at the exchange rate on the transaction date, whilst assets and
liabilities are translated at exchange rates at the Balance Sheet date. Exchange differences are recognised in the Income Statement.
181
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
GROUP ACCOUNTING POLICIES
Revenue
Revenue represents the fair value of amounts receivable for goods and services and is stated net of discounts, value added taxes and returns.
Revenue is recognised when control of the goods or services are transferred to the customer i.e. the customer accepts delivery of those goods.
It is the Group’s policy to sell its products to the retail customer with a right to return within 28 days. During the temporary closure of stores caused
by the COVID pandemic, this policy was adjusted to provide customers with the right to return within 28 days of the store reopening. The Group
uses the expected value method to estimate the value of goods that will be returned because this method best predicts the amounts of variable
consideration to which the Group will be entitled. A separate right of return asset is recognised on the face of the Balance Sheet which represents
the right to recover product from the customer. The refund liability due to customers on return of their goods is recognised either as a component of
trade payables and other liabilities (for cash payments) or as a deduction from customer receivables (for purchases using the nextpay credit facility).
Revenue from our Total Platform services is measured at the fair value of the consideration received or receivable and represents amounts
receivable for the provision of services (for example the delivery of stock from the warehouse to retail stores) in the normal course of business, net
of discounts, value added tax and other sales-related taxes.
The Group does not operate any loyalty programmes. Deferred income in relation to gift card redemptions is estimated on the basis of historical
redemption rates. Revenue from gift cards is recognized when the customer redeems the gift card.
Online credit account interest is accrued on a time basis by reference to the principal outstanding, the provision held (where credit impaired) and
the effective interest rate.
Royalty income is received from franchisees and is recognised on an accruals basis in accordance with the substance of the relevant agreements.
Where third-party goods are sold on a commission basis, only the commission receivable is included in statutory revenue. To aid comparability,
“total sales’’ are disclosed in the Strategic Report and in Note 1 of the financial statements. Total sales includes the full customer sales value of
commission based sales and interest income, excluding VAT.
Dividends
Final dividends are recorded in the financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends
(which include special dividends) are recorded in the period in which they are declared by the directors and paid.
Dividend income is recognised when the right to receive payment is established.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment.
Depreciation is charged so as to write down the cost of assets to their estimated residual values over their remaining useful lives on a straight-line
basis. Estimated useful lives and residual values are reviewed at least annually.
Estimated useful lives are summarised as follows:
Freehold and long leasehold property 50 years
Plant and equipment 6 – 25 years
Leasehold improvements the period of the lease, or useful life if shorter
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the fair value of the identifiable
net assets acquired. Goodwill is initially measured at cost, being the excess of the acquisition cost over the Group’s interest in the assets and
liabilities recognised. Goodwill is not amortised, but is tested for impairment annually or whenever there is an indication of impairment. For the
purposes of impairment testing, goodwill acquired is allocated to the Cash Generating Unit (CGU) that is expected to benefit from the synergies of
the combination. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use
and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration paid in a business combination is measured at fair
value with acquisition-related costs recognised in profit or loss as incurred. When the consideration paid includes a contingent consideration
arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred
in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill.
At the acquisition date, the identifiable assets liabilities acquired are recognised at their fair value, with the exception of any associated deferred
tax assets or liabilities and assets or liabilities related to employee benefit arrangements which are recognised in accordance with IAS 12 Income
Taxes and IAS 19 Employee Benefits respectively.
182
Business combinations (continued)
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and
the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable
assets acquired and the liabilities assumed.
Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which
cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. If the initial accounting for
a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts
for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or
additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition
date that, if known, would have affected the amounts recognised as of that date.
Software
Capitalised software costs include both external direct costs of goods and services, and internal payroll-related costs for employees who are directly
associated with the software project.
Development costs are recognised as intangible assets when the following criteria are met:
• It is technically feasible to complete the software so that it is available for use.
• Management controls and intends to complete the software for use in the business.
• There is an ability to use or sell the software.
• It can be demonstrated how the software will generate probable economic benefits in the future.
• Adequate technical, financial and other resources are available to complete the project.
Capitalised software development costs are amortised on a straight-line basis over their expected economic lives, normally between 3 and 5
years. Computer software under development is held at cost less any recognised impairment loss and presented as “asset under construction”.
Any impairment in value is recognised within the income statement.
Other Intangible Assets
Other intangible assets relate to brand names, website domains and trademarks obtained on acquisition which were initially recognised at fair
value. They are amortised on a straight-line basis over their expected useful lives of 5 – 15 years.
Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate their carrying value may not
be recoverable.
Investments in subsidiaries (Parent Company only)
Investments in subsidiary companies (Parent Company only) are stated at cost, less any impairment.
Investments in associates and joint ventures
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture.
Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over
those policies. Whereas joint ventures are entities over which the Group has joint control over such policies.
The Group’s share of the results of associates and joint ventures is included in the Group income statement and Group statement of comprehensive
income using the equity method of accounting. Investments in associates and joint ventures are carried in the Group balance sheet at cost plus
post-acquisition changes in the Group’s share of the net assets of the entity, less any dividends received and impairment in value. If the Group’s
share of losses in an associate or joint venture equals or exceeds its investment in the associate or joint venture, the Group does not recognise
further losses, unless it has incurred obligations to do so or made payments on behalf of the associate or joint venture.
Dividends received from associates and joint ventures with nil carrying value are recognised in the Group income statement as part of the Group’s
share of post-tax profits/(losses) of associates and joint ventures. Unrealised gains arising from transactions with joint ventures and associates are
eliminated to the extent of the Group’s interest in the entity.
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Financial Statements
Group Company
GROUP ACCOUNTING POLICIES
Impairment – non-financial assets
The carrying values of non-financial assets (excluding goodwill) are reviewed quarterly to determine whether there is any indication of impairment.
If any impairment loss arises, the asset value is adjusted to its estimated recoverable amount and the difference is recognised in the Income
Statement. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. An asset’s recoverable amount is the higher of an asset or Cash Generating Units
(CGU’s) fair value less costs of disposal and its value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current
market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.
Inventories
Inventories (stocks) are valued at the lower of standard cost or net realisable value. Standard cost comprises direct materials and, where applicable,
direct labour costs and those overheads that have been incurred in bringing the inventories to the present location and condition. Net realisable
value is based on estimated selling prices less further costs to be incurred to disposal. Where hedge accounting applies, an adjustment is applied
such that the cost of stock reflects the hedged exchange rate.
Financial instruments – initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, and subsequently measured at amortised cost, Fair Value through Other Comprehensive
Income (FVOCI) or Fair Value through Profit or Loss (FVPL).The classification is based on two criteria:
• the Group’s business model for managing the assets; and
• whether the instruments’ contractual cash flows represent “Solely Payments of Principal and Interest” on the principal amount outstanding
(the “SPPI criterion”).
A summary of the Group’s financial assets is as follows:
Financial assets Classification under IFRS 9
Derivatives not designated as hedging instruments Fair value through profit or loss
Derivatives designated as hedging instruments Fair value – hedging instrument
Preference shares Amortised cost – hold to collect business model and SPPI met
Customer and other receivables Amortised cost – hold to collect business model and SPPI met
Cash and short term deposits (excluding money market funds) Amortised cost
Non-listed equity instruments Fair value through profit or loss
Under IFRS 9 the Group initially measures a financial asset at its fair value plus directly attributable transaction costs, unless the asset is classified
as FVPL. Transaction costs of financial assets carried at FVPL are expensed in the Income Statement. Further details on the accounting for customer
and other receivables is included in Note 13.
For details on hedge accounting refer to Note 28.
Subsequent measurement
A summary of the subsequent measurement of financial assets is set out below.
Financial assets at FVPL Subsequently measured at fair value. Net gains and losses, including any interest or
dividend income, are recognised in profit or loss.
Financial assets at amortised cost Subsequently measured at amortised cost using the effective interest rate (EIR) method.
The amortised cost is reduced by impairment losses. Interest income, impairment or gain
or loss on derecognition are recognised in profit or loss.
Equity instruments at FVPL These assets are subsequently measured at fair value. Dividends are recognised as
income in profit or loss unless the dividend clearly represents recovery of part of the cost
of investment, in which case they are recognised in profit or loss. Other net gains and
losses are recognised in profit and loss.
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Financial instruments – initial recognition and subsequent
measurement (continued)
Derecognition
A financial asset is derecognised primarily when:
• the rights to receive cash flows from the asset have expired;
• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full
without material delay to a third-party under a “pass-through” arrangement; and either a) the Group has transferred substantially all the
risks and rewards of the asset, or b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset; or
• the Group has taken actions not to pursue collection, for example in instances of bankruptcy or individual voluntary arrangement.
Impairment – financial assets
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at FVPL. The most significant financial assets
of the Group are its trade receivables, which are referred to as “customer and other receivables”. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation
of the original effective interest rate (EIR). For further details on the accounting for ECLs on customer and other receivables refer to Note 13.
Financial liabilities
Initial recognition and measurement
The Group has classified its financial liabilities as follows:
Financial liabilities Classification under IFRS 9
Derivatives not designated as hedging instruments Fair value through profit or loss
Derivatives designated as hedging instruments Fair value – hedging instrument
Interest-bearing loans and borrowings:
 Corporate bonds Amortised cost – designated in hedge relationships
 Bank loans and overdrafts Amortised cost
Trade and other payables Amortised cost
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable
transaction costs.
Subsequent measurement
A summary of the subsequent measurement of financial liabilities is set out below.
Financial liabilities at FVPL Subsequently measured at fair value. Gains and losses are recognised in the Income Statement.
Loans and borrowings Subsequently measured at amortised cost using the EIR method. The EIR amortisation is included in finance costs
in the Income Statement.
Corporate bonds Subsequently measured at amortised cost and adjusted where hedge accounting applies (see interest rate
derivatives on page 187). Accrued interest is included within other creditors and accruals.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability
is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such
an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the
respective carrying amounts is recognised in the Income Statement.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable
legal right to offset the recognised amounts and there is an intention and ability to settle on a net basis, to realise the assets and settle the
liabilities simultaneously.
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Customer and Other Receivables
Customer receivables are outstanding customer balances less an allowance for impairment. Customer receivables are recognised when the Group
becomes party to the contract which happens when the goods are dispatched. They are derecognised when the rights to receive the cash flows
have expired, e.g. due to the settlement of the outstanding amount or where the Group has transferred substantially all the risks and rewards
associated with that contract. Other trade receivables are stated at invoice value less an allowance for impairment. Customer and other receivables
are subsequently measured at amortised cost as the business model is to collect contractual cash flows and the debt meets the SPPI criterion.
Impairment
In accordance with the accounting policy for impairment – financial assets, the Group recognises an allowance for ECLs for customer and other
receivables. IFRS 9 requires an impairment provision to be recognised on origination of a customer advance, based on its ECL.
The Group has taken the simplification available under IFRS 9 paragraph 5.5.15 which allows the loss amount in relation to a trade receivable to
be measured at initial recognition and throughout its life at an amount equal to lifetime ECL. This simplification is permitted where there is either
no significant financing component (such as customer receivables where the customer is expected to repay the balance in full prior to interest
accruing) or where there is a significant financing component (such as where the customer expects to repay only the minimum amount each
month), but the directors make an accounting policy choice to adopt the simplification. Adoption of this approach means that Significant Increase
in Credit Risk (SICR) and Date of Initial Recognition (DOIR) concepts are not applicable to the Group’s ECL calculations.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
ECL is the product of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), discounted at the original EIR.
The assessment of credit risk and the estimation of ECL are required to be unbiased, probability-weighted and should incorporate all available
information relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts of
economic conditions at the reporting date. The forward looking aspect of IFRS 9 requires considerable judgement as to how changes in economic
factors might affect ECLs. The ECL model applies four macroeconomic scenarios including a base case which is viewed by management to be the
most likely outturn, together with an upside, downside and extreme scenario. A 40% weighting is applied to the base case and 30% to the upside
scenario, 25% to the downside scenario and 5% to the extreme scenario.
IFRS 9 “Financial instruments” paragraph 5.5.20 ordinarily requires an entity to not only consider a loan, but also the undrawn commitment and
the ECL in respect of the undrawn commitment, where its ability to cancel or demand repayment of the facility does not limit its exposure to the
credit risk of the undrawn element. However, the guidance in IFRS 9 on commitments relates only to commitments to provide a loan (that is, a
commitment to provide financial assets, such as cash) and excludes from its scope rights and obligations from the delivery of goods as a result of
a contract with a customer within the scope of IFRS 15 “Revenue from contracts with customers” (that is, a sales commitment). Thus, the sales
commitment (unlike a loan commitment) is not a financial instrument, and therefore the impairment requirements in IFRS 9 do not apply until
delivery has occurred and a receivable has been recognised.
Impairment charges in respect of customer receivables are recognised in the Income Statement within “Impairment losses on customer and
other receivables”.
Delinquency is taken as being in arrears and credit impaired is taken as being the loan has defaulted, which is considered to be the point at which
the debt is passed to an internal or external Debt Collection Agency (DCA) and a default registered to a Credit Reference Agency (CRA), or any debt
90 days past due. Delinquency and default are relevant for the estimation of ECL, which segments the book by customer indebtedness, banded into
4 risk bands by arrears stage (See Note 28).
Financial assets are written off when there is no reasonable expectation of recovery, such as when a customer fails to engage in a repayment plan
with the Group. If recoveries are subsequently made after receivables have been written off, they are recognised in profit or loss.
The key inputs into the ECL calculation are:
PD: “Probability of Default” is an estimate of the likelihood of default over the expected lifetime of the debt. NEXT has assessed the expected
lifetime of customer receivables and other trade receivables, based on historical payment practices. The debt is segmented by arrears
stage, Experian’s Consumer Indebtedness Index (a measure of customers’ affordability) and expected time of default.
EAD: “Exposure at Default” is an estimate of the exposure at that future default date, taking into account expected changes in the exposure after
the reporting date, i.e. repayments of principal and interest, whether scheduled by the contract or otherwise and accrued interest from
missed payments. This is stratified by arrears stage, Experian’s Consumer Indebtedness Index and expected time of default.
LGD: “Loss Given Default” is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference
between the contractual cash flows due and those that NEXT would expect to receive, discounted at the original EIR. It is usually expressed
as a percentage of the EAD. NEXT includes all cash collected over five years from the point of default.
The Group uses probability weighted economic scenarios that are integrated into the model, in order to evaluate a range of possible outcomes
as is required by IFRS 9. An analysis of historical performance suggests that the expected performance of the book is most closely aligned to the
forecast change in unemployment rate. However, management considers that the inputs and models used for the ECLs may not always capture
all characteristics of the market at the Balance Sheet date. To reflect this qualitative adjustments or overlays are made, based on external data,
historical performance and future expected performance.
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Other Financial Assets and Liabilities:
Derivative Financial Instruments and Hedge Accounting
Derivative financial instruments (“derivatives”) are used to manage risks arising from changes in foreign currency exchange rates relating to the
purchase of overseas sourced products, overseas sales and changes in interest rates relating to the Group’s debt. In accordance with its treasury
policy, the Group does not enter into derivatives for speculative purposes. Foreign currency and interest rate derivatives are stated at their fair
value, being the estimated amount that the Group would receive or pay to terminate them at the Balance Sheet date based on prevailing foreign
currency and interest rates.
The Group designates certain derivatives as either:
a. Hedges of fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
b. Hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).
Hedge documentation
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge
accounting and the risk management objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will
assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness
and how the hedge ratio is determined).
A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
• There is an “economic relationship” between the hedged item and the hedging instrument.
• The effect of the credit risk does not “dominate the value changes” that result from the economic relationship.
• The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged items that the Group actually hedges
and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of the hedged item.
Interest rate derivatives – fair value hedges
The Group uses interest rate derivatives to hedge part of the interest rate risk associated with the Group’s corporate bonds. The carrying values of
the relevant bonds are adjusted only for changes in fair value attributable to the interest rate risk being hedged. The adjustment is recognised in
the Income Statement and is offset by movements in the fair value of the derivatives.
For fair value hedges relating to items carried at amortised cost, any adjustment to the carrying value is amortised through profit or loss over the
remaining term of the hedge using the EIR method. The EIR amortisation may begin as soon as an adjustment exists and no later than when the
hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognised, the unamortised fair value is recognised immediately in profit or loss.
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GROUP ACCOUNTING POLICIES
Foreign currency derivatives – cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognised in OCI in the cash flow hedge reserve, while any ineffective portion
is recognised immediately in the Income Statement. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the
hedging instrument and the cumulative change in fair value of the hedged item.
The Group uses forward currency and option contracts as hedges of its exposure to foreign currency risk in forecast transactions and firm
commitments. Where forward contracts are used to hedge forecast transactions, the Group designates the change in fair value relating to both
the spot and forward components as the hedging instrument. The ineffective portion relating to foreign currency contracts is recognised as other
gains/losses in the Income Statement.
The fair value of option contracts are divided into two portions:
• the intrinsic value – which is determined by the difference between the strike price and the current market price of the underlying; and
• the time value – which is the remaining value of the option which reflects the volatility of the price of the underlying and the time remaining
to maturity.
In accordance with IFRS 9 “Financial instruments”, the Group designates the intrinsic value of foreign currency options as hedging instruments for
hedging relationships entered into. The intrinsic value is determined with reference to the relevant spot market exchange rate. Changes in the time
value of the options that relate to the hedged item are deferred in the cost of hedging reserve and recognised against the related hedge transaction
when it occurs.
The amounts accumulated in the cash flow hedge reserve are accounted for depending on the nature of the underlying hedged transaction.
If the hedged transaction subsequently results in the recognition of a non-financial item, the amount accumulated in equity is removed from the
separate component of equity and included in the initial cost for the carrying amount of the hedged asset or liability. The deferred amounts are
ultimately recognised in profit or loss as the hedged item affects profit or loss (e.g. when inventory impacts cost of sales). This is not a reclassification
adjustment and will not be recognised in OCI for the period.
For any other cash flow hedges, the amount accumulated in OCI is reclassified to profit or loss as a reclassification adjustment in the same period
or periods during which the hedged cash flows affect profit or loss.
Cash and Cash Equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial
institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value, credit card receipts and bank overdrafts. Amounts held in money
market funds are held at fair value through the profit and loss and are valued using Level 1 inputs. Bank overdrafts are shown within borrowings in
current liabilities in the Balance Sheet. Refer to Note 30 of the financial statements.
Pension Arrangements
The Group provides pension benefits which include both defined benefit and defined contribution arrangements. Pension assets are held in
separate trustee administered funds and the Group also provides other, unfunded, pension benefits to certain members.
The cost of providing benefits under the defined benefit and unfunded arrangements are determined separately for each plan using the projected
unit credit method, with actuarial valuations being carried out at each Balance Sheet date by external actuaries. The present value of the defined
benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are
denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension
obligation. A net pension asset is only recognised to the extent that it is expected to be recoverable in the future through a cash refund or a
reduction in future payments.
The current service cost of the defined benefit plan is recognised in the Income Statement as an employee benefit expense. The net interest cost is
calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of the plan assets.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive
income in the period in which they arise.
The cost of defined contribution schemes is recognised in the Income Statement as incurred. The Group has no further payment obligations once
the contributions have been paid.
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Share-based Payments
The fair value of employee share options is calculated when they are granted using a Black-Scholes model and the fair value of equity-settled LTIP
awards is calculated at grant using a Monte Carlo model. The resulting cost is charged in the Income Statement, as an employee benefit expense,
over the vesting period of the option or award together with a corresponding increase in equity. The cumulative expense recognised is the Group’s
best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the Income Statement for a period represents
the movement in cumulative expense recognised as at the beginning and end of that period.
Service and non-service performance conditions are not taken into account when determining the grant date fair value of awards, but the
likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest.
Market performance conditions are reflected within the grant date fair value.
No expense is recognised for awards that do not ultimately vest because of non-market performance and/or service conditions that have not been
met. When awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-
vesting condition is satisfied, provided that all other performance and/or service conditions are met.
The social security contributions payable in connection with the grant of the share options or LTIP award is considered an integral part of the grant
itself, and the charge is treated as a cash-settled transaction. For cash-settled awards, the fair value of the liability is determined at each Balance
Sheet date and the cost is recognised in the Income Statement over the vesting period.
Taxation
Taxation, comprised of current and deferred tax, is charged or credited to the Income Statement unless it relates to items recognised in other
comprehensive income or directly in equity. In such cases, the related tax is also recognised in other comprehensive income or directly in equity.
Current tax liabilities are measured at the amount expected to be paid, based on tax rates and laws that are enacted or substantively enacted at
the Balance Sheet date.
Deferred tax is accounted for using the Balance Sheet liability method on temporary differences between the tax bases of assets and liabilities and
their carrying amounts. It is calculated using rates of taxation enacted or substantively enacted at the Balance Sheet date which are expected to
apply when the asset or liability is settled.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are only recognised to the extent that it
is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is not recognised in
respect of investments in subsidiaries and associates where the reversal of any taxable temporary differences can be controlled and are unlikely
to reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset and there is an
intention to settle the balances on a net basis.
Tax provisions are recognised when there is a potential exposure to an uncertain tax position. Management uses professional advisers and in-house
tax experts to determine the amounts to be provided.
Share Buybacks
The Group has regularly returned surplus cash to shareholders through share buybacks. Shares purchased for cancellation are deducted from
retained earnings at the total consideration paid or payable. The Company also uses contingent share purchase contracts and irrevocable closed
period buyback programmes; the obligation to purchase shares is recognised in full at the inception of the contract, even when that obligation is
conditional on the share price. Any subsequent reduction in the obligation caused by the expiry or termination of a contract is credited back to
equity at that time. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
Shares Held by ESOT
The NEXT Employee Share Ownership Trust (ESOT) provides for the issue of shares to Group employees, principally under share option schemes.
Shares in the Company held by the ESOT are included in the Balance Sheet at cost, including any directly attributable incremental costs, as a
deduction from equity.
Provisions
A provision is recognised where the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of the expenditures expected
to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific
to the obligation. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
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Financial Statements
Group Company
GROUP ACCOUNTING POLICIES
Lease Accounting
Group as lessee
At inception of a contract the Group assesses whether the contract is or contains a lease. A lease is present where the contract conveys, over a
period of time, the right to control the use of an identified asset in exchange for consideration. Where a lease term ends and the Group remains
within the site on holdover terms, the rental costs associated with this arrangement are recognised in the Income Statement as incurred.
Where a lease is identified the Group recognises a right-of-use asset and a corresponding lease liability, except for short-term leases (defined as
leases with a lease term of 12 months or less) and leases of low value assets.
Lease liability – initial recognition
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date. The lease payments
are discounted at the Group’s incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in-substance fixed payments), less any lease incentives;
• variable lease payments such as those that depend on an index or rate (such as RPI), initially measured using the index or rate at the
commencement date;
• the amount expected to be payable by the lessee under residual value guarantees;
• the exercise price of purchase options where the Group is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the Consolidated Balance Sheet, split between current and non-current liabilities.
Lease liability – subsequent measurement
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the lease payments made.
Lease liability – remeasurement
The lease liability is remeasured where:
• there is a change in the assessment of exercise of an option, in which case the lease liability is remeasured by discounting the revised lease
payments using a revised discount rate;
• the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which
cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments
change is due to a change in a floating interest rate, in which case a revised discount rate is used); or
• the lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured
by discounting the revised lease payments using a revised discount rate.
When the lease liability is remeasured, an equivalent adjustment is made to the right-of-use asset unless its carrying amount is reduced to zero, in
which case any remaining amount is recognised in profit or loss.
Where the lease liability is denominated in a foreign currency it is retranslated at the Balance Sheet date with foreign exchange gains and losses
recognised in profit or loss.
Right-of-use asset – initial recognition
The right-of-use asset comprises the initial measurement of the corresponding lease liability, lease incentives received, lease payments made
at or before the commencement date and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and
impairment losses.
Where the Group has an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying
asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. The costs are
included in the related right-of-use asset, unless those costs are incurred to produce inventories.
The right-of-use asset is presented as a separate line in the Balance Sheet.
Right-of-use asset – subsequent measurement
Right-of-use assets are depreciated over the shorter of the lease term and useful life of the underlying asset.
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Lease Accounting (continued)
Impairment
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the
‘Impairment – non-financial assets’ policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset.
The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-
lease components as a single arrangement. The Group has not used this practical expedient.
Short term leases and low value assets
For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless
another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The Group as lessor
The Group enters into lease agreements as a lessor with respect to some of its properties.
Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.
When the Group is an intermediate lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classified as a
finance or operating lease by reference to the right-of-use asset arising from the head lease.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in
negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the
lease term.
Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases.
Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding
in respect of the leases.
Sale and leaseback
A sale and leaseback transaction is where the Group sells an asset and 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.
Government 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.
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Financial Statements
Group Company
GROUP ACCOUNTING POLICIES
Climate change
In preparing the financial statements we have considered the potential impact of climate change. Given the identified risks are expected to be
present in the medium to long term our focus has been on the non-current assets within the Balance Sheet.
Specifically, for the material non-current assets, we note the following:
• The plant, property and equipment associated with our stores have relatively short useful lives (in line with the store lease terms which average
5 years) and hence would not be at risk in the medium to long term. Furthermore, based on our current lease profile, we expect any potential
future store refurbishments to be phased over several years and therefore any changes in the requirements associated with climate change
would not have a material impact in any given year.
• For the right-of-use assets associated with our warehouse and head office, and the machinery in our new E3 warehouse, the risk from climate
change is not considered material. The warehouse and head office sites are located in areas which we would not expect to be physically
impacted by climate change while the risk of impairment on such assets, for example due to the introduction of environmental taxes, is
considered remote given the strong operational margins generated by the Online business which they support.
• The intangible assets, which consist of goodwill, brands and internally generated software, are either fully recoverable or have a useful life less
than 10 years and hence do not fall within the medium to long term risk profile. Hence, we would not expect the identified risks to impact
these assets.
