NEXT PLC 
By
Next plc
Annual Financial Report for year ended January 2014
including the Notice of Annual General Meeting ('AGM') - convened for 15 May 2014
The Company announces that the Annual Financial Report for the year ended January 2014 is today being posted or otherwise made available to shareholders and published on its website,www.nextplc.co.uk.
In accordance with Listing Rule 9.6.1 a copy of this Report together with a Form of Proxy for the 2014 Annual General Meeting has been uploaded to the National Storage Mechanism and will be available for viewing shortly atwww.hemscott.com/nsm.do.
The Company's 2014 Annual General Meeting will be held at the Leicester Marriott Hotel, Smith Way, Grove Park, Leicester on Thursday 15 May 2014, commencing 9.30 am.
S L Anderson
Company Secretary
Next plc
The Appendix to this announcement is a supplement to our preliminary statement of financial results made on 20 March 2014 (the "Final Results Announcement"). It contains the information required pursuant to DTR 6.3.5 that is in addition to the information communicated in the Final Results Announcement, and should be read together with the Final Results Announcement.
Appendix
Risks & uncertainties
The Chief Executive's Review in the preliminary statement of the Final Results Announcement issued on 20 March 2014 includes a commentary on the primary uncertainties affecting the Group's businesses for 2014/15.
Further details of other key risks and uncertainties relating to the Next group are set out on pages 20 to 22 of the 2014 Annual Report. The following is extracted in full and unedited form from the 2014 Annual Report.
Business strategy development & implementation
If the Board adopts the wrong business strategy or does not implement its strategies effectively, the business may suffer. The Board needs to understand and properly manage strategic risk 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 budgets can be achieved or bettered and business operations made more efficient. This process involves the setting of annual budgets and longer term financial objectives to identify ways in which to increase shareholder value. Critical to these processes are the consideration of wider economic and industry specific trends that affect the Group's businesses, the competitive position of its product offer and the financial structure of the Group.
Liquidity & credit risk
The Group has adequate medium and long term financing in place to support its business operations. The Board continues to assess its exposure to counterparty risk in the light of the prevailing economic climate both in the UK and globally and its treasury policy is amended as necessary to manage counterparties with which deposits, investments and other transactions may be made.
NEXT is exposed to credit risk in respect of its Directory and other business customers. Rigorous procedures are in place with regard to the Group's credit customers and these are regularly reviewed and updated as required. Key suppliers whose services are essential to the successful running of the business also face credit risk. These include the production of the Directory, provision of IT systems and certain systems and suppliers to the Group's warehouse and distribution network. The Group's risk assessment procedures for key suppliers identify alternatives and develop contingency plans in the event any of these suppliers fail.
Management team
The success of NEXT relies on the continued service of its senior management and technical personnel and on its ability to continue to attract, motivate and retain highly qualified employees. The retail sector is very competitive and NEXT staff are frequently targeted by other companies. The Remuneration Committee identifies senior personnel, reviews remuneration at least annually and formulates packages to retain and motivate these employees. In addition, the Board considers the development of senior managers to ensure adequate career development opportunities for key personnel, with orderly succession and promotion to important management positions.
Product design & selection
The success of NEXT depends on providing exciting, beautifully designed, excellent quality clothing and homeware. Success also depends upon its ability to anticipate and respond to changing consumer preferences and trends. Many of NEXT's products represent discretionary purchases and demand for these products can decline in periods of weaker consumer confidence. As a consequence, NEXT may be faced with surplus stocks that cannot be sold at full price and have to be disposed of at a loss. Executive directors and senior management continually review the design and selection of NEXT's product ranges. This ensures, so far as possible, that there is a well-balanced product mix that is good value for money, and available in sufficient quantities and at the right time to meet customer demand.
Key suppliers & supply chain management
NEXT relies on its supplier base to deliver products on time and to the quality standards it specifies. It continually seeks ways to develop its supplier base so as to reduce over-reliance on individual suppliers of product and services, and to improve the competitiveness of its product offer. If input costs rise, for example raw materials or labour costs, NEXT will work with existing suppliers to mitigate the inflationary impact. New sources of supply will be developed in conjunction with NEXT Sourcing, external agents and direct suppliers.
Non-compliance by suppliers with the NEXT Code of Practice may increase reputational risk. NEXT carries out regular inspections of its suppliers' operations to ensure compliance with the standards set out in this code, covering production methods, employee working conditions, quality control and inspection processes. Further details can be found on page 23. NEXT also monitors and reviews the financial, political and geographical aspects of its supplier base to identify any factors that may affect the continuity or quality of supply of its products.
Retail store network
Growth of NEXT Retail is dependent upon developing the trading space within its store network and customers spending more. NEXT will continue to invest in new stores where its financial criteria are met and refurbish its existing portfolio when appropriate. New store appraisals estimate the effects of sales deflection from existing stores, although the performance of new stores and sales deflection may differ from estimates.
