11th Sep 2007 07:01
Next PLC11 September 2007 Date: Embargoed until 07.00am, Tuesday 11 September 2007 Contacts: Simon Wolfson, Chief Executive David Keens, Group Finance Director NEXT PLC Tel: 020 7796 4133 (11/09/07) Tel: 08454 567 777 (thereafter) Alistair Mackinnon-Musson Nicola Savage Hudson Sandler Tel: 020 7796 4133 Email: [email protected] Photographs available: Fashion shots: http://www.next.co.uk/press/autumnpresspack.asp Corporate shots: http://www.next.co.uk/press/corporate.asp NEXT PLC Results for the Half Year Ended July 2007 Chief Executive's Review INTRODUCTION Next increased operating profit in the first half by 11% in a challengingenvironment. This was achieved by a strong performance in Next Directory andgood cost controls, despite a flat result in Next Retail. Earnings per share have moved forward by more than operating profits as a resultof share buybacks and a lower tax rate, they are 22.3% ahead of last year. Revenue Profit and excluding VAT earnings per share Six months to July Six months to July 2007 2006 2007 2006 £m £m £m £mNext Retail 1,028.7 1,029.7 112.5 111.1Next Directory 371.8 359.4 73.8 59.6 _________ _________ _________ _________The Next Brand 1,400.5 1,389.1 186.3 170.7 +9.1% Next International 25.3 22.0 3.4 2.5Next Sourcing 2.5 2.9 16.4 15.6Ventura 104.6 92.7 11.0 9.7Other activities 5.1 3.8 (2.1) (2.2)Share option charge - - (4.3) (4.1)Unrealised exchange gain/(loss) - - 2.0 (0.5) _________ _________ _________ _________Revenue and operating profit 1,538.0 1,510.5 212.7 191.7 +11.0% _________ _________Interest expense (14.5) (12.8) _________ _________Profit before tax 198.2 178.9 +10.8%Taxation (56.5) (54.9) _________ _________Profit after tax 141.7 124.0 +14.3% _________ _________Basic earnings per share 65.2p 53.3p +22.3% PROGRESS At the beginning of the year we set ourselves the objective of improving theRetail like for like sales performance through revitalising the Next Brand. Werecognised that this would require significant investment at a time when theretail environment would remain challenging. We aimed to achieve progresswhilst continuing to move profits forward. We have achieved the following: • Started the process of making our ranges more aspirational, significantly improved our marketing and commenced the roll out of a new shop fit. • Improved like for like sales performance in our mainline stores from -7.2% last year to -3.6% during Spring Summer 2007 in the face of a worsening retail environment. This was within the range we gave in March. • Despite increased levels of investment in the Brand and negative like for like sales in Retail we have increased the operating profit of the group by 11%. This has been mainly achieved through margin improvement and operational cost savings. • As a result of our continuing strategy of buying back shares, earnings per share have increased by significantly more than profits. This, together with a reduced tax rate, takes the total EPS growth to +22.3%. Our financial goal remains the delivery of sustainable long term growth inearnings per share - which we believe to be the engine of long term growth inshareholder value. REVITALISING THE NEXT BRAND Our aim is to get the magic back into the Next Brand, to re-establish ourreputation for great style and good taste. This is mainly about improving ourproduct ranges, but we have also sought to enhance every customer facing aspectof the business: everything from our windows and bags through to our shop fitand website. At the heart of our efforts a simple statement sums up what wefeel the Next Brand stands for: "Exciting, beautifully designed, excellent quality clothing and homeware thatreflects the means and aspirations of our customers" The following sections detail some of the progress we have made in the key areasof product, marketing and shop fit. PRODUCT Newness We have worked to make our ranges more forward looking, focusing on theintroduction of more new lines more often, and buying into new trends withgreater conviction. This requires us to take significant positions withoutconcrete evidence that they will be successful. Whilst this may appear morerisky, the alternative is to fall back on last year's best sellers, which onlyguarantees slow failure - risk success or guarantee failure, that is the choice!In addition to greater conviction we have also increased the proportion of ourstock sourced on shorter lead times through buying from sources closer to homeor through using faster transport routes. The table below gives some quantative measure of the newness achieved within ourranges. It gives the percentage of new Womenswear clothing lines appearinginstore for the first time, at two critical points in the season, compared tothe same times last year. % New lines % New lines % Increase in 2007 2006 new lines Phase 1 (August) 76% 60% +27%Phase 3 (October) 52% 36% +44% Emphasis on Quality Since the beginning of this year we have shifted the emphasis of our ranges awayfrom price starters towards the mid and top end of our price architecture. Thisis reflected in the change in average selling prices as shown below. Autumn Winter 2007 Spring Summer Autumn Winter 2006 (E) 2007 Average selling price change +6.2% -1.6% -3.1% It is important to stress that the change in average selling price has not beenachieved through increasing the price on like for like garments, nor have welost any of our entry price points. It has been achieved through increasing theproportion of our ranges at mid price points and introducing new prices at thetop end of our ranges. These higher price items are branded "Next Signature"and in Autumn Winter they will account for approximately 3% of our Womenswearbuy. We believe we will have the opportunity to expand Signature next year. BRAND MARKETING Historically Next has not undertaken significant brand marketing activities.We now believe that we have the opportunity to use marketing to reinforce thechanges we have made to our product ranges and stores. We now estimate we will spend £18m more on marketing this year than last year.In addition to press and billboard advertising we will screen two televisionadvertisements, one in September and another in November. Both adverts will beproduced to a high specification and the campaign will be of sufficient weightto be highly noticeable. We will also spend £2m on more ambitious windowschemes. SHOP FIT Our new shop fit has two objectives; to increase the sales in the refit storesand to enhance the Next Brand through tasteful and exciting interior design.The refit stores continue to show approximately a 5% improvement in their salesperformance. In the course of the season we have introduced a more radical shop fit concept.Whilst we are not budgeting for it to give a better sales uplift than theinitial concept, we are convinced that it is a big step forward for the Brand. In addition to the refit programme we are redecorating and updating the facia ofa significant number of stores. The "paint and facia" work will go some way tomaking the stores that have not had the benefit of a refit sit more comfortablywith the new image of the Brand. The table below summarises the square footagethat will be new, refitted or redecorated by the end of the current financialyear. New space Refit space Redecorated space TOTAL First Half 163,000 231,000 264,000 658,000Second Half (E) 369,000 386,000 581,000 1,336,000TOTAL 532,000 617,000 845,000 1,994,000% of portfolio 10% 12% 16% 38%Approx cost/sq ft £143 £60 £4 NEXT RETAIL Retail Sales Retail sales require some additional explanation. Unusually, there was asignificant difference between the performances of Next Mainline and NextClearance. Mainline sales finished the season up 0.2% with like for like salesdown -3.6%, this was within the guidance we gave at the start of the year of -1%to -4% like for like. Movement in sales: Net sales from new space 4.7%Mainline like for like performance (3.6%)Impact of Next Clearance (1.2%)Total Retail sales (0.1%) The performance of Clearance reflects a significant reduction in the value ofClearance stock, which was on average -25% down. This was due to selling higherlevels of Clearance stock throughout the course of 2006 and a large increase inmarkdowns in the January 2007 Mainline Sale. We expect the performance ofClearance will be closer to Mainline in the Autumn Winter season. New Space In the first half of the year we opened a net 124,000 square feet of new tradingspace. July 2007 Jan 2007 Half Year ChangeStore numbers 488 480 +8Square feet 000's 4,947 4,823 +124 Net sales from new space are 2.1% ahead of our appraised targets and theforecast payback on net capital invested is 17.3 months. We expect to increasenet trading space by just over 420,000 square feet in the full year. In the first half we opened a stand alone Home store of 16,000 square feet atThurrock Retail Park. As a result of the initial success of this store and thecontinued expansion of our Home ranges we will open several more stand aloneHome stores. These will generally be in locations where we are unable to obtainplanning permission to sell clothing. We expect to open 2 stores in the secondhalf and a further 5 stores next year. Retail Profit Retail profit increased by 1.3% against last year. Net margins moved forwardsslightly from 10.8% to 10.9%. 