19th Mar 2008 07:03
Next PLC19 March 2008 Date: Embargoed until 07.00am, Wednesday 19 March 2008 Contacts: Simon Wolfson, Chief Executive David Keens, Group Finance Director NEXT PLC Tel: 020 7796 4133 (19/03/08) Tel: 0844 844 8888 (thereafter) Alistair Mackinnon-Musson Nicola Savage Hudson Sandler Tel: 020 7796 4133 Email: [email protected] Photographs available: http://www.next.co.uk/press/XX41WPP/?id=belair NEXT PLC RESULTS FOR THE YEAR ENDED JANUARY 2008 Highlights • Group revenue up 1.4% at £3,329m • Group profit before interest up 5.8% to £537m • Group profit before tax up 4.1% to £498m • Buyback 11.5% of share capital for £514m • Earnings per share up 15.5% to 168.7p • Total dividend up 12.2% to 55p CHAIRMAN'S STATEMENT The year to January 2008 was another successful year for Next, with earnings pershare growth of 15.5% to a new record for the group of 168.7p. These are goodresults in a period of economic slow down and are a reflection of the efforts wehave made in building and improving the Next Brand. The Board is pleased to recommend a final dividend of 37p compared with 33.5plast year making 55p for the year, an increase of 12.2%. The continued use ofsurplus capital to buy back shares has again enabled us to deliver superiorgrowth in earnings per share, our main financial objective. Despite recentshare price volatility we remain convinced that, in the long term, growth inearnings per share will deliver growth in value to shareholders. In the lastfive years we have returned over £1.3 billion to shareholders in this way. Trading conditions in the year ahead will continue to be difficult as increasedcosts and rising taxes put pressure on our customers. In these circumstances,we believe that our main strategy of investing in the Next Brand whilstimproving and extending our product ranges will offer us the best protectionagainst any downturn in the UK economy. Our Directory business, in particular,gives us a strong and flexible base from which to grow our product offering. We are also extending the Next Brand into new overseas markets where we believethere are opportunities to build profitable businesses. If this is successfulit will bring new sources of growth over the longer term. Derek Netherton will step down from the Board at the AGM in May. Derek hasserved on the Board for eleven years during which Next has grown its profit byover three times, dividend by over four times and earnings per share by overfive times. He has been a wise counsel to both the Board and the executiveteam. We owe him many thanks for his help and advice. During the year Steve Barber joined the Board as a non executive director and hewill take over from Derek as Chairman of the Audit Committee. We have a robust operating model and strong cash flows, which will stand us ingood stead as we go through what we anticipate will be a difficult tradingperiod. We will continue to return cash to our shareholders through dividendsand share buybacks. However, our first priority will be to ensure that theCompany protects its strong financial base. Our strategy of concentrating on the design, quality and value of product,together with customer service and delivery, will remain the cornerstone of oursuccess in the future. That success cannot be secured without the commitmentand hard work of our management team, all our staff and the support of oursuppliers. I would like to thank them all for the contribution they have madein achieving these results. John BartonChairman CHIEF EXECUTIVE'S REVIEW PROFIT GROWTH IN A CHALLENGING YEAR In the year ending January 2008 Next plc increased operating profit by 5.8% in aworsening retail environment. This was achieved by a robust performance in NextDirectory and good cost control throughout the Group. Earnings per share have moved forward by more than operating profits as a resultof share buybacks and a lower tax rate, they are 15.5% ahead of last year. Revenue Profit and excluding VAT earnings per share Year to January Year to January 2008 2007 2008 2007 £m £m £m £m Next Retail 2,255.1 2,255.0 319.9 316.6Next Directory 799.8 774.5 164.4 143.9 _________ _________ _________ _________The Next Brand 3,054.9 3,029.5 484.3 460.5 +5.2% Next International 54.1 49.8 7.1 6.0Next Sourcing 6.4 6.4 32.8 31.8Ventura 203.7 190.9 21.5 20.6Other activities 10.0 7.2 (2.1) (1.1)Share option charge - - (8.8) (8.3)Unrealised exchange gain/(loss) - - 2.3 (2.0) _________ _________ _________ _________Revenue and operating profit 3,329.1 3,283.8 537.1 507.5 +5.8% _________ _________Interest expense (39.0) (29.1) _________ _________Profit before tax 498.1 478.4 +4.1%Taxation (144.2) (146.9) _________ _________Profit after tax 353.9 331.5 +6.8% _________ _________Basic earnings per share 168.7p 146.1p +15.5% PROGRESS DURING THE YEAR At the beginning of 2007 we set ourselves the objective of revitalising the NextBrand whilst continuing to move profits forward. We have achieved thefollowing: • Made our ranges more aspirational, improved our marketing and commenced the rapid roll out of a new shop fit. • Improved like for like sales performance in our Mainline stores from -7.0% last year to -3.2% during the year just ended in the face of a worsening retail environment. Our trading performance in both Spring