Successful development of new stores is dependent upon a number of factors including the identification of suitable properties, obtaining planning permissions and the negotiation of acceptable lease terms. Notwithstanding there have been a number of retail failures in recent years, prime sites will generally remain in demand, and increased competition can result in higher future rents.
Directory customer base
Growth of the NEXT Directory depends upon the recruitment and retention of customers and increasing the average spend per customer. NEXT will continue to recruit new credit customers where they satisfy its credit score requirements. However, there can be no assurance that new customers will result in higher sales per customer or lower incidence of bad debts, compared with the existing customer base.
In addition, NEXT requires its internet website to attract new customers and encourage existing customers to continue ordering from the Directory. Management continually review the configuration, content and functionality of the website to ensure it provides a positive customer shopping experience. Service levels and response times are monitored to ensure that the website is both resilient and secure at all times.
Warehousing & distribution
NEXT regularly reviews the warehousing and distribution operations that support the business. Risks include business interruption due to physical damage, access restrictions, breakdowns, capacity shortages, inefficient processes and delivery service failures. Planning processes are in place to ensure there is sufficient warehouse handling capacity for expected future business volumes over the short and longer terms. In addition, service levels, warehouse handling and delivery costs are monitored continuously to ensure goods are delivered to Retail stores, Directory customers and third party clients in a timely and cost-efficient manner.
IT systems, business continuity & cyber risk
NEXT is dependent upon the continued availability and integrity of its IT systems, which must record and process a substantial volume of data and conduct inventory management accurately and quickly. The Group expects that its systems will require continuous enhancement and investment to prevent obsolescence and maintain responsiveness. The threat of unauthorised or malicious attack is an on-going risk, the nature of which is constantly evolving. Systems penetration testing, business continuity plans and back up facilities are in place and are tested regularly to ensure that business interruptions are minimised and data is protected from corruption or unauthorised access or use.
Call centre capacity & service levels
NEXT is dependent on the efficient operation of its own and third party call centres to receive and respond to customer orders and enquiries. Insufficient manpower, supplier failures and interruption in the availability of telephony systems to meet customer service requirements are the principal risks. The Group continuously monitors call centre operations that support the business to ensure that there is sufficient capacity to handle call volumes. Capacity forecasting is used to manage peak demands and growth in business volumes, and customer satisfaction is measured on a regular basis. Business continuity plans minimise the risk of business interruption.
Treasury & financial risk management
The main financial risks are the availability of funds to meet business needs, default by counterparties to financial transactions (see Liquidity & credit risk), and fluctuations in interest and foreign exchange rates. In addition, business expansion and share buybacks may necessitate the raising of additional finance, which can in turn increase interest costs and give rise to fluctuations in profit. Higher debt could also increase the proportion of cash flow required to service debt and potentially increase exposure to interest rate fluctuations. NEXT operates a centralised treasury function which is responsible for managing its liquidity, interest and foreign currency risks. The Group's treasury policy allows the use of derivative instruments provided they are not entered into for speculative purposes. Further details of the Group's treasury operations are given in Note 27 of the financial statements.
In addition, NEXT has to fund its defined benefit pension scheme and ensure that sufficient contributions are made to meet outstanding liabilities as they fall due. If NEXT fails to provide sufficient and timely funding, action may be taken by the pension scheme trustees, or the Pensions Regulator, which could result in an acceleration and/or an increase in overall contributions towards any deficit. Management meets regularly with the trustees to assess fund performance, as well as to agree future contribution levels and any necessary changes to members' future benefits.
Directors' Responsibility Statement
The annual financial report contains a responsibility statement in the form set out below. Directors' responsibilitiesThe directors are responsible for preparing the Strategic Report, Directors' Report and the financial statements in accordance with applicable law and regulations.
As a listed company, within the European Union, the directors are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. The directors have elected to prepare the parent company financial statements in accordance with Companies Act 2006 and UK Accounting Standard FRS 101 "Reduced Disclosure Framework".
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 the Company and of the profit or loss of the Group for that period. In preparing the Group financial statements, the directors are required to:
- | select suitable accounting policies and then apply them consistently; |
- | make judgments and estimates that are reasonable and prudent; |
- | present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; |
- | in respect of the Group financial statements, to provide additional disclosures when compliance with the specific requirements of IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and performance; |
- | to state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; |
- | in respect of the parent company financial statements, to state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and |
- | prepare the financial statements on a going concern basis, unless they consider that to be inappropriate. |
The directors confirm that the financial statements comply with the above requirements.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Responsibilities Statement
We confirm that to the best of our knowledge:
a) | the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and results of the Group; and |
b) | the Strategic Report contained in this annual report includes a fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncertainties that they face; and |
c) | the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. |
On behalf of the Board
Lord Wolfson of Aspley Guise David Keens
Chief Executive Group Finance Director
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