Results for the Half Year Ending July 2019

UNAUDITED CONSOLIDATED

CASH FLOW STATEMENT

 

	26 weeks to 27 July 2019   £m	26 weeks to 28 July 2018 Restated £m
Cash generated from operations	474.8	412.6
Corporation taxes paid	(70.2)	(68.5)
	____________	____________
Net cash from operating activities	404.6	344.1
	____________	____________
Cash flows from investing activities
Additions to property, plant and equipment	(65.1)	(58.2)
Movement in capital accruals	2.2	4.1
	____________	____________
Payments to acquire property, plant and equipment	(62.9)	(54.1)
Proceeds from sale of property, plant and equipment	0.2	0.2
Purchase of shares in associate	-	(3.0)
	____________	____________
Net cash from investing activities	(62.7)	(56.9)
	____________	____________
Cash flows from financing activities
Repurchase of own shares	(280.2)	(275.0)
Purchase of shares by ESOT	(46.2)	(41.9)
Disposal of shares by ESOT	11.7	10.8
Issue of corporate bonds	198.6	-
(Repayment)/proceeds from unsecured bank loans	(95.0)	150.0
Lease repayment	(75.1)	(67.6)
Interest paid	(48.1)	(49.7)
Interest received	0.2	0.1
	____________	____________
Net cash from financing activities	(334.1)	(273.3)
	____________	____________
Net increase in cash and cash equivalents	7.8	13.9
Opening cash and cash equivalents	34.0	8.5
Effect of exchange rate fluctuations on cash held	0.3	1.1
	____________	____________
Closing cash and cash equivalents (Note 15)	42.1	23.5
	____________	____________

 

 

NOTES TO THE UNAUDITED CONSOLIDATED

INTERIM FINANCIAL STATEMENTS

 

 

1.        Basis of preparation

 

The Group's interim results for the 26 weeks to 27 July 2019 (prior year 26 weeks to 28 July 2018) were approved by the Board of Directors on 19 September 2019 and have been prepared in accordance with IAS 34 "Interim financial reporting", as adopted by the European Union.

 

The interim financial statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on "Review of interim financial information" and do not include all of the information required for full annual financial statements.

 

The financial information contained in this report is condensed and does not include all of the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the 52 weeks to 26 January 2019 which have been delivered to the Registrar of Companies.  The audit report for those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

 

The financial statements have been prepared on the historical cost basis except for certain financial instruments, pension assets and liabilities and share-based payment liabilities which are measured at fair value.  Where applicable, disclosures required by paragraph 16A of IAS 34 are given either in these interim financial statements or in the accompanying Chief Executive's Review.

 

New accounting standards, interpretations and amendments adopted by the Group

 

The accounting policies adopted in the preparation of the interim financial statements are the same as those set out in the Group's annual financial statements for the 52 weeks ended 26 January 2019, except for the adoption of new standards effective as of 27 January 2019.  The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not effective.

 

The Group applies, for the first time, IFRS 16 "Leases".  The nature and effect of this change is disclosed below.  Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the interim consolidated financial statements of the Group.

 

IFRS 16 is effective for all accounting periods beginning on or after 1 January 2019.  The Group applied IFRS 16 retrospectively, restating prior year comparatives.  It applied the practical expedient to grandfather the definition of a lease on transition and apply the recognition exemption for both short term and low value assets.

 

Revised accounting policies for IFRS 16 are detailed below.

 

The 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 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 - re-measurement

The lease liability is re-measured where:

 

·    there is a change in the assessment of exercise of a purchase option, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate or

·    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 re-measured 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 re-measured by discounting the revised lease payments using a revised discount rate.

 

When the lease liability is re-measured, 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 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 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.

 

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.

 

The impact of IFRS 16 on the Income Statement and Balance Sheet is set out in Note 17 of these Interim Financial Statements.

 

Going concern

 

The directors report that, having reviewed current performance and forecasts, they are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report.  Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

 

 

2.        Risks and uncertainties

 

The Board has considered the principal risks and uncertainties for the remaining half of the financial year and determined that the risks presented in the 2019 Annual Report, described as follows, also remain relevant to the rest of the financial year:  Business strategy development and implementation; Management team; Product design and selection; Key suppliers and supply chain management; Warehousing and distribution; Customer experience; Retail store network; Information security, business continuity and cyber risk; Financial, treasury, liquidity and credit risks.  These are detailed on pages 54 to 58 of the 2019 Annual Report, a copy of which is available on the Company's website at www.nextplc.co.uk.