Summer and Autumn Winter was within the guidance we issued for each season. • More than offset the costs of increased marketing with operational cost savings and improvements in bought in gross margin, delivering growth in operating profits despite negative Retail like for like sales. • Increased earnings per share by significantly more than profits as a result of our continuing strategy of buying back shares. This, together with a reduced tax rate, takes the total EPS growth to +15.5%. Our financial goal remains the delivery of sustainable long term growth inearnings per share, which we believe to be the engine of long term growth inshareholder value. REVITALISING THE NEXT BRAND The main task last year was the revitalisation of the Next Brand. First andforemost this involved reminding ourselves what Next stands for, namely: Exciting, beautifully designed, excellent quality clothing and homeware thatreflect the means and aspirations of our customers. Put simply our goal has been to put a little of the magic back into the NextBrand through our product ranges, marketing and shopfit. PRODUCT Newness Throughout last year we increased the levels of newness within our ranges sothat there were more new products for our customers to see every six weeks.This change has been partly as a result of selecting product closer to season,but more importantly there has been a determined effort to take more calculatedrisks at the time of selection and back new trends with conviction. Hand inhand with this approach has been an increase in the importance we attach todesign and the speed with which new trends are adopted. We are comfortable with the levels of newness we are currently achieving and theemphasis must now shift to maximising the potential of best sellers through theaddition of alternative colour-ways of key lines. Design and Quality At the beginning of last year we observed that our customers were trading up ourprice architecture, it is these products where we are best able to compete ondesign and quality. Whilst our product must be affordable to most people andgreat value, it will not necessarily be the cheapest. So we have moved theemphasis of our ranges away from price starters, increasing the proportion ofitems at mid price points and introducing new prices at the top end of ourranges. The table below sets out how the average selling prices for our clothing rangeshas changed against the previous year. __________________________________________________________________________________________________ Average selling price Spring Summer Autumn Winter Spring Summer Autumn Winter (Sales divided by units) 2008 (E) 2007 2007 2006__________________________________________________________________________________________________Womenswear +7% +5% +3% -4%__________________________________________________________________________________________________Menswear +3% +5% -1% -3%__________________________________________________________________________________________________Childrenswear +5% +4% -5% -5%__________________________________________________________________________________________________ There are two important points that need to be made in respect of this change inaverage selling price: • We are not raising prices on like for like products, we must remain vigilant to ensure that our range remains competitive at every level of our price architecture. • Average selling prices have only risen as a result of a change in the mix of product the customer is buying. We anticipate a less marked upward movement in average selling prices in AutumnWinter 2008, at between two and four percent, as a result of increasedparticipation of mid price points and further extensions to the Signature range. MARKETING In order to communicate the changes we have made to our ranges we have increasedboth the effort and investment we make in marketing the Next Brand. We haveimproved the quality of our in-store displays, graphics and windows. In totalwe spent an additional £16m on marketing in the year, most of this increase wentinto press, billboard and TV advertising and windows. We do not anticipate a further increase in the marketing budget in the yearahead and aim to maintain marketing activity at broadly the same level as in theyear just ended. SHOP FIT The updating of our shop fit is an integral part of revitalising the Brand. Theaim is that our merchandise is displayed in stores whose interior designreflects the design and quality of the clothing and homeware. In addition to 39refits we opened 39 new stores in the new concept, the most important of whichwas our 43,000 square feet store in Sheffield, Meadowhall. A secondary benefit is that many stores experience an uplift in sales as aresult of a refit. However it is important to regard refit expenditure as anincrease in maintenance costs rather than a one off investment with a long termreturn, because the sales improvements tend to tail off after a year. One important lesson has been that if a refit takes too long then it can take aconsiderable amount of time for trade to rebuild. As a result we will be doingless comprehensive refits in stores that are less than six years old. Thesewill deliver a significant amount of the perceived improvement in less time