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 10.8%Increase in achieved gross margin +2.3%Increase in branch payroll costs -0.4%Increase in branch occupancy costs -1.0%Increase in central overheads -0.8%Net operating margin this year 10.9% The improvement in gross margin of +2.3% is partly as a result of bettersourcing with bought in gross margin improving by +1.4% (this is the differencebetween what we pay for a garment and its full selling price). In Autumn Winterwe expect to continue to improve bought in gross margin but at a lower rate of+0.7%. Again it is important to stress that this improvement will be as aresult of improved sourcing and not increased prices. Further improvements camefrom fabric write offs being lower than expected (+0.4%), and settlement of aVAT issue (+0.4%), neither of these one off gains will be repeated in the secondhalf, or next year. There was no significant change in markdown against lastyear. Branch wages increased as a result of the cost of living award. Centraloverheads increased mainly due to the higher spend on marketing. We areforecasting that Retail margins will be broadly flat for the second half. NEXT DIRECTORY Directory Sales Directory sales increased by 3.5% in the first half. Improved stockavailability and increased service charge income meant that sales rose fasterthan underlying demand, which was up just 0.9%. Sales growth was driven by a 0.9% increase in the average number of activecustomers and a 14.1% increase in pages. The majority of the additional pageswent to new and developing product areas. We will continue to increase the breadth of Home products sold through NextDirectory and online. In addition we will also increase the availability ofnon-Next branded clothing and accessories, where they do not compete directlywith our own ranges. One innovation will be the development of a separate "Brand Directory" website which will showcase all the branded product availablein the Next Directory, along with some lines which we will only sell throughthis website. Directory Profit Directory profit was 23.6% up on last year, a remarkable performance. Theprofit growth was mainly as a result of improved operating margins; the tablebelow shows the change as a percentage of sales for each of our major heads ofcost: Net operating margin last year 16.6%Increase in achieved gross margin +0.6%Reduction in bad debt +3.3%Increase in service charge income +0.9%Increase in central overheads -1.6%Net operating margin this year 19.8% Achieved gross margin increased by 0.6%. The bought in gross margin increasedby 1.6% and was in line with Retail. This was eroded by -0.7% as a result ofincreased markdown and -0.3% from increased faulty and damaged stock. For some time now we have been preparing for a worsening of bad debts in theconsumer debt market and one year ago we made significant changes to the creditvetting of new applicants for the Next Directory. In particular we made changesto the ease with which customers could obtain credit on the internet, an areawhere we had experienced significant fraud. The effects of these changes beganto be felt in January 2007 and we have seen a very significant drop infraudulent bad debt and other defaults. This increased the net operating marginsof the business by +3.3%. At the same time, service charge income rose fasterthan sales adding +0.9% to margin. Virtually all the increase in central overheads is as a result of increasedmarketing spend. Cost increases in catalogue production (-0.8%) and systems(-0.2%) were offset by savings in warehousing and distribution (+1.1%). In the second half we do not expect to make the same level of improvement in baddebt. Also the warehousing and distribution savings will annualise, so we arenot forecasting for any further improvement in this area as the seasonprogresses. We are therefore expecting Directory net operating margins in thesecond half to be broadly in line with last year. Outlook for Directory We are very cautious in our outlook for the Directory for the rest of this year. There are a number of factors which we believe will hold growth in sales backin the season ahead: • Increased competition on the internet from existing high street retailers who are increasing their presence online. • Economic pressure on consumers to reduce their spending on credit. • Imposition of the tighter credit status requirements referred to above limiting the number of new customers we take into the Directory. • Implementation of increased levels of credit control whereby we have reduced the credit available to certain sections of our customer base. We believe that the right way to manage the Directory through this part of thecycle is to adopt the tactics we deployed in a similar situation in 1999. Wewill therefore not be tempted to buy sales through taking on unprofitablecustomers. NEXT INTERNATIONAL Sales to our international franchise partners grew by 15% to £25m. Our partners'own sales rose by 25% to approximately £57m. Last year sales to our partnerswere growing faster than profits due to the difference between product shipmentsand partner sales. This has now corrected