 

 

3.        Segmental analysis

 

The Group's operating segments have been determined based on the Group's internal reporting to the Chief Operating Decision Maker (CODM).  The CODM has been determined to be the Group Chief Executive, with support from the Board.  The performance of operating segments is assessed on profits before interest and tax, excluding equity-settled share option charges recognised under IFRS 2 'Share-based payment' and unrealised foreign exchange gains or losses on derivatives which do not qualify for hedge accounting.  Where third-party branded goods are sold on a commission basis, only the commission receivable is included in statutory revenue.  Total sales represent the amount payable by the customer, excluding VAT.

 

The activities, products and services of the operating segments are detailed on page 50 of the 2019 Annual Report.  The Property Management segment holds properties and property leases which are sublet to other segments and external parties.  The NEXT International Retail segment comprises franchise and wholly owned stores overseas.  International online sales are included in the NEXT Online segment.

 

During the 2020 financial year the CODM has altered the internal reporting of finance costs allocated to NEXT Finance.   The NEXT Finance segment revenue represents the interest charged to customers on their credit account balances.  Previously all of the external debt and the associated interest, excluding lease debt, was allocated to the NEXT Finance segment.  Following a review of this allocation it was decided to allocate 85% of the debt and associated interest costs to the Finance Business with the remaining element held as part of the overall group funding.  This allocation better reflects the utilisation of funds across the business.  The impact of this change has increased the NEXT Finance profit by £3.1m (2018: £3.0m) but had no impact on overall Group profit.

 

In common with many retailers, revenue and trading profit are subject to seasonal fluctuations and are weighted towards the second half of the year which includes the key Christmas period for the business.

 

Segment sales and revenue
26 weeks to 27 July 2019	Total sales excluding VAT £m	Commission sales adjustment £m	IFRS 15 adjustments £m	External revenue £m	Internal revenue £m	Total segment revenue £m
NEXT Retail	874.3	(1.5)	(0.5)	872.3	1.6	873.9
NEXT Online	1,004.9	(63.5)	21.2	962.6	-	962.6
NEXT Finance	134.0	-	-	134.0	-	134.0
NEXT International Retail	28.9	-	-	28.9	-	28.9
NEXT Sourcing	3.4	-	-	3.4	262.7	266.1
	____________	____________	____________	____________	____________	____________
	2,045.5	(65.0)	20.7	2,001.2	264.3	2,265.5
Lipsy	5.9	-	-	5.9	32.1	38.0
Property Management	7.4	-	-	7.4	98.5	105.9
	____________	____________	____________	____________	____________	____________
Total segment sales/revenue	2,058.8	(65.0)	20.7	2,014.5	394.9	2,409.4
Eliminations	-	-	-	-	(394.9)	(394.9)
	____________	____________	____________	____________	____________	____________
Total	2,058.8	(65.0)	20.7	2,014.5	-	2,014.5
	____________	____________	____________	____________	____________	____________

 

Segment sales and revenue
26 weeks to 28 July 2018	Total sales excluding VAT £m	Commission sales adjustment £m	IFRS 15 adjustments £m	External revenue £m	Internal revenue £m	Total segment revenue £m
NEXT Retail	925.1	(0.6)	(2.0)	922.5	2.3	924.8
NEXT Online	892.3	(39.7)	18.1	870.7	-	870.7
NEXT Finance	122.0	-	-	122.0	-	122.0
NEXT International Retail	30.9	-	-	30.9	-	30.9
NEXT Sourcing	2.9	-	-	2.9	261.5	264.4
	____________	____________	____________	____________	____________	____________
	1,973.2	(40.3)	16.1	1,949.0	263.8	2,212.8
Lipsy	7.8	(0.1)	-	7.7	32.9	40.6
Property Management	5.2	-	-	5.2	102.6	107.8
	____________	____________	____________	____________	____________	____________
Total segment sales/revenue	1,986.2	(40.4)	16.1	1,961.9	399.3	2,361.2
Eliminations	-	-	-	-	(399.3)	(399.3)
	____________	____________	____________	____________	____________	____________
Total	1,986.2	(40.4)	16.1	1,961.9	-	1,961.9
	____________	____________	____________	____________	____________	____________

 

In the CEO report, Label commission sales include sales of all Lipsy stock on the NEXT website, as NEXT trades on a commission basis with Lipsy.  However, as Lipsy is a group company no commission adjustment is required in respect of this for external revenue in the notes above.

 

Segment profit

 

The prior year segment profit results for the first half of 2018 have been restated to reflect the impact of IFRS 16 "Leases" and the change in the allocation of finance costs to NEXT Finance.  Finance costs associated with the leases have been assigned to the segments to which the lease relates. 