andat a much lower cost. These mini-refits are expected to last 6 to 8 weekswhereas a full refit would take 12 to 16 weeks, the cost being about £22 persquare foot as opposed to £65 per square foot. In the year ahead we expect to spend in the region of £37m on refitting existingstores. The table below sets out approximately what we completed during theyear and what we expect in the year ahead. By the end of this year we expect 48percent of our portfolio (by revenue) will be in the new concept. In additionwe will have redecorated and re-branded a further 24 percent. _____________________________________________________________________________________________ Year to New Refits Redecoration TOTAL Sq ft '000 Sq ft '000 Sq ft '000 Sq ft '000_____________________________________________________________________________________________ January 2008 500 600 800 1,900 January 2009 (E) 500 1,000 600 2,100_____________________________________________________________________________________________ Total 1,000 1,600 1,400 4,000 Percentage of portfolio 18% 29% 19% 66% Percentage of revenue 16% 32% 24% 72%_____________________________________________________________________________________________ NEXT RETAIL Retail Sales Retail sales require some additional explanation. Unusually, there was asignificant difference between the performances of Next Mainline and NextClearance. Mainline sales finished the year up 0.1% with like for like salesdown -3.2%, this was within the guidance we gave at the start of the year of -1%to -4% like for like. Movement in sales: __________________________________________________________________________ Net sales from new space +3.8%__________________________________________________________________________ Mainline like for like performance -3.2%__________________________________________________________________________ Impact of Next Clearance -0.6%__________________________________________________________________________ Total Retail sales 0.0%__________________________________________________________________________ The performance of Clearance reflects a significant reduction in the value ofits stock, which was on average -19% down. This reduction was the result ofbetter clearance and deeper discounts in our end season Mainline Sales. Weexpect the performance of Clearance will be closer to Mainline in the yearahead. New Space In the year we opened a net 378,000 square feet of new trading space. ____________________________________________________________________________________________ Jan 2008 Jan 2007 Year Change____________________________________________________________________________________________ Store numbers 502 480 +22____________________________________________________________________________________________ Square feet 000's 5,201 4,823 +378____________________________________________________________________________________________ The forecast payback on net capital invested is comfortably within our 24 monthtarget at 18.6 months and the net branch contribution of the new stores is16.5%. Net sales from new space are forecast to be 2.1% below appraisedtargets. In addition to a long standing Home store in Glasgow Braehead we opened standalone Home stores in Thurrock Retail Park and on Tottenham Court Road, London.Sales from the out of town stores have been encouraging and we anticipateopening at least a further five in the current year. Our Home businesscontinued to grow throughout the course of 2007 and represents an importantopportunity in a sector where we believe there will be further consolidation. We currently expect to add a net 400,000 square feet of new space to Retail inthe year ahead. Retail Profit Retail profit increased by 1.0% against last year. Net margins moved forwardsslightly from 14.0% to 14.2%. The margin movement is detailed below; thefigures show the change as a percentage of sales for each of our major heads ofcost: Net operating margin last year 14.0%Increase in achieved gross margin +1.8%Increase in branch payroll costs -0.2%Increase in branch occupancy costs -1.0%Increase in central overheads -0.4% ________ Net operating margin this year 14.2% ________ The improvement in achieved gross margin of +1.8% is primarily a result ofbought in gross margin improving by +1.4%. This is due to better sourcingrather than increasing selling prices on like for like product. In SpringSummer 2008 we expect a further increase in gross margin but little or noopportunity for similar improvements in Autumn Winter. By 2009 we anticipatesignificant inflationary pressures in many important sourcing markets, not leastChina. It remains to be seen to what extent potential over capacity in worldmanufacturing will compensate for these pressures. Further gross margin improvements came from fabric write offs being lower thanexpected (+0.2%), and settlement of a VAT issue (+0.2%), neither of these oneoff gains will be repeated in the year ahead. There was no significant changein markdown against last year. Branch wages increased as a result of the cost of living award. Centraloverheads increased mainly due to the higher spend on marketing. Outlook for Retail Costs In the year ahead we anticipate that occupancy costs will continue to rise as apercentage of