• The Associates, joint ventures and other investments comprise our equity investments. These businesses also operate in the retail and online
fashion sector and consequently have a similar asset and risk profile to NEXT. There is no indication of any specific climate related risks to their
assets or business that would represent a material risk to the carrying value of these investments.
• Defined benefit pension assets covering gilts, property based investments and equity investments are diverse and, in the context of the climate
change horizons, relatively liquid. The pension scheme is therefore able to amend its investment portfolio and strategy within a relatively short
time horizon to ensure its assets are not at material risk from climate change.
The other non-current assets were also reviewed and no risk identified. Current assets, by their nature, are expected to be fully utilised within the
business in the short term and no climate risk has been identified in this time horizon.
As a consequence there has been no material impact on the financial reporting judgements and estimates applied in the preparation of the 2023
Annual Report and Accounts. Please see page 91 of the Annual Report and Accounts for further detail on our climate change assessment.
Major Sources of Estimation Uncertainty and Judgement
The preparation of the financial statements requires estimates and assumptions to be made that affect the reported values of assets, liabilities,
revenues and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the year in which the estimate is revised and in any future years affected.
Control implications of investment in Reiss
On 28 February 2022, NEXT exercised its option to acquire a further 26% indirect interest in Reiss Limited (“Reiss”). Upon review of the Shareholders’
Agreement there are certain operational and financial matters which require joint agreement from all shareholders. Therefore, even though NEXT
now holds 51% of the equity shares, management has formed a judgement that it does not have control over Reiss and so it has been accounted
for as a joint venture.
In applying the Group’s accounting policies described above, the directors have identified that the following areas are the key estimates that have
a significant risk of resulting in a material adjustment to the carrying value of assets and liabilities in the next financial year.
Defined benefit pension assumptions
The assumptions applied in determining the defined benefit pension obligation (Note 20), are particularly sensitive. Advice is taken from a qualified
actuary to determine appropriate assumptions at each Balance Sheet date. The actuarial valuation involves making assumptions about discount
rates, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and the long term nature of
these plans, such estimates are subject to significant uncertainty. A sensitivity analysis is shown in Note 20. In determining the appropriate discount
rate, management considers the interest rates of high quality UK corporate bonds, with extrapolated maturities corresponding to the expected
duration of the obligation. The mortality rate is based on publicly available mortality tables.
Expected credit losses on Online customer and other receivables
The allowance for ECL (Note 13) is calculated on a customer-by-customer basis, using a combination of internally and externally sourced information,
including expected future default levels (derived from historical defaults, overlaid by arrears and indebtedness profiles, and third party macro-
economic forecasts) and future predicted cash collection levels (derived from past trends and future projections).
Prior to default, the greatest sensitivity relates to the ability of customers to afford their payments (impacting the Probability of Default (PD) and,
to a lesser extent, the Exposure at Default (EAD)). Once a customer receivable has defaulted, there is limited sensitivity in expected recoveries due
to the lack of significant variability in cash collection levels post default.
Of the total ECL (Note 28), £87.8m relates to defaulted debt (without significant uncertainty) and £114.7m is for non defaulted debt, where
significant estimation uncertainty exists. The remainder of the section relates to non defaulted debt.
192
Major Sources of Estimation Uncertainty and Judgement (continued)
Expected credit losses on Online customer and other receivables (continued)
Macroeconomic Uplift
The first main area of major estimation uncertainty in calculating the ECL is the impact of a change in unemployment. Management uses an
independent forecast of unemployment, provided by Experian, and weights the effect of the expected, low, high and extreme scenarios in the
proportions 40/30/25/5. The expected scenario assumes a central unemployment rate peaking at 5.7% in Q4 2024. This weighted view adds
£12.5m to the underlying model ECL.
If the extreme unemployment scenario was used instead (peaking at 9.6% in Q1 2025), this would add a further £18m of ECL. If the high
unemployment scenario was used (peaking at 7.3% in Q1 2025), this would add a further £7m of ECL. Lastly, if the low unemployment scenario
was used (peaking at 4.4% at Q4 2024), this would reduce the ECL by £7m.
The second main area of major estimation uncertainty in calculating the ECL is the impact that the current cost of living pressures may have on
customer payment behaviour. In order to reflect the underlying risk in the loan book, the following factors have been incorporated into the provision:
1) Downgrading the underlying base to the pre-COVID arrears and indebtedness profile
The underlying distribution of arrears and consumer indebtedness scores from before the COVID pandemic have been overlaid on the ECL
calculation in order to adjust recent performance trends. This is because the Consumer Indebtedness Index (CII) scores and the arrears profile of
customers are key inputs in the underlying ECL model and management considers that the underlying risk characteristics have not yet returned to
normalised levels. This adjustment, using pre-COVID arrears and indebtedness profiles, contributes £13.1m to the ECL.
2) Recognition of the ongoing risk of an increased ECL for customers who have shown recent indicators of distress and are therefore considered
to be at higher risk of default
With the UK experiencing record levels of inflation, disposable income is likely to be further constricted as the effects of mortgage rate rises start
to flow through into household budgets and energy bills remain elevated. Management believe this may adversely impact the recoverability of
customer receivables, specifically customers who have previously shown signs of distress. A further overlay to increase the provision coverage of
these customers to align with that of those customers in the highest risk banding (relating to their current arrears stage) has been applied, which
forms £24.4m of the total ECL. We are not explicitly predicting that these customers will move towards a higher level of indebtedness (per the CII)
but we are using this model mechanism to apply an appropriate and understood multiplier on the risk levels of these particular customers.
Sensitivity to the Probability of Default
Following application of the above two overlays, Management believes that there is adequate provision for ECL based on a stressed, but realistic
level of payments. The primary area of estimation uncertainty which could have a material impact to the provision is the probability of default.
Whilst considered unlikely, if the probability of default were to double, this would increase the provision by £28.2m .
In the five weeks following the year end date, £0.2bn of the £1.3bn NEXT customer and other trade receivables has been recovered.
Other areas of estimation uncertainty and judgement
In addition, in applying the Group’s accounting policies described above, the directors have identified the following areas as key estimates and
judgements that relate to balances which the directors consider to be of particular importance to understanding the nature of the Balance Sheet.
A significant change in these estimates could result in a significant (but not material) adjustment to the carrying value of assets and liabilities in the
next financial year.
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 year 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 £6m. A 2% change in the level of markdown applied to the selling price would impact the value of inventories going to clearance by circa £8m.
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Major Sources of Estimation Uncertainty and Judgement (continued)
Impairment of right-of-use assets and property, plant and equipment
Property, plant and equipment and right-of-use assets are reviewed for impairment if events or changes in circumstances indicate that the carrying
amount may not be recoverable or a previous impairment should be reversed. Key triggers considered by management include store (i.e. CGU)
sales varying significantly from previous forecasts, significant changes in the cost base (for example due to a rent review) and whether any new,
wider economic factors may impact the forecast performance. 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 Board approved budget for year 1, growth rate to be
applied to the cash flows and the risk adjusted pre-tax discount rate used to discount the assumed cash flows to present value.
The cash flow projections include assumptions on store performance throughout the remaining contractual lease term. In particular, the expected
decline in like-for-like Retail sales in the budget for 2023/24 and the subsequent assumptions on our like-for-like Retail sales represent sources 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.
Retail store performance in the year has significantly exceeded management’s previous expectations. This better than expected performance
has informed management’s view on the 2023/24 budget and following a review of CGU forecast performance, there has been a reversal of the
previous impairment of £37.6m. Management’s budget for 2023/24 assumes a year on year reduction in sales of -4.5% and then a longer term
decline of -6% in line with the observed 3 year decline in the pre COVID period. A reduction in the forecast sales in the year 1 budget of -2%, with no
subsequent changes to sales, would result in an increase in the impairment charge of circa £1m. A larger change of -4% would result in an increased
impairment charge of circa £2m.
In the prior year the impairment charge had been significant. Accordingly a change in the discount rate applied to the impairment model would
have resulted in a significant change in the impairment recognised. However, the remaining balance, following the reversal in the year, is now
relatively low in value and hence a change in the discount rate no longer has a significant impact.
Management has assessed its online business to be a CGU. There have been no indicators in the current year or prior year of any impairment.
Adoption of new accounting standards, interpretations and amendments
The Group has applied the following interpretations and amendments for the first time in these financial statements:
• Reference to Conceptual Framework – amendments to IFRS 3
• Property, Plant and Equipment – Proceeds before Intended Use – amendments to IAS 16
• Onerous Contracts – Cost of Fulfilling a Contract – amendments to IAS 37
• Annual Improvements to IFRS Standards 2018-2020
The application of these new interpretations and amendments did not have a material impact on the financial statements.
Certain new accounting standards and interpretations have been published that are not yet effective and have not been adopted by the
Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable
future transactions.
Alternative performance measures (APMs)
Management exercises judgement in determining the adjustments to apply to IFRS measurements in order to derive suitable APMs. As set out
on pages 72 to 73, APMs are used as management believe these measures provide additional useful information on the trends, performance and
position of the Group. These measures are used for performance analysis by the Board. The APMs are not defined by IFRS and therefore may not
be directly comparable with other companies’ APMs. These measures are not intended to be a substitute for, or superior to, IFRS measurements.
GROUP ACCOUNTING POLICIES
194
1. 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
operating profit, excluding equity-settled share option charges recognised under IFRS 2 “Share-based payment” 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 recharged to other segments and external parties.
The International Retail, Sourcing and other segment comprises franchise and wholly owned stores overseas and our sourcing business.
International online sales are included in the NEXT Online segment. Joules represents the results from the Joules business acquired in 2022.
Where third-party branded goods are sold on a commission basis, only the commission receivable is included in statutory revenue. “Total Group
Sales” represents the full customer sales value of commission based sales, interest income and service income, excluding VAT. Under IFRS 15
“Revenue from contracts with customers”, total sales have also been adjusted for customer delivery charges, promotional discounts, Interest Free
Credit commission costs and expired gift card balances (See “Other IFRS 15 adjustments” in the table overleaf). The CODM uses the Total Group
sales as a key metric in assessing segment performance; accordingly, this is presented below and then reconciled to the statutory revenue.
Segment analysis restatement
During the financial year to 28 January 2023, the segment revenue and profit used by the CODM changed as set out below:
1. Lipsy
The Group had previously split the profit generated from selling Lipsy goods through the NEXT website between NEXT Online and the Lipsy
division. Given all of Lipsy’s online sales are reported within NEXT Online, the Group will now present all of these associated profits within
NEXT Online and therefore for comparative purposes has restated segment sales and revenue and profit for the 52 weeks to 29 January 2022.
This does not impact Group profit and is a change in presentation within this note only. Under the previous approach, prior to the restatement,
the Lipsy profit was £27.1m (2022: £20.5m). As a result of this change:
1) Segment profit for NEXT Online increases by £27.5m (2022: £18.0m).
2) NEXT Finance profit increases by £11.7m (2022: £7.7m) as Lipsy previously received a benefit for its contribution towards the NEXT
Finance business.
3) International Retail, Sourcing and Other has an additional cost of £12.1m (2022: £5.2m).
Lipsy’s assets, capital expenditure and depreciation are included within NEXT Online.
2. Total Platform
In the prior financial year, the financial performance of Total Platform was reported across two segments:
(1) profit on sales was reported within NEXT Online; and
(2) equity returns were reported separately within “Share of results of associates and joint venture”.
The Total Platform business has grown significantly in the last 12 months and therefore sales and profits will be presented within its own
segment for better understanding of the performance of Total Platform. As a result, the prior year segment revenue and profits have been
restated so that all Total Platform related profit is presented in its own segment. This has no impact on Group profit.
As a result of this change:
1) Total Platform segment reports profit of £19.3m (2022: £6.9m);
2) NEXT Online’s segment profit decreases by £5.1m (2022: £2.1m); and
3) Profit shown in “Share of results of associates and joint ventures” decreases by £14.3m (2022: £4.8m).
Total Platform’s assets, capital expenditure and depreciation are reported within the NEXT Online segment as the assets are shared with the
Online business.
In addition to the above we have aggregated NEXT International Retail and NEXT Sourcing and some residual Lipsy wholesale sales and central
costs into a single line “International Retail, Sourcing and Other”. None of these changes impact the overall Group operating profit as they relate
to presentation and reclassifications only. Note that the profit impacts noted for Lipsy and Total Platform above are rounded to 0.1 decimal place.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
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Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Segmental Analysis (continued)
Segment sales and revenue
52 weeks to 28 January 2023
Total sales
excluding
VAT
£m
Commission
sales
adjustment
£m
Other
IFRS 15
adjustments
£m
External
revenue
£m
Internal
revenue
£m
Total
segment
revenue
£m
NEXT Online 3,006.6 (329.2) 66.2 2,743.6 0.6 2,744.2
NEXT Finance 274.4 – – 274.4 – 274.4
NEXT Retail 1,865.1 (17.1) 1.1 1,849.1 0.4 1,849.5
Total Trading Sales 5,146.1 (346.3) 67.3 4,867.1 1.0 4,868.1
Total Platform 144.4 (101.5) – 42.9 – 42.9
Joules 32.8 – – 32.8 – 32.8
Property Management 18.9 – – 18.9 156.1 175.0
International Retail, Sourcing and other 72.3 – – 72.3 530.2 602.5
Total segment sales/revenue 5,414.5 (447.8) 67.3 5,034.0 687.3 5,721.3
Eliminations – – – – (687.3) (687.3)
Total 5,414.5 (447.8) 67.3 5,034.0 – 5,034.0
Included within external revenue is £123.7m (2022: £110.4m) related to sales made through the redemption of gift cards.
52 weeks to 29 January 2022 *restated
Total sales
excluding
VAT
£m
Commission
sales
adjustment
£m
Other
IFRS 15
adjustments
£m
External
revenue
£m
Internal
revenue
£m
Total
segment
revenue
£m
NEXT Online 3,064.7 (273.7) 72.1 2,863.1 – 2,863.1
NEXT Finance 249.4 – – 249.4 – 249.4
NEXT Retail 1,432.4 (7.2) 0.7 1,425.9 0.2 1,426.1
Total Trading sales 4,746.5 (280.9) 72.8 4,538.4 0.2 4,538.6
Total Platform 39.1 (27.8) – 11.3 – 11.3
Joules – – – – – –
Property Management 12.7 – – 12.7 167.3 180.0
International Retail, Sourcing and other 63.5 – – 63.5 488.0 551.5
Total segment sales/revenue 4,861.8 (308.7) 72.8 4,625.9 655.5 5,281.4
Eliminations – – – – (655.5) (655.5)
Total 4,861.8 (308.7) 72.8 4,625.9 – 4,625.9
196
1. Segmental Analysis (continued)
Segment profit
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
*Restated
£m
52 weeks to
29 January
2022
previously
reported
£m
NEXT Online 467.3 604.4 588.5
NEXT Finance 170.5 149.5 141.8
NEXT Retail 240.5 107.0 107.0
Profit from Trading 878.3 860.9 837.3
Total Platform (including share of results from associates and joint ventures) 19.3 6.9 –
Joules (4.1) – –
Lipsy – – 20.5
Property Management 37.0 10.8 10.8
International Retail, Sourcing and other 28.1 28.5 33.7
Total segment profit 958.6 907.1 902.3
Central costs and other (10.9) (15.2) (15.2)
Recharge of interest 34.4 30.9 30.9
Share option charge (24.3) (19.9) (19.9)
Unrealised foreign exchange (losses)/gains (16.3) 2.5 2.5
Share of results of associates and joint ventures – – 4.8
Operating profit 941.5 905.4 905.4
Finance income 5.7 4.2 4.2
Finance costs (77.9) (86.5) (86.5)
Profit before tax 869.3 823.1 823.1
In the Chief Executive’s Review the segment loss from Joules, adjusted to remove the non controlling interest, is presented as part of Total Platform.
Transactions between operating segments are made on an arm’s length basis in a manner similar to those with third-parties. Segment revenue
and segment profit include transactions between business segments which are eliminated on consolidation. The substantial majority of NEXT
Sourcing’s revenues and profits are derived from sales to NEXT Retail and NEXT Online. Further detail on the segment performance is provided in
the Chief Executive’s Review.
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1. Segmental Analysis (continued)
Segment assets, capital expenditure and depreciation
Property, plant, equipment
and software
Right-of-use
assets
Capital expenditure
inc. software
Depreciation and
amortisation
2023
£m
2022
*restated
£m
2023
£m
2022
*restated
£m
2023
£m
2022
*restated
£m
2023
£m
2022
*restated
£m
NEXT Online 445.1 337.5 132.8 94.9 144.9 130.8 46.8 36.3
NEXT Finance – – – – – – –
NEXT Retail 205.7 213.2 521.0 534.6 63.6 50.3 168.0 181.1
Joules 8.3 – – – 0.5 – 1.1 –
Property Management 55.6 83.7 5.3 5.0 38.5 79.8 0.3 (0.3)
International Retail,
Sourcing and other 1.5 2.0 2.9 4.6 0.6 1.0 3.8 3.6
Total 716.2 636.4 662.0 639.1 248.1 261.9 220.0 220.7
These assets are allocated based on the operations of the segment and the physical location of the asset. Impairment charges and reversals in
relation to property, plant and equipment are included in the NEXT Retail segment.
Analyses of the Group’s external revenues (by customer location) and non-current assets (by geographical location) are detailed below. Non current
assets include plant, property and equipment and intangible assets. It does not include right-of-use assets (disclosed separately), investments, the
deferred tax asset or financial assets.
External revenue by geographical location
2023
£m
2022
£m
United Kingdom 4,290.7 3,837.5
Rest of Europe 415.3 447.0
Middle East 235.6 247.0
Asia 48.5 53.0
Rest of World 43.9 41.4
Total 5,034.0 4,625.9
Non-current assets by geographical location
2023
£m
2022
£m
United Kingdom 746.6 644.5
Rest of Europe 3.5 3.5
Middle East 4.3 4.4
Asia 27.5 28.0
Total 781.9 680.4
Right-of-use assets by geographical location
2023
£m
2022
£m
United Kingdom 637.0 615.3
Rest of Europe 22.1 19.2
Asia 2.9 4.6
Total 662.0 639.1
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
198
2. Total Revenue
The Group’s disaggregated revenue recognised under contracts with customers relates to the following categories and operating segments:
52 weeks to 28 January 2023
Sale of goods
£m
Credit account
interest
£m
Royalties
£m
Rental
income
£m
Service
income
£m
Total
£m
NEXT Online 2,743.6 – – – – 2,743.6
NEXT Finance – 274.4 – – – 274.4
NEXT Retail 1,849.1 – – – – 1,849.1
Total Platform 27.4 – – – 15.5 42.9
Joules 32.8 – – – – 32.8
Property Management – – – 18.9 – 18.9
International Retail, Sourcing and other 62.3 – 10.0 – – 72.3
Total 4,715.2 274.4 10.0 18.9 15.5 5,034.0
52 weeks to 29 January 2022*restated
Sale of goods
£m
Credit account
interest
£m
Royalties
£m
Rental
income
£m
Service
income
£m
Total
£m
NEXT Online 2,863.1 – – – – 2,863.1
NEXT Finance – 249.4 – – – 249.4
NEXT Retail 1,425.9 – – – – 1,425.9
Total Platform 11.3 – – – – 11.3
Joules – – – – – –
Property Management – – – 12.7 – 12.7
International Retail, Sourcing and other 57.1 – 6.4 – – 63.5
Total 4,357.4 249.4 6.4 12.7 – 4,625.9
Service income recognised in the current period relates to services provided to our Total Platform partners.
* As a result of the changes in how we report segmental profit per Note 1, segmental revenue has also been amended in the prior year with Lipsy’s previously reported sale of goods
of £2.2m being included within International Retail, Sourcing and Other and Lipsy royalties of £1.6m included within International Retail, Sourcing and other. Total Platform has been
separated out into its own segment from NEXT Online.
3. Operating Profit
Group operating profit is stated after charging/(crediting):
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Depreciation on property, plant and equipment 100.5 103.7
Depreciation on right-of-use assets 107.6 113.8
Loss on disposal of property, plant and equipment 0.5 3.1
Gain on sale and leasebacks (17.7) (13.4)
Reversal of impairment on property, plant and equipment (2.7) (3.1)
Reversal of impairment on right-of-use assets (34.9) (1.2)
Amortisation and impairment of intangible assets 12.5 4.3
Gain on lease modifications, early exit and reassessed lease term (1.4) (3.8)
Variable rentals payable 26.9 4.1
Job Retention Scheme receipts – (16.2)
Cost of inventories recognised as an expense 1,785.4 1,674.6
Write-down of inventories to net realisable value 152.4 102.4
Total 1,937.8 1,777.0
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Group Company
3. Operating Profit (continued)
The Group has reviewed its store impairment models and its forecasts following identification of impairment triggers (being significant change in
sales or significant change in cost base following rent reviews). As a result, where stores have performed significantly better than expected a net
reversal of amounts previously impaired has been recognised of £34.9m (2022: £1.2m) on right-of-use assets and £2.7m (2022: £3.1m) on plant,
property and equipment. This assessment involved a significant degree of estimation in order to determine the impairment required/reversed;
refer to the Major Sources of Estimation Uncertainty and Judgement section with our Group Accounting Policies for further detail.
In the prior year the Group received funds of £16.2m associated with the Job Retention Scheme. These were recognised in cost of sales at £16.1m
and distributions costs at £0.1m based on where the associated staff payroll costs are recognised. All receipts from the Job Retention Scheme were
paid in full to staff on furlough. This has been recognised as a grant in accordance with the group’s accounting policy.
Cost of inventories recognised as an expense consists of those costs which are directly attributable to goods sold in the year, including packaging
and inbound freight costs.
Other gains/losses reported in the Income Statement represent foreign exchange losses of £16.3m (2022: gain of £2.5m) in respect of derivative
contracts which do not qualify for hedge accounting under IFRS 9.
Other foreign exchange differences recognised in the Income Statement were gains of £9.6m (2022: gains of £3.9m).
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor and its associates,
including expenses:
52 weeks to
28 January
2023
£000
52 weeks to
29 January
2022
£000
Auditors’ remuneration
Audit of the financial statements 1,212 593
Audit of subsidiaries 110 431
Total audit fees 1,322 1,024
Other assurance services 106 72
Total 1,428 1,096
The year on year increase in audit fees reflects the increased complexity of the Group and the compliance costs associated with audits and the
increased complexity of the business. Other assurance services relate to assurance work on Corporate Responsibility reporting.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
200
4. Staff Costs and Key Management Personnel
Total staff costs were as follows:
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Wages and salaries 772.3 703.2
Social security costs 62.3 50.0
Other pension costs 43.7 42.0
878.3 795.2
Share-based payment expense – equity settled 24.3 19.9
Share-based payment expense – cash settled – (0.2)
Total 902.6 814.9
Share-based payments comprise Management, Sharesave and Share Matching Plan options and LTIP share awards, details of which are given in
Note 24.
Total staff costs by business sector were made up as follows:
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
restated*
£m
NEXT Online, Retail and Finance 857.3 766.2
NEXT International Retail and Sourcing 30.5 35.4
Joules 4.9 –
Other activities 9.9 13.3
Total 902.6 814.9
* As explained in Note 1 Segment Analysis, the Lipsy segment has been consolidated within NEXT Online. For the purpose of this note, Total Platform has been included within NEXT Online.
Therefore the prior year staff costs has been restated to reflect this change in segments. This change has no impact on the Group’s total staff costs.
Average employees Full-time equivalents
2023
Number
2022
*restated
Number
2023
Number
2022
*restated
Number
NEXT Online, Retail and Finance 42,168 38,780 27,889 22,581
NEXT International Retail and Sourcing 4,224 4,178 4,224 4,178
Joules 241 – 140 –
Other activities 77 82 71 77
Total 46,710 43,040 32,324 26,836
* The prior year average employees and full-time equivalents have been restated following a change in how Lipsy is reported within the operating segments of the Group. See Note 1 for
more details. In addition, staff associated with Total Platform also perform services for NEXT Online, Retail and Finance above.
The aggregate amounts charged in the financial statements for key management personnel (including employer’s National Insurance contributions),
being the directors of NEXT plc, were as follows:
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Short term employee benefits 5.1 6.0
Share-based payments 2.8 3.6
Total 7.9 9.6
Directors’ remuneration is detailed in the Remuneration Report.
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Group Company
5. Finance Income and Costs
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Interest on bank deposits 0.1 0.6
Other interest receivable 5.6 3.6
Finance income 5.7 4.2
Interest on bonds and other borrowings 30.6 36.1
Finance costs on lease liability 47.3 50.4
Finance costs 77.9 86.5
Other interest receivable includes interest income on preference shares of £4.8m (2022: £2.4m) and amounts accrued on loans to associates and
joint ventures. Online account interest is presented as a component of revenue.
6. Taxation
Tax charge for the period
Our tax charge for the period is shown below. Tax is made up of current and deferred tax. Current tax is the amount payable on the taxable income
in the period and any adjustments to tax payable in previous years. Deferred tax is explained on page 189.
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Current tax:
Current tax on profits for the year 137.9 123.2
Adjustments in respect of prior years 17.7 11.6
Total current tax 155.6 134.8
Deferred tax:
Origination and reversal of temporary differences 17.7 20.7
Adjustments in respect of prior years (14.7) (9.9)
Total deferred tax 3.0 10.8
Tax expense reported in the Consolidated Income Statement 158.6 145.6
The adjustments in respect of prior years relate to timing on the recognition of amounts claimed as capital allowances. The prior year adjustments
in 2022 related to amounts of capital gains on which rollover relief was claimed and the gains have been recognised.