and profits grew 34% to £3.4m. Our partners opened 13 additional stores in the period, making 142 in total.Our largest region remains the Middle East in terms of store numbers and sales,although Europe is growing strongly. Stores were opened in five new countries;China, Jordan, Pakistan, Poland and Ukraine. We anticipate that a further 14stores will be open by January 2008. The estimated expansion program is set outin the table below. January January July January 2009 (E) 2008 (E) 2007 2007Existing TerritoriesMiddle East 63 55 54 52Far East (inc Japan) 37 37 37 38Russia 20 15 14 13Czech / Slovakia / Hungary 14 11 11 9Turkey 7 7 5 5Rest of Europe 12 11 10 10India 9 7 3 2New TerritoriesUkraine / Poland / Romania 9 6 5 -China / Hong Kong 6 2 1 -Greece / Netherlands / Sweden 4 - - -Macau / Malaysia / Taiwan 3 1 - -Jordan / Egypt 2 2 1 -Pakistan 2 2 1 -New Stores 32 14 13 -Total Stores 188 156 142 129 International sales have now grown to become a meaningful part of the businessand we are forecasting that sales by our partners will be in excess of £120mthis year. We are looking for ways in which to further improve the pace ofgrowth and profitability of this operation. NEXT SOURCING Total Next Sourcing sales reduced by 8% to £283m, while profits increased to£16.4m. The sales reduction is attributable to currency conversion from theweaker Dollar into Sterling, in Dollar terms sales were 0.5% ahead. Theseresults are in line with our previous comment that lower stock levels in Retailand Directory would result in lower Next Sourcing sales. Action has been takenon costs and we expect that the full year profit will be in the region of £34m. In addition to existing overseas operations we have added a sourcing office innorthern India to complement that of southern India, which we opened last year. VENTURA Ventura performed well in the first half with both turnover and profitincreasing by 13%, to £104m and £11m respectively. We continue to broaden theclient portfolio and have added two more major clients. We expect Ventura tomake further progress in the second half and for full year profits to be in theregion of £23m. Ventura now operates six call centres in the UK and one in India, employing intotal over 10,000 people. It has begun marketing warehouse and distributionservices to third parties, which will utilise available capacity in our Retailand Directory network. Discussions are in progress with a number of prospectiveclients for services to commence in 2008. OTHER ACTIVITIES The Other Activities charge of £2.1m includes Central Costs of £4.8m, profitsfrom our Property Management Division of £2.2m and associated company profits of£0.5m. Central Costs include an additional pension charge of £0.5m compared with £2.8mlast year. The second half last year included a £2m credit (making a full yearcharge of £0.8m) whereas this year we expect a second half charge of £0.5m(making £1m for the full year). INTEREST, TAXATION AND EARNINGS PER SHARE The interest charge increased to £14.5m as a consequence of share buybacks andwe expect a second half charge of not less than £22m. The expected tax rate forthe year has reduced to 28.5% following resolution of prior year issues and weenvisage a similar rate for the following year. Share buybacks and the lowertax rate both contribute to the increase in earnings per share of 22.3%. BALANCE SHEET AND CASH FLOW At the end of July net borrowings were £618m, financed by £550m of bonds whichmature in 2013 and 2016, together with £450m of medium term bank facilities. The cash inflow for the period was £71m before a £245m outflow in respect ofshares purchased and cancelled. Capital expenditure was £90m and we anticipate that the full year spend will beapproximately £180m, including £114m on retail stores. Opening stock levels forthe Autumn season were 9% below those of last year. Creditors include £50m forshare buybacks made before the period end which were paid for after the periodend. SHARE BUYBACKS During the period we purchased for cancellation 6.2% of our shares for £295m atan average price of 2101p including costs. Since then we have purchased, orremain committed to purchase, a further 2.0% for £93m at an average price of2049p. DIVIDEND The Directors are declaring an interim dividend of 18p, an increase of 16.1%over last year. This will be paid on 2 January 2008 to shareholders on theregister at 30 November 2007. The shares will trade ex-dividend from 28November. CURRENT TRADING The combined sales of Next Retail and Next Directory for the six week periodfrom 29 July to 8 September 2007 were down -2.9% compared to the same periodlast year. Next Retail sales were down -2.9% in the period. Mainline like for like salesin the 310 stores that were unaffected by new openings were down -4.8%. Next Directory sales were -2.9% down in the