 

		26 weeks to 27 July 2019   £m	26 weeks to 28 July 2018 Restated £m	26 weeks to 28 July 2018 As reported £m
NEXT Retail		61.3	73.7	73.2
NEXT Online		180.4	165.8	163.3
NEXT Finance		75.8	60.9	57.9
NEXT International Retail		3.2	3.7	3.0
NEXT Sourcing		16.9	14.9	14.8
		____________	____________	____________
		337.6	319.0	312.2
Lipsy		5.5	3.4	3.6
Property Management		(0.4)	4.6	4.4
		____________	____________	____________
Total segment profit		342.7	327.0	320.2
Central costs and other		(4.5)	(4.6)	(4.6)
Recharge of interest		17.8	16.8	19.8
Interest associated with leasing		32.1	34.7	-
Share option charge		(6.4)	(6.8)	(6.8)
Unrealised foreign exchange (losses)/gains		(0.9)	1.8	1.8
		____________	____________	____________
Trading profit		380.8	368.9	330.4
Share of results of associates and joint venture		0.1	0.1	0.1
Finance income		0.1	0.1	0.1
Finance costs		(21.5)	(19.5)	(19.5)
Interest associated with leasing		(32.1)	(34.7)	-
		____________	____________	____________
Profit before tax		327.4	314.9	311.1
		___________	____________	____________

 

 

4.        Revenue

 

The Group's disaggregated revenue recognised under contracts with customers relates to the following categories and operating segments:

 

26 weeks to 27 July 2019
	Sale of goods	Credit account interest	Royalties	Rental income	Total
	£m	£m	£m	£m	£m
NEXT Online	962.6	-	-	-	962.6
NEXT Finance	-	134.0	-	-	134.0
NEXT Retail	872.3	-	-	-	872.3
NEXT International Retail	26.1	-	2.8	-	28.9
NEXT Sourcing	3.4	-	-	-	3.4
Lipsy	4.8	-	1.1	-	5.9
Property Management	-	-	-	7.4	7.4
	____________	____________	____________	____________	____________
Total	1,869.2	134.0	3.9	7.4	2,014.5
	____________	____________	____________	____________	____________

 

 

26 weeks to 28 July 2018
	Sale of goods	Credit account interest	Royalties	Rental income	Total
	£m	£m	£m	£m	£m
NEXT Online	870.7	-	-	-	870.7
NEXT Finance	-	122.0	-	-	122.0
NEXT Retail	922.5	-	-	-	922.5
NEXT International Retail	28.0	-	2.9	-	30.9
NEXT Sourcing	2.9	-	-	-	2.9
Lipsy	6.8	-	0.9	-	7.7
Property Management	-	-	-	5.2	5.2
	____________	____________	____________	____________	____________
Total	1,830.9	122.0	3.8	5.2	1,961.9
	____________	____________	____________	____________	____________

 

 

5.        Operating Profit

 

Group operating profit is stated after charging/(crediting):

 

	26 weeks to 27 July 2019   £m	26 weeks to 28 July 2018 Restated £m
Impairment charges on tangible assets	-	1.4
Write down of inventories to net realisable value	56.9	51.5
Customer and other receivables:
Impairment charge	20.8	27.5
Amounts recovered	(1.6)	(2.8)
Depreciation of right-of-use asset	67.4	68.7
Interest on lease liabilities	32.1	34.7
Foreign exchange loss on lease liabilities	2.3	0.8

 

 

6.        Taxation

 

Income tax expense is recognised based on management's best estimate of the full year effective tax rate based on estimated full year profits. 

 

 

7.        Earnings Per Share

 

	26 weeks to 27 July 2019 Including IFRS 16	26 weeks to 28 July 2018 Including IFRS 16	26 weeks to 27 July 2019 Excluding IFRS 16	26 weeks to 28 July 2018 Excluding IFRS 16
Basic Earnings Per Share	204.4p	187.9p	199.5p	185.6p
Diluted Earnings Per Share	203.3p	186.8p	198.4p	184.5p

 

Basic Earnings Per Share (EPS) is based on the profit for the period attributable to the equity holders of the Parent Company divided by the net of the weighted average number of shares ranking for dividend less the weighted average number of shares held by the ESOT during the period.

 

Diluted Earnings Per Share is calculated by adjusting the weighted average number of shares used for the calculation of basic Earnings Per Share as increased by the dilutive effect of potential ordinary shares.  Dilutive shares arise from employee share option schemes where the exercise price is less than the average market price of the Company's ordinary shares during the period.  Their dilutive effect is calculated on the basis of the equivalent number of nil cost options.  Where the option price is above the average market price, the option is not dilutive and is excluded from the diluted EPS calculation.  In the current period, there were 2.3 million non-dilutive share options which were excluded from the diluted EPS calculation (2018: 2.6 million). 