Factors affecting the tax charge in the period
The tax rate for the current period varied from the standard rate of corporation tax in the UK due to the following factors:
52 weeks to
28 January
2023
%
52 weeks to
29 January
2022
%
UK corporation tax rate 19.0 19.0
Non–taxable income (0.5) –
Non deductible expenses 0.6 –
Capital losses utilised (0.2) –
Overseas tax (0.6) –
Adjustments in respect of prior years 0.4 –
Revaluation of deferred tax asset – (0.6)
Benefit as a result of capital allowance 130% deduction (0.4) (0.7)
Total 18.3 17.7
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
202
6. Taxation (continued)
Tax recognised in other comprehensive income and equity
In addition to the amount charged to the Income Statement, tax movements recognised in other comprehensive income and in equity were
as follows:
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Deferred tax:
Pension benefit obligation 0.1 13.8
Fair value movements on derivative instruments 19.7 7.2
Tax charge in other comprehensive income 19.8 21.0
52 weeks to
28 January
2023
£m
52 weeks to
29 January
2022
£m
Current tax:
Share-based payments (1.2) (7.3)
Deferred tax:
Fair value movements on derivative instruments (30.1) 4.0
Share-based payments 5.4 0.2
Total tax credit in the Statement of Changes in Equity (25.9) (3.1)
Deferred tax
Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences that arise when the carrying value
of assets and liabilities differ between accounting and tax treatments. Deferred tax assets represent the amounts of income taxes recoverable in
the future in respect of those differences, while deferred tax liabilities represent the amounts of income taxes payable in the future in respect of
those differences.
The deferred tax asset is made up of:
Accelerated
capital
allowances
£m
Derivatives to
fair value
£m
Pension
benefit
obligation
£m
Share-
based
payments
£m
IFRS 16
leases
£m
Other
temporary
differences
£m
Total
£m
At January 2021 23.5 5.2 (15.9) 20.9 34.7 2.0 70.4
Recognised in:
– Income Statement (15.0) (0.6) (6.5) 0.4 1.5 9.0 (11.2)
– Other Comprehensive
Income – (7.2) (13.8) – – – (21.0)
– Statement of Changes
in Equity – (4.0) – (0.2) – – (4.2)
At January 2022 8.5 (6.6) (36.2) 21.1 36.2 11.0 34.0
Recognised in:
– Income Statement (2.5) 4.1 (1.5) 0.8 (2.6) (1.3) (3.0)
– Other Comprehensive
Income – (19.7) (0.1) – – – (19.8)
– Statement of Changes
in Equity – 30.1 – (5.4) – – 24.7
Acquisition of subsidiary – – – – – (2.6) (2.6)
At January 2023 6.0 7.9 (37.8) 16.5 33.6 7.1 33.3
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Financial Statements
Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
6. Taxation (continued)
Deferred tax (continued)
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable
profits is probable. No recognition has been made of the following deferred tax assets:
Unrecognised Unrecognised
Gross value
2023
£m
Deferred tax
2023
£m
Gross value
2022
£m
Deferred tax
2022
£m
Capital losses 18.6 4.7 31.0 7.8
The benefit of unrecognised capital losses will only accrue if taxable profits are realised on future disposals of the Group’s capital assets.
Factors affecting tax charges in future years
Deferred taxes reflected in these financial statements have been measured using the enacted tax rates at the Balance Sheet date. Following on
from the Budget of 3 March 2021 the UK corporation tax rate will change effective April 2023 from 19% to 25%. As a result, deferred tax balances
have been measured at the rate at which they are expected to unwind in the future, either 24% or 25% depending on the timing.
Provisions, which are immaterial to the financial statements, have been recognised in relation to uncertain tax positions. These relate to the
interpretation of tax legislation, including changes arising from the OECD’s Base Erosion and Profit Shifting project, which impact our NEXT Sourcing
operation in its ordinary course of business.
NEXT manages its tax affairs responsibly and proactively to comply with tax legislation. We seek to build solid and constructive working relationships
with all tax authorities.
7. Dividends
Year to 28 January 2023 Paid
Pence per
share
Cash Flow
Statement
£m
Statement
of Changes
in Equity*
£m
Final ordinary dividend for the year to Jan 2022 1 Aug 2022 127p 156.5 156.5
Interim ordinary dividend for the year to Jan 2023 3 Jan 2023 66p 80.9 80.9
237.4 237.4
Year to 29 January 2022 Paid
Pence per
share
Cash Flow
Statement
£m
Statement
of Changes
in Equity
£m
Special interim dividend 3 Sep 2021 110p 140.3 140.3
Special interim dividend 28 Jan 2022 160p 204.2 204.2
344.5 344.5
* Dividends included within the Statement of Changes in Equity is £237.1m which includes £0.3m of dividends previously payable and have now lapsed.
The Trustee of the ESOT waived dividends paid in the year on shares held by the ESOT.
It is intended that an ordinary dividend of 140.0p per share will be paid to shareholders on 1 August 2023. NEXT plc shares will trade ex-dividend
from 6 July 2023 and the record date will be 7 July 2023. The estimated amount payable is £173m. The proposed dividend is subject to approval
by shareholders at the Annual General Meeting to be held on 18 May 2023 and has not been included as a liability in the financial statements.
204
8. Earnings Per Share
52 weeks to
28 January
2023
52 weeks to
29 January
2022
Basic Earnings Per Share 573.4p 530.8p
Diluted Earnings Per Share 570.5p 524.0p
Fully diluted Earnings Per Share 544.5p 505.8p
Basic Earnings Per Share 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. There were 3,112,796 non-dilutive share options in the current year (2022: 1,474,577).
Fully diluted Earnings Per Share is based on the weighted average number of shares used for the calculation of basic Earnings Per Share, increased
by the weighted average total employee share options outstanding during the period. Fully diluted Earnings Per Share is an Alternative Performance
Measure (APM) used for the purposes of the Share Matching Plan, described further in Note 24.
The table below shows the key variables used in the Earnings Per Share calculations:
52 weeks to
28 January
2023
52 weeks to
29 January
2022
Profit after tax attributable to equity holders of the Parent Company (£m) 711.7 677.5
Weighted average number of shares (millions)
Weighted average shares in issue 130.2 132.9
Weighted average shares held by ESOT (6.1) (5.3)
Weighted average shares for basic EPS 124.1 127.6
Weighted average dilutive potential shares 0.6 1.7
Weighted average shares for diluted EPS 124.7 129.3
Weighted average total options outstanding 6.6 6.3
Weighted average shares for fully diluted EPS 130.7 133.9
As detailed in the Remuneration Report, the 2022/23 annual bonus for executive directors was determined by reference to NEXT Group pre-
tax Earnings per Share, adjusted to remove the impact of share buy backs not included in the original target metrics, of 687.2p (2022: 637.4p).
The NEXT Profit before tax on a 52 week basis of £870.4m (2022: £813.5m), is divided by the net of the weighted average number of shares in issue
less the weighted average number of shares held by the ESOT during the period. A definition of NEXT Profit before tax and NEXT Group pre-tax
earnings per share is included in the Glossary.
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Financial Statements
Group Company
9. Property, Plant and Equipment
Freehold
property
£m
Leasehold
property
£m
Plant and
equipment
£m
Assets under
the course of
construction
£m
Total
£m
Cost
At January 2021 6.8 2.7 1,917.6 – 1,927.1
Exchange movement – – (3.5) – (3.5)
Additions 28.3 – 157.0 53.9 239.2
Disposals (8.3) (0.1) (102.1) – (110.5)
At January 2022 26.8 2.6 1,969.0 53.9 2,052.3
Exchange movement – – 0.6 – 0.6
Arising from acquisitions – – 1.1 – 1.1
Additions 13.2 – 168.6 25.3 207.1
Reclassification from assets under the course
of construction 64.7 – – (64.7) –
Disposals (64.9) (1.3) (53.6) – (119.8)
At January 2023 39.8 1.3 2,085.7 14.5 2,141.3
Depreciation
At January 2021 0.4 0.1 1,451.8 – 1,452.3
Exchange movement – – (3.4) – (3.4)
Provided during the year 0.1 – 103.6 – 103.7
Impairment charge – – (3.1) – (3.1)
Disposals (0.1) – (98.2) – (98.3)
At January 2022 0.4 0.1 1,450.7 – 1,451.2
Exchange movement – – 0.7 – 0.7
Provided during the year 0.1 – 100.4 – 100.5
Net impairment release – – (2.7) – (2.7)
Disposals – – (53.2) – (53.2)
At January 2023 0.5 0.1 1,495.9 – 1,496.5
Carrying amount
At January 2023 39.3 1.2 589.8 14.5 644.8
At January 2022 26.4 2.5 518.3 53.9 601.1
At January 2021 6.4 2.6 465.8 – 474.8
At January 2023 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £33.7m
(2022: £96.7m). Plant and equipment includes leasehold improvements.
Additions to assets under the course of construction relate to the build of the Dearne Valley warehouse extension. The assets under the course of
construction in the prior year related to the build of the E3 warehouse which was completed during the current financial year.
See Note 3 for further detail on impairment charges.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
206
10. Intangible Assets
Goodwill
£m
Brand names
and
trademarks
£m
Software
£m
Software
assets under
the course of
construction
£m
Total
£m
Cost
At January 2021 45.7 4.3 2.1 14.4 66.5
Additions – – 7.6 15.1 22.7
Reclassified from assets under the course of construction – – 2.9 (2.9) –
At January 2022 45.7 4.3 12.6 26.6 89.2
Additions – – 25.5 15.5 41.0
Arising from acquisitions 11.6 10.5 7.4 – 29.5
Reclassified from assets under the course of construction – – 18.3 (18.3) –
Disposals – – (0.5) – (0.5)
At January 2023 57.3 14.8 63.3 23.8 159.2
Amortisation and Impairment
At January 2021 1.6 4.1 0.3 – 6.0
Amortisation provided during the year – 0.1 3.1 – 3.2
Impairment 0.2 – 0.5 – 0.7
At January 2022 1.8 4.2 3.9 – 9.9
Amortisation provided during the year – 0.4 11.5 – 11.9
Impairment – – 0.6 – 0.6
Disposals – – (0.3) – (0.3)
At January 2023 1.8 4.6 15.7 – 22.1
Carrying amount
At January 2023 55.5 10.2 47.6 23.8 137.1
At January 2022 43.9 0.1 8.7 26.6 79.3
At January 2021 44.1 0.2 1.8 14.4 60.5
Assets under the course of construction relate to internally developed software that is not yet complete. Once complete it will be transferred to
“software” and amortised over its useful economic life (see Group Accounting Policies for more detail).
Intangible assets arising from acquisitions in the year relate to the acquisition of Joules brand name and trade marks for £10.5m, goodwill arising
from the acquisition of £11.6m and software intangibles of £7.4m.
The carrying amount of goodwill is allocated to the following cash generating units:
2023
£m
2022
£m
NEXT Sourcing 30.5 30.5
Lipsy 12.1 12.1
NEXT Beauty 1.3 1.3
Joules 11.6 –
Total 55.5 43.9
Goodwill is tested for impairment at the balance sheet date on the basis of value in use calculations. The assumptions and basis for the impairment
testing on the significant goodwill balances is set out below.
NEXT Sourcing
The key assumptions in testing the goodwill for impairment are the future sourcing requirements of the Group and the ability of NEXT Sourcing to
meet these requirements based on past experience. In assessing value in use, budgets for the next year were used and extrapolated for nine further
years using a growth rate of 0% (2022: 0% growth rate) and discounted at a pre-tax rate of 8% (2022: 8%).
Lipsy
The key assumptions in testing the goodwill for impairment are the forecast sales for the Lipsy products, particularly through the NEXT website.
In assessing the recoverable amount of goodwill, internal budgets for next year were used and extrapolated for nine further years using a growth
rate of 2% (2022: 2%) and discounted at a pre-tax rate of 8% (2022: 8%).
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Financial Statements
Group Company
11. Leases
The right-of-use assets are comprised of:
2023
£m
2022
£m
Buildings 228.0 193.0
Stores 420.5 433.5
Equipment 1.2 2.0
Vehicles 12.3 10.6
Total 662.0 639.1
The right-of-use assets movement in the year is as follows:
2023
£m
2022
£m
At the beginning of the year 639.1 720.1
Additions 58.2 27.8
Disposals (4.0) (6.0)
Modifications and amendments 41.4 9.2
Depreciation (107.6) (113.8)
Reversal of impairment 34.9 1.8
At the end of the year 662.0 639.1
Additions to right-of-use assets include new leases and new contracts for leases previously on hold over.
The income from subleasing right-of use assets under operating leases is £18.7m (2022: £12.6m).
The lease liability movement in the year is as follows:
2023
£m
2022
£m
At the beginning of the year (1,057.5) (1,185.9)
Additions (84.2) (41.2)
Modifications and amendments (41.5) (12.9)
Payments 204.4 222.7
Interest (47.3) (50.4)
Disposals 5.5 9.5
Foreign exchange movement (2.7) 0.7
At the end of the year (1,023.3) (1,057.5)
Amounts recognised in the Consolidated Income Statement include:
Depreciation on right-of-use assets
2023
£m
2022
£m
Buildings 19.7 17.6
Stores 83.3 91.3
Equipment 0.7 1.3
Vehicles 3.9 3.6
Total 107.6 113.8
2023
£m
2022
£m
Finance costs on leases (47.3) (50.4)
Expense on short term and low value leases (4.0) (3.5)
Expense on variable leases (26.9) (4.1)
Gain on sale and leasebacks 17.7 13.4
During the prior year, the Group entered into a sale and leaseback transaction in respect of our Elmsall 3 warehouse construction. As a result
of this transaction, the Group received total proceeds of £114.6m and recognised a gain of £17.8m (of which £7.0m was recognised in the prior
year) within administrative expenses. The gain has been recognised in relation to the performance obligations under the contract and reflects
the proportion of the asset not retained in the future lease and is a proportion of the total gain expected on the sale and leaseback transaction.
The Group also received cash proceeds of £10m in respect of two smaller sale and leaseback transactions which gave rise to a net gain of £6.9m.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
208
11. Leases (continued)
Of the total proceeds received in the year of £101.0m, £41.7m of the proceeds (being the portion of the assets sold and not subject to the
leaseback) have been classified within investing activities. The remaining sale and leaseback proceeds of £59.3m, relating to the asset being leased
back, are presented within financing activity.
See Note 3 for further detail on impairment charges.
12. Associates, Joint Ventures and Other Investments
Interest in
associates
and
joint ventures
£m
Other
investments
£m
Total
£m
Cost
At January 2021 4.3 1.0 5.3
Additions 34.3 – 34.3
Retained profit 4.8 – 4.8
Interest on preference shares 2.4 – 2.4
At January 2022 45.8 1.0 46.8
Additions 64.7 1.9 66.6
Retained profit 14.3 – 14.3
Interest on preference shares 4.8 – 4.8
Preference share dividend received (9.8) – (9.8)
Divestment of preference shares (5.5) – (5.5)
Disposal of investment – (1.0) (1.0)
At January 2023 114.3 1.9 116.2
Amortisation/Impairment
At January 2021 0.3 – 0.3
Provided during the year 0.3 – 0.3
At January 2022 0.6 – 0.6
Provided during the year 0.3 – 0.3
Impairment charge in the year 0.7 – 0.7
At January 2023 1.6 – 1.6
Carrying amount
At January 2023 112.7 1.9 114.6
At January 2022 45.2 1.0 46.2
At January 2021 4.0 1.0 5.0
On 28 February 2022, NEXT exercised its option to acquire a further 26% indirect interest in Reiss Limited (“Reiss”). Upon completion in May 2022,
NEXT acquired the 26% for £45.3m financed from NEXT’s own cash resources. Although NEXT now holds a 51% equity share, it does not have
control of Reiss’ operational and financial activities and therefore has been treated as a joint venture.
The finance income relates to interest on NEXT’s share of preference shares in the Reiss group’s ultimate holding company. This has been recognised
within the Finance income line of the Income Statement.
In addition, in March 2022, NEXT acquired a 25% equity stake in Swoon Limited for a cash consideration of £3.5m, and in April 2022, a 44% equity
stake in the holding company of JoJo Maman Bébé Limited for a total cash consideration of £15.9m. In both cases NEXT has significant influence,
but not control, over the investments’ operational and financial activities and therefore they have been treated as associates.
During the year, NEXT also acquired a 19.9% stake in the holding company of Sealskinz Limited for £1.9m comprising ordinary shares and preference
shares. For this acquisition, NEXT does not have significant influence and therefore the investment in ordinary shares has been accounted for as
financial assets at fair value through profit or loss and the preference shares are financial assets measured at amortised cost within this note.
Additions in the prior period to January 2022 relate to the considerations paid for the initial 25% indirect interest in Reiss Limited (“Reiss”), a 33%
direct interest in Aubin and Wills Holdings Limited and a 51% joint venture arrangement with Gap, Inc., West Apparel Limited. West Apparel Limited
is treated as a joint venture as NEXT has joint control of its operations and financial activities.
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Financial Statements
Group Company
12. Associates, Joint Ventures and Other Investments (continued)
Details of material associates and joint ventures
Set out below are the material associates and joint ventures of the Group as at 28 January 2023. The entities listed below have share capital
consisting of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also their principal place of
business with the exception of Reiss (see below), and the proportion of ownership interest is the same as the proportion of voting rights held.
% ownership Carrying amount
Name of entity
Investment
type
2023
%
2022
%
Nature of
relationship
Measurement
method
2023
£m
2022
£m
Pink Topco Limited* (Reiss) Ordinary shares 51% 25% Joint venture Equity 17.3 2.0
Pink Topco Limited* (Reiss) Preference shares 51% 25% Joint venture Amortised cost 61.2 35.1
Regent Bidco 1 Limited**
(JoJo Maman Bébé) Ordinary shares 44% – Associate Equity 16.2 –
Immaterial associates and
joint ventures 18.0 8.1
112.7 45.2
* Pink Topco Limited is the parent company for the Reiss Group which designs and retails high quality women’s and men’s fashion clothing and accessories. Its product range complements
the Group’s customer offering within stores and online. Its registered office is 22 Grenville Street, St Helier, Jersey JE4 8PX and its principal place of business is REISS Building, 12 Picton
Place, London W1U 1BW.
** Regent Bidco 1 Limited is the parent company of the JoJo Maman Bébé Group which designs and sells high-quality maternity, baby and children’s clothing, nursery products, gifts and toys.
The business trades via omni-channel retail direct to consumers in the UK and Ireland and via wholesale and ecommerce sales internationally. Its registered office is ℅ Alter Domus (Uk)
Limited, 10th Floor, 20 St Mary Axe, London EC3A 8BF and its principal place of business is Unit A Oxwich Road, Reevesland Industrial Estate, Newport, Gwent NP19 4PU.
The table below provides the summarised profit and loss and balance sheet for Reiss and JoJo Maman Bébé. The information disclosed reflects the
amounts presented in the consolidated financial statements of Reiss and JoJo Maman Bébé amended to reflect adjustments made by the Group
when using the equity method, including fair value adjustments and modifications for differences in accounting policy.
Reiss* JoJo Maman Bébé
2023
£m
2022
£m
2023
£m
2022
£m
Sales 325.2 236.1 58.6 –
Profit after tax 9.0 7.0 0.7 –
Group's share in % 51.0% 25.0% 44.0% –
Group share in £'m 6.8 1.8 0.3 –
Total non–current assets 176.4 194.1 32.0 –
Total current assets 85.2 99.8 22.5 –
Total current liabilities (75.7) (60.2) (11.8) –
Total non–current liabilities (211.8) (268.7) (18.0) –
Net assets/(liabilities) (25.9) (35.0) 24.7 –
Group share in % 51.0% 25.0% 44.0% –
Group share in £m (13.2) (8.8) 10.9 –
Goodwill 30.5 10.8 5.3 –
Carrying amount 17.3 2.0 16.2 –
* Due to the exercise of the option, the Group’s share of Reiss’ profit is calculated at 25% for the first 3 months of the year and then at 51% for the remainder of the year.
In addition to the above as at 28 January 2023, Reiss had cash and cash equivalents of £18.0m (2022: £49.0m) and current financial liabilities
(excluding trade and other payables and provisions) of £nil (2022: £nil) and non-current financial liabilities of £120.4m (preference shares).
Included within their income statement were depreciation and amortisation of £26.5m (2022: £22.0m), interest income of £nil (2022: £nil), interest
expense of £14.1m (2022: £12.3m).
There are no other profits or losses from discontinued operations or other comprehensive income from the Group’s investments in associates and
joint ventures other than the amounts already disclosed above.
Aggregate information of associates and joint ventures that are not individually material
The aggregate carrying amount of the individually immaterial associates and joint ventures is £18.0m (2022: £8.1m) with the Group’s share of their
profit from continuing operations in the current period being £7.2m (2022: £3.0m).
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
210
13. Customer and Other Receivables
The following table shows the components of net receivables.
2023
£m
2022
£m
Gross customer receivables 1,521.1 1,403.3
Less: refund liabilities (64.2) (49.4)
Net customer receivables 1,456.9 1,353.9
Less: allowance for expected credit losses (202.2) (191.2)
1,254.7 1,162.7
Other trade receivables 42.9 24.9
Less: allowance for doubtful debts (0.3) (0.5)
1,297.3 1,187.1
Presentation of the above, split by total receivables and allowances:
2023
£m
2022
£m
Net customer receivables 1,456.9 1,353.9
Other trade receivables 42.9 24.9
1,499.8 1,378.8
Less: allowance for expected credit losses and doubtful debts (202.5) (191.7)
1,297.3 1,187.1
Prepayments 54.9 53.1
Other debtors 40.7 14.1
Amounts due from associates and joint ventures 32.6 26.6
1,425.5 1,280.9
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% (2022: 23.9%) at the year-end date, except for £54.8m (2022: £40.6m) of next3step balance which bears interest
at 29.9% (2022: 29.9%) at the year end date.
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 for all trade receivables. To measure the expected credit losses, other trade receivables have been allocated to the Risk
band 1 (defined in Note 28), representing management’s view of the risk and the days past due. The expected credit losses incorporate forward
looking information.
The fair value of customer receivables and other trade receivables is approximately £1,260m (2022: £1,150m). 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).
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.
The ECL allowance against other debtors is immaterial in the current and prior year. The maximum exposure to credit risk at the reporting date is
the carrying value of each class of asset.
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Financial Statements
Group Company
13. Customer and Other Receivables (continued)
An analysis of changes in the gross carrying amount in relation to customer receivables and other trade receivables is as follows:
Gross carrying amount
Lifetime ECL
£m
Credit
impaired
£m
Total
£m
At January 2021 1,149.1 88.5 1,237.6
New assets originated/recoveries 197.2 (13.6) 183.6
Transfers from lifetime ECL to credit impaired (39.4) 39.4 –
Financial assets derecognised during the period – (29.7) (29.7)
Amounts written off (7.8) (4.9) (12.7)
At January 2022 1,299.1 79.7 1,378.8
New assets originated/recoveries 159.4 (11.7) 147.7
Transfers from lifetime ECL to credit impaired (45.3) 45.3 –
Financial assets derecognised during the period – (8.0) (8.0)
Amounts written off (9.8) (8.9) (18.7)
At January 2023 1,403.4 96.4 1,499.8
An analysis of the changes in the impairment allowance for customer receivables and other trade receivables is as follows:
Loss allowance
Lifetime ECL
£m
Credit
impaired
£m
Total
£m
At January 2021 (112.5) (83.6) (196.1)
New assets originated/recoveries (6.7) 12.3 5.6
Transfers from lifetime ECL to credit impaired 3.6 (35.6) (32.0)
Change in the allowance for expected credit losses (3.6) 2.4 (1.2)
Financial assets derecognised during the period – 26.8 26.8
Amounts written off 0.7 4.5 5.2
At January 2022 (118.5) (73.2) (191.7)
New assets originated/recoveries (5.2) 10.5 5.3
Transfers from lifetime ECL to credit impaired 3.8 (40.7) (36.9)
Change in the allowance for expected credit losses 4.4 0.4 4.8
Financial assets derecognised during the period – 7.2 7.2
Amounts written off 0.8 8.0 8.8
At January 2023 (114.7) (87.8) (202.5)
The amount charged to the Income Statement (see table below) of £31.0m (2022: £28.6m) differs to the bad debt charge of £26m (2022: £27m)
in the Chief Executive’s Review on page 45 due to recoveries of previously written off assets taken directly to the Income Statement.
Lifetime ECL
£m
Credit
impaired
£m
Total
£m
At January 2021 (112.5) (83.6) (196.1)
Impairment (11.5) (24.0) (35.5)
Amounts recovered 1.3 5.6 6.9
Charged to the Income Statement (10.2) (18.4) (28.6)
Used during the year 4.2 28.8 33.0
Total movement (6.0) 10.4 4.4
At January 2022 (118.5) (73.2) (191.7)
Impairment (1.9) (32.0) (33.9)
Amounts recovered 0.8 2.1 2.9
Charged to the Income Statement (1.1) (29.9) (31.0)
Used during the year 4.9 15.3 20.2
Total movement 3.8 (14.6) (10.8)
At January 2023 (114.7) (87.8) (202.5)
Information on the Group’s credit risk in relation to customer receivables is provided in Note 28.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
212
14. Other Financial Assets
2023 2022
Current
£m
Non-current
£m
Current
£m
Non-current
£m
Foreign exchange contracts 9.1 – 35.5 –
Interest rate derivatives – – – 18.0
9.1 – 35.5 18.0
Foreign exchange contracts comprise forward contracts and options, the majority of which are used to hedge exchange risk arising from the
Group’s merchandise purchases (refer to Note 28). These instruments are primarily for US Dollars and Euros. Interest rate derivatives are used to
manage the fixed and floating interest rate risk associated with the corporate bonds (refer to Note 19).
15. Cash and Short Term Deposits
2023
£m
2022
£m
Cash at bank and in hand 105.0 383.0
Short term deposits – 50.0
105.0 433.0
Cash at bank represents the gross cash positions, of which the majority are part of the Group’s bank account and interest and balance pooling
arrangements. Short term deposits are made for varying periods of between one day and three months depending on the cash requirements of
the Group and earn interest at short term market deposit rates.