sales because of negative like for likes. In addition there willbe an increase of around £3m in out of town retail parks where our historic rentis now below the market rate. It is very unlikely that cost savings willoutweigh these increases so we do not anticipate any improvement in the Retailnet operating margin in the year ahead and are forecasting a decline of around1%. NEXT DIRECTORY Directory Sales Directory sales increased by 3.3%. Improved stock availability and increasedservice charge income meant that sales rose faster than underlying demand, whichwas up 1.0%. Sales growth was driven by a 1.2% increase in the average number of activecustomers and a 16.5% increase in pages. The majority of the additional pageswent to new and developing product areas. We have continued to extend theportfolio of Next branded product, particularly in the home furnishings area. The internet continues to be very important to the development of the Directoryand now accounts for almost 60% of our orders. One of the priorities of theyear ahead will be the improvement of our website functionality where we believewe have yet to fully exploit the potential for linked sales and search drivenstock selection. We have developed a Euro web-site and are now selling directlyto Spain and Eire. In March we launched the "Brand Directory" website which will showcase all thenon-Next branded products available in the Next Directory, along with some lineswhich we will only sell through this website. Directory Profit Directory profit was 14.3% up on last year, a good performance. The profitgrowth was mainly as a result of improved operating margins; the table belowshows the change as a percentage of sales for each of our major heads of cost: Net operating margin last year 18.6%Increase in achieved gross margin +0.1%Reduction in bad debt +2.7%Increase in service charge income +0.4%Increase in central overheads -1.2% _______ Net operating margin this year 20.6% _______ Achieved gross margin increased by 0.1%. The bought in gross margin increasedby 0.8%, this was eroded by -0.5% as a result of increased markdown and -0.2%from other provisions. The bought in gross margin in Directory did not grow asmuch as Retail as a result of the addition of lower margin non-Next brandedproduct. In July 2006 we began to prepare for a worsening consumer debt market and madesignificant changes to the credit vetting of new applicants for the NextDirectory, the effects of which began to be felt in January 2007 and continuedthrough the year. Whilst these restrictions inhibited the growth of ourcustomer base the benefit has been a very significant drop in bad debt. Thisincreased the net operating margins of Directory by +2.7%. At the same time,service charge income rose faster than sales adding +0.4% to margin. Cost increases in catalogue production (-0.5%) and systems (-0.2%) were offsetby savings in warehousing and distribution (+0.7%). The 1.2% increase incentral overheads is therefore a result of increased marketing spend. Outlook for Directory It is difficult to forecast the performance of the Next Directory in the yearahead as there are contradictory market trends, these are set out in the tablebelow. _________________________________________________________________________________________________________ Positive Negative_________________________________________________________________________________________________________ General growth of internet based shopping favours General pressure on consumer spendingDirectory, which offers a market leading service anda broad offer_________________________________________________________________________________________________________ Stricter entry rules and credit control have Increased online competition from other high annualised so they are no longer a drag on street clothing retailersrecruitment_________________________________________________________________________________________________________ Opportunity to move into new Next branded productsand sell non-Next branded product_________________________________________________________________________________________________________ We anticipate Directory sales will be up between 0% and 2% in the first half.Net operating margins in Directory are forecast to be broadly neutral. Areduction in markdown and some further bad debt savings are likely to be offsetby increased printing and warehousing costs, together with lower gross marginson new products. NEXT INTERNATIONAL Sales to our franchise partners and through our Chinese joint venture grew by 9%to £54m. Our partners' own sales rose by 17% to approximately £127m. A year agosales to our partners increased faster than profits due to a difference betweenproduct shipments and partner sales, this has now corrected and profits grew 18%to £7.1m. During the year 28 additional stores were opened, making 158 in total. Whilstour overseas business will not make a significant contribution to the Group inthe short term we now believe it presents an important opportunity in the longterm. This business is developing into the three models detailed below. Traditional franchise The majority of territories will remain traditional franchises, where we supplyproduct to a third party and take either a