NEXT : Results for the Year Ended January 2024

CHAIRMAN'S STATEMENT

In the context of the wider economic environment, the year to January 2024 was a very good year for NEXT and the business materially outperformed our initial expectations. NEXT Group profit before tax1 rose to a record high of £918m, up +5.0%. Cash flow remained strong and we returned £425 million to shareholders through a combination of dividends (£248 million) and share buybacks (£177 million).

In the last year we have focused on improving our product ranges, improving our online service levels, managing costs and profitability, whilst also laying the foundations for future growth businesses. We launched three new Total Platform clients (JoJo Maman Bébé, Joules and MADE), taking our total number of clients to seven. We also made a number of new investments, increasing our equity stake in Reiss by 21% to 72% and taking a 97% equity stake in FatFace. We also acquired 100% of the intellectual property in Cath Kidston.

The year ahead will see a number of changes to our Board. Amanda James, who has been with NEXT for 28 years and our Finance Director for nine years, retires from the Board in July. Amanda has seen many changes over that time and has made a huge contribution to the Group. She has been an exceptional guardian of our finances and an integral part of the leadership of the Company. Our financial position today is testament to her diligence and hard work and, on behalf of all of us at NEXT, I thank Amanda for her amazing work.

I am delighted that Jonathan Blanchard will succeed Amanda on the Board. Jonathan was most recently the Chief Financial Officer and Chief Operating Officer of the Reiss Group, having joined Reiss as a Board Director in 2017. We have worked closely with Jonathan for over three years since we acquired an equity stake in Reiss. Jonathan brings to the Board a wealth of retail experience, a strong eye for financial detail and a good understanding of our operations, gained through managing Reiss's transition onto Total Platform. I am very confident that he will make an excellent addition to our Board.

Dame Dianne Thompson, one of our non-executive directors, is leaving the Board in May. Dianne has made a valuable contribution to the Board over the last nine years. In particular, I would like to thank Dianne for the time and insight she has given to the Board's relationship with colleagues through her participation in our people and communication forums.

Finally, I am pleased that Amy Stirling and Venetia Butterfield will be joining our Board in April as independent non-executive directors. Between them they bring a breadth and depth of expertise that will enhance and broaden the Board's collective knowledge.

The continued success of NEXT is built on the hard work, dedication and decision making of all the people who work for NEXT. I would like to thank them all for their contribution during the year; I have little doubt and much expectation that they will rise to the new challenges and opportunities that are presented in 2024.

Michael Roney

Chairman

21 March 2024

• NEXT Group profit before tax excludes: (1) an exceptional gain, (2) the cost of brand amortisation and (3) the profit attributable to shares that we do not own in subsidiary companies. Statutory profit before tax, including exceptionals, brand amortisation and consolidating subsidiaries in