period. These figures need to be treated with some caution. Our Summer Sale finishedearlier this year and the first six weeks sales last year were unusually strong,and significantly better than the subsequent twenty weeks. OUTLOOK FOR THE AUTUMN WINTER SEASON We remain cautious about the outlook for the UK consumer and are acutely awarethat the full effect of recent interest rate rises has not yet filtered throughto our customers. However, we are also satisfied that we have made significant improvements to ourranges, marketing and stores. We are therefore budgeting for the Retail likefor like sales performance to improve in the second half and fall within a rangeof -3.5% to -1%. We are budgeting for Directory second half sales to be between-2% and +2% on last year. Our full year internal profit forecasts for the group, based on these salesranges, are in-line with market expectations at this time. We intend to issue an Interim Management Statement on 7 November 2007 which willcontain a further update on sales. Simon WolfsonChief Executive11 September 2007 UNAUDITED CONSOLIDATED INCOME STATEMENT Six months Six months Year to July to July to January 2007 2006 2007 £m £m £m Revenue 1,538.0 1,510.5 3,283.8 _________ _________ _________ Trading profit 212.2 191.0 506.1Share of results of associates 0.5 0.7 1.4 _________ _________ _________Operating profit 212.7 191.7 507.5Finance income 3.4 0.7 4.0Finance costs (17.9) (13.5) (33.1) _________ _________ _________Profit before taxation 198.2 178.9 478.4Taxation (56.5) (54.9) (146.9) _________ _________ _________Profit attributable to equity holders ofthe parent company 141.7 124.0 331.5 _________ _________ _________ Basic earnings per share p 65.2 53.3 146.1Diluted earnings per share p 64.3 52.6 144.3Dividend per share p 18.0 15.5 49.0 UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Six months Six months Year to July to July to January 2007 2006 2007 £m £m £m Income and expenses recognised directly in equityExchange differences on translation of foreignoperations (0.4) (2.4) (1.0)Losses on cash flow hedges (9.1) (20.3) (34.7)Hedging adjustment - - 2.3Actuarial gains on defined benefit pension schemes 19.5 19.0 32.5Tax on items recognised directly in equity (8.1) 0.1 (0.9) _________ _________ _________ 1.9 (3.6) (1.8) TransfersTransferred to income statement on cash flow hedges 14.6 (3.9) 6.2 Transferred to the carrying amount of hedged items oncash flow hedges 6.6 2.7 5.8 _________ _________ _________Net income/(expense) recognised directly in equity 23.1 (4.8) 10.2Profit for the period 141.7 124.0 331.5 _________ _________ _________ Total recognised income and expense for the period 164.8 119.2 341.7 _________ _________ _________ UNAUDITED CONSOLIDATED BALANCE SHEET July July January 2007 2006 2007 £m £m £mASSETS AND LIABILITIESNon-current assetsProperty, plant & equipment 581.3 533.4 544.4Intangible assets 36.2 36.2 36.2Interests in associates 2.2 2.2 2.2Other investments 1.0 1.0 1.0Other financial assets 1.7 1.4 2.2Deferred tax assets - 8.5 2.6 _________ _________ _________ 622.4 582.7 588.6Current assetsInventories 307.8 338.9 281.8Trade and other receivables 558.0 516.9 577.7Other financial assets 1.5 0.8 1.2Cash and short term deposits 70.1 86.9 121.7 _________ _________ _________ 937.4 943.5 982.4 _________ _________ _________Total assets 1,559.8 1,526.2 1,571.0 _________ _________ _________Current liabilitiesBank overdrafts (15.3) (35.5) (12.5)Unsecured bank loans (120.0) (410.2) (0.1)Trade and other payables (781.2) (561.4) (621.1)Other financial liabilities (9.7) (133.4) (23.6)Current tax liability (85.8) (49.5) (81.2) _________ _________ _________ (1,012.0) (1,190.0) (738.5)Non-current liabilitiesCorporate bonds (532.3) (299.0) (531.2)Net retirement benefit obligation (28.1) (84.9) (47.0)Provisions (9.5) (9.7) (9.5)Other financial liabilities (18.0) (3.7) (19.2)Deferred tax liabilities (10.0) - -Other liabilities (36.9) (34.0) (36.3) _________ ________ _________ (634.8) (431.3) (643.2) _________ ________ _________Total liabilities (1,646.8) (1,621.3) (1,381.7) _________ _________ _________Net (liabilities)/assets (87.0) (95.1) 189.3 _________ _________ _________EQUITYShare capital 21.3 22.9 22.7Share premium account 0.7 0.7 0.7Capital redemption reserve 8.6 7.0 7.2ESOT reserve (62.1) (91.5) (76.9)Fair value reserve (7.8) (18.7) (19.9)Foreign currency translation 1.6 0.5 2.0Other reserves (1,443.8) (1,441.8) (1,443.7)Retained earnings 1,394.5 1,425.8 1,697.2 _________ _________ _________Total equity (87.0) (95.1) 189.3 _________ _________ _________ UNAUDITED CONSOLIDATED CASH FLOW STATEMENT Six months Six months Year to to July 2007 to July 2006 January 2007 £m £m £m Cash flows from operating activitiesOperating profit before interest 212.7 191.7 507.5 Depreciation 51.2 49.0 102.3 Loss on disposal