16. Bank Loans and Overdrafts
2023
£m
2022
£m
Bank overdrafts and short term borrowings 102.3 233.1
102.3 233.1
Bank overdrafts represent the gross overdraft positions, of which the majority are part of the Group’s bank account interest and balance pooling
arrangements. Bank overdrafts are repayable on demand and bear interest at a margin over bank base rates.
17. Trade Payables and Other Liabilities
2023 2022
Current
£m
Non-current
£m
Current
£m
Non-current
£m
Trade payables 230.1 – 275.4 –
Amounts owed to associates and joint ventures 2.1 – 0.5 –
Refund liabilities 8.3 – 4.8 –
Other taxation and social security 95.7 – 76.8 –
Deferred revenue from the sale of gift cards 84.2 – 79.5 –
Share-based payment liability 0.2 – 0.2 0.1
Other creditors and accruals 370.5 14.3 361.2 31.1
791.1 14.3 798.4 31.2
Trade payables do not bear interest and are generally settled on 30 day terms. Other creditors and accruals do not bear interest. Within other
creditors and accruals are staff related accruals £42.7m (bonus, holiday pay and overtime) (2022: £99.1m), warehouse and duty related accruals of
£92.1m (2022: £82.7m) and accruals for marketing, rates, IT systems, utilities and deferred income on NEXT Unlimited.
213
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
18. Other Financial Liabilities
2023 2022
Current
£m
Non-current
£m
Current
£m
Non-current
£m
Foreign exchange contracts 40.8 – 1.0 –
Interest rate derivatives – 9.5 – –
40.8 9.5 1.0 –
Foreign exchange contracts comprise forward contracts and options, of which the majority are used to hedge exchange risk arising from the
Group’s merchandise purchases (Note 28). These instruments are primarily for US Dollars and Euros. Interest rate derivatives are used to manage
the fixed and floating interest rate risk associated with the corporate bonds (Note 19).
19. Corporate Bonds
Balance sheet value Nominal value
2023
£m
2022
£m
2023
£m
2022
£m
Corporate bond 3.000% repayable 2025 250.0 250.0 250.0 250.0
Corporate bond 4.375% repayable 2026 240.7 265.7 250.0 250.0
Corporate bond 3.625% repayable 2028 300.0 300.0 300.0 300.0
790.7 815.7 800.0 800.0
The Group uses interest rate derivatives to manage the interest rate risk associated with its bonds, the profile of the post hedged interest rate which
is shown below:
2023
Nominal value
£m
2023
Aggregate
interest rate
2022
Nominal
value
£m
2022
Aggregate
interest rate
2025 Bonds
Fixed 250.0 3.000% 250.0 3.000%
2026 Bonds
Floating 250.0 SONIA +1.7% 250.0 6m LIBOR +1.4%
2028 Bonds
Fixed 300.0 3.625% 300.0 3.625%
Total 800.0 800.0
From April 2022, the hedged 2026 Bonds accrue interest by reference to the Sterling Overnight Index Average (“SONIA”). The main difference
between LIBOR rates and SONIA rates is that SONIA does not incorporate any credit risk/liquidity premium which is inherent in the calculation
of LIBOR.
Interest rate risk management is explained in Note 28 and the fair values of the corporate bonds in aggregate are shown in Note 27.
214
20. Pension Benefits
The Group operates four pension arrangements in the UK: the NEXT Group Pension Plan (the “Original Plan”), the 2013 NEXT Group Pension Plan
(the “2013 Plan”), a Legal & General Master Trust and the NEXT Supplemental Pension Arrangement (the “SPA”). NEXT also contributes to the
People’s Pension which it uses as its auto-enrolment vehicle.
The Group’s UK pension arrangements include defined benefit and defined contribution arrangements. The Original Plan and 2013 Plan are
established under trust law and comply with all relevant UK legislation. Pension assets are held in separate trustee administered funds which have
equal pension rights with respect to members of either sex. The defined benefit section was closed to new members in 2000 and over recent years
the Group has taken steps to manage the ongoing risks associated with its defined benefit liabilities.
The Group also provides additional retirement benefits through the SPA to some plan members whose benefits would otherwise be affected by
the Lifetime Allowance.
The Original Plan comprises predominantly members with pensions in payment, following the transfer of active and deferred members (and
associated liabilities) to the 2013 Plan. The risks associated with the payment of pensions of the Original Plan have been largely mitigated by the
purchase of two insurance contracts (“buy-ins”) with Aviva in 2010 and 2012 to cover the liabilities of this Plan, although it remains the ultimate
responsibility of the Company to provide members with benefits. The pensions and matching insurance contracts held by the Original Plan will be
converted to buy-out in due course and the Original Plan will then be dissolved.
The 2013 Plan was established in 2013 via the transfer of liabilities and assets from the Original Plan. This arrangement provides benefits to the
majority of members whose pensions were not insured with Aviva. From November 2012, the future accrual of benefits for remaining active
employee members has been based on pensionable earnings frozen at that time, rather than final earnings.
In August 2018, the Trustees of the 2013 Plan undertook a buy-in in respect of certain pensioner members of the 2013 Plan, with a premium paid
of £94m. As at 28 January 2023 this buy-in policy has a value of £61m (2022: £84m) within the pension scheme assets.
Within the 2013 Plan, following a High Court ruling, a proportion of members’ benefits are being equalised to address the inequalities that arise
due to differing Guaranteed Minimum Pensions (GMP) entitlements for men and women. This equalisation increased the IAS 19 liabilities of the
Plan by £0.4m and was recognised in the 2019 disclosures. Following a further High Court ruling on 20 November 2020, transfers out of the Plan
between May 1990 and October 2018 need to be revisited and equalised for GMP. Due to the relatively small impact of GMP equalisation on
benefits in the Plan and the amount of benefits transferred out of the Plan, we believe that the impact of this latest ruling is immaterial.
The trustee of both of the NEXT Group Pension Plans is a limited company, NEXT Pension Trustees Limited (the “Trustee”). The Board of the Trustee
currently comprises six directors. Four of these are members of the 2013 Plan, and one director (the Chair) is independent and has no other
connection to NEXT. Two of these directors are member nominated directors and cannot be removed by NEXT. The other four directors, including
the independent director, are appointed by and can be removed by NEXT. All directors of the Trustee receive a fee for their services, including those
directors who are also employees of NEXT. No director of the Company is a director of the Trustee.
The Plans’ investments are kept separate from the business of the NEXT Group and the Trustee holds them in separate trusts. Responsibility for
investment of the Plans’ funds has been delegated to professional investment managers.
The Group operates a salary sacrifice scheme whereby members from either section can elect to receive a reduced gross salary in exchange for
enhanced employer pension contributions. The participation of members in the salary sacrifice scheme does not result in any overall increase in
costs to the Group.
Defined contribution arrangements
In the prior year the defined contribution section of the 2013 Plan was transferred to a Legal & General Master Trust which enables the pension
scheme members to benefit from lower running costs, greater flexibility of retirement options and improved range of online tools and advice to
support members in decisions they may make about their financial plans. The Master Trust is run by a board of independent trustees who are
responsible for ensuring that the Trust is run in accordance with the law and that funds are invested properly. Members pay 5% of their pensionable
earnings which is matched by the Company. For death prior to retirement, a lump sum of three times the member’s base salary at the previous
April is payable along with the current value of the member’s fund.
215
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
20. Pension Benefits (continued)
Defined benefit arrangements
The defined benefit arrangement was closed to new members in 2000. Since 2012, the accrual of pension benefits has been based on pensionable
salary frozen at October 2012, rather than final earnings. Those employees affected by the change to pensionable salary in 2012 can also elect
to receive up to a 15% salary supplement or additional contributions to the defined contribution section. The defined benefit arrangement now
provides members with a retirement benefit of one sixtieth or one eightieth (depending on the member’s chosen contribution rate) of pensionable
earnings at October 2012 for each year of pensionable service.
The defined benefit section provides a lump sum death in service benefit and dependants’ pensions on death in service or following retirement.
In the case of ill-health retirement, only the accrued pension is payable. All benefits are subject to 2013 Plan limits. Increases to pensions in payment
are at the discretion of the Trustee although pensionable service post 1997 is subject to limited price indexation. From 2006, sales and profit related
bonuses were excluded from pensionable earnings and the normal retirement age under the Original Plan was increased from 60 to 65.
Certain members whose accrued or projected pension fund value exceeds their personal lifetime allowance are provided with benefits through
an unfunded, unapproved supplementary pension arrangement. The relevant members contribute towards the additional cost of providing these
benefits by a payment of 5% on all pensionable earnings to the 2013 Plan. Since April 2011, where existing members have reached either the
annual or lifetime pension contributions limits, the Company has offered those members the choice of leaving the defined benefit section and
either joining the defined contribution section (with an enhanced Company contribution) or taking a salary supplement, in both cases equal to 10%
or 15% of their salary (depending on their existing contributions and benefits).
Principal risks
The following table summarises the principal risks associated with the Group’s defined benefit arrangements:
Investment risk The present value of defined benefit liabilities is calculated using a discount rate set by reference to high quality
corporate bond yields. If plan assets underperform corporate bonds, this will create a deficit. Investment risk in the
Original plan is negligible, as almost all liabilities in this plan are covered by insurance contracts.
Interest rate risk A fall in corporate bond yields would increase the value of the liabilities. This would be only partially offset by an
increase in the value of bond investments and annuity policies held.
Inflation risk Pensions in payment are increased annually in line with RPI or CPI for Guaranteed Minimum Pensions built up since
1988. Pensions built up since 2005 are capped at 2.5% and pensions built up between 1997 and 2005 are capped at
5%. When discretionary increases have been awarded for pensions built up before 1997, they too have tended to
take inflation into account. Therefore an increase in inflation would increase the value of pension liabilities. The assets
would be expected to also increase, to the extent that they are linked to inflation, but this would not be expected to
fully match the increase in liabilities.
Longevity risk The present value of the defined benefit liabilities is calculated having regards to a best estimate of the mortality of plan
members. If members live longer than this mortality assumption, this will increase liabilities. This is partially offset by
insurance contracts covering part of the liability.
The buy-in insurance contracts represent over 99.8% of the Original Plan pension liabilities, 11.6% of the 2013 Plan pension liabilities and 25.0%
of the total pension liabilities. This partially offsets the total risks described above. Derivatives are not used to hedge any of the risks noted above.
216
20. Pension Benefits (continued)
Income statement
The components of the net defined benefit expense, recognised in the Consolidated Income Statement within administrative expenses are
as follows:
2023 2022
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
Current service cost 6.6 – 0.1 6.7 8.1 – 0.3 8.4
Past service cost 1.1 – – 1.1 – – – –
Net interest (3.6) (0.1) 0.2 (3.5) (1.8) – 0.2 (1.6)
Administration costs 2.4 0.1 – 2.5 2.4 0.1 – 2.5
Net defined benefit expense 6.5 – 0.3 6.8 8.7 0.1 0.5 9.3
Other comprehensive income
The components of the net defined benefit expense recognised in other comprehensive income are as follows:
2023 2022
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
Actuarial gains/(losses) due to
liability experience (33.4) (1.4) 0.1 (34.7) – (4.0) – (4.0)
Actuarial gains due to liability
assumption changes 311.7 31.6 3.6 346.9 24.5 5.4 1.1 31.0
278.3 30.2 3.7 312.2 24.5 1.4 1.1 27.0
Return on plan assets greater
than/(less than) discount rate (280.8) (30.8) – (311.6) 29.5 (1.4) – 28.1
Actuarial gains/(losses)
recognised in other
comprehensive income (2.5) (0.6) 3.7 0.6 54.0 – 1.1 55.1
The surplus in the scheme has moved from £156.9m at January 2022 to £157.5m at January 2023, mainly due to a reduction in plan obligations of
£312.2m offset by a reduction in the return on plan assets of £311.6m. The reduction in the plan obligations was primarily the result of a higher
discount rate being applied as yield on gilt curves increased in the period.
217
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
20. Pension Benefits (continued)
Balance sheet valuation
The net defined benefit pension asset recognised in the Consolidated Balance Sheet is analysed as follows:
2023 2022
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
Present value of benefit
obligations (521.1) (95.2) (6.8) (623.1) (793.0) (129.8) (10.3) (933.1)
Fair value of plan assets 684.0 96.6 – 780.6 958.2 131.8 – 1,090.0
Net pension asset 162.9 1.4 (6.8) 157.5 165.2 2.0 (10.3) 156.9
A net asset has been recognised as the Trust Deeds of the Original and 2013 Plans provide the Group with an unconditional right to a refund
assuming the gradual settlement of the Plans’ liabilities over time until all members have left the Plans.
Plan obligations
Changes in the present value of defined benefit pension obligations are analysed as follows:
2023 2022
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
Opening obligation 793.0 129.8 10.3 933.1 812.1 136.2 11.0 959.3
Current service cost 6.6 – 0.1 6.7 8.1 – 0.3 8.4
Past service cost 1.1 – – 1.1 – – – –
Interest cost 16.9 2.7 0.2 19.8 13.3 2.1 0.2 15.6
Employee contributions 0.1 – – 0.1 0.1 – – 0.1
Benefits paid (18.3) (7.1) (0.1) (25.5) (16.1) (7.1) (0.1) (23.3)
Actuarial (gains)/losses
– financial assumptions (311.4) (31.0) (3.6) (346.0) (23.1) (4.5) (1.1) (28.7)
– experience 33.4 1.4 (0.1) 34.7 – 4.0 – 4.0
– demographic assumptions (0.3) (0.6) – (0.9) (1.4) (0.9) – (2.3)
Closing obligation 521.1 95.2 6.8 623.1 793.0 129.8 10.3 933.1
The present value of the defined benefit closing obligation of £623.1m (2022: £933.1m) was approximately 25% (2022: 26%) relating to active
participants, 45% (2022: 47%) relating to deferred participants and 30% (2022: 27%) relating to pensioners.
Plan assets
Changes in the fair value of defined benefit pension assets were as follows:
2023 2022
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
2013
Plan
£m
Original
Plan
£m
SPA
£m
Total
£m
Opening assets 958.2 131.8 – 1,090.0 920.2 138.3 – 1,058.5
Employer contributions 6.7 – 0.1 6.8 11.8 – – 11.8
Employee contributions 0.1 – – 0.1 0.1 – – 0.1
Benefits paid (18.3) (7.1) (0.1) (25.5) (16.1) (7.1) – (23.2)
Interest income on assets 20.5 2.8 – 23.3 15.1 2.1 – 17.2
Return on plan assets (excluding
amounts included in interest) (280.8) (30.8) – (311.6) 29.5 (1.4) – 28.1
Administrative costs (2.4) (0.1) – (2.5) (2.4) (0.1) – (2.5)
Closing assets 684.0 96.6 – 780.6 958.2 131.8 – 1,090.0
218
20. Pension Benefits (continued)
Plan assets (continued)
The fair value of defined benefit plan assets was as follows:
2023 2022
2013
Plan
£m
Original
Plan
£m
Total
£m %
2013
Plan
£m
Original
Plan
£m
Total
£m %
Equities 124.2 – 124.2 15.9 101.8 – 101.8 9.4
Equity-linked bonds 54.6 – 54.6 7.0 81.8 – 81.8 7.5
Bonds 61.9 – 61.9 7.9 69.7 – 69.7 6.4
Gilts 300.2 1.6 301.8 38.7 458.6 2.3 460.9 42.3
Property 78.9 – 78.9 10.1 91.9 – 91.9 8.4
Infrastructure – – – – 62.2 – 62.2 5.7
Insurance contracts 60.5 95.0 155.5 19.9 84.4 129.5 213.9 19.6
Cash and cash equivalents 3.7 – 3.7 0.5 7.8 – 7.8 0.7
684.0 96.6 780.6 100.0 958.2 131.8 1,090.0 100.0
None of the pension arrangements directly invest in any of the Group’s own financial instruments nor any property occupied by, or other assets
used by, the Group. The fair values of the above equity and debt instruments are determined based on quoted prices in active markets. The majority
of the benefits within the Original Plan are covered by two insurance contracts with Aviva. The insurance assets have been valued so as to match
the defined benefit obligations, the value of which was calculated by Aviva.
Principal assumptions
The IAS 19 (accounting) valuation of the defined benefit obligation was undertaken by an external qualified actuary as at January 2023 using the
projected unit credit method. The principal actuarial assumptions used in the valuation were as follows:
2023 2022
Original
Plan
2013 and
SPA
Original
Plan
2013 and
SPA
Discount rate 4.60% 4.60% 2.15% 2.15%
Inflation – RPI 3.40% 3.10% 3.85% 3.50%
Inflation – CPI 2.40% 2.70% 2.85% 3.05%
Salary increases n/a n/a n/a n/a
Pension increases in payment
– RPI with a maximum of 5.0% 3.20% 2.85% 3.55% 3.05%
– RPI with a maximum of 2.5% and discretionary increases 2.10% 1.85% 2.25% 2.00%
2023 2022
Pensioner
aged 65
Non-
pensioner
aged 45
Pensioner
aged 65
Non-
pensioner
aged 45
Life expectancy at age 65 (years)
Male 22.3 24.3 22.3 24.3
Female 24.7 26.9 24.6 26.8
The discount rate has been derived as the single average discount rate appropriate to the term of the liabilities, based on the yields available on
high quality Sterling corporate bonds. The expected average duration of the Original Plan’s liabilities is 9.1 years, the SPA is 15.8 years and the 2013
Plan is 14.2 years.
The rate of retail price inflation (RPI) has been derived in a consistent way to the discount rate, so that it is appropriate to the term of the liabilities.
The RPI assumption for the 2013 Plan and SPA allows for the inflation risk premium of 0.3% per annum. As in previous years, the Original Plan does
not allow for an inflation risk premium because its assets and liabilities are almost fully matched.
The rate of consumer price inflation (CPI) is set lower than the assumption for retail price inflation, reflecting the long term expected gap between
the two indices and takes into account the alignment of RPI to CPI from 2030.
219
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
20. Pension Benefits (continued)
Principal assumptions (continued)
For the 2013 Plan and the SPA, the base mortality assumptions reflect the best estimate output from a postcode mortality study. This results in an
assumption in line with the standard SAPS Series 3 All Pensioner tables (with a multiplier of 101% for male and female pensioners and 103% for
male non-pensioners and 100% for female non-pensioners). Future improvement trends have been allowed for, in line with the most recent CMI
core projection model (CMI 2021) with a long term trend towards 1.5% per annum and a smoothing factor of 7.5.
The base mortality assumption for the Original Plan is in line with the standard SAPS Series 1 All Pensioner tables, with medium cohort improvements
to 2009, and CMI 2013 improvements applied from 2009 with a long term trend towards 1.5% per annum.
Sensitivity analysis
The sensitivity of the net pension asset to changes in the principal assumptions is:
Sensitivity analysis
Impact on net pension asset as
at 28 January 2023
Discount rate 0.5% decrease £45m decrease
Price inflation 0.5% increase to RPI and CPI £24m decrease
Price inflation 0.1% decrease to CPI (i.e. increase in the gap between RPI and CPI) £1m increase
Mortality Life expectancy increased by one year £10m decrease
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur
and changes in some of the assumptions may be correlated. Aside from the matching insurance contracts held in the Original Plan, no allowance has
been made for any change in assets that might arise under any of the scenarios set out above. When calculating the sensitivity of the defined benefit
obligation to changes in the significant assumptions, the same method has been applied as when calculating the pension liability recognised within the
Consolidated Balance Sheet. The inflation assumption impacts the “pension increases in payment” and deferred pension calculations.
The sensitivities shown are just one possible outcome and should not be taken as an indication of the likelihood of a change occurring in the future.
Market metrics used to derive the discount rate and price inflation assumptions could increase or decrease in the future, by more or less than the
change set out.
Full actuarial valuation
An actuarial valuation of the 2013 Plan was undertaken as at 30 September 2019 by Mercer, who are the 2013 Plan Actuary to the Trustees.
The valuation showed a funding deficit on the Technical Provisions basis required by legislation of £19.1m at that date.
The Group agreed a recovery plan to meet the funding deficit, which is intended to restore the Plan assets to a fully funded position on a Technical
Provisions basis by 31 December 2024. Under that agreement, the Group will contribute five annual payments of £4.0m by 31 December each year
if the funding level is below 105% at the preceding 30 September. In addition, if the funding level is below 96.5% for two consecutive quarters, then
an additional Company contingent contribution of up to £11.9 million is payable, subject to a maximum contingent contribution of £11.9 million
in any Company financial year.
At 31 December 2022 the 2013 Plan was estimated to be circa 115% funded on a Technical Provisions basis, reflecting the lower risk investment
strategy in place from February 2021, corresponding to a surplus on this basis in the region of £84m.
With effect from January 2020, the Company also agreed to pay contributions of 38% per annum of members’ frozen pensionable salaries as at
31 October 2012 towards the future accrual of benefits for active members.
Contributions
Members of the defined benefit section of the 2013 Plan contribute 3% or 5% of pensionable earnings; the Group contributes 38% per annum.
Members of the Legal & General Master Trust defined contribution scheme contribute 5% of Pensionable Earnings, which is matched by the Group.
Contributions paid by the Group during the year are set out below:
2023
£m
2022
£m
Defined contribution – recognised as an expense 17.1 17.1
Automatic enrolment – recognised as an expense 19.7 15.6
Defined benefit 6.7 11.8
43.5 44.5
Employer contributions to the defined benefit section in the year ahead are expected to be around £7m. Employer contributions for the defined
contribution Master Trust scheme are expected to be circa £17m (including salary sacrifice contributions) for the year ahead. Employer contributions
for the automatic enrolment scheme are expected to be around £21m, including salary sacrifice contributions.
220
21. Provisions
 Property costs
2023
£m
2022
£m
At the beginning of the year 21.9 18.6
Provisions made in the year 13.3 4.3
Utilisation of provisions (2.2) (1.4)
Unwind of discount 0.8 0.4
At the end of the year 33.8 21.9
Provision is made for the committed cost or estimated exit costs of properties occupied by the Group.
22. Share Capital
2023
Shares ‘000
2022
Shares ‘000
2023
£m
2022
£m
Allocated, called up and fully paid
Ordinary shares of 10p each
At the start of the year 132,772 132,949 13.3 13.3
Purchased for cancellation in the year (3,509) (177) (0.4) –
129,263 132,772 12.9 13.3
The table below shows the movements in equity from share purchases and commitments during the year:
2023 2022
Shares
‘000
Cost
£m
Shares
‘000
Cost
£m
Shares purchased for cancellation in the year 3,509 224.0 177 13.1
Amount shown in Statement of Changes in Equity 224.0 13.1
Subsequent to the end of the financial year, the Company entered into an irrevocable closed period share buyback programme and during the
period from 27 February 2023 up to and including 28 March 2023 purchased 526,099 shares for cancellation at a cost of £36.2m.
23. Other Reserves
Other reserves in the Consolidated Balance Sheet comprise the reserve created on reduction of share capital through a Scheme of Arrangement under
Section 425 of the Companies Act 1985 of £1,460.7m less share premium account of £3.8m and capital redemption reserve of £8.7m at the time of a
capital reconstruction in 2002, plus the accumulated amount of goodwill arising on acquisition after taking into account subsequent disposals of £0.7m,
less the unrealised component of revaluations of properties arising under previous accounting standards of £5.1m as at the date of transition to IFRS.
24. Share-based Payments
The Group operates a number of share-based payment schemes as follows:
Management share options
The NEXT Management Share Option Plan provides for options over shares, exercisable between three and 10 years following their grant, to be
allocated to Group employees at the discretion of the Remuneration Committee. This plan is primarily aimed at middle management and senior
store staff. No options were granted to any directors or changes made to existing entitlements in the year under review. No employee is entitled to
be granted options under the scheme if, in the same financial year, they have received an award under NEXT’s Long Term Incentive Plan or Share
Matching Plan.
The total number of options which can be granted is subject to limits. There are no cash-settlement alternatives and they are therefore accounted
for under IFRS 2 as equity-settled awards. Option prices are set at the prevailing market price at the time of grant. The maximum total market
value of shares (i.e. the acquisition price of shares) over which options may be granted to any person during any financial year of the Company
is three times salary, excluding bonuses and benefits in kind. This limit may be increased to five times salary in circumstances considered by the
Remuneration Committee to be exceptional, for example on the grant of options following recruitment. Grants are generally made annually.
Sharesave options
The Company’s Save As You Earn (Sharesave) scheme is open to all UK employees. Invitations to participate are generally issued annually and the
scheme is subject to HMRC rules. The current maximum monthly savings within the schemes detailed below is £250. Options are granted at the
prevailing market rate less a discount of 20% and are exercisable three or five years from the date of grant. Sharesave options are also accounted
for as equity-settled awards under IFRS 2.
221
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
24. Share-based Payments (continued)
Management and Sharesave options
The following table summarises the movements in Management and Sharesave options during the year:
2023 2022
No. of
options
Weighted
average
exercise
price
No. of
options
Weighted
average
exercise
price
Outstanding at beginning of year 5,153,993 £55.78 5,650,992 £49.83
Granted 2,544,386 £50.19 1,185,455 £76.14
Exercised (704,448) £49.53 (1,462,096) £49.71
Forfeited (603,599) £57.96 (220,358) £52.95
Outstanding at end of year 6,390,332 £54.04 5,153,993 £55.78
Exercisable at end of year 1,571,001 £54.94 1,036,463 £52.86
Options were exercised on a regular basis throughout the year and the weighted average share price during this period was £62.40 (2022: £80.94).