 

The table below shows the key variables used in the Earnings Per Share calculations:

 

		26 weeks to 27 July 2019   £m	26 weeks to 28 July 2018 Restated £m
Profit after tax attributable to equity holders of the Parent Company		266.9	257.3
Weighted average number of shares (millions):
Weighted average shares in issue		136.2	142.0
Weighted average shares held by ESOT		(5.6)	(5.0)
		_______________	_______________
Weighted average shares for basic EPS		130.6	137.0
Weighted average dilutive potential shares		0.7	0.7
		_______________	_______________
Weighted average shares for diluted EPS		131.3	137.7
		_______________	_______________

 

 

8.        Dividends

 

It is intended that this year's ordinary interim dividend of 57.5p per share will be paid to shareholders on 2 January 2020.  NEXT plc shares will trade ex-dividend from 5 December 2019 and the record date will be 6 December 2019.  Dividends paid or declared during the period were as follows:

 

26 weeks to 27 July 2019
	Paid	Pence per share	Cash Flow Statement £m	Statement of Changes in Equity £m	July 2019 Balance Sheet £m
Ordinary final dividend for year to Jan 2019	1 Aug 2019	110p	-	140.3	140.3
			___________	___________	___________
			-	140.3	140.3
			___________	___________	___________

 

26 weeks to 28 July 2018
	Paid	Pence per share	Cash Flow Statement £m	Statement of Changes in Equity £m	July 2018 Balance Sheet £m
Ordinary final dividend for year to Jan 2018	1 Aug 2018	105p	-	141.9	141.9
			___________	___________	___________
			-	141.9	141.9
			___________	___________	___________

 

 

9.        Defined benefit pension

 

The principal pension scheme is the 2013 NEXT Group Pension Plan, which includes defined benefit and defined contribution sections. 

The movement in the defined benefit pension surplus in the period is as follows:

 

	26 weeks to 27 July 2019	26 weeks to 28 July 2018	52 weeks to 26 January 2019
	£m	£m	£m
Surplus in schemes at the beginning of the period	125.0	106.2	106.2
Current service cost	(3.6)	(4.2)	(8.2)
Administration costs	(1.2)	(1.1)	(1.9)
Net interest	1.9	1.3	2.8
Employer contributions	3.5	0.5	7.8
Actuarial gains	16.4	60.4	18.7
Guaranteed Minimum Pension equalisation	-	-	(0.4)
	___________	___________	___________
Surplus in schemes at the end of the period	142.0	163.1	125.0
	___________	___________	___________

 

The main financial assumptions and actuarial valuations have been updated by independent qualified actuaries under IAS 19 "Employee benefits".  The following financial assumptions have been used:

 

	26 weeks to 27 July 2019	26 weeks to 28 July 2018	52 weeks to 26 January 2019
Discount rate	2.20%	2.85%	2.90%
Inflation - RPI	3.10%	3.15%	3.15%
Inflation - CPI	2.10%	2.15%	2.15%
Salary increases	-	-	-
Pension increases in payment
-              RPI with a maximum of 5%	2.95%	2.95%	2.95%
-              RPI with a maximum of 2.5% and discretionary increases	2.00%	2.00%	2.05%

 

 

10.      Other financial assets and liabilities

 

Other financial assets and other financial liabilities include the fair value of derivative contracts which the Group uses to manage its foreign currency and interest rate risks.  All derivatives are categorised as Level 2 under the requirements of IFRS 13, as they are valued using techniques based significantly on observed market data.

 

 

11.      Customer and other receivables

 

	27 July 2019   £m	28 July 2018 Restated £m	26 Jan 2019 Restated £m
Gross Online customer receivables	1,415.0	1,340.4	1,417.2
Less: Refund liabilities	(60.7)	(48.4)	(44.5)
	___________	___________	___________
Net Online customer receivables	1,354.3	1,292.0	1,372.7
Less:  Allowance for expected credit losses	(168.5)	(150.5)	(165.5)
	___________	___________	___________
	1,185.8	1,141.5	1,207.2
Other trade receivables	19.4	27.2	23.8
Less: Allowance for doubtful debts	(0.1)	(0.1)	(0.5)
	___________	___________	___________
	1,205.1	1,168.6	1,230.5
Prepayments	36.6	42.7	37.2
Other debtors	10.4	11.5	14.7
Amounts due from associates and joint venture	1.9	2.7	3.0
	___________	___________	___________
	1,254.0	1,225.5	1,285.4
	___________	___________	___________

 

No interest is charged on customer receivables if the statement balance is paid in full and to terms; otherwise balances bear interest at a variable annual percentage rate of 23.9% at the year-end date (2018: 22.9%).  