mark up on the product cost or aroyalty on sales. This is very low risk, requires no capital investment but isrelatively low margin. Wholly owned - Continental Europe We intend to develop a wholly owned business in Central Europe and Scandinavia.These stores will be operated in essentially the same way as those in theRepublic of Ireland. Stock will be picked and despatched from our warehouses inthe UK to a hub where it can be sorted and delivered to store on smallervehicles. We already have one store in Denmark and have learnt much in the past few yearsabout how to operate in this region. The store is now profitable and growing onlast year. We intend to open at least two more stores in Scandinavia over thecoming year. In Central Europe we have agreed to acquire our franchise partner's business inthe region consisting of eight stores in the Czech Republic, two stores inHungary and two stores in Slovakia turning over £12m. This business will bepurchased on a multiple of 3.2 times historical EBITDA for £4m. We believethere is significant opportunity to grow our business in this region and toimprove the profitability of the operation. Joint Venture - China Last year we opened our first store in China, located in Shanghai. Our retailbusiness in China is in partnership with a Chinese manufacturing and retailgroup who own 25% of the business. Over the next two years we aim to open up toten stores in order to build a stable business model for the Chinese market.The first task will be to ensure that local (Far East) product can be dispatchedto Chinese stores direct from manufacturers. We believe that it will take atleast two years to develop and test our business before we undertake asignificant roll out of any concept. NEXT SOURCING (NSL) NSL is our overseas sourcing operation which has offices in several countriesincluding China, Hong Kong, India, Sri Lanka, Turkey and the UK. NSL charges acommission on the product it sources and during the year it suppliedapproximately 55% by value of Next Retail and Directory product purchases. Total sales increased to £620m and profits increased by 3.3% to £32.8m. Thiswas slightly below expectations due to shipments for the Autumn Winter seasonbeing less than originally planned. We expect that profits for the coming yearwill be in the region of £31m. VENTURA Ventura started the year strongly and increased its turnover to £204m. Full yearprofits of £21.5m were 4.3% ahead of the previous year. However, the fourthquarter became progressively more difficult as the volume of telephone trafficwith one of its major clients, Northern Rock, reduced substantially. Replacingthis business in the year ahead will be a priority. Coupled with volume andpricing pressures generally in consumer facing businesses, we expect thatprofits for the coming year will be in the region of £16m. Ventura has traditionally focused on call centre and back office work for itsclients. This year we have launched an important addition to its portfoliothrough offering warehousing and distribution services to third parties. Thiswill leverage the facilities and skills of the Next group and we have alreadywon three clients. OTHER ACTIVITIES The Other Activities net charge was £2.1m including Central Costs of £7.2m.Other Activities also includes profits from our Property Management Division,Choice (an associated company which operates sixteen discount stores) and CottonTraders (an associated company which sells its own brand products). We expectthat the net charge for the coming year will be in the region of £3m. INTEREST AND TAXATION The interest charge of £39m was higher than last year due to the financing ofcash outflows in respect of share buybacks, we expect a charge of approximately£45m for the year ahead. The tax rate was 29% and we expect a similar rategoing forward. BALANCE SHEET AND CASH FLOW Cash flow from operations was again very strong and we achieved a cash inflow of£217m before share buybacks. The increase in net debt after buybacks of £513mwas £296m. Net borrowings at the year end were £740m. This debt is financed by long termbonds and committed bank facilities. As can be seen from the graph below, ourfinancing is well structured with £550m of ten year bonds which matures in 2013and 2016. We have two committed bank facilities the first of which matures inSeptember 2009, our intention is to refinance this facility during the currentyear. _____________________ | | | | | | | | | £300m Bank | | 2009 | | | | |------------- ____________________ |_____________________| | | | | | | | £150m Bank | | | | 2010 | | | | | | £740m | |_____________________| | Year end | | | | net debt | | | | | | | | | | | | | | £300m Bond | | | | 2013 | | | | | | | | | | | |_____________________| | | | | | | | | | | | £250m Bond | | | | 2016 | | | | | | | | | | | |_____________________| |____________________| Finance facilities January 2008 Going into a difficult year we have modelled our prospective cash flows atdifferent levels of sales performance. Working with Retail like for likes of-5% we believe that net cash generation after £54m of committed share buybackswould be around £105m and with like for likes of -7.5% net cash generation wouldbe around £72m. Even in the very unlikely event that Retail like