Options outstanding at 28 January 2023 are exercisable at prices ranging between £38.25 and £80.64 (2022: £29.67 and £80.64) and have a
weighted average remaining contractual life of 6.1 years (2022: 6.2 years), as analysed in the table below:
2023 2022
No. of
options
Weighted
average
remaining
contractual
life (years)
No. of
options
Weighted
average
remaining
contractual
life (years)
Exercise price range
£29.67-£41.09 1,258,787 3.8 215,183 4.4
£41.70-£44.22 1,215,109 7.0 1,407,059 7.6
£48.12-£56.46 1,350,225 4.4 2,052,792 5.0
£59.20-£64.53 1,520,462 8.6 356,493 4.2
£66.95-£80.64 1,045,749 6.4 1,122,466 7.5
6,390,332 6.1 5,153,993 6.2
Share Matching Plan (SMP)
The SMP is an equity-settled scheme open to a small number of senior executives below Board level. Executive directors are not granted SMP
awards. Under the current awards participants who invest a proportion of any annual cash bonus in NEXT shares will receive up to a maximum
of two times the original number of shares they purchase with their bonus. Any matching is conditional upon achieving performance measures
over the following three years. The maximum matching ratio which is permitted under the SMP rules is 3:1, matching the pre-tax equivalent of the
amount invested in shares. For any SMP grants made from 2018, participants will be entitled to receive ordinary and special dividend accruals on
any awards vesting under the SMP.
The Remuneration Committee’s policy is to set performance measures by reference to underlying fully diluted post-tax EPS but the Committee
has flexibility to use different measures. Under the formulae, a notional adjustment is made to actual EPS achieved for special dividends, on the
basis that the cash distributed had instead been used to purchase shares at the prevailing share price on the day of the special dividend payment.
The following table summarises the movements in nil cost SMP options during the year:
2023
No. of
options
2022
No. of
options
Outstanding at beginning of year 18,142 27,750
Granted 21,894 –
Dividend accrual awarded in the year 548 –
Exercised (8,886) –
Forfeited – (9,608)
Outstanding at end of year 31,698 18,142
Exercisable at end of year – –
222
24. Share-based Payments (continued)
Share Matching Plan (SMP) (continued)
The weighted average remaining contractual life of these options is 8.7 years (2022: 7.9 years). During the year ending 28 January 2023 SMP
options were exercised at different times and the weighted average share price during this period was £61.76. During the year ending 29 January
2022 there was no SMP grant and no SMP options were exercised.
Long Term Incentive Plan (LTIP)
As explained in the Remuneration Report, the Group operates an equity-settled LTIP scheme for executive directors and other senior executives.
Performance conditions for the LTIP awards are detailed in the Remuneration Report.
The following table summarises the movements in nil cost LTIP awards during the year:
2023
No. of
awards
2022
No. of
awards
Outstanding at beginning of year 520,017 535,506
Granted 204,644 148,975
Dividend accrual awarded in the year 8,538 7,952
Vested (140,907) (160,161)
Forfeited (62,209) (12,255)
Outstanding at end of year 530,083 520,017
The weighted average remaining contractual life of these options is 1.4 years (2022: 1.3 years).
Profit Sharing Bonus Plan
The Profit Sharing Bonus Plan provided for options over shares in NEXT for senior employees of Lipsy Limited. Under the arrangement, a profit
bonus equal to 3.6% of the average of the post tax profits of Lipsy and any subsidiaries of Lipsy in respect of the financial years ending January 2023
and January 2024, multiplied by ten was payable. This plan was settled early during the year to January 2023 and as a result no options remained
outstanding at the year end date.
Fair value calculations
The fair value of Management, Sharesave and Share Matching Plan options granted is calculated at the date of grant using a Black-Scholes option
pricing model. Expected volatility was determined by calculating the historical volatility of the Company’s share price over a period equivalent
to the expected life of the option. The expected life applied in the model is based on historical analyses of exercise patterns, taking into account
any early exercises. The following table lists the inputs to the model used for the two sets of management options granted in the years ended
28 January 2023 and 29 January 2022 based on information at the date of grant:
Management share options – first grant in financial year 2023 2022
Share price at date of grant £59.20 £80.64
Exercise price £59.20 £80.64
Volatility 35.40% 31.10%
Expected life 4 Years 4 Years
Risk free rate 1.56% 0.23%
Dividend yield 2.15% 2.08%
Weighted average fair value per option £14.57 £16.09
223
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
24. Share-based Payments (continued)
Long Term Incentive Plan (LTIP) (continued)
Management share options – second grant in the financial year (not applicable for 2023) 2023 2022
Share price at date of grant – £78.68
Exercise price – £78.68
Volatility – 37.32%
Expected life – 4 Years
Risk free rate – 0.76%
Dividend yield – 2.13%
Weighted average fair value per option – £19.63
Sharesave plans 2023 2022
Share price at date of grant £48.36 £80.66
Exercise price £38.69 £64.53
Volatility 38.65% 36.84%
Expected life 3.4 years 3.4 years
Risk free rate 3.22% 0.68%
Dividend yield 3.99% 2.08%
Weighted average fair value per option £14.77 £24.81
Share Matching Plan 2023 2022*
Share price at date of grant £61.48 –
Exercise price Nil –
Volatility 38.02% –
Expected life 3 years –
Risk free rate 1.48% –
Dividend yield Nil –
Weighted average fair value per option £61.48 –
* There were no shares issued under the Share Matching Plan in the year ended 29 January 2022.
The fair value of LTIP awards granted is calculated at the date of grant using a Monte Carlo option pricing model. Expected volatility was determined
by calculating the historical volatility of the Company’s share price over a period equivalent to the life of the award. The following table lists the
inputs to the model used for awards granted in the year ended 28 January 2023 and 29 January 2022 based on information at the date of grant:
LTIP awards (granted in March/April) 2023 2022
Share price at date of grant £62.82 £79.20
Award price Nil Nil
Volatility 37.35% 27.60%
Life of award 3 years 3 years
Risk free rate 1.41% 0.18%
Dividend yield 0.00% 0.00%
Fair value per award £30.98 £37.48
LTIP awards (granted in September) 2023 2022
Share price at date of grant £48.01 £82.12
Award price Nil Nil
Volatility 38.99% 37.14%
Life of award 3 years 3 years
Risk free rate 4.35% 0.50%
Dividend yield 0.00% 0.00%
Fair value per award £23.35 £51.00
From September 2017, for all new LTIP awards, dividend accruals (both in respect of special and ordinary dividends) may be payable on vested awards.
The charge to the Income Statement for all share option schemes is disclosed in note 4.
224
25. Shares Held by ESOT
The NEXT 2003 ESOT has an independent trustee resident in Jersey and provides for the issue of shares to Group employees to satisfy awards which
vest/are exercised in accordance with the terms of the various share-based schemes detailed in Note 24.
As at 28 January 2023 the ESOT held 6,469,007 (2022: 5,302,016) ordinary shares of 10p each in the Company, the market value of which amounted
to £429.3m (2022: £401.6m). Details of outstanding share awards and options are shown in Note 24.
The consideration paid for the ordinary shares of 10p each in the Company held by the ESOT at 28 January 2023 and 29 January 2022 has been
shown as an ESOT reserve and presented within equity for the Company and the Group. All other assets, liabilities, income and costs of the ESOT
have been incorporated into the financial statements of the Company and the Group.
The table below shows the movements in equity from ESOT transactions during the year:
2023 2022
Shares
‘000 £m
Shares
‘000 £m
Shares purchased by ESOT in the year 2,118 124.0 1,895 151.3
Shares sold by ESOT in the year – – – –
Shares issued in respect of employee share schemes 951 40.8 1,543 66.4
Exercises in the year totalled £35.2m (2022: £72.5m) on Management and Sharesave options. The amount shown in the Statement of Changes in
Equity of £40.8m (2022: £66.4m) is after the issue of any nil cost LTIP, SMP and Deferred bonus shares. The weighted average cost of shares issued
by the ESOT was £59.0m (2022: £90.8m).
As at 28 March 2023, 233,591 employee share options had been exercised subsequent to the Balance Sheet date and had been satisfied by
ordinary shares issued by the ESOT.
26. Financial Instruments: Categories
2023
£m
2022
£m
Financial assets
Derivatives not designated as hedging instruments 0.5 0.1
Derivatives designated as hedging instruments 8.6 53.4
Customer and other receivables at amortised cost* 1,370.2 1,227.3
Cash, short term deposits (note 15) 105.0 433.0
Preference shares at amortised cost 63.1 35.1
Non-listed equity instruments designated at fair value through profit or loss / OCI 0.2 1.0
Financial liabilities
Derivatives not designated as hedging instruments (17.6) (0.8)
Derivatives designated as hedging instruments (32.7) (0.2)
Lease liabilities (1,023.3) (1,057.5)
Interest bearing loans and borrowings:
Corporate bonds at amortised cost adjusted for the fair value changes attributable to the risk being hedged (790.7) (815.7)
Bank loans and overdrafts at amortised cost (102.3) (233.1)
Trade and other payables at amortised cost** (596.9) (647.7)
* Prepayments of £54.9m (2022: £53.1m) and other debtors of £0.4m (2022: £0.5m) do not meet the definition of a financial instrument.
** Other taxation and social security payables of £95.7m (2022: £76.8m), deferred income of £84.2m (2022: £79.5m), share-based payment liabilities of £0.2m (2022: £0.3m) and other
creditors of £28.5m (2022: £25.3m) do not meet the definition of a financial instrument.
225
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
27. Financial Instruments: Fair Values
The fair values of each category of the Group’s financial instruments are the same as their carrying values in the Group’s Balance Sheet, other than
corporate bonds and customer receivables, based on the following assumptions:
Other trade receivables, trade payables, short term
deposits and borrowings
The fair value approximates the carrying amount because of the short maturity of
these instruments.
Preference shares The fair value approximates the carrying amount because the percentage interest
earned on the shares is equivalent to the effective interest rate used to calculate
the amortised cost.
Non-listed equity instruments The fair value approximates the net assets of the investment given no observable
market rates at the reporting date.
Long term borrowings The fair value of bank loans and other borrowings approximates the carrying value
reported in the Balance Sheet as the majority are floating rate where interest
rates are reset at intervals less than one year.
Derivative financial instruments The fair value is determined as the net present value of cash flows using
observable market rates at the reporting date.
The fair value of corporate bonds is as follows:
2023 2022
Corporate bonds
Carrying
amount
£m
Fair value
£m
Carrying
amount
£m
Fair value
£m
In hedging relationships 240.7 249.8 265.7 277.8
Not in hedging relationships 550.0 533.5 550.0 589.6
790.7 783.3 815.7 867.4
Corporate bonds are held at amortised cost, and where hedged, adjusted for the fair value changes attributable to the interest rate risk being
hedged (see Note 19).
Fair Value Hierarchy
The fair values of financial instruments measured by reference to the following levels under IFRS 13 “Fair value measurement”:
Hierarchy level Inputs Financial instruments Valuation methodology
Level 1 Quoted prices in active markets
for identical assets or liabilities
Corporate bonds and Money
Market Funds
Market value includes accrued interest and
change in credit risk and interest rate risk,
and is therefore different to the reported
carrying amounts.
Level 2 Inputs other than quoted prices
included within Level 1 that are
observable for the asset or liability,
either directly (i.e. as prices) or
indirectly (i.e. derived from prices)
Derivative financial instruments Valuation techniques include forward pricing
and swap models using net present value
calculation of future cash flows. The model
inputs include the foreign exchange spot and
forward rates, yield curves of the respective
currencies, currency basis spreads between
the respective currencies and interest
rate curves.
Level 3 Inputs for the asset or liability that
are not based on observable market
data (unobservable market data)
Non-listed equity instruments at
fair value through OCI
The fair value of these non-listed equity
investments has been estimated using a
discounted cash flow model.
226
28.  Financial Instruments:
Financial Risk Management and Hedging Activities
The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework and for establishing the
Group’s risk management policies.
The Group has exposure to the following risks arising from financial instruments:
• Liquidity risk
• Interest rate risk
• Foreign currency risk
• Credit risk
• Capital risk
Treasury function
NEXT operates a centralised treasury function which is responsible for managing the liquidity, interest and foreign currency risks associated with the
Group’s activities. As part of its strategy for the management of these risks, the Group uses financial instruments. In accordance with the Group’s
treasury policy, financial instruments are not entered into for speculative purposes. The treasury policy is reviewed and approved by the Board
and specifies the parameters within which treasury operations must be conducted, including authorised counterparties, instrument types and
transaction limits, and principles governing the management of liquidity, interest and foreign currency risks.
The Group’s financial instruments also include cash, short term deposits, preference shares, bank overdrafts, loans, and corporate bonds. The main
purpose of these financial instruments is to raise finance for the Group’s operations. In addition, the Group has various other financial assets and
liabilities such as trade receivables and trade payables arising directly from its operations.
Liquidity risk
The Group manages its cash and borrowing requirements centrally to minimise net interest expense within risk parameters agreed by the Board,
whilst ensuring that the Group has sufficient liquid resources to meet the operating needs of its businesses. The forecast cash and borrowings
profile of the Group is monitored to ensure that adequate headroom remains under committed borrowing facilities.
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including interest) of the Group’s financial
liabilities, including cash flows in respect of derivatives:
2023
Less than
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
Over
5 years
£m
Total
£m
Bank loans and overdrafts 102.3 – – – 102.3
Lease liabilities 182.7 162.4 360.3 693.6 1,399.0
Trade and other payables 569.7 4.6 – – 574.3
Corporate bonds 29.3 29.3 562.0 310.9 931.5
884.0 196.3 922.3 1,004.5 3,007.1
Derivatives: net settled 2.7 2.9 2.8 – 8.4
Derivatives: gross settled
Cash inflows (1,139.1) – – – (1,139.1)
Cash outflows 1,169.4 – – – 1,169.4
Total cash flows 917.0 199.2 925.1 1,004.5 3,045.8
2022
Less than
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
Over
5 years
£m
Total
£m
Bank loans and overdrafts 233.1 – – – 233.1
Lease liabilities 202.2 168.0 376.8 683.8 1,430.8
Trade and other payables 597.7 20.9 – – 618.6
Corporate bonds 29.3 29.3 580.4 321.8 960.8
1,062.3 218.2 957.2 1,005.6 3,243.3
Derivatives: net settled (5.4) (2.6) (9.2) – (17.2)
Derivatives: gross settled
Cash inflows (1,244.7) – – – (1,244.7)
Cash outflows 1,209.1 – – – 1,209.1
Total cash flows 1,021.3 215.6 948.0 1,005.6 3,190.5
227
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
28.  Financial Instruments:
Financial Risk Management and Hedging Activities (continued)
Liquidity risk (continued)
Within lease liabilities greater than 5 years are leases on stores with cash flows in years 5-10 of £193.4m (2022: 237.1m) and more than 10 years
of £42.3m (2022: £57.3m). The lease liabilities greater than 5 years on warehouses and head office premises with cash flows in years 5-10 are
£137.5m (2022: £111.0m) and more than 10 years of £320.4m (2022: £278.4m).
At 28 January 2023, the Group had borrowing facilities of £450.0m (2022: £450.0m) committed until November 2024, in respect of which all
conditions precedent have been met. £nil of the facilities were drawn down at January 2023 (2022: £nil).
Interest rate risk
The Group is exposed to fair value interest rate risk on its fixed rate corporate bonds and cash flow interest rate risk on floating rate loans and
overdrafts. The forecast cash and borrowings profile of the Group is monitored regularly to assess the mix of fixed and variable rate debt, and the
Group uses interest rate derivatives where appropriate to manage its exposure to changes in interest rates and the economic environment.
Interest rates: fair value hedges
The Group has interest rate swap agreements in place as fair value hedges against part of the interest rate risk associated with the corporate bonds.
Under the terms of the swaps, which have matching features as the bonds, the Group receives a fixed rate of interest equivalent to the relevant
coupon rate, and pays a variable rate interest related to LIBOR prior to April 2022 and SONIA, from April 2022. Details of the aggregate rates payable
are given in Note 19.
There is an economic relationship between the hedged item and the hedging instrument as the terms of the interest rate swaps match the terms
of the fixed rate corporate bonds (e.g. notional amount and maturity). The Group has established a hedge ratio of 1:1 for the hedging relationships
as the underlying risk of the interest rate swap is identical to the hedged risk component. To test the hedge effectiveness, the Group compares the
changes in the fair value of the hedging instrument against the changes in the fair value of the hedged item attributable to the hedged risk.
The hedge ineffectiveness can arise from:
• Different interest rate curve applied to discount the hedged item and the hedging instrument.
• Differences in timing of cash flows of the hedged item and hedging instrument.
• The counterparties’ credit risk differently impacting the fair value movements of the hedging instrument and the hedged item.
The fair values of the Group’s interest rate swaps, including accrued interest, are as follows:
2023
£m
2022
£m
Derivatives in designated fair value hedging relationships (9.5) 18.0
The fair values of derivatives have been calculated by discounting the expected future cash flows at prevailing interest rates and are based on
market prices at the Balance Sheet date.
The timing of the nominal amounts of the interest rate swaps are as follows:
2023 2022
Maturity date of swap October 2026 October 2026
Interest rate swap Fixed to floating Fixed to floating
Nominal amount (£m) 250.0 250.0
Average price SONIA + 1.7% 6 month LIBOR + 1.434 %
228
28.  Financial Instruments:
Financial Risk Management and Hedging Activities (continued)
Fair value of group swaps (continued)
The impact of the hedging instrument on the Balance Sheet is as follows:
At 28 January 2023 Line item in the Balance Sheet
Notional amount
£m
Carrying amount*
£m
Changes in fair value
used for measuring
ineffectiveness in
the period
£m
Interest rate swaps – assets Other financial assets – – –
Interest rate swaps – liabilities Other financial liabilities 250.0 (9.5) (27.5)
At 29 January 2022
Interest rate swaps – assets Other financial assets 250.0 18.0 (21.4)
Interest rate swaps – liabilities Other financial liabilities – – –
* The carrying amount of derivatives includes £0.2 m of interest receivable (2022: £2.3m interest accrual). 
The impact of the hedged items on the Balance Sheet is as follows:
At 28 January 2023 Line item in the Balance Sheet
Carrying amount
£m
Accumulated fair
value adjustments
£m
Changes in fair value
used for measuring
ineffectiveness in
the period
£m
Fixed-rate borrowings Corporate bonds 250.0 (9.3) (25.0)
At 29 January 2022
Fixed-rate borrowings Corporate bonds 250.0 15.7 21.3
The ineffectiveness recognised in the Income Statement for the period ended 28 January 2023 was £nil (2022: £nil).
Foreign currency risk
The Group’s principal foreign currency exposures arise from the purchase of overseas sourced products. Group policy allows for these exposures to
be hedged for up to 24 months ahead in order to fix the cost in Sterling. This hedging activity involves the use of spot, forward and option contracts.
The market value of outstanding foreign exchange contracts is reported regularly to the Board and reviewed in conjunction with percentage cover
taken by season and current market conditions, in order to assess and manage the Group’s ongoing exposure.
The Group does not have a material exposure to currency movements in relation to the translation of overseas investments and consequently does
not hedge any such exposure. The Group’s net exposure to foreign currencies, taking hedging activities into account, is illustrated by the sensitivity
analysis in Note 29.
Foreign currency hedges
There is an economic relationship between the hedged items and the hedging instruments as the terms of the foreign exchange contracts match
the terms of highly probable forecast transactions (e.g. notional amount and expected payment date). The Group has established a hedge ratio of
1:1 for the hedging relationships as the underlying risk of the foreign exchange contracts are identical to the hedged risk components. To test hedge
effectiveness, the Group uses the hypothetical derivative method and compares the changes in the fair value of the hedging instruments against
the changes in the fair value of the hedged items attributable to the hedged risks.
In these hedge relationships, the main sources of ineffectiveness are:
• Differences in the timing of the cash flows of the hedged items and the hedging instruments.
• Different indices (and accordingly different curves) linked to the hedged risk of the hedged items and hedging instruments.
• The counterparties’ credit risk differently impacting the fair value movements of the hedging instruments and hedged items.
• Changes to the forecasted amount of cash flows of hedged items and hedging instruments.
The fair values of foreign exchange derivatives are as follows:
2023
£m
2022
£m
Derivatives in designated hedging relationships (14.6) 35.2
Other foreign exchange derivatives not designated in hedging relationships (17.0) (0.7)
Total foreign exchange derivatives (31.6) 34.5
229
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
28.  Financial Instruments:
Financial Risk Management and Hedging Activities (continued)
Foreign currency hedges (continued)
Derivatives designated in hedging relationships at 28 January 2023:
Maturity
US Dollars (highly probable forecast purchases) 1–6 months 6–12 months
More than
one year Total
Notional amount (in £m) 663.5 40.9 – 704.4
Average GBP: USD contract rate 1.20 1.22 – 1.20
EURO (highly probable forecast purchases)
Notional amount (in £m) 26.8 – – 26.8
Average GBP: EURO contract rate 1.13 – – 1.13
EURO (highly probable forecast sales)
Notional amount (in £m) 20.0 – – 20.0
Average GBP: EURO contract rate 1.13 – 1.13
Other (highly probable forecast sales)
Notional amount (in £m) 47.5 – – 47.5
Average GBP: Other contract rate Various currencies*
* 5 currencies are hedged, which individually are not material to the financial statements.
Derivatives designated in hedging relationships at 29 January 2022:
Maturity
US Dollars (highly probable forecast purchases) 1–6 months 6–12 months
More than
one year Total
Notional amount (in £m) 665.2 267.9 – 933.1
Average GBP: USD contract rate 1.39 1.38 – 1.39
EURO (highly probable forecast purchases)
Notional amount (in £m) 1.4 – – 1.4
Average GBP: EURO contract rate 1.21 – – 1.21
EURO (highly probable forecast sales)
Notional amount (in £m) 55.9 26.9 – 82.8
Average GBP: EURO contract rate 1.16 1.17 – 1.16
Other (highly probable forecast sales)
Notional amount (in £m) 83.2 0.6 – 83.8
Average GBP: Other contract rate Various currencies*
* 5 currencies were hedged, which are individually not material to the financial statements.
The impact of the hedging instruments on the Balance Sheet are as follows:
At 28 January 2023 Line item in the Balance Sheet
Notional amount
£m
Carrying amount
£m
Changes in fair value
used for measuring
ineffectiveness in
the period
£m
Foreign exchange contracts Other financial assets 462.5 9.1 116.4
Foreign exchange contracts Other financial liabilities 407.2 (40.8) (37.6)
At 29 January 2022
Foreign exchange contracts Other financial assets 1,107.0 35.5 30.6
Foreign exchange contracts Other financial liabilities 58.5 (1.0) 7.1
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
230
28.  Financial Instruments:
Financial Risk Management and Hedging Activities (continued)
Foreign currency hedges (continued)
The impact of the hedged items on the Balance sheet is as follows:
28 January 2023 29 January 2022
Changes in fair
value used for
measuring
ineffectiveness
in the period
£m
Closing cash
flow hedge
reserve
£m
Closing cost
of hedging
reserve
£m
Changes in fair
value used for
measuring
ineffectiveness
in the period
£m
Closing cash
flow hedge
reserve
£m
Closing cost
of hedging
reserve
£m
Highly probable forecast sales (7.0) 1.9 – (3.0) 0.5 –
Highly probable forecast stock purchases 86.2 (17.0) 0.5 39.9 33.9 0.9
The effect of the cash flow hedge in the Income Statement or other comprehensive income is as follows:
Year ended 28 January 2023
Ineffectiveness
recognised in
Income
Statement
£m
Recycled to
cost of
inventories
£m
Cost of
hedging
recognised in
OCI
£m
Amount
reclassified
from OCI to
the Income
Statement
£m
Line item in
the Income
Statement
Highly probable forecast sales – – – 6.1 Revenue
Highly probable forecast stock purchases – (134.8) (0.4) – –
Year ended 29 January 2022
Highly probable forecast sales – – – 3.2 Revenue
Highly probable forecast stock purchases – 18.5 0.8 – –
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations
and arises primarily from the Group’s Online customer receivables. The carrying amount of financial assets represents the maximum residual credit
exposure, which was £1,297.3m at the reporting date (2022: £1,187.1m). These are detailed in Note 13.
The Group’s credit risk in relation to customer receivables is influenced mainly by the individual characteristics of each customer. The Board has
established a credit policy under which each new credit customer is analysed individually for creditworthiness and subject to credit verification
procedures. Receivable balances are monitored on an ongoing basis and provision is made for estimated irrecoverable amounts using forward
looking estimates. The concentration of credit risk is limited due to the Online customer base being large and diverse. At January 2023 there
were 2.87m active customers (2022: 2.84m) with an average balance of £508 (2022: £477). The Group’s outstanding receivables balances and
impairment losses are detailed in Note 13. The performance of our credit risk policies and the risk of the debtor book are monitored weekly by
management. Any trends and deviations from expectations are investigated. Senior management review is carried out monthly.
Customer receivables with a value of £17.6m (2022: £17.1m) were on a Reduced Payment Indicator (RPI) plan. An allowance for Expected Credit
Losses (ECLs) of £12.3m (2022: £11.7m) has been made against these balances. Customers are typically on RPI plans for a period of 12 months
during which no interest is charged and repayment rates are reduced. On completion of the RPI plan the customer would be treated as higher
risk than the arrears stage and customer indebtedness would otherwise suggest. Any modification gain or loss recognised is immaterial to the
financial statements.
In addition to those identified as previously being on an RPI, data provided by Experian has been used to identify customers who are, or have
been, on a similar ‘payment freeze’ with another lender. These customers are also treated as higher risk than the arrears stage and customer
indebtedness would otherwise suggest. The ECLs applied in calculating the overlay have been uplifted by an average of c.6%, weighted by value.
The Group uses Experian Delphi for Customer Management which provides a suite of characteristics and scores to monitor the credit behaviour
of new and existing customers. The principal score for making risk decisions around credit limit changes, and monitoring the risk of associated
sales, is the Account and Arrears Management (“AAM”) score. The principal measure to assess a customer’s ability to afford repayments, and
our allowance for expected credit losses under IFRS 9, is the Consumer Indebtedness Index (“CII”). The CII is a score within the range of 1 to 99.