 

The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on a very low credit risk characteristic, 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 £1,150.0m. 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 26 of the January 2019 Annual Report).

 

Expected irrecoverable amounts on balances with indicators of impairment are provided for based on past default experience, adjusted for expected behaviour. Receivables which are impaired, other than by age or default, are separately identified and provided for as necessary.

 

 

12.      Trade payables and other liabilities (current)

 

	27 July 2019   £m	28 July 2018 Restated £m	26 Jan 2019 Restated £m
Trade payables	229.8	190.6	218.8
Refund liabilities	6.1	7.6	6.2
Other taxation and social security	64.1	60.2	68.3
Deferred revenue from the sale of gift cards	60.3	62.2	75.4
Share-based payment liability	0.4	0.9	0.2
Other creditors and accruals	238.1	250.6	236.8
	___________	___________	___________
	598.8	572.1	605.7
	___________	___________	___________

 

 

13.      Corporate bonds

 

The table below shows the nominal and balance sheet values of the Group's outstanding corporate bonds:

 

	Nominal value			Balance Sheet value
	27 July 2019	28 July 2018	26 Jan 2019	27 July 2019	28 July 2018	26 Jan 2019
	£m	£m	£m	£m	£m	£m
Corporate bond 5.375% repayable 2021	325.0	325.0	325.0	327.6	328.1	327.5
Corporate bond 3.000% repayable 2025	200.0	-	-	200.0	-	-
Corporate bond 4.375% repayable 2026	250.0	250.0	250.0	287.0	278.0	277.7
Corporate bond 3.625% repayable 2028	300.0	300.0	300.0	300.0	300.0	300.0
	_________	_________	_________	_________	_________	_________
	1,075.0	875.0	875.0	1,114.6	906.1	905.2
	_________	_________	_________	_________	_________	_________

 

As explained in the January 2019 Annual Report, the Group uses interest rate derivatives to manage part of the interest rate risk associated with its corporate bonds, whereby the carrying value of the relevant bonds is adjusted for changes in fair value attributable to the hedged risk.  At July 2019, the fair value of the Group's corporate bonds was £1,185.6m (July 2018: £953.3m, January 2019: £930.3m).  The fair values are market values at the balance sheet date (IFRS 13 Level 1).

 

 

14.      Share buybacks

 

Movements in the Company's issued share capital during the year are shown in the table below:

 

	2019 Shares '000	2019   £m	2018 Shares '000	2018   £m
Shares in issue at start of year	138,605	13.9	144,882	14.5
Shares purchased for cancellation in the period	(5,040)	(0.5)	(5,197)	(0.5)
	__________	__________	____________	__________
Shares in issue at July	133,565	13.4	139,685	14.0
	__________	__________	____________	__________

 

The total cost of shares purchased for cancellation as shown in the Statement of Changes in Equity was £280.2m (2018: £274.0m).

 

 

15.      Analysis of net debt

 

	27 July 2019   £m	28 July 2018 Restated £m	26 Jan 2019 Restated £m
Cash and short term deposits	156.9	66.1	156.3
Overdrafts and short term borrowings	(114.8)	(42.6)	(122.3)
	__________	__________	__________
Cash and cash equivalents	42.1	23.5	34.0
Unsecured bank loans	(160.0)	(285.0)	(255.0)
Corporate bonds	(1,114.6)	(906.1)	(905.2)
Fair value hedges of corporate bonds	39.2	31.1	30.4
	__________	__________	__________
Net debt excluding leases	(1,193.3)	(1,136.5)	(1,095.8)
Current lease liability	(154.5)	(171.7)	(175.6)
Non-current lease liability	(1,176.3)	(1,231.9)	(1,190.7)
	__________	__________	__________
	(1,330.8)	(1,403.6)	(1,366.3)
	__________	__________	__________
Net debt including leases	(2,524.1)	(2,540.1)	(2,462.1)
	__________	__________	__________

 

 

16.      Lease liabilities

	27 July 2019   £m	28 July 2018 Restated £m	26 Jan 2019 Restated £m
Maturity profile
Less than 1 year	154.5	171.7	175.6
More than 1 year	1,176.3	1,231.9	1,190.7
	_________	__________	__________
Total	1,330.8	1,403.6	1,366.3
	_________	_________	_________