of property, plant & equipment 1.6 1.4 2.9 Share option charge 4.3 4.1 8.3 Share of undistributed profit of associates - (0.4) (0.4) Exchange movement (2.1) (0.8) 2.6 (Increase)/decrease in inventories (26.0) (15.0) 42.1 Decrease/(increase) in trade and other receivables 19.6 (3.1) (63.7) Increase/(decrease) in trade and other payables 9.9 (13.7) 49.5 Pension contributions less income statement charge 0.6 (11.7) (36.1) ________ ________ ________Cash generated from operations 271.8 201.5 615.0 Corporation taxes paid (47.2) (59.0) (114.2) ________ ________ ________Net cash from operating activities 224.6 142.5 500.8 ________ ________ ________Cash flows from investing activitiesProceeds from sale of property, plant & equipment 0.1 0.2 3.4Acquisition of property, plant & equipment (89.7) (70.8) (139.9) ________ ________ ________Net cash from investing activities (89.6) (70.6) (136.5) ________ ________ ________Cash flows from financing activities Repurchase of own shares (245.1) (279.2) (316.3) Purchase of own shares by ESOT - (24.8) (24.8) Proceeds from disposal of shares by ESOT 16.1 16.0 27.8 Proceeds from issue of corporate bond - - 250.0 Proceeds/(repayment) of unsecured bank loans 119.9 309.9 (100.2) Interest paid (9.4) (11.0) (28.6) Interest received 3.5 0.6 3.8 Payment of finance lease liabilities (0.3) (0.3) (0.5) Dividends paid (73.5) (69.8) (103.9) ________ ________ ________Net cash from financing activities (188.8) (58.6) (292.7) ________ ________ ________ Net (decrease)/increase in cash and cash equivalents (53.8) 13.3 71.6Opening cash and cash equivalents 109.2 38.4 38.4Effect of exchange rate fluctuations on cash held (0.6) (0.3) (0.8) ________ ________ ________Closing cash and cash equivalents (Note 6) 54.8 51.4 109.2 ________ ________ ________ NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. Basis of Preparation The Group's interim results for the six months ended 28 July 2007 were approvedby the Board of Directors on 11 September 2007, and have been prepared inaccordance with IAS 34 Interim Financial Reporting. The accounting policies adopted in the preparation of the interim financialstatements are the same as those set out in the Group's annual financialstatements for the year ended 27 January 2007. The financial statements havebeen prepared on the historical cost basis except for certain financialinstruments, pension assets and liabilities and share based payment liabilitieswhich are measured at fair value. The interim financial statements have not been audited or reviewed by auditorspursuant to the Auditing Practices Board guidance on 'Review of InterimFinancial Information' and do not include all of the information required forfull annual financial statements. The financial information for the year to January 2007 does not representstatutory accounts within the meaning of Section 240 of the Companies Act 1985.Statutory accounts for that period incorporating an unqualified audit reporthave been delivered to the Registrar of Companies. Changes in accounting policy In the current financial year, the Group will adopt IFRS 7 FinancialInstruments: Disclosures and the amendment to IAS 1 Presentation of FinancialStatements for the first time. As these are disclosure standards, there is noimpact on the interim financial statements. 2. Risks & Uncertainties The principal risks and uncertainties affecting the business activities of theGroup remain those detailed on pages 11 and 12 of the January 2007 Report &Accounts, a copy of which is available on the Company's website atwww.next.co.uk. The Chief Executive's Review in this Interim Management Reportincludes a commentary on the primary uncertainties affecting the Group'sbusinesses for the remaining six months of the financial year. 3. Segmental Analysis For management purposes the Group comprises a number of divisions, theactivities and results of which are detailed in the Chief Executive's Review.These divisions comprise the business segments which form the Group's primaryformat for segmental reporting. An analysis of segment revenues is given below: External revenue Internal revenue Total revenueSix months to July 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m Next Retail 1,028.7 1,029.7 - - 1,028.7 1,029.7Next Directory 371.8 359.4 - - 371.8 359.4 ________ ________ ________ ________ ________ ________Next Brand 1,400.5 1,389.1 - - 1,400.5 1,389.1Next International 25.3 22.0 - - 25.3 22.0Next Sourcing 2.5 2.9 280.4 305.0 282.9 307.9Ventura 104.6 92.7 3.4 3.0 108.0 95.7Other 5.1 3.8 78.9 73.1 84.0 76.9Eliminations - - (362.7) (381.1) (362.7) (381.1) ________ ________ ________ ________ ________ ________ 1,538.0 1,510.5 - - 1,538.0 1,510.5 ________ ________ ________ ________ ________ ________ 4. Earnings per Share The calculation of basic earnings per share is based on £141.7m (2006: £124.0m)being the profit for the six months after taxation and 217.3m ordinary shares of10p each (2006: 232.6m), being the weighted average number of shares ranking fordividend less the weighted average number of shares held by the ESOT during theperiod. Diluted earnings per share is based on £141.7m (2006: £124.0m) being the profitfor the six months after taxation and 220.4m ordinary shares of 10p each (2006:235.5m) being the weighted average number of shares used for the calculation ofearnings per share above increased by the dilutive effect of potential ordinaryshares from employee share option schemes of 3.1m shares (2006: 2.9m shares). 