A lower CII score is representative of a lower level of risk associated with the debt (i.e. a lower CII score indicates the customer has a greater ability
to afford repayments).
231
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
28.  Financial Instruments:
Financial Risk Management and Hedging Activities (continued)
Credit risk (continued)
The following table contains an analysis of customer and other receivables segmented by CII score at the end of the reporting period. For the
purpose of this analysis, trade receivables are recognised in Risk band 1.
2023
Total
£m
2022
Total
£m
Risk exposure determined by CII score
Risk band 1 (CII<=10) 891.6 801.8
Risk band 2 (10<CII=<20) 211.7 200.5
Risk band 3 (20<CII=<47) 173.8 176.0
Risk band 4 (47<CII) 126.3 120.8
Gross carrying amount before credit impaired 1,403.4 1,299.1
Credit impaired 96.4 79.7
Gross carrying amount after credit impaired 1,499.8 1,378.8
Less allowance (202.5) (191.7)
Carrying amount 1,297.3 1,187.1
Analysis of customer receivables and other trade receivables, stratified by credit grade, is provided in the tables below. Due to Government initiatives
to support customers through the pandemic, the underlying risk is judged to be higher than the CII index may otherwise suggest. Expected loss
rates have been uplifted using internal and external data to allow for this, in particular in relation to debt previously on payment plans.
2023
Current
£m
1–30
days past
due
£m
31–60
days past
due
£m
61–90
days past
due
£m
91–120
days past
due
£m
>120
days past
due
£m
Payment
plans
£m
Total
£m
Customer receivables and other trade receivables
Risk band 1 (CII<=10) 873.9 14.0 0.5 0.1 – 0.1 3.0 891.6
Risk band 2 (10<CII=<20) 202.7 6.1 0.6 0.1 – 0.1 2.1 211.7
Risk band 3 (20<CII=<47) 158.4 8.2 2.0 1.0 0.3 0.4 3.5 173.8
Risk band 4 (47<CII) 94.2 9.1 4.4 3.5 3.0 3.1 9.0 126.3
Otherwise impaired – – – – – 96.4 – 96.4
Total 1,329.2 37.4 7.5 4.7 3.3 100.1 17.6 1,499.8
Loss allowance
Risk band 1 (CII<=10) (35.6) (1.2) (0.2) – – (0.1) (1.9) (39.0)
Risk band 2 (10<CII=<20) (12.6) (0.7) (0.3) (0.1) – (0.1) (1.4) (15.2)
Risk band 3 (20<CII=<47) (17.2) (1.4) (1.0) (0.6) (0.2) (0.3) (2.3) (23.0)
Risk band 4 (47<CII) (19.1) (2.0) (2.7) (2.3) (2.3) (2.4) (6.7) (37.5)
Otherwise impaired – – – – – (87.8) – (87.8)
Total (84.5) (5.3) (4.2) (3.0) (2.5) (90.7) (12.3) (202.5)
Expected loss rate %
Risk band 1 (CII<=10) 4.1% 8.8% 32.4% 47.6% – 78.2% 63.7% 4.4%
Risk band 2 (10<CII=<20) 6.2% 11.5% 41.3% 52.2% – 77.4% 67.6% 7.1%
Risk band 3 (20<CII=<47) 10.8% 16.5% 51.4% 60.5% 73.8% 76.8% 64.3% 13.2%
Risk band 4 (47<CII) 20.3% 22.1% 61.3% 66.1% 79.0% 78.7% 75.2% 29.8%
Otherwise impaired – – – – – 91.1% – 91.1%
Total 6.4% 14.2% 55.1% 64.3% 78.3% 90.6% 70.1% 13.5%
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
232
28.  Financial Instruments:
Financial Risk Management and Hedging Activities (continued)
Credit risk (continued)
2022
Current
£m
1–30
days past
due
£m
31–60
days past
due
£m
61–90
days past
due
£m
91–120
days past
due
£m
> 120
days past
due
£m
Payment
plans
£m
Total
£m
Customer receivables and other trade receivables
Risk band 1 (CII<=10) 784.3 13.4 0.7 0.2 – 0.2 3.0 801.8
Risk band 2 (10<CII=<20) 191.6 5.5 0.9 0.2 – 0.1 2.2 200.5
Risk band 3 (20<CII=<47) 161.4 7.0 1.9 0.9 0.5 0.4 3.9 176.0
Risk band 4 (47<CII) 93.6 7.5 3.5 2.8 2.6 2.8 8.0 120.8
Otherwise impaired – – – – – 79.7 – 79.7
Total 1,230.9 33.4 7.0 4.1 3.1 83.2 17.1 1,378.8
Loss allowance
Risk band 1 (CII<=10) (42.0) (1.4) (0.2) (0.1) – (0.1) (1.6) (45.4)
Risk band 2 (10<CII=<20) (13.9) (0.8) (0.3) (0.1) – (0.1) (1.2) (16.4)
Risk band 3 (20<CII=<47) (17.1) (1.4) (0.9) (0.6) (0.3) (0.3) (2.2) (22.8)
Risk band 4 (47<CII) (17.1) (2.0) (2.1) (1.9) (2.0) (2.1) (6.7) (33.9)
Otherwise impaired – – – – – (73.2) – (73.2)
Total (90.1) (5.6) (3.5) (2.7) (2.3) (75.8) (11.7) (191.7)
Expected loss rate %
Risk band 1 (CII<=10) 5.4% 10.8% 32.4% 55.4% – 73.9% 50.9% 5.7%
Risk band 2 (10<CII=<20) 7.2% 14.6% 37.7% 57.4% – 73.6% 53.0% 8.2%
Risk band 3 (20<CII=<47) 10.6% 19.7% 45.3% 64.5% 68.2% 71.3% 57.8% 13.0%
Risk band 4 (47<CII) 18.2% 25.9% 58.8% 68.4% 74.5% 74.0% 84.1% 27.9%
Otherwise impaired – – – – – 91.9% – 91.9%
Total 7.3% 16.7% 49.9% 66.4% 73.3% 91.1% 68.2% 13.9%
Credit risk on other financial assets
Investments of cash surpluses and derivative contracts are made through banks and companies which must fulfil credit rating and investment
criteria approved by the Board. Risk is further mitigated by diversification and limiting counterparty exposure. The Group does not consider there
to be any impairment loss in respect of these balances (2022: £nil). The maximum exposure to credit risk at the reporting date is the carrying value
of each class of asset as the debt is not collateralized.
Capital risk
The capital structure of the Group consists of debt, as analysed in Note 30, and equity attributable to the equity holders of the Parent Company,
comprising issued capital, reserves and retained earnings as shown in the Consolidated Statement of Changes in Equity. The Group manages its
capital with the objective that all entities within the Group continue as going concerns while maintaining an efficient structure to minimise the cost
of capital. The Group is not restricted by any externally imposed capital requirements.
As part of its strategy for delivering sustainable returns to shareholders, the Group has been returning capital to shareholders by way of share
buybacks in addition to dividends (including special dividends). Share buybacks may be transacted through both on-market purchases and off-
market contingent contracts.
233
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Financial Statements
Group Company
29. Financial Instruments: Sensitivity Analysis
Interest rate sensitivity analysis
The table below illustrates the hypothetical sensitivity of the Group’s reported profit and closing equity to a 1.0% increase or decrease in interest
rates, assuming all other variables were unchanged. The sensitivity rate of 1.0% represents the directors’ assessment of a reasonably possible
change, based on historic volatility.
The analysis has been prepared using the following assumptions:
• For floating rate assets and liabilities, the amount of the asset or liability outstanding at the Balance Sheet date is assumed to have been
outstanding for the whole year.
• Fixed rate financial instruments that are carried at amortised cost are not subject to interest rate risk for the purpose of this analysis.
Positive figures represent an increase in profit or equity.
Income Statement Equity
2023
£m
2022
£m
2023
£m
2022
£m
Interest rate increase of 1.0% (2.8) (1.3) (2.8) (1.3)
Interest rate decrease of 1.0% 2.8 1.3 2.8 1.3
Foreign currency sensitivity analysis
The Group’s principal foreign currency exposures are to US Dollars and the Euro. The table below illustrates the hypothetical sensitivity of the
Group’s reported profit and closing equity to a 10% increase and decrease in the US Dollar/Sterling and Euro/Sterling exchange rates at the
reporting date, assuming all other variables remain unchanged. The sensitivity rate of 10% represents the directors’ assessment of a reasonably
possible change, based on historic volatility.
The analysis assumes that exchange rate fluctuations on currency derivatives that form part of an effective cash flow hedge relationship affect
the fair value reserve in equity and the fair value of the hedging derivatives. For foreign exchange derivatives which are not designated hedges,
movements in exchange rates impact the Income Statement.
Positive figures represent an increase in profit or equity.
Income Statement Equity
2023
£m
2022
£m
2023
£m
2022
£m
Sterling strengthens by 10%
US Dollar (20.9) (2.1) (51.4) (52.1)
Euro – – (1.5) 4.6
Sterling weakens by 10%
US Dollar 14.0 (0.8) 58.6 69.2
Euro – – 1.8 (5.6)
Year end exchange rates applied in the above analysis are US Dollar 1.24 (2022: 1.34) and Euro 1.14 (2022: 1.20). Strengthening and weakening
of Sterling may not produce symmetrical results depending on the proportion and nature of foreign exchange derivatives which do not qualify for
hedge accounting.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
234
30. Analysis of Net Debt
January
2022
£m
Cash flow
£m
Fair value
changes
£m
IFRS 16
£m
January
2023
£m
Cash and short term deposits 433.0 (328.0) – – 105.0
Overdrafts and short term borrowings (233.1) 130.8 – – (102.3)
Cash and cash equivalents 199.9 (197.2) – – 2.7
Corporate bonds (815.7) – 25.0 – (790.7)
Fair value hedges of corporate bonds 15.7 – (25.0) – (9.3)
Net debt excluding leases (600.1) (197.2) – – (797.3)
Current lease liability (162.6) – – 16.4 (146.2)
Non-current lease liability (894.9) – – 17.8 (877.1)
(1,057.5) – – 34.2 (1,023.3)
Net debt including leases (1,657.6) (197.2) – 34.2 (1,820.6)
The IFRS 16 movements represent the cash movements in relation to lease payments of £204.4m, and non cash movements relating to disposals
of £5.5m offset by additions of £84.2m, modifications of £41.5m, finance costs £47.3m and FX/Others of £2.7m.
Interest of £24.0m was accrued and paid on the Corporate bonds and associated hedges during the year. The unpaid interest accrual of £14.6m is
recognised within accruals.
31. Related Party Transactions
During the year, group entities entered into the following transactions with related parties and their respective subsidiaries who are not members
of the Group:
Joint ventures Associates
Related party
2023
£m
2022
£m
2023
£m
2022
£m
Sales 58.1 9.4 7.2 5.3
Loans (repaid)/advanced (14.2) 14.2 0.5 0.8
Transactions and loan interest 47.8 29.1 1.2 1.1
Amounts outstanding at year end 27.7 23.6 2.8 2.6
The amounts above are an aggregation of the transactions with the Group’s associates and joint ventures, namely:
• VS Brand Holdings UK Limited and its subsidiaries (joint venture)
• Pink TopCo Limited and its subsidiaries (the “Reiss” Group) (joint venture)
• Retail Restaurants Limited (joint venture)
• West apparel UK Holdings Limited (“GAP”) (joint venture)
• Choice Discount Stores Limited (associate)
• Aubin & Wills Holdings Limited and its subsidiaries (associate)
• Regent Bidco 1 Limited and its subsidiaries (the “Jojo Maman Bébé” Group) (associate)
• Swoon Limited (associate).
All transactions are on an arm’s length basis. Within transactions and loan interest are (i) recharges for payroll costs borne by the NEXT Group and
then recharged to the related party and (ii) certain joint ventures are part of the NEXT VAT Group and accordingly includes transactions for the
settlement of VAT by NEXT on behalf of the joint venture. Such amounts are immediately recharged by NEXT and then settled by the joint venture.
In addition, the Group incurred £59,000 of costs in relation to non-controlling interests.
235
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Financial Statements
Group Company
32. Acquisition of subsidiary
On 1 December 2022, the Group acquired 74% of the trade and assets from Joules Limited, a consolidated group whose principal activity is the
design and sale of lifestyle clothing, related accessories and a homeware range, through a multi-channel business structure embracing retail stores,
wholesale and online. It is expected that this acquisition will strengthen the Groups portfolio of brands while its Total Platform infrastructure will
help grow the Joules business. This qualifies as a business as defined in IFRS 3 Business Combinations. The trade and assets were transferred into a
new trading company, The Harborough Hare Limited.
The amounts recognised in respect of the identifiable assets acquired are set out in the table below:
£m
Financial assets 1.8
Inventory 14.3
Property, plant and equipment and software 8.6
Identifiable intangible assets 10.5
Financial liabilities (9.8)
Deferred tax liabilities (2.6)
Total identifiable assets acquired 22.8
Goodwill 11.6
Non-controlling interest in 26% of The Harborough Hare Holdings Limited (5.6)
Total consideration 28.8
Satisfied by:
Cash 28.8
Due primarily to the short period of time between acquisition and reporting, the accounting for the acquisition of Joules has only been provisionally
determined at the end of the reporting period. In accordance with the requirements of IFRS 3 Business Combinations, the Group will finalise the
acquisition balance sheet within 12 months of the acquisition date.
For tax purposes, the tax values of Joules’ assets are required to be reset based on market values of the assets. At the date of finalisation of these
consolidated financial statements, the necessary market valuations and other calculations had not been finalised and they have therefore only
been provisionally determined based on the directors’ best estimate of the likely tax values.
The identifiable intangible assets include a brand value of £10.1m and other intangible assets of £0.4m. Total identifiable assets acquired were
£22.8m, which results in a goodwill value of £11.6m arising from the acquisition. The goodwill relates to expected synergies from combining Joules
into the NEXT group and the effect of a combined workforce with Brand specific design experience. The goodwill at the year end was £11.6m
(note 10).
The non-controlling interest of 26% ownership interest in Joules recognised at the acquisition date was measured by reference to the cash
consideration paid by the non-controlling interest and amounted to £5.6m.
Joules contributed £32.8m revenue and £4.1m loss before tax to the Group’s profit for the period between the date of acquisition and the reporting
date. The Joules business was previously part of the Joules plc group which went into administration in November 2022. It is not possible to reliably
identify the revenue or profit or loss which would have been recognised had the business combination occurred at the beginning of the annual
reporting period. However prior to administration Joules Limited, the main trading entity of the former Joules plc group, reported revenue of
£179.9m and a loss of £0.4m for the 52 weeks ended 30 May 2021.
33. Contingent liabilities
NEXT has since 2018 received around 1,500 equal pay complaints from former and current employees in our store network. These claims are
subject to a legal and tribunal process which is expected to last several more years. The claims are fact sensitive, legally complex and being
defended rigorously. The Directors believe that the likelihood of successful outcome for the claimants is possible (but not probable). The Directors
also believe that it is not yet possible to reliably assess the likely outcome or the exact quantum of these claims if they are successful.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
236
PARENT
COMPANY
FINANCIAL
STATEMENTS
238 Parent Company Balance Sheet
239 Parent Company Statement of Changes in Equity
240 Notes to the Parent Company Financial Statements
237
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Financial Statements
Group Company
PARENT COMPANY BALANCE SHEET
Notes
28 January
2023
£m
29 January
2022
£m
Fixed assets
Investments C2 2,475.7 2,475.7
2,475.7 2,475.7
Current assets
Other debtors C3 195.5 163.5
Cash at bank and in hand 1.5 –
197.0 163.5
Bank loans and overdrafts – (110.6)
Creditors: amounts falling due within one year C4 (818.2) (554.1)
(818.2) (664.7)
Net current liabilities (621.2) (501.2)
Total assets less current liabilities 1,854.5 1,974.5
NET ASSETS 1,854.5 1,974.5
Capital and reserves
Called up share capital C5 12.9 13.3
Share premium account 0.9 0.9
Capital redemption reserve 17.0 16.6
ESOT reserve C5 (396.6) (331.6)
Other reserves C5 985.2 985.2
Profit and loss account 1,235.1 1,290.1
TOTAL EQUITY 1,854.5 1,974.5
The profit for the year in the accounts of the Company is £400.0m (2022: £300.0m).
The financial statements were approved by the Board of directors and authorised for issue on 29 March 2023. They were signed on its behalf by:
Lord Wolfson of Aspley Guise Amanda James
Chief Executive Group Finance Director
238
PARENT COMPANY STATEMENT
OF CHANGES IN EQUITY
Share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
ESOT
reserve
£m
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
At 30 January 2021 13.3 0.9 16.6 (271.1) 985.2 1,352.2 2,097.1
Profit for the period – – – – – 300.0 300.0
Other comprehensive income for the period – – – – – – –
Total comprehensive income for the period – – – – – 300.0 300.0
Share buybacks (Note C5) – – – – – (13.1) (13.1)
ESOT share purchases (Note C5) – – – (151.3) – – (151.3)
Shares sold/issued by ESOT – – – 90.8 – (24.4) 66.4
Share option charge – – – – – 19.9 19.9
Equity dividends – – – – – (344.5) (344.5)
At 29 January 2022 13.3 0.9 16.6 (331.6) 985.2 1,290.1 1,974.5
Profit for the period – – – – – 400.0 400.0
Other comprehensive income for the period – – – – – – –
Total comprehensive income for the period – – – – – 400.0 400.0
Share buybacks (Note C5) (0.4) – 0.4 – – (224.0) (224.0)
ESOT share purchases (Note C5) – – – (124.0) – – (124.0)
Shares sold/issued by ESOT – – – 59.0 – (18.2) 40.8
Share option charge – – – – – 24.3 24.3
Equity dividends – – – – – (237.1) (237.1)
At 28 January 2023 12.9 0.9 17.0 (396.6) 985.2 1,235.1 1,854.5
239
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Financial Statements
Group Company
NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS
C1. Accounting Policies
The Parent Company financial statements of NEXT plc have been prepared in accordance with the Companies Act 2006 and Financial Reporting
Standard 101 “Reduced disclosure framework” (“FRS 101”). FRS 101 enables the financial statements of the Parent Company to be prepared in
accordance with IFRS but with certain disclosure exemptions. The main areas of reduced disclosure are in respect of equity-settled share-based
payments, financial instruments, the Cash Flow Statement, and related party transactions with Group companies. The accounting policies adopted
for the Parent Company, NEXT plc, are otherwise consistent with those used for the Group which are set out on pages 181 to 195. The ESOT is
consolidated on the basis that the parent has control, thus the assets and liabilities of the ESOT are included in the Balance Sheet and shares held by
the ESOT in the Company are presented as a deduction from equity. As permitted by Section 408 of the Companies Act 2006, the Income Statement
of the Company is not presented as part of the financial statements.
C2. Investments
The £2,475.7m (2022: £2,475.7m) investment shown in the Balance Sheet of NEXT plc relates to its investment in NEXT Group plc.
A full list of the Group’s subsidiary undertakings as at 28 January 2023 is contained in the table below.
Company name Registered office address
% held by
Group
companies
Direct
or indirect
AgraTech Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Belvoir Insurance Company Limited Suite 1 North, 1st Floor, Albert House, South Esplanade, St Peter Port, Guernsey GY1 1AJ,
Guernsey
100 Indirect (group interest)
Brecon Debt Recovery Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Lipsy Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
LLC Next 7 Dolgorukovskaya Street, 127006, Moscow, Russian Federation 100 Indirect (group interest)
Next (Asia) Limited Suites 1404 to 1413 & Pt14, 1111 King’s Road, Taikoo Shing, Hong Kong 100 Indirect (group interest)
NEXT (US), LLC Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, United States 100 Indirect (group interest)
Next AV s.r.o. Pribinova 8, 811 09, Bratislava, Slovakia 100 Indirect (group interest)
Next Beauty Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Brand Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Distribution Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Europe & North Africa Morocco SARL Jean Jaures SARL, 49 rue Jean Jaurès, Quartier Gauthier, 6ème étage, Apt N° 12,
Casablanca, Morocco
100 Indirect (group interest)
Next Europe & North Africa Tunisia SARL Centre le Millennium, B30, 2046 Sidi Daoud, La Marsa, Tunis 100 Indirect (group interest)
Next Financial Services Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Germany GmbH c/o BDO AG Wirtschaftsprüfungsgesellschaft, Zielstattstr. 40, 81379, Munich, Germany 100 Indirect (group interest)
Next Group plc Desford Road, Enderby, Leicester LE19 4AT, UK 100 Direct
Next Holding Wholesale Private Limited 915, Unit No. 9, Corporate Park II, 9th floor, VN Purav Marg, Near Swastik, Chambers,
Chembur, Mumbai, Maharashtra-MH, 400071, India
100 Indirect (group interest)
Next Holdings Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Manufacturing (Pvt) Limited Phase 1, Ring Road 2, Export Processing Zone, Katunayake, Sri Lanka 100 Indirect (group interest)
Next Manufacturing Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Near East Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Pension Trustees Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Properties Ltd Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Retail (Ireland) Limited 13–18 City Quay, Dublin 2, D02 ED70, Ireland 100 Indirect (group interest)
Next Retail Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Sourcing (UK) Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Next Sourcing Company Limited House No. 14, St. No. 106, Phoum 8, Sangkat Wat Phnom, Khan Daun Penh, Phnom Penh,
Cambodia
100 Indirect (group interest)
Next Sourcing Limited Suites 1404 to 1413 & Pt14, 1111 King’s Road, Taikoo Shing, Hong Kong 100 Indirect (group interest)
Next Sourcing Limited Shanghai Office Room 901-902, 908-921, 9th Floor, Bldg. 3, No. 283 West Jianguo Road, Xuhui District,
Shanghai
100 Indirect (group interest)
Next Sourcing Services (India) Private Limited 207 Jaina Tower, 1 District Centre, Janakpuri, New Delhi, 110058, India 100 Indirect (group interest)
Next Sourcing Services Limited Giant Business Tower, Level 4 & 5, Plot #3, Sector-3, Dhaka Mymensingh Road, Uttara
Commercial Area, Dhaka, 1230 Bangladesh
100 Indirect (group interest)
Next Sourcıng İç Ve Dış Ticaret Limited Şirketi Esentepe Mah. Büyükdere Cad. Ferko Signature Blok No: 175 İç Kapi No: 69 Şişli/Istanbul 100 Indirect (group interest)
Next-E-NA Portugal, Unipessoal LDA R. dos Transitários 182 RCH, 4455–565 Matosinhos, Portugal 100 Indirect (group interest)
NSL Limited Suites 1404 to 1413 & Pt14, 1111 King’s Road, Taikoo Shing, Hong Kong 100 Indirect (group interest)
Paige Group Limited (The) Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Project Norwich Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
The Harborough Hare Holdings Limited Desford Road, Enderby, Leicester LE19 4AT, UK 74 Indirect (group interest)
The Harborough Hare Limited Desford Road, Enderby, Leicester LE19 4AT, UK 74 Indirect (group interest)
The Next Directory Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Ventura Group Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
Ventura Network Distribution Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100 Indirect (group interest)
240
C2. Investments (continued)
A full list of the Group’s significant holdings in undertakings other than subsidiary undertakings as at 28 January 2023 is contained in the table below.
Company name Registered office address
% held by
Group
companies
Direct
or indirect
Aubin & Wills Holdings Limited 1110 Elliott Court, Coventry Business Park, Herald Avenue, Coventry CV5 6UB 28 Indirect (group interest)
Choice Discount Stores Limited 14–14A Rectory Road, Hadleigh Benfleet, Essex SS7 2ND, UK 49 Indirect (group interest)
Pink Topco Limited 22 Grenville Street, St. Helier, Jersey JE4 8PX, UK 51 Indirect (group interest)
Regent Bidco 1 Limited C/O Alter Domus (Uk) Limited, 10th Floor, 30 St Mary Axe, London EC3A 8BF, UK 44 Indirect (group interest)
Swoon Editions Limited 7 Bell Yard, London, WC2A 2JR, UK 25 Indirect (group interest)
VS Brands Holdings UK Limited Desford Road, Enderby, Leicester LE19 4AT, UK 51 Indirect (group interest)
West Apparel UK Holdings Limited Desford Road, Enderby, Leicester LE19 4AT, UK 51 Indirect (group interest)
C3. Other Debtors
2023
£m
2022
£m
Amounts due from subsidiary undertaking 193.3 163.4
Other receivables 2.2 0.1
195.5 163.5
C4. Creditors due within one year
2023
£m
2022
£m
Amounts due to subsidiary undertaking 818.2 549.4
Accruals and other creditors – 4.7
818.2 554.1
C5. Share Capital, ESOT Reserve and Other Reserves
Details of the Company’s share capital and share buybacks are given in Note 22. ESOT transactions are detailed in Note 25. Other reserves in the
Company Balance Sheet of £985.2m (2022: £985.2m) represent the difference between the market price and the nominal value of shares issued
as part of the capital reconstruction in 2002 on acquisition of Next Holdings Limited (formerly NEXT Group plc) which was subject to Section 131
Companies Act 1985 merger relief.
C6. UK registered subsidiaries exempt from Audit
The following UK subsidiaries will take advantage of the audit exemption set out within Section 479A of the Companies Act 2006 for the year ended
28 January 2023.
Company name Registered office address
% held by
Group
companies
AgraTech Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Lipsy Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Next Beauty Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Next Brand Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Next Distribution Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Next Holdings Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Next Manufacturing Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Next Near East Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Next Properties Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Next Retail Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
The Next Directory Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
Project Norwich Limited Desford Road, Enderby, Leicester LE19 4AT, UK 100
The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date in accordance with Section
479C of the Companies Act 2006. The Company has assessed the probability of loss under the guarantee as remote.