 

 

17.      IFRS 16 transition note

Impact on profit for the period	26 weeks to 27 July 2019 Excluding IFRS 16 £m	Adjustments on adoption of IFRS 16 £m	28 weeks to 27 July 2019   £m
Total revenue	2,014.5	-	2,014.5
Cost of sales                                                           (i)	(1,290.9)	41.3	(1,249.6)
	____________	____________	____________
Gross profit	723.6	41.3	764.9
Distribution costs	(250.5)	0.9	(249.6)
Administrative costs	(131.4)	-	(131.4)
Other gains/(losses)	(0.9)	(2.3)	(3.2)
	____________	____________	____________
Trading profit	340.8	39.9	380.7
Share of results of associates and joint venture	0.1	-	0.1
	____________	____________	____________
Operating profit	340.9	39.9	380.8
	____________	____________	____________
Finance income	0.1	-	0.1
Finance costs                                                         (i)	(21.4)	(32.1)	(53.5)
	____________	____________	____________
Profit before taxation	319.6	7.8	327.4
Taxation                                                                 (v)	(59.1)	(1.4)	(60.5)
	____________	____________	____________
Profit attributable to equity holders	260.5	6.4	266.9
	____________	____________	____________

 

Impact on profit for the period	26 weeks to 28 July 2018 Excluding IFRS 16 £m	Adjustments on adoption of IFRS 16 £m	26 weeks to 28 July 2018 Restated £m
Total revenue	1,961.9	-	1,961.9
Cost of sales                                                          (i)	(1,287.8)	38.9	(1,248.9)
	____________	____________	____________
Gross profit	674.1	38.9	713.0
Distribution costs	(214.9)	0.4	(214.5)
Administrative costs	(130.6)	-	(130.6)
Other gains/(losses)	1.8	(0.8)	1.0
	____________	____________	____________
Trading profit	330.4	38.5	368.9
Share of results of associates and joint venture	0.1	-	0.1
	____________	____________	____________
Operating profit	330.5	38.5	369.0
	____________	____________	____________
Finance income	0.1	-	0.1
Finance costs                                                        (i)	(19.5)	(34.7)	(54.2)
	____________	____________	____________
Profit before taxation	311.1	3.8	314.9
Taxation                                                                (v)	(56.9)	(0.7)	(57.6)
	____________	____________	____________
Profit attributable to equity holders	254.2	3.1	257.3
	____________	____________	____________

 

 

Impact on Net assets and Retained earnings as at 27 January 2018

 

	Notes	27 January 2018   £m	IFRS 16 Adjustment   £m	27 January 2018 Restated £m
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment		558.9	-	558.9
Intangible assets		42.9	-	42.9
Right of use asset	(ii)	-	948.9	948.9
Associates, joint venture and other investment		2.1	-	2.1
Defined benefit pension asset		106.2	-	106.2
Other financial assets		48.1	-	48.1
Deferred tax assets	(v)	5.8	45.7	51.5
		____________	____________	____________
		764.0	994.6	1,758.6
Current assets
Inventories		466.7	-	466.7
Customer and other receivables	(iv)	1,248.2	(55.7)	1,192.5
Right of return asset		23.4	-	23.4
Other financial assets		5.7	-	5.7
Cash and short term deposits		53.5	-	53.5
		____________	____________	____________
		1,797.5	(55.7)	1,741.8
		____________	____________	____________
Total assets		2,561.5	938.9	3,500.4
		____________	____________	____________
Current liabilities
Bank loans and overdrafts		(180.0)	-	(180.0)
Trade payables and other liabilities	(iv)	(580.2)	30.5	(549.7)
Lease liabilities	(iii)	-	(165.8)	(165.8)
Other financial liabilities		(59.3)	-	(59.3)
Current tax liabilities		(95.3)	-	(95.3)
		____________	____________	____________
		(914.8)	(135.3)	(1,050.1)
Non-current liabilities
Corporate bonds		(908.5)	-	(908.5)
Provisions	(iv)	(10.4)	(6.7)	(17.1)
Other financial liabilities		(12.4)	-	(12.4)
Lease liabilities	(iii)	-	(1,213.8)	(1,213.8)
Other liabilities	(iv)	(232.8)	212.9	(19.9)
		____________	____________	____________
		(1,164.1)	(1,007.6)	(2,171.7)
		____________	____________	____________
Total liabilities		(2,078.9)	(1,142.9)	(3,221.8)
		____________	____________	____________
NET ASSETS		482.6	(204.0)	278.6
		____________	____________	____________
TOTAL EQUITY		482.6	(204.0)	278.6
		____________	____________	____________