for like saleswere 10% down and Directory 2% down, we believe we would still generate around£38m of net cash flow. Capital expenditure of £180m included £122m on stores and £43m on warehousing.We expect this year's expenditure will be in the region of £135m. Year endstock levels at £319m were 13% up on last year, correcting the unusually lowposition reported at January 2007. Debtors of £605m included £438m of Directorycustomer account balances, which increased in line with Directory sales. SHARE BUYBACKS During the year we purchased a further 26 million shares for cancellation at anaverage price of 1974p and a cash cost of £513m. This was 11.5% of the shares inissue at the beginning of the year. Resolutions to renew buyback authoritieswill be put to shareholders at the AGM in May. Despite recent share price volatility, we believe the return of surplus capitalthrough this route is the right strategy in pursuit of our primary financialobjective, which is to maximise sustainable growth in earnings per share. It isour belief that delivery of long term growth in earnings per share will createvalue for shareholders. Over the course of the last eight years we have bought in 46% of the issuedshare capital at an average price of 1125p. DIVIDEND The Directors are recommending a final dividend of 37p against 33.5p last year,bringing the total for the year to 55p compared with 49p, an increase of 12.2%.The dividend remains covered 3 times by earnings per share of 168.7p. 2008 TRADING STATEMENTS In our November Interim Management Statement we set out the dates and contentsfor future statements. The next two will be in early May and early Augustcovering the first and second quarters of 2008. As a result we will not begiving a current trading statement at this time. The table below gives the sales performances that would have been announced hadwe made quarterly statements last year. As can be seen, the first quarter presents much tougher comparatives than thesecond quarter. Last year we experienced some very strong weeks in March andover Easter as a result of unseasonably warm weather. In contrast May, June andJuly were all very disappointing as a result of very poor weather (floods etc).We, therefore, anticipate a significant difference in the sales growth whichwill be reported in our first and second quarters, with the second being betterthan the first. ________________________________________________________________________________ Sales 1st Quarter 2007 2nd Quarter 2007________________________________________________________________________________Brand total +3.7% -2.3%________________________________________________________________________________ Retail total +3.0% -3.2%________________________________________________________________________________ Directory total +5.5% +0.5%________________________________________________________________________________ Retail Mainline full price like for like -1.3% -6.6%________________________________________________________________________________ 2008 OUTLOOK Retail Economy We can see no reason why there should be any recovery in consumer spendingduring the year ahead. Recent base rate cuts will do little to reduce theoverall burden of mortgage repayments as they will be partially offset by theexpiry of fixed rate mortgages which were set at lower rates than thoseprevailing today. This combined with increases in fuel, tax and other essentialhousehold costs mean that it will be at least twelve months before the consumerhas a stable year on year cost base. The Next customer profile is dominated by ABC1 25-45 year olds, who are likelyto be hit hardest as their exposure to the costs of debt are high. Outlook for Next Against a downbeat economic outlook we are more positive about the health of theunderlying Next business. We believe our ranges have made good progress andthat the Next Brand is in much better shape than at the same time last year. Asa result we are basing our internal budgets for the first half on Retail likefor like sales of between -4% and -7% and Directory sales of between 0% and +2%. PRIORITIES FOR THE YEAR AHEAD In facing a challenging year we are very clear what our priorities must be: • Maintain very conservative sales expectations. It is tempting to start a retail budget at the bottom line and build back to the sales "required". We have been very careful to begin our budgets with what we believe the likely top line sales will be. • Control stocks. The most important part of stock control is setting a realistic sales budget. In addition we are placing much greater emphasis, and have developed new systems, to improve our control of stock in season. • Identify further cost savings within the Group. • Continue to invest in the Brand through improving the design and quality of our ranges, our marketing and our shop fit. Next has always positioned itself at the aspirational end of the mass market.Long term this is the part of the market likely to grow fastest as economicgrowth enables more people to become affluent. In a downturn it is also likelyto be the part of the market that suffers most. It would be all too easy for usto surrender our market position by chasing business outside of our corecustomer, this could destroy our brand - we