241
Strategic Report Governance
Shareholder Information
Financial Statements
Group Company
SHAREHOLDER
INFORMATION
243 Half Year and Segment Analysis
244 Five Year History
245 Glossary
249 Notice of Meeting
256 Other Shareholder Information
242
HALF YEAR AND SEGMENT ANALYSIS (UNAUDITED)
First
half
£m
Second
half
£m
52 weeks to
Jan 2023
£m
First half
restated¹
£m
Second half
restated¹
£m
52 weeks to
Jan 2022
restated¹
£m
Total sales
NEXT Online 1,427.2 1,579.4 3,006.6 1,504.8 1,559.9 3,064.7
NEXT Retail 880.5 984.6 1,865.1 540.1 892.3 1,432.4
NEXT Finance 133.7 140.7 274.4 119.2 130.2 249.4
Total Platform 59.3 85.1 144.4 17.7 21.4 39.1
Joules – 32.8 32.8 – – –
Property Management 8.8 10.1 18.9 4.3 8.4 12.7
International Retail, Sourcing and other 36.1 36.2 72.3 29.6 33.9 63.5
Total Group sales 2,545.6 2,868.9 5,414.5 2,215.7 2,646.1 4,861.8
Profit before tax
NEXT Online 220.9 246.4 467.3 324.7 279.7 604.4
NEXT Retail 100.6 139.9 240.5 (17.8) 124.8 107.0
NEXT Finance 86.3 84.2 170.5 67.8 81.7 149.5
Total Platform including equity share 3.7 15.6 19.3 (0.3) 7.2 6.9
Joules – (4.1) (4.1) – – –
Property Management 13.3 23.7 37.0 7.0 3.8 10.8
International Retail, Sourcing and other 15.1 13.0 28.1 14.6 13.9 28.5
Total segmental profit 439.9 518.7 958.6 396.0 511.1 907.1
Recharge of interest 15.6 18.8 34.4 15.7 15.2 30.9
Other activities (21.0) (30.5) (51.5) (19.2) (13.4) (32.6)
Net finance cost (33.9) (38.3) (72.2) (45.8) (36.5) (82.3)
Profit before tax 400.6 468.7 869.3 346.7 476.4 823.1
1. As explained in Note 1 Segment Analysis, the Lipsy segment has been consolidated within NEXT Online and Total Platform has been separated out into its segment. Therefore the prior
year revenues and segmental profit has been restated to reflect this change in segments. This change has no impact on the Group’s Total sales or total profit before tax.
Strategic Report Governance Financial Statements
Shareholder Information
243
FIVE YEAR HISTORY (UNAUDITED)
IFRS 16 basis IFRS 16 basis IFRS 16 basis IFRS 16 basis IFRS 16 basis
Period to January
2023
£m
2022
£m
2021
£m
2020
£m
2019
£m
Underlying continuing business
Total sales 5,414.5 4,861.8 3,625.9 4,361.8 4,220.9
Statutory revenue 5,034.0 4,625.9 3,534.4 4,266.2 4,167.4
Operating profit 941.5 905.4 444.5 853.9 841.1
Net finance costs (72.2) (82.3) (102.1) (105.4) (107.5)
Profit before tax 869.3 823.1 342.4 748.5 733.6
Taxation (158.6) (145.6) (55.7) (138.3) (134.5)
Profit after taxation 710.7 677.5 286.7 610.2 599.1
Total equity 1,165.1 1,010.0 660.9 441.5 366.2
Shares purchased for cancellation 3.5m 0.2m 0.3m 5.4m 6.3m
Dividends per share – ordinary 193.0p – – 57.5p 165.0p
– special – 270.0p – – –
Basic Earnings Per Share
Underlying 573.4p 530.8p 223.3p 472.4p 441.7p
Total 573.4p 530.8p 223.3p 472.4p 441.7p
244
GLOSSARY
Alternative Performance Measures (APMs) and other non-statutory measures
APM Definition Closest equivalent
statutory measure
Purpose and reconciliation to closest statutory measure
where applicable
Average active customers
Those customers who have purchased products using
their Online account or received a standard account
statement in the last 20 weeks. Customers can be
either Online credit or cash customers.
None Active customers have a strong correlation with interest income
on the Finance P&L and help drive understanding on movements
in income.
Reconciliation to the closest equivalent statutory measure
not applicable.
Average customer receivables/
debtor balance
The average amount of money owed by all nextpay
and next3step customers less any provision for bad
debt. This represents the total balances we expect to
recover averaged across the relevant period.
This is referred to as “customer receivable” or
“debtor balance”.
None Average debtor balance has a strong correlation with interest
income on the Finance P&L and helps drive understanding of
movements in income. It also helps to evaluate the overall health
of the balance sheet for the Finance business.
The average debtor balance in 2023 was £1,179m
(2022: £1,062m). The statutory accounts do not disclose the
monthly debtor balance needed to calculate the average debtor
balance. The year end balance is disclosed in Note 13 to the
financial statements.
Bad debt charge
The charge taken in relation to the performance of our
customer debtor book. This consists predominantly of
providing for future defaults.
Impairment losses
Note 13
Measurement of the quality of the Online debtor book/customer
receivables. A lower bad debt charge indicates that the quality
and recoverability of the balance is higher.
The bad debt charge is the total of the in-year impairment charge,
less amounts recovered. In 2023 the total bad debt charge
disclosed in the CEO report was £26m (2022: £27m).
In Note 13 the total Expected Credit Loss charge was £31.0m
(2022: £28.6m) with the difference relating to recoveries on
previously written off assets.
Bought-in gross margin
Difference between the cost of stock and initial selling
price, expressed as a percentage of achieved total VAT
exclusive selling prices.
None Bought-in gross margin is a measure of the profit made on the sale
of stock at full price. This is a key internal management metric for
assessing category performance.
Reconciliation to closest equivalent statutory measure not
applicable as full price sales not a statutory metric.
Branch profitability
Retail store total sales less cost of sales, payroll,
controllable costs, occupancy costs and depreciation,
and before allocation of central overheads.
Expressed as a percentage of VAT inclusive sales.
Net branch profit is a measure of the profitability on
a store by store level.
None Measurement of the Retail business profit by physical branch.
Provides an indication of the performance of the store portfolio.
This is based on costs which are directly attributable to the store.
Therefore, it does not include costs such as central overheads
which will be included in the statutory accounts.
Reconciliation to closest equivalent statutory measure is therefore
not applicable.
Cost of funding
Interest is charged to the NEXT Finance business in
respect of funding costs for the Online debtor balance
(customer receivable).
It is calculated by applying the average Group
interest rate (i.e. the external borrowing rate of the
NEXT Group divided by the average NEXT Group
borrowing excluding cash) to the average debtor/
customer balance.
None Used by the business to evaluate the profitability of the Finance
business. There is no statutory equivalent as this is a metric specific
to how the Group manages its funding and cost allocations. In the
year to January 2023 this has been calculated as:
Average Group interest = Interest cost/Average debt excluding
cash = £29.5m/£858.5m = 3.4%
Then apply 3.4% to 85% of the Average Online customer balance of
£1,179m (as we assume that 85% is funded by debt). This equates
to a Cost of Funding charge of £34.4m (2022: £30.9m).
Credit sales
VAT exclusive sales from Online credit customers who
have purchased using their online NEXT account,
inclusive of any interest income charges and
delivery charges, and after deducting any applicable
promotional discounts.
None Credit sales are a direct indicator of the performance and
profitability of the Finance business.
Reconciliation to closest equivalent statutory measure not
applicable as the statutory accounts split by business segment but
not by the mechanism of customer payment.
Strategic Report Governance Financial Statements
Shareholder Information
245
APM Definition Closest equivalent
statutory measure
Purpose and reconciliation to closest statutory measure
where applicable
Divisional operating profit
Divisional profit before interest and tax, excluding
equity-settled share option charges recognised under
IFRS 2 “Share-based payment” and unrealised foreign
exchange gains and losses on derivatives which do not
qualify for hedge accounting.
Segment profit A direct indicator of the performance of each division making up
the total Group operating profit. A commonly used metric that
provides a useful method of performance comparison across
the Group.
The divisional operating profits are the same as the Segment
profits presented in Note 1 of the financial statements.
Full price sales
Total sales excluding items sold in our sale events,
Total Platform sales and our Clearance operations and
includes interest income relating to those sales.
Revenue – sale
of goods
Full price sales are a direct indicator of the performance and
profitability of the business.
They are based on Total Group Sales (defined below) excluding
markdown (i.e. discounted).
Interest income (NEXT Finance)
The gross interest billed to nextpay and next3step
customers, before any deduction for unpaid interest
on bad debt.
Revenue – credit
account interest
Interest income for the Finance business is a direct indicator of the
performance and profitability of the Finance business.
This is presented on the face of the Income Statement and Note 2
of the financial statements as “credit account interest”.
Like-for-like sales
Change in sales from Retail stores which have been
open for at least one full year.
None This metric enables the performance of the Retail stores to be
measured on a consistent year-on-year basis and is a common
term used in the retail industry.
Reconciliation to closest equivalent statutory measure
not applicable.
Note in the current year like-for-like sales on Retail stores are not
being used as a KPI due to the disruption caused by COVID in the
prior year.
Net debt excluding leases
Comprises cash and cash equivalents, bank loans,
corporate bonds, and fair value hedges of corporate
bonds but excludes lease debt.
Net debt is a measure of the Group’s indebtedness.
None This measure is a good indication of the strength of the Group’s
liquidity and is widely used by credit rating agencies.
Net debt excluding leases is reconciled to net debt including
leases in Note 30 of the financial statements.
NEXT operating profit
Operating profit While NEXT owns 74% of the equity in Joules, the Operating profit
on a statutory basis, includes 100% of the loss from Joules.
For management purposes, the non controlling interest (i.e.
the 26% which is not attributable to NEXT shareholders) is
removed so that the NEXT Operating profit only reflects 74% of
the results of Joules.
The NEXT operating profit and the statutory Operating profit is
reconciled in Appendix 2.
Net profit (NEXT Finance)
The profit, including interest income and the bad debt
charge, and after the allocation of central overheads
and the cost of funding.
Profit before tax
(for the Finance
segment)
A measure of direct profitability of the Finance business.
The net profit for the Finance Business is presented in Note 1 to
the financial statements.
NEXT profit before tax
Profit before tax While NEXT owns 74% of the equity in Joules, the Profit before
tax, on a statutory basis, includes 100% of the loss from Joules.
For management purposes, the non controlling interest (i.e.
the 26% which is not attributable to NEXT shareholders) is
removed so that the NEXT profit before tax only reflects 74% of
the results of Joules.
The NEXT profit before tax and the statutory Profit before tax is
reconciled in Appendix 2.
GLOSSARY
Alternative Performance Measures (APMs) and other non-statutory measures
246
APM Definition Closest equivalent
statutory measure
Purpose and reconciliation to closest statutory measure
where applicable
NEXT Group pre-tax Earning per share
None NEXT Group pre-tax EPS is used as a bonus metric for the
NEXT executive directors. This APM uses the profit before tax
attributable to NEXT plc shareholders (NEXT profit before tax)
as this is considered to represent a direct measure of the value
which is attributable to the shareholders, excluding the impact of
tax which is not directly controlled by the Board.
For January 2023 the number of shares used in this APM excludes
those shares which were acquired from budgeted surplus cash.
This is because the EPS enhancement from such shares was not
included in the original targets set and so the directors should not
benefit from this.
In January 2022 the profit before tax was based on a pre-IFRS
16 position.
Online margin
NEXT operating profit for the Online business after
deducting lease interest as a percentage of the Trading
sales which relate to the Online division.
None A measure of the profitability of the Group. A commonly
used metric that can be used to compare performance to
other businesses.
The margin is based on the segmental operating profit, as
disclosed in Note 1 of the financial statements, less allocation of
lease interest, adjusted for the non controlling interest in Joules,
as a percentage of the Trading Sales for that segment.
A reconciliation between Total Group sales and statutory revenue
is provided in Note 1 of the financial statements.
Net margin measures whether profitability is changing at a higher
or lower rate relative to revenue.
Retail margin
Operating profit after deducting lease interest as a
percentage of the Trading sales which relate to the
Retail division.
None A measure of the profitability of the Group. A commonly
used metric that can be used to compare performance to
other businesses.
The margin is based on the segmental operating profit, as disclosed
in Note 1 of the financial statements, less allocation of lease
interest, as a percentage of the Trading Sales for that segment.
A reconciliation between Total Group sales and statutory revenue
is provided in Note 1 of the financial statements.
Net margin measures whether profitability is changing at a higher
or lower rate relative to revenue.
Return on capital employed – ROCE
(NEXT Finance)
The NEXT Finance net profit (after the interest charge
relating to the cost of funding), divided by the average
debtor balance.
None A commonly used metric that can be used to compare
performance to other financial businesses.
It measures the profit (i.e. return) relative to the amount of capital
employed. The higher the ROCE, the greater the return for the
capital employed in the business.
The ROCE for NEXT Finance in the year to January 2023 was
calculated by dividing the Operating profit for segment of
£170.5m by the average customer receivable balance of £1,179m.
As a percentage, this is 14.5% (FY22 restated due to the change in
Lipsy segmental reporting: 14.1%).
The Operating profit for the segment is disclosed in Note 1 to the
financial statements.
Strategic Report Governance Financial Statements
Shareholder Information
247
APM Definition Closest equivalent
statutory measure
Purpose and reconciliation to closest statutory measure
where applicable
Total sales
Total sales are a segment level measure of sales being
VAT exclusive full price and markdown sales, including
the full value of commission-based sales, interest
income (as described and reconciled in Note 1 of the
financial statements) and service income from our
Total Platform business.
Statutory revenue Total Sales are a direct indicator of the performance and
profitability of the segment.
Total Sales are reconciled to Statutory revenue in Note 1 to the
financial statements.
Total Trading sales/Total Group sales
Total Trading sales are the aggregation of Total sales
from our core trading segments of Retail, Online
and Finance.
Total Group sales are the aggregation of Total sales for
all of the Group segments.
Statutory revenue Total Trading Sales are a direct indicator of the performance
and profitability of the business from the Online, Retail and
Finance business.
Total Group Sales are a direct indicator of the performance and
profitability of the entire business.
Total Trading Sales and Total Group sales are reconciled to
Statutory revenue in Note 1 to the financial statements.
GLOSSARY
Alternative Performance Measures (APMs) and other non-statutory measures
248
NOTICE OF MEETING
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR
IMMEDIATE ATTENTION.
If you are in any doubt as to the action you should take, you should
immediately consult your stockbroker, bank manager, solicitor,
accountant or other independent financial advisor authorised under
the Financial Services and Markets Act 2000.
If you have sold or otherwise transferred all your NEXT plc (NEXT and/
or the Company) shares, please send this document, together with
the accompanying Form of Proxy, to the purchaser or transferee, or to
the stockbroker or other agent through whom the sale or transfer was
effected, for delivery to the purchaser or transferee.
Notice is given that the Annual General Meeting (AGM) of NEXT will be
held at Leicester Marriott Hotel, Smith Way, Grove Park, Leicester LE19
1SW on Thursday 18 May 2023 at 9.30 am. The Company will take into
account any Government guidance or legislation in force at the time
of the AGM and will implement any measures it believes necessary to
protect the health and safety of attendees. Any changes to the format
of the AGM will be communicated to shareholders through our website
at nextplc.co.uk/investors/shareholderinformation/company-meetings
and, where appropriate, by stock exchange announcement.
Shareholders may submit questions in advance on resolutions to be put
to the AGM by emailing investors@next.co.uk. Questions submitted by
5.00 pm on 17 May 2023 will be answered at the meeting as appropriate.
The following resolutions will be proposed at the AGM, resolutions
1 to 18 as ordinary resolutions and 19 to 23 as special resolutions.
Further information on these resolutions can be found in Appendix 1
to this Notice. Biographies of the directors are shown on pages 114 to
116 of the Annual Report.
1 To receive and adopt the accounts and reports of the directors and
auditor for the period ended 28 January 2023.
2 To approve the Directors’ Remuneration Policy, the full text of which
is contained in the Directors’ Remuneration Report and set out on
pages 138 to 149.
3 To approve the Directors’ Remuneration Report (excluding the
Directors’ Remuneration Policy) set out on pages 133 to 162.
4 To declare a final dividend of 140 pence per ordinary share.
To elect the following director appointed by the directors since the
last AGM who is seeking election in accordance with the Company’s
Articles of Association:
5 Jeremy Stakol.
To re-elect the following directors who are seeking annual re-
election in accordance with the UK Corporate Governance Code:
6 Jonathan Bewes.
7 Soumen Das.
8 Tom Hall.
9 Tristia Harrison.
10 Amanda James.
11 Richard Papp.
12 Michael Roney.
13 Jane Shields.
14 Dame Dianne Thompson.
15 Lord Wolfson.
16 To re-appoint PricewaterhouseCoopers LLP as auditor of the
Company, to hold office until the conclusion of the 2024 AGM of
the Company.
17 To authorise the Audit Committee, on behalf of the Board, to
set the remuneration of the Company’s auditor in respect of its
appointment for the period ending at the conclusion of the next
AGM of the Company.
18 Directors’ authority to allot shares that the directors be authorised,
generally and unconditionally, to allot equity securities (as defined
in Section 560 of the Companies Act 2006 (the 2006 Act)) in the
Company and to grant rights to subscribe for or convert any security
into shares in the Company:
a. up to a maximum nominal amount of £4,200,000 (as reduced by
any equity securities allotted under paragraph (b) below); and
b. up to a maximum nominal amount of £8,500,000 (as reduced
by any equity securities allotted under paragraph (a) above) in
connection with an offer by way of a rights issue;
(i) to ordinary shareholders in proportion (as nearly as may be
practicable) to their existing holdings; and
(ii) to holders of other equity securities as required by the rights
of those securities or as the directors otherwise considers
necessary, and so that the Board may impose any limits or
restrictions and make any arrangements which it considers
necessary or appropriate to deal with treasury shares,
fractional entitlements, record dates, legal, regulatory or
practical problems in, or under the laws of, any territory or
any other matter.
This authority shall expire at the conclusion of the next AGM of the
Company after the passing of this resolution, or, if earlier, at the close
of business on 18 August 2024. All previous unutilised authorities
under Section 551 of the 2006 Act shall cease to have effect (save to
the extent that the same are exercisable pursuant to Section 551(7)
of the 2006 Act by reason of any offer or agreement made prior to
the date of this resolution which would or might require shares to be
allotted on or after that date).
19 General disapplication of pre-emption rights
That, subject to resolution 18 being passed:
a. the directors be given power to allot equity securities (as defined
in the 2006 Act) for cash under the authority given by that
resolution and/or to sell ordinary shares held by the Company
as treasury shares for cash as if section 561 of the Companies
Act 2006 did not apply to any such allotment or sale;
b. the power under paragraph (a) above shall be limited to the
allotment of equity securities and sale of treasury shares in
connection with an offer of, or invitation to apply for, equity
securities (but in the case of the authority granted under
paragraph (b) of resolution 18, by way of a rights issue only):
(i) to ordinary shareholders in proportion (as nearly as may be
practicable) to their existing holdings; and
(ii) to holders of other equity securities, as required by the rights
of those securities, or as the Board otherwise considers
necessary, and so that the Board may impose any limits or
restrictions and make any arrangements which it considers
necessary or appropriate to deal with treasury shares,
fractional entitlements, record dates, legal, regulatory or
practical problems in, or under the laws of, any territory or
any other matter; and
Strategic Report Governance Financial Statements
Shareholder Information
249
NOTICE OF MEETING
c. the power under paragraph (a) above shall be limited to, in the
case of the authority granted under paragraph (a) of resolution
18 and/or in the case of treasury shares, to the allotment of
equity securities or sale of treasury shares (otherwise than under
paragraph (b) above) up to a nominal amount not exceeding in
aggregate £1,287,000 representing 10% of the issued ordinary
share capital;
d. this authority shall expire at the conclusion of the next AGM of
the Company after the passing of this resolution or, if earlier, at
the close of business on 18 August 2024; and
e. all previous unutilised authorities under Sections 570 and 573 of
the 2006 Act shall cease to have effect (save to the extent that
they are exercisable by reason of any offer or agreement made
prior to the date of this new resolution which would or might
require shares to be allotted on or after that date).
20 Additional disapplication of pre-emption rights that, subject to
resolutions 18 and 19 being passed:
a. the directors be given the power to allot, in addition to any
power granted under resolution 19, equity securities (as defined
in the 2006 Act) for cash under the authority granted under
paragraph (a) of resolution 18 and/or to sell ordinary shares held
by the Company as treasury shares for cash as if section 561 of
the Companies Act 2006 did not apply to any such allotment
or sale;
b. the power under paragraph (a) above shall be:
(i) limited to the allotment of equity securities having a
nominal amount not exceeding in aggregate £1,287,000
representing 10% of the issued ordinary share capital; and
(ii) used only for the purposes of financing (or refinancing,
if the authority is to be used within twelve months after
the original transaction) a transaction which the directors
determine to be an acquisition or other capital investment
of a kind contemplated by the Statement of Principles on
Disapplying Pre-Emption Rights most recently published by
the Pre-Emption Group prior to the date of this Notice;
c. this authority shall expire at the conclusion of the next AGM of
the Company after the passing of this resolution or, if earlier, at
the close of business on 18 August 2024; and
d. other than in respect of authorities granted pursuant to
resolution 19, all previous unutilised authorities under Sections
570 and 573 of the 2006 Act shall cease to have effect (save
to the extent that they are exercisable by reason of any offer
or agreement made prior to the date of this new resolution
which would or might require shares to be allotted on or after
that date).
21 On-market purchases of own shares
That in accordance with the 2006 Act, the Company be granted
general and unconditional authority to make market purchases
(as defined in Section 693 of the 2006 Act) of any of its own ordinary
shares on such terms and in such manner as the directors may
determine provided that:
a. the authority conferred by this resolution shall be limited to
the lesser of 19,297,000 ordinary shares of 10p each and no
more than 14.99% of the issued ordinary shares outstanding at
the date of the AGM, such limit to be reduced by the number
of shares purchased pursuant to the authority granted at
resolution 22 below;
b. the minimum price which may be paid for ordinary shares
(exclusive of expenses) is 10p per ordinary share;
c. the maximum price which may be paid for each ordinary share
(exclusive of expenses) is an amount not more than the higher
of: (i) 105% of the average of the middle market price of the
ordinary shares of the Company according to the Daily Official
List of the London Stock Exchange for the five business days
immediately preceding the date of purchase and (ii) an amount
equal to the higher of the price of the last independent trade
of an ordinary share of the Company and the highest current
independent bid for an ordinary share of the Company as
derived from the London Stock Exchange Trading System;
d. this authority shall expire at the conclusion of the next AGM of
the Company after the passing of this resolution or, if earlier, at
the close of business 18 August 2024;
e. the Company may make a contract or contracts to purchase
ordinary shares under the authority hereby conferred prior
to the expiry of such authority which will or may be executed
wholly or partly after the expiry of such authority and may make
a purchase of ordinary shares in pursuance of any such contract;
and
f. all existing authorities for the Company to make market
purchases of its own ordinary shares are revoked, except in
relation to the purchase of shares under a contract or contracts
concluded before the date of this resolution and which has or
have not yet been executed.
22 Off-market purchases of own shares
That, in accordance with Section 694 of the 2006 Act, the proposed
programme agreements to be entered into between the Company
and any of Goldman Sachs International, UBS AG London Branch,
BNP Paribas and Barclays Bank plc (the Banks) (in the form produced
to this meeting and initialled by the Chairman for the purpose of
identification) (the Programme Agreements) be and are approved
and the Company be and is authorised to enter into the Programme
Agreements and all and any forward trades which may be effected
or made from time to time for the off-market purchase by the
Company of its ordinary shares of 10 pence each under or pursuant
to the Programme Agreements, as more fully described on pages
252 and 253. The authority conferred by this special resolution
shall expire at the conclusion of the next AGM of the Company
after the passing of this resolution or, if earlier, at close of business
on 18 August 2024 (except in relation to the purchase of ordinary
shares under any forward trade effected or made before the expiry
of such authority and which might be completed wholly or partly
after such expiry).
23 Notice of general meetings
That a general meeting (other than an AGM) may be called on not
less than 14 clear days’ notice.
By order of the Board
Ian Blackwell
Company Secretary
Registered Office: Desford Road, Enderby, Leicester LE19 4AT
14 April 2023
250
Explanatory notes to resolutions
1. To receive and adopt the report and accounts
Shareholders are asked to receive and adopt the Strategic Report,
Directors’ Report, and the financial statements for the period ended
28 January 2023, together with the Auditors’ Report.
2. To approve the Directors’ Remuneration
Policy
The Directors’ Remuneration Policy is being submitted for shareholder
approval as part of the normal three-year cycle. No changes are
proposed from the current Policy; details are set out on pages 134
to 136.
Subject to shareholder approval, the Policy, in the form set out on pages
138 to 149 of the Annual Report for the year ended 28 January 2023,
will be effective from the conclusion of this AGM.
3. To approve the Directors’
Remuneration Report
The Directors’ Remuneration Report sets out the pay and benefits
received by each of the directors for the period ended 28 January
2023 and is subject to an advisory vote by shareholders. The Report
(excluding the Directors’ Remuneration Policy) is set out on pages 133
to 162 of the Annual Report for the period ended 28 January 2023.
4. To declare a final dividend of 140 pence per
ordinary share
The directors recommend that a final dividend of 140 pence per share
be paid on 1 August 2023 to shareholders on the register of members
at close of business on 7 July 2023. This resolution relates only to this
dividend. If, in line with the Company’s policy of returning surplus
cash to shareholders, the directors decide to pay special dividends
any such dividends will be paid by the directors as interim dividends.
The announcement of any dividend will clearly indicate whether it is
a special dividend or not. The Trustee of the NEXT ESOT has waived
dividends paid in the year on shares held by it, refer to Note 25 of the
financial statements.
5–15. Directors
In accordance with the UK Corporate Governance Code 2018,
all directors will stand for election or re-election at this year’s AGM.