 

 

Impact on Net assets and Retained earnings as at 28 July 2018

 

	Notes	28 July 2018   £m	IFRS 16 Adjustment £m	28 July 2018 Restated £m
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment		555.6	-	555.6
Intangible assets		42.8	-	42.8
Right of use asset	(ii)	-	975.3	975.3
Associates, joint venture and other investment		5.1	-	5.1
Defined benefit pension asset		163.1	-	163.1
Other financial assets		53.4	-	53.4
Deferred tax assets	(v)	-	45.0	45.0
		____________	____________	____________
		820.0	1,020.3	1,840.3
Current assets
Inventories		518.6	-	518.6
Customer and other receivables	(iv)	1,281.7	(56.2)	1,225.5
Right of return asset		24.0	-	24.0
Other financial assets		31.3	-	31.3
Cash and short term deposits		66.1	-	66.1
		____________	____________	____________
		1,921.7	(56.2)	1,865.5
		____________	____________	____________
Total assets		2,741.7	964.1	3,705.8
		____________	____________	____________
Current liabilities
Bank loans and overdrafts		(327.6)	-	(327.6)
Trade payables and other liabilities	(iv)	(606.1)	34.0	(572.1)
Lease liabilities	(iii)	-	(171.7)	(171.7)
Dividends payable		(141.9)	-	(141.9)
Other financial liabilities		(2.5)	-	(2.5)
Current tax liabilities		(89.7)	-	(89.7)
		____________	____________	____________
		(1,167.8)	(137.7)	(1,305.5)
Non-current liabilities
Corporate bonds		(906.1)	-	(906.1)
Provisions	(iv)	(10.2)	(7.4)	(17.6)
Other financial liabilities		(14.3)	-	(14.3)
Lease liabilities	(iii)	-	(1,231.9)	(1,231.9)
Other liabilities	(iv)	(220.7)	212.0	(8.7)
Deferred tax liabilities		(10.9)	-	(10.9)
		____________	____________	____________
		(1,162.2)	(1,027.3)	(2,189.5)
		____________	____________	____________
Total liabilities		(2,330.0)	(1,165.0)	(3,495.0)
		____________	____________	____________
NET ASSETS		411.7	(200.9)	210.8
		____________	____________	____________
TOTAL EQUITY		411.7	(200.9)	210.8
		____________	____________	____________

 

 

Impact on Net assets and Retained earnings as at 26 January 2019

 

	Notes	26 January 2019   £m	IFRS 16 Adjustment   £m	26 January 2019 Restated £m
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment		564.9	-	564.9
Intangible assets		42.6	-	42.6
Right of use asset	(ii)	-	943.8	943.8
Associates, joint venture and other investment		5.1	-	5.1
Defined benefit pension asset		125.0	-	125.0
Other financial assets		41.5	-	41.5
Deferred tax assets	(v)	-	43.6	43.6
		____________	____________	____________
		779.1	987.4	1,766.5
Current assets
Inventories		502.8	-	502.8
Customer and other receivables	(iv)	1,339.8	(54.4)	1,285.4
Right of return asset		23.4	-	23.4
Other financial assets		9.9	-	9.9
Cash and short term deposits		156.3	-	156.3
		____________	____________	____________
		2,032.2	(54.4)	1,977.8
		____________	____________	____________
Total assets		2,811.3	933.0	3,744.3
		____________	____________	____________
Current liabilities
Bank loans and overdrafts		(377.3)	-	(377.3)
Trade payables and other liabilities	(iv)	(640.7)	35.0	(605.7)
Lease liabilities	(iii)	-	(175.6)	(175.6)
Other financial liabilities		(9.4)	-	(9.4)
Current tax liabilities		(85.1)	-	(85.1)
		____________	____________	____________
		(1,112.5)	(140.6)	(1,253.1)
Non-current liabilities
Corporate bonds		(905.2)	-	(905.2)
Provisions	(iv)	(10.3)	(5.4)	(15.7)
Other financial liabilities		(9.2)	-	(9.2)
Lease liabilities	(iii)	-	(1,190.7)	(1,190.7)
Other liabilities	(iv)	(217.5)	208.4	(9.1)
Deferred tax liabilities		(2.8)	-	(2.8)
		____________	____________	____________
		(1,145.0)	(987.7)	(2,132.7)
		____________	____________	____________
Total liabilities		(2,257.5)	(1,128.3)	(3,385.8)
		____________	____________	____________
NET ASSETS		553.8	(195.3)	358.5
		____________	____________	____________
TOTAL EQUITY		553.8	(195.3)	358.5
		____________	____________	____________

 

(i)           Income Statement

                Under the previous accounting standard for leases, IAS 17, lease costs were recognised on straight line basis over the term of the lease.  The Group recognised these costs within cost of sales and distribution costs. 