will not do this. Our objective is to manage the business through this difficult period andmaintain the financial stability of the Group. We are well placed to weather adownturn with healthy net margins, sound financing and strong cash flows. Inthe meantime we will focus on improving our brand so that Next is better placedto prosper when the retail economy recovers. Simon WolfsonChief Executive19 March 2008 UNAUDITED CONSOLIDATED INCOME STATEMENT Year Year to January to January 2008 2007 £m £m Revenue 3,329.1 3,283.8 _________ _________ Trading profit 535.9 506.1Share of results of associates 1.2 1.4 _________ _________Operating profit 537.1 507.5Finance income 4.3 4.0Finance costs (43.3) (33.1) _________ _________Profit before taxation 498.1 478.4Taxation (144.2) (146.9) _________ _________Profit for the year 353.9 331.5 _________ _________ Profit for the year attributable to:Equity holders of the parent company 354.1 331.5Minority interest (0.2) - _________ _________ 353.9 331.5 _________ _________ Basic earnings per share p 168.7 146.1 Diluted earnings per share p 166.6 144.3 Dividend per share p 55.0 49.0 UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Year Year to January to January 2008 2007 £m £m Income and expenses recognised directly in equityExchange differences on translation of foreign operations 0.6 (1.0)Gains/(losses) on cash flow hedges 3.4 (34.7)Hedging adjustment - 2.3Actuarial gains on defined benefit pension schemes 1.7 32.5Tax on items recognised directly in equity (11.5) (0.9) _________ _________ (5.8) (1.8)TransfersTransferred to income statement on cash flow hedges 28.2 6.2Transferred to carrying amount of hedged items on cash flow hedges (0.4) 5.8 _________ _________Net income recognised directly in equity 22.0 10.2Profit for the year 353.9 331.5 _________ _________Total recognised income and expense for the year 375.9 341.7 _________ _________ Attributable to:Equity holders of the parent company 376.1 341.7Minority interest (0.2) - _________ _________ 375.9 341.7 _________ _________ UNAUDITED CONSOLIDATED BALANCE SHEET January January 2008 2007 £m £mASSETS AND LIABILITIESNon-current assetsProperty, plant & equipment 610.6 544.4Intangible assets 36.2 36.2Interests in associates 2.9 2.2Other investments 1.0 1.0Other financial assets 0.5 2.2Deferred tax assets - 2.6 _________ _________ 651.2 588.6Current assetsInventories 319.1 281.8Trade and other receivables 591.5 577.7Other financial assets 12.6 1.2Cash and short term deposits 56.0 121.7 _________ _________ 979.2 982.4 _________ _________ Total assets 1,630.4 1,571.0 _________ _________ Current liabilitiesBank overdrafts (37.7) (12.5)Unsecured bank loans (205.0) (0.1)Trade and other payables (652.4) (621.1)Other financial liabilities (55.0) (23.6)Current tax liability (92.4) (81.2) _________ _________ (1,042.5) (738.5)Non-current liabilitiesCorporate bonds (539.7) (531.2)Net retirement benefit obligation (45.8) (47.0)Provisions (9.4) (9.5)Deferred tax liabilities (22.6) -Other financial liabilities (12.3) (19.2)Other liabilities (37.2) (36.3) _________ _________ (667.0) (643.2) _________ _________Total liabilities (1,709.5) (1,381.7) _________ _________Net (liabilities)/assets (79.1) 189.3 _________ _________EQUITYShare capital 20.1 22.7Share premium account 0.7 0.7Capital redemption reserve 9.8 7.2ESOT reserve (54.8) (76.9)Fair value reserve 11.3 (19.9)Foreign currency translation reserve 2.6 2.0Other reserves (1,443.8) (1,443.7)Retained earnings 1,374.9 1,697.2 _________ _________Shareholders' equity (79.2) 189.3Minority interest 0.1 - _________ _________Total equity (79.1) 189.3 _________ _________ UNAUDITED CONSOLIDATED CASH FLOW STATEMENT Year Year to January 2008 to January £m 2007 £m Cash flows from operating activitiesOperating profit 537.1 507.5 Depreciation 108.4 102.3 Loss on disposal of property, plant and equipment 5.0 2.9 Share option charge 8.8 8.3 Share of undistributed profit of associates (0.7) (0.4) Exchange movement (2.4) 2.6 (Increase)/decrease in inventories (37.3) 42.1 Increase in trade and other receivables (13.9) (63.7) Increase in trade and other payables 31.8 49.5 Pension contributions less income statement charge 0.5 (36.1) ________ ________Cash generated from operations 637.3 615.0 Corporation taxes paid (119.3) (114.2) ________ ________Net cash from operating activities 518.0 500.8 ________ ________Cash flows from investing activities Proceeds from sale of property, plant and equipment 0.4 3.4 Acquisition of property, plant and equipment (179.3) (139.9) ________ ________Net cash from investing activities (178.9) (136.5) ________ ________Cash flows from financing activities Repurchase of own shares (512.8) (316.3) Purchase of own shares by ESOT - (24.8) Proceeds from disposal of shares by ESOT 23.8 27.8 Proceeds from issue of corporate bond - 250.0 Proceeds/(repayment) of unsecured bank loans 204.9 (100.2) Interest paid (40.6) (28.6) Interest received 4.4 3.8 Investments by minority interest 0.3 - Payment of finance lease liabilities (0.6) (0.5) Dividends paid (109.4) (103.9) ________ ________Net cash from financing activities (430.0) (292.7) ________ ________Net (decrease)/increase in cash and cash equivalents (90.9) 71.6Opening cash and cash equivalents 109.2 38.4Effect