Directors’ biographies are set out on pages 114 and 116 of the Annual
Report and provide a summary of the range of skills, knowledge and
experience of each director.
Following a formal performance evaluation, the Chairman confirms that
each director has demonstrated that they continue to be an effective
and valuable member of the Board and that they remain committed
to their role (including making sufficient time available for Board and
Committee meetings and other duties).
The Board is satisfied that each non-executive director offering
themselves for election or re-election is independent in both character
and judgement, and that their experience, knowledge and other
business interests enable them to contribute significantly to the work
and balance of the Board.
16 and 17. Appointment and remuneration
of auditor
On the recommendation of the Audit Committee, the Board
proposes that PwC be reappointed as auditor of the Company.
Resolution 17 proposes that the auditors’ remuneration be determined
by the Audit Committee.
18. Renewal of the powers of directors to
allot shares
Ordinary resolution 18(a) seeks authority to allow the directors to allot
ordinary shares up to a maximum nominal amount of £4,200,000,
representing approximately one third of the Company’s existing
issued share capital, excluding treasury shares, as at 28 March 2023.
In accordance with institutional guidelines, resolution 18(b) will also
allow directors to allot further ordinary shares, in connection with a pre-
emptive offer by way of a rights issue, up to a total maximum nominal
amount of £8,500,000, representing approximately two thirds of the
Company’s existing issued share capital, excluding treasury shares, as
at that date. As at 28 March 2023 (being the latest practicable date
prior to publication of this document) the Company’s issued share
capital amounted to £12,873,726 comprising 128,737,260 ordinary
shares of 10 pence each. No shares were held in treasury. The directors
have no present intention of exercising this authority, however, the
Board wishes to ensure that the Company has maximum flexibility in
managing the Group’s capital resources. The authority sought under
this resolution will expire at the conclusion of the AGM in 2024 or,
if earlier, 18 August 2024.
19 and 20. Authority to disapply
pre-emption rights
In special resolution 19, the directors are seeking authority to allot
equity securities for cash without first offering them to existing
shareholders in proportion to their holdings. This resolution limits the
aggregate nominal value of ordinary shares which may be issued by the
directors on a non pre-emptive basis to £1,287,000, representing 10% of
the issued ordinary share capital of the Company as at 28 March 2023.
This authority also allows the directors, within the same aggregate limit,
to sell for cash, shares that may be held by the Company in treasury.
Special resolution 20 seeks separate and additional authority to allot
up to an additional 10% of the issued ordinary share capital of the
Company on a non pre-emptive basis in connection with an acquisition
or specified capital investment (within the meaning given in the
Pre-Emption Group’s 2022 Statement of Principles) which is announced
at the same time as the allotment, or which has taken place in the
twelve month period before and is disclosed in the announcement of
the allotment.
The directors have no present intention to exercise the powers sought
by resolutions 19 or 20. If the powers sought by resolutions 19 or 20
are used in relation to a non-pre-emptive offer, the directors confirm
their intention to follow the shareholder protections in paragraph 1 of
Part 2B of the Pre-emption Group’s Statement of Principles published in
November 2022 and, where relevant, follow the expected features of a
follow-on offer as set out in paragraph 3 of Part 2B of the Pre-emption
Group’s Statement of Principles. The authority sought under resolutions
19 and 20 will expire at the AGM in 2024 or, if earlier, 18 August 2024.
NOTICE OF MEETING
Appendix 1
Strategic Report Governance Financial Statements
Shareholder Information
251
21. On-market purchase of the Company’s
own shares
NEXT has been returning capital to its shareholders through share
repurchases as well as special and ordinary dividends since March
2000 as part of its strategy for delivering sustainable long term returns
to shareholders. Over this period, and up to 28 March 2023, NEXT
has returned over £4.5bn to shareholders by way of share buybacks
and over £4.3bn in dividends, of which £1.2bn comprised special
dividends. This buyback activity has enhanced Earnings Per Share, given
shareholders the opportunity for capital returns (as well as dividends)
and has been transparent to the financial markets. Share buybacks have
not been made at the expense of investment in the business. Over the
last five years, NEXT has invested over £790m in capital expenditure to
support and grow the business.
The directors intend that this authority will only be exercised if doing so
will result in an increase in Earnings Per Share and, being in the interests
of shareholders generally, it is considered to promote the success of the
Company. The directors will also give careful consideration to financial
gearing levels of the Company and its general financial position.
The purchase price would be paid out of distributable profits. It is the
directors’ present intention to cancel any shares purchased under
this authority.
The repurchase of ordinary shares would give rise to a stamp duty liability
of the Company at the rate currently of 0.5% of the consideration paid.
The Company has no warrants in issue in relation to its shares and no
options to subscribe for its shares outstanding. Exercise of outstanding
employee share options and share awards are generally satisfied by the
transfer of market-purchased shares from the ESOT (refer to Note 25 to
the financial statements).
The renewed authority will expire at the AGM in 2024 or, if earlier,
18 August 2024.
22. Off-market purchases of own shares
The directors consider that share buybacks are an important means
of returning value to shareholders and maximising sustainable long
term growth in Earnings Per Share. Contingent contracts for off-market
share purchases offer a number of additional benefits compared to
on-market share purchases:
• Contingent contracts allow the Company to purchase shares at a
discount to the market price prevailing at the date each contract is
entered into. No shares have been bought back under contingent
purchase contracts pursuant to the authority granted at the 2022
AGM up to 28 March 2023.
• Low share liquidity can often prevent the Company from purchasing
sufficient numbers of shares on a single day without risk of affecting
the prevailing market price. Contingent contracts enable the
Company to purchase shares over time without risk of distorting
the prevailing share price, and also spread the cash outflow.
• Contingent contracts entered into prior to any closed period allow
the Company to take delivery of shares during these periods.
• Competitive tendering involving up to five banks is used which
minimises the risk of hidden purchase costs. The pricing mechanism
ensures the Company retains the benefit of declared and
forecast dividends.
• The Company would also have the option to set a suspension price
in individual contracts whereby they would automatically terminate
if the Company’s share price was to fall.
As with any share buyback decision, the directors would use this
authority only after careful consideration, taking into account market
conditions prevailing at the time, other investment opportunities
and the overall financial position of the Company. The directors will
only purchase shares using such contracts if, based on the contract
discounted price (rather than any future price), it is earnings enhancing
and promotes the success of the Company for the benefit of its
shareholders generally. It is the directors’ present intention to cancel
any shares purchased under this authority.
Special resolution 20, passed at the Company’s 2022 AGM, granted
authority to the Company to make off-market purchases of shares for
cancellation under contingent purchase contracts to be entered into
with any of Goldman Sachs International, UBS AG London Branch, BNP
Paribas and Barclays Bank plc. This authority was limited to a maximum
of 3 million shares and expires on the earlier of the date of the 2023
AGM or 19 August 2023. Pursuant to that authority and up to 28 March
2023, no shares were bought back under contingent purchase contracts.
Sections 693 and 694 of the 2006 Act provide that the terms of any
contract to make off-market purchases or contingent purchases of its
shares must be approved by shareholders. The Company also typically
does not purchase its shares during the period commencing 30 days
before the announcement of its interim results and full year results in
September and March respectively each year a Closed Period. In the
absence of a Programme Agreement (as defined above), these Closed
Periods inevitably reduce the number of shares the Company is able
to purchase.
In order to achieve maximum flexibility in its share purchase activities,
the Company is permitted outside of Closed Periods to enter into
irrevocable and non-discretionary programmes and/or contingent
forward purchase contracts which would allow it to buy shares during
Closed Periods. As in previous years, the Company intends to enter into
new agreements with each of the Banks, under which the Company may
(but is not obliged to) enter into contingent forward trades (Contingent
Forward Trades or CFT) from time to time.
The terms of a CFT will be agreed between the Company and the
Bank before it is entered into. The Company is committed to purchase
shares under a CFT on the day it is executed subject to the terms of
the Programme Agreement. The terms of each CFT will provide for the
Company to purchase a fixed number of shares each week over a period
of between 20 to 30 weeks. The maximum number of shares that can
be purchased under each CFT is limited to 30,000 shares per week.
Whether or not the Company purchases shares in a particular week
during the term of a CFT is dependent upon the Company’s share price
either not rising to, or above, a level (the “Upper Suspension Level”) or,
if applicable, falling to or below a level (the “Lower Suspension Level”
and together with the Upper Suspension Level, the “Suspension Levels”).
The Suspension Levels and duration are determined by the Company
and are set at the time the CFT is entered into. The Upper Suspension
Level must be set between 104% and 110% of the Company’s share
price at the start of the CFT. If the Company chooses to incorporate a
Lower Suspension Level, it must be set between 80% and 95% of the
price at the start of the CFT. The inclusion of a Lower Suspension Level
would help mitigate the Company’s financial commitment under a
CFT if its share price was to fall below this level after the CFT had been
executed. If the Lower Suspension Level is not included, the level of
discount to the market share price would be higher.
NOTICE OF MEETING
Appendix 1
252
The price at which the Company may purchase shares during the
term of a CFT (the “Forward Price”) is fixed at the start of the CFT.
The Forward Price is determined by the Bank with reference to the
volume weighted average price for shares traded in NEXT on the day
the CFT is entered into. The Forward Price is subject to a maximum
of 99% of the share price at the start of the contract and a minimum
of 10 pence (the par value of an ordinary share). The minimum and
maximum period between entering a CFT and shares being purchased
is 5 days and 30 weeks respectively. The Company will announce the
details of each CFT on the day it is entered into and any subsequent
termination via the Financial Conduct Authority’s Regulatory News
Service. This structure would allow the Company to purchase shares at
a discount to the market price (as at the time each CFT commences),
for so long as the Suspension Levels are not reached, without breaching
the Listing Rules. If any Suspension Level is reached, the CFT terminates
automatically at that time and no further shares would be purchased
under that contract.
Under Sections 693 and 694 of the 2006 Act, the Programme Agreements
and Contingent Forward Trades are contingent purchase contracts to
purchase shares by the Company off-market. Accordingly, resolution
22, which will be proposed as a special resolution, seeks shareholder
approval of the terms of the Programme Agreements to be entered
into between the Company and each of the Banks. The Programme
Agreements will have a duration of the shorter of the period to the
date of the next AGM to be held in 2024 and 18 August 2024 and will
incorporate the terms of an ISDA Master Agreement and Schedule.
The Programme Agreements will be entered into and each CFT will be
effected outside a Closed Period but shares may be purchased by the
Company during a Closed Period.
Should shareholder approval be granted, any number of CFT may be
effected with the Banks at any time, provided that:
• the total maximum number of shares which the Company is
permitted to purchase pursuant to this authority would be 3 million,
representing circa 2.3% of its issued share capital at 28 March 2023;
• the total cost of shares that the Company would be permitted
to purchase pursuant to this authority may not exceed £200m
(including costs);
• the Forward Price may not exceed 105% of the average of the
middle market price of a share according to the Daily Official List
of the London Stock Exchange for the 5 business days immediately
preceding the day on which the share is purchased;
• the Forward Price will be no more than 99% of the share price at the
time the CFT was effected;
• the minimum price that can be paid for any share is 10p; and
• only one CFT will be entered into on any particular day.
Shares purchased under the Programme Agreements will reduce the
number of shares that the Company may purchase under any authority
granted at the AGM on 18 May 2023 for on-market purchases.
No shares will be purchased under that authority on the same day that
a CFT is entered into. The authority granted to the Company under this
resolution will expire at the conclusion of the 2024 AGM or on 18 August
2024, whichever is the earlier, unless such authority is renewed prior
to that time (except in relation to the purchase of shares under any
CFT effected before the expiry of such authority and which might be
completed wholly or partly after such expiry). The purchase of shares
under the Programme Agreements will always be physically settled by
delivery of shares to the Company (except in the case of certain events
of default or termination events).
A copy of each of the Programme Agreements will be available for
inspection at the AGM on 18 May 2023. Copies will also be available
for inspection at the Company’s registered office at Desford Road,
Enderby, Leicester LE19 4AT and at the offices of Slaughter and May at
One Bunhill Row, London EC1Y 8YY during usual business hours from
the publication of this Notice of Meeting until the close of the AGM.
The Company has no warrants in issue in relation to its shares and
no options to subscribe for its shares outstanding. Exercise of all
outstanding employee share options and share awards will generally
be satisfied by the transfer of market-purchased shares from the ESOT
(refer to Note 25 to the financial statements).
23. Notice of general meetings
In accordance with the Companies Act 2006 (the “2006 Act”), the notice
period for general meetings (other than an AGM) is 21 clear days’ notice
unless the Company:
(i) has gained shareholder approval for the holding of general meetings
on 14 clear days’ notice by passing a special resolution at the most
recent AGM; and
(ii) offers the facility for all shareholders to vote by electronic means.
The Company would like to preserve its ability to call general meetings
(other than an AGM) on 14 clear days’ notice. This shorter notice period
would not be used as a matter of routine, but only where the flexibility
is merited by the business of the meeting and is thought to be in the
interests of shareholders as a whole.
Resolution 23 seeks such approval and, should this resolution be
approved, it will be valid until the end of the next AGM. This is the same
authority that was sought and granted at last year’s AGM.
Recommendation
The Board is of the opinion that all resolutions which are to be proposed
at the 2023 AGM are in the best interests of its shareholders as a whole
and, accordingly, unanimously recommend that they vote in favour of
all the resolutions as the directors intend to do in respect of their own
beneficial shareholdings.
Strategic Report Governance Financial Statements
Shareholder Information
253
NOTICE OF MEETING
Meeting Formalities and Voting
Attending the Annual General Meeting
To be entitled to attend, speak and vote at the AGM and for the purposes
of determining the number of votes they may cast, shareholders must
be registered in the register of members of the Company as at 6.30 pm
on 16 May 2023 or, if the meeting is adjourned, at 6.30 pm on the day
which is two working days before the adjourned meeting.
The resolutions being proposed are a very important part of the
governance of the Company and all shareholders are urged to vote.
In line with best practice, voting on all resolutions at the 2023 AGM will
be by way of a poll. On a poll, every member present in person or by
proxy, has one vote for every ordinary share held or represented.
The directors believe a poll is most representative of shareholders’
voting intentions because shareholders’ votes are counted according
to the number of shares held, and the proxy vote is added to the
votes of shareholders present so that all votes are taken into account.
The procedures for the poll votes will be explained during the AGM.
In respect of resolution 22 on off-market share purchase contracts, the
2006 Act provides that this resolution will not be effective if any member
of the Company holding shares to which it relates (i.e. shares which may
be purchased pursuant to the Programme Agreements) voted for the
resolution and the resolution would not have been passed if they had
not done so. Therefore, NEXT intends to disregard any poll votes which
are cast in favour of resolution 22 attaching to 3 million shares (being
the total maximum number of shares which the Company is permitted
to purchase pursuant to the Programme Agreements) from both the
total number of votes cast in favour of this resolution and the total
number of votes cast.
The total number of the Company’s issued share capital on
28 March 2023, which is the latest practicable date before the publication
of this Notice, is 128,737,260 ordinary shares. All of the ordinary shares
carry one vote each and there are no shares held in treasury.
Voting and proxies
Whether or not you intend to attend the AGM in person, please
complete and return the Form of Proxy to Equiniti, to arrive not later
than 9.30 am on 16 May 2023 (or 48 hours before any adjourned
meeting). If you complete and return a proxy form you can still attend
and vote at the AGM if you wish.
You may submit your proxy electronically by accessing our registrar’s
website www.sharevote.co.uk. You will require your unique Voting ID,
Task ID and Shareholder Reference Number as printed on the Form of
Proxy. The use by members of the electronic proxy appointment service
will be governed by the terms and conditions of use which appear
on the website. Electronic proxies must be completed and lodged in
accordance with the instructions on the website by no later than
9.30 am on 16 May 2023.
If you are unable to attend in person, you are strongly encouraged
to appoint a proxy and return the completed Form of Proxy by the
specified deadline.
A shareholder who is entitled to vote at the AGM may appoint one or
more proxies to vote instead of him/her, provided that each proxy is
appointed to exercise the rights attached to a different share or shares
held by that shareholder. A proxy need not also be a shareholder of
the Company and may vote on any other business which may properly
come before the meeting.
The statements of the rights of members in relation to the appointment
of proxies in the above paragraphs and in the paragraph headed
“CREST voting facility” below can only be exercised by registered
members of the Company and do not apply to a Nominated Person.
Nominated persons should contact the registered holder of their shares
(and not the Company) on matters relating to their investments in
the Company.
In the case of joint holders, where more than one of the joint holders
purports to appoint a proxy, only the appointment submitted by the
most senior holder (i.e. the first named joint holder recorded in the
Company’s share register) will be accepted.
A member who appoints as their proxy someone other than the
Chairman of the Meeting, should ensure that the proxy is aware of
the voting intention of the member. If no voting instruction is given,
the proxy has discretion on whether and how to vote.
A person to whom this Notice is sent who is a person nominated under
Section 146 of the 2006 Act to enjoy information rights (a “Nominated
Person”) may, under an agreement between them and the shareholder
by whom they were nominated, have a right to be appointed (or to have
someone else appointed) as a proxy for the AGM. If a Nominated Person
has no such proxy appointment right or does not wish to exercise it,
they may, under any such agreement, have a right to give instructions
to the shareholder as to the exercise of voting rights.
If a member submits more than one valid proxy appointment,
the appointment received last before the latest time for the receipt of
proxies will take precedence.
CREST voting facility
Those shareholders who hold shares through CREST may choose to
appoint a proxy or proxies using CREST for the AGM to be held on
18 May 2023 and any adjournment(s) thereof by using the procedures
described in the CREST Manual. CREST personal members or other
CREST sponsored members, and those CREST members who have
appointed a voting service provider(s), should refer to their CREST
sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf.
In order for a proxy appointment or instruction made using the
CREST service to be valid, the appropriate CREST message (a “CREST
Proxy Instruction”) must be properly authenticated in accordance
with Euroclear UK & Ireland Limited’s specifications and must contain
the information required for such instructions, as described in the
CREST Manual. The message, regardless of whether it constitutes the
appointment of a proxy or is an amendment to the instruction given to
a previously appointed proxy must, in order to be valid, be transmitted
so as to be received by the issuer’s agent (ID RA19) by the latest time(s)
for receipt of proxy appointments specified in this Notice. For this
purpose, the time of receipt will be taken to be the time (as determined
by the time stamp applied to the message by the CREST Applications
Host) from which the issuer’s agent is able to retrieve the message by
enquiry to CREST in the manner prescribed by CREST. After this time any
change of instructions to proxies appointed through CREST should be
communicated to the appointee through other means
CREST members and, where applicable, their CREST sponsors or voting
service providers should note that Euroclear UK & Ireland Limited
does not make available special procedures in CREST for any particular
messages. Normal system timings and limitations will therefore apply in
relation to the input of CREST Proxy Instructions. It is the responsibility
254
of the CREST member concerned to take (or, if the CREST member is a
CREST personal member or sponsored member or has appointed a
voting service provider(s), to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to
ensure that a message is transmitted by means of the CREST system
by any particular time. In this connection, CREST members and, where
applicable, their CREST sponsors or voting service provider(s) are
referred, in particular, to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings. The CREST Manual
is available at euroclear.com.
The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
Corporate representatives
Any corporation which is a member can appoint one or more corporate
representatives who may exercise on its behalf all of its powers as a
member provided that they do not do so in relation to the same shares.
Right to ask questions
Shareholders may submit questions in advance on the resolutions to
be put to the AGM by emailing investors@next.co.uk. Any shareholder
attending the meeting has the right to ask questions. The Company will
answer any such question relating to the business being dealt with at
the AGM but no such answer need be given if (i) to do so would interfere
unduly with the preparation for the meeting or involve the disclosure of
confidential information, (ii) the answer has already been given on a
website in the form of an answer to a question, or (iii) it is undesirable
in the interests of the Company or the good order of the AGM that the
question be answered.
Data protection statement
Your personal data includes all data the Company holds which relates
to you as a shareholder, including your name and contact details, the
votes you cast and your Shareholder Reference Number (attributed
to you by the Company). The Company determines the purposes for
which and the manner in which your personal data is to be processed.
The Company and any third party to which it discloses the data
(including the Company’s registrar) may process your personal data
for the purposes of compiling and updating the Company’s records,
fulfilling its legal obligations and processing the shareholder rights
you exercise. A copy of the Company’s privacy policy can be found at
www.nextplc.co.uk/site-services/privacy-and-cookies.
Documents available for inspection
Copies of the following documents will be available for inspection at
the Company’s registered office during usual business hours and for
15 minutes prior to and for the duration of the AGM:
• A copy of each executive director’s contract of service and each
non-executive director’s letter of appointment.
• The Programme Agreements pursuant to resolution 22.
Copies will also be available for inspection at the offices of Slaughter
and May at One Bunhill Row, London EC1Y 8YY during usual business
hours, from publication of this Notice until the close of the AGM.
Company website
A full copy of the Annual Report (which includes this Notice), together
with those for prior years, and other information required by Section
311A of the 2006 Act can be found at www.nextplc.co.uk.
Under Section 527 of the 2006 Act members meeting the threshold
requirements set out in that section have the right to require the
Company to publish on a website a statement setting out any matter
relating to: (i) the audit of the Company’s accounts (including the
auditors’ report and the conduct of the audit) that are to be laid before
the AGM; or (ii) any circumstance connected with an auditor of the
Company ceasing to hold office since the previous meeting at which
annual accounts and reports were laid in accordance with Section 437
of the 2006 Act. The Company may not require the members requesting
such website publication to pay its expenses in complying with Sections
527 or 528 of the 2006 Act, and it must forward the statement to the
Company’s auditor no later than the time when it makes the statement
available on the website. The business which may be dealt with at the
AGM includes any statement that the Company has been required
under Section 527 of the 2006 Act to publish on its website.
You may not use any electronic address provided in this Notice to
communicate with the Company for any purposes other than those
expressly stated.
Strategic Report Governance Financial Statements
Shareholder Information
255
OTHER SHAREHOLDER INFORMATION
Registered office
Desford Road, Enderby, Leicester LE19 4AT.
Registered in England and Wales, company no. 4412362.
Annual General Meeting
The AGM will be held at Leicester Marriott Hotel, Smith Way, Grove Park,
Leicester LE19 1SW at 9.30 am on Thursday 18 May 2023. The Notice of
Meeting on pages 249 to 255 sets out business to be transacted.
The safety of our shareholders is our main priority. We will not permit
behaviour that may interfere with anyone’s security or safety or the
good order of the meeting. Anyone who does not comply may be
removed from the meeting.
Discount voucher
The Company offers a discount voucher to any first named,
registered shareholder holding a minimum number of 100 ordinary
shares as at 1 April each year. The shareholder discount voucher entitles
the recipient or their immediate family to a 25% discount against most
purchases at any one time of full price NEXT merchandise in NEXT Retail
stores. There is no limit on the value of goods that can be purchased
at that time. The voucher expires on 31 October of the year in which
it was issued. It cannot be used in conjunction with any other discount
voucher or offer, nor can it be used for the purchase of gift cards, Sale
merchandise, electrical goods, non-NEXT branded goods or purchases
from NEXT Online (unless ordered through one of our Retail stores).
Shareholders holding shares in nominee or ISA accounts are also
eligible, but must request the voucher through their nominee or ISA
account manager who should contact the Company Secretary’s office
(companysecretariat@next.co.uk).
Registrars and transfer office
Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA.
Telephone +44 (0) 371 384 2164 (if calling from outside the UK, please
ensure the country code is used). Lines are open 8.30 am to 5.30 pm
Monday to Friday.
Shareholder enquiries
The Company share register is maintained by Equiniti (“EQ”).
Please contact them online at www.shareview.co.uk or using the
contact details above if you have any enquiries about your NEXT
shareholding including the following matters:
• change of name and address;
• loss of share certificate, dividend warrant or dividend confirmation;
• if you receive duplicate sets of Company mailings as a result of
an inconsistency in name or address and wish, if appropriate,
to combine accounts; and
• help on how to register your email address to receive shareholder
communications electronically.
The Shareview Portfolio service from EQ gives you more online
information about your NEXT shares and other investments. For direct
access to information held for you on the share register, including recent
balance movements and a daily valuation of investments held in your
portfolio, visit www.shareview.co.uk.
For shareholders with disabilities EQ provides the following:
• if requested future communications produced by them will be sent
in the appropriate format; and
• hearing loop facilities in their buildings for use by visiting shareholders.
You can also contact EQ by using the Relay UK website at
www.relayuk.bt.com
CREST
The Company’s ordinary shares are available for electronic settlement.
Payments of dividends to mandated accounts
Shareholders who do not at present have their dividends paid
directly into a bank or building society may wish to do so. A mandate form
is available to download from the NEXT website at www.nextplc.co.uk
or from EQ, telephone +44 (0) 371 384 2164.
Forward looking statements
This Report and Accounts contains statements which are all matters
that are not historical facts, including anticipated financial and
operational performance, business prospects and similar matters.
Forward looking statements are identifiable by words such as “aim”,
“anticipate”, “believe”, “budget”, “estimate”, “expect”, “forecast”,
“intend”, “plan”, “project” and similar expressions. These statements
reflect NEXT’s current expectations concerning future events but 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 those risks described in “Risks
& Uncertainties” on pages 74 to 82 failure by NEXT to predict accurately
customer fashion preferences; decline in the demand for merchandise
offered by NEXT; competitive influences; changes in level of store
traffic or consumer spending habits; effectiveness of NEXT’s Brand
awareness and marketing programmes; general economic conditions
or a downturn in the retail industry; the inability of NEXT to successfully
implement relocation or expansion of existing stores; insufficient
consumer interest in NEXT Online; acts of war or terrorism worldwide;
work stoppages, slowdowns or strikes; and changes in financial or
equity markets. These forward looking statements do not amount to
any representation that they will be achieved. 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.
256
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