                On adoption of IFRS 16 these costs have been removed and replaced with costs calculated on an IFRS 16 basis.  The impact of removing these costs on the July 2019 Income Statement was £109.6m (2018: £108.0m).

                Under IFRS 16 the right-of-use asset is depreciated over the lease term.  The Group has recognised the depreciation costs on the right-of-use asset in cost of sales. The impact of this adjustment in the July 2019 Income Statement was £67.4m (2018: £68.7m).

                The costs under IAS 17 were higher than the depreciation costs recognised under IFRS 16 which has resulted in a net credit under IFRS 16 to cost of Sales and distribution costs. The net impact of this adjustment in the July 2019 Income Statement was £42.2m (2018: £39.3m).

                Under IFRS 16 Finance costs are charged on the lease liability recognised.  These costs are recognised within finance costs.  The impact of this adjustment on the July 2019 Income Statement was £32.1m (2018: £34.7m).  Foreign exchange losses of £2.3m (£2018: £0.8m) on foreign currency denominated leases have been recognised in other gains and losses.

                The net impact of the above adjustments to the July 2019 profit before tax was £7.8m (2018: £3.8m).

 

(ii)          Right-of-use Asset

                IFRS 16 has resulted in the recognition of a right-of-use asset.  This asset represents the Group's contractual right to access an identified asset under the terms of the lease contract.

 

(iii)         Lease liability

                IFRS 16 has resulted in the recognition of a lease liability.  This liability represents the Group's contractual obligation to minimum lease payments during the lease term. 

                The element of the liability payable in next 12 months is recognised as a current liability with the balance recognised in non-current liabilities.

 

(iv)         Working capital

                Under IAS 17 certain lease incentives, rent prepayments, accruals and similar amounts were held on the balance as part of working capital.  Such balances are no longer recognised as all payments, lease incentives and related costs are reflected in either the right-of-use asset or the lease liability.  

 

(v)          Taxation

                A deferred tax asset has been recognised on the transition to IFRS 16 representing the timing difference on the amounts taken to reserves.

 

 

18.      Post balance sheet event

On 14 August the Group issued the £50m retained element of the £250m bond which had been issued in the 26 weeks to 27 July 2019.

 

 

RESPONSIBILITY STATEMENT

 

 

We confirm that to the best of our knowledge:

 

a)    The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim financial reporting';

 

b)    The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

 

c)    The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

 

By order of the Board

 

 

 

Lord Wolfson of Aspley Guise                                                       Amanda James

Chief Executive                                                                                 Group Finance Director

 

19 September 2019

 

 

The full half year report and the results presentation can be found on the Company's website at www.nextplc.co.uk.

 

To view our range of exciting, beautifully designed, excellent quality clothing and homeware go to www.next.co.uk

 

Certain statements which appear in a number of places throughout this document are "forward looking statements" which are all matters that are not historical facts, including anticipated financial and operational performance, business prospects and similar matters. These forward looking statements are identifiable by words such as "aim", "anticipate", "believe", "budget", "estimate", "expect", "forecast", "intend", "plan", "project" and similar expressions.  These forward looking statements reflect NEXT's current expectations concerning future events and actual results may differ materially from current expectations or historical results. Any such forward looking statements are subject to risks and uncertainties, including but not limited to the risks described in "Risks & Uncertainties" on pages 54 to 58 of the 2019 Annual Report and those matters highlighted in the Chief Executive's review; failure by NEXT to accurately predict customer fashion preferences; decline in the demand for merchandise offered by NEXT; competitive influences; changes in level of store traffic or consumer spending habits; effectiveness of NEXT's brand awareness and marketing programmes; general economic conditions or a downturn in the retail industry; the inability of NEXT to successfully implement relocation or expansion of existing stores; insufficient consumer interest in NEXT Online; acts of war or terrorism worldwide; work stoppages, slowdowns or strikes; and changes in financial and equity markets.  These forward looking statements do not amount to any representation that they will be achieved as they involve risks and uncertainties and relate to events and depend upon circumstances which may or may not occur in the future and there can be no guarantee of future performance. Undue reliance should not be placed on forward looking statements which speak only as of the date of this document.  NEXT does not undertake any obligation to update publicly or revise forward looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.