of exchange rate fluctuations on cash held - (0.8) ________ ________Closing cash and cash equivalents (Note 4) 18.3 109.2 ________ ________ NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of preparation The condensed consolidated financial statements for the year ended 26 January2008 have been prepared in accordance with International Financial ReportingStandards as adopted for use in the European Union and the accounting policiesset out in the Next plc Annual Report and Accounts for the year ended 27 January2007. The condensed consolidated financial statements are unaudited and do notrepresent statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. Statutory accounts for the year ended 27 January 2007 have beendelivered to the Registrar of Companies and included an audit report which wasunqualified and which did not contain any statement under Section 237 of theCompanies Act 1985. 2. Earnings per share The calculation of basic earnings per share is based on £354.1m (2007: £331.5m)being the profit for the year attributable to equity holders of the parentcompany and 209.9m ordinary shares of 10p each (2007: 226.9m), being theweighted average number of shares in issue less the weighted average number ofshares held by the ESOT during the year. Diluted earnings per share is based on £354.1m (2007: £331.5m) being the profitfor the year attributable to equity holders of the parent company and 212.5mordinary shares of 10p each (2007: 229.7m) being the weighted average number ofshares used for the calculation of basic earnings per share above increased bythe dilutive effect of potential ordinary shares from employee share optionschemes of 2.6m shares (2007: 2.8m shares). 3. Reconciliation of equity Year Year to January to January 2008 2007 £m £m Total recognised income and expense 375.9 341.7Issue of shares in subsidiary 0.3 -Shares purchased for cancellation (568.0) (316.3)Shares purchased by ESOT - (24.8)Shares issued by ESOT 23.8 27.8Share option charge 8.8 8.3Equity dividends paid (109.2) (103.6) ________ ________Total movement during the period (268.4) (66.9)Opening total equity 189.3 256.2 ________ ________Closing total equity (79.1) 189.3 ________ ________ 4. Analysis of net debt Other non- January Cash cash January 2007 flow changes 2008 £m £m £m £m Cash and short term deposits 121.7 56.0Overdrafts (12.5) (37.7) ________ ________Cash and cash equivalents 109.2 (90.9) - 18.3 Unsecured bank loans (0.1) (204.9) - (205.0)Corporate bonds (531.2) - (8.5) (539.7)Fair value hedges of corporate bonds (19.4) - 7.1 (12.3)Finance leases (2.3) 0.6 (0.1) (1.8) ________ ________ ________ ________Total net debt (443.8) (295.2) (1.5) (740.5) ________ ________ ________ ________ It is intended that the recommended dividend will be paid on 1 July 2008 toshareholders registered on 30 May 2008. The Annual General Meeting will be heldat the Belmont House Hotel, De Montfort Street, Leicester LE1 7GR on Tuesday 13May 2008. The Annual Report and Accounts will be sent to shareholders by 10April 2008 and copies will be available from the Company's registered office:Desford Road, Enderby, Leicester, LE19 4AT and on the Company's website atwww.nextplc.co.uk. This statement, the full text of the Stock Exchange announcement and the resultspresentation can be found on the Company's website at www.nextplc.co.uk. Certain statements which appear in this announcement may constitute "forwardlooking statements" which are all matters that are not historical facts,including anticipated financial and operational performance, business prospectsand similar matters. These forward looking statements are identifiable by wordssuch as "believe", "estimate", "anticipate", "plan", "intend", "aim", "forecast", "expect", "project" and similar expressions. These forward lookingstatements reflect Next's current expectations concerning future events andactual results may differ materially from current expectations or historicalresults. Any such forward looking statements are subject to various risks anduncertainties, including but not limited to failure by Next to predictaccurately customer fashion preferences; decline in the demand for merchandiseoffered by Next; competitive influences; changes in level of store traffic orconsumer spending habits; effectiveness of Next's brand awareness and marketingprogrammes; general economic conditions or a downturn in the retail industry;the inability of Next to successfully implement relocation or expansion ofexisting stores; lack of sufficient consumer interest in Next Directory; acts ofwar or terrorism worldwide; work stoppages, slowdowns or strikes; and changes infinancial and equity markets. These forward looking statements do not amount toany representation that they will be achieved as they involve risks anduncertainties and relate to events and depend upon circumstances which may ormay 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 speakonly as of the date of this document. Next does not undertake any obligation toupdate publicly or revise forward looking statements, whether as a result of newinformation, future events or otherwise, except to the extent legally required. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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