5. Reconciliation of Movements in Total Equity Six months Six months Year to to July 2007 to July 2006 January 2007 £m £m £m Opening total equity 189.3 256.2 256.2 Total recognised income and expense 164.8 119.2 341.7Shares purchased for cancellation (294.7) (283.5) (316.3)Share purchase contracts (93.4) (112.8) -Shares purchased by ESOT - (24.8) (24.8)Shares disposed of by ESOT 16.1 16.0 27.8Share option charge 4.3 4.1 8.3Equity dividends paid (73.4) (69.5) (103.6) ________ ________ ________Closing total equity (87.0) (95.1) 189.3 ________ ________ ________ During the six months to July 2007 the Company purchased for cancellation12,623,718 (2006: 14,746,199) of its own ordinary shares of 10p each in the openmarket at a cost of £263.9m (2006: £246.3m). The Company also purchased forcancellation 1,400,000 (2006: 2,275,000) of its own ordinary shares of 10p eachunder off-market contingent purchase contracts at a cost of £30.8m (2006:£37.2m). 6. Analysis of Net Debt Other non-cash January Cash July 2007 flow changes 2007 £m £m £m £m Cash and short term deposits 121.7 70.1Overdrafts (12.5) (15.3) ________ ________Cash and cash equivalents 109.2 (53.8) (0.6) 54.8 Unsecured bank loans (0.1) (119.9) - (120.0)Corporate bonds (531.2) - (1.1) (532.3)Fair value hedges of corporate bond (19.4) - 1.3 (18.1)Finance leases (2.3) 0.3 (0.1) (2.1) ________ ________ ________ ________Total net debt (443.8) (173.4) (0.5) (617.7) ________ ________ ________ ________ Responsibility Statement We confirm that to the best of our knowledge: a) The condensed set of financial statements has been prepared in accordance with IAS 34; b) The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for theremaining six months of the year); and c) The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein). By order of the Board Simon Wolfson David KeensChief Executive Group Finance Director 11 September 2007 This statement, the full text of the Stock Exchange announcement and the resultspresentation can be found on the Company's website at www.next.co.uk. Certain statements which appear in a number of places throughout this InterimManagement Report may constitute "forward-looking statements" which are allmatters that are not historical facts, including anticipated financial andoperational performance, business prospects and similar matters. Theseforward-looking statements are identifiable by words such as "believe", "estimate", "anticipate", "plan", "intend", "aim", "forecast", "expect", "project" and similar expressions. These forward-looking statements reflect Next's current expectations concerning future events and actual results may differ materially from current expectations or historical results. Any suchforward-looking statements are subject to various risks and uncertainties,including but not limited to those matters detailed in the Chief Executive'sReview; 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 ofNext's brand awareness and marketing programmes; general economic conditions ora downturn in the retail industry; the inability of Next to successfullyimplement relocation or expansion of existing stores; lack of sufficientconsumer interest in Next Directory; acts of war or terrorism worldwide; workstoppages, slowdowns or strikes; and changes in financial and equity markets.These forward-looking statements do not amount to any representation that theywill be achieved as they involve risks and uncertainties and relate to eventsand depend upon circumstances which may or may not occur in the future and therecan be no guarantee of future performance. Undue reliance should not be placedon forward-looking statements which speak only as of the date of this document.Next do not undertake any obligation to update publicly or reviseforward-looking statements, whether as a result of new information, futureevents or otherwise, except to the extent legally required. The Risks & Uncertainties described in the Directors' Report and Business Reviewfor the year ended 27 January 2007 remain the principal risks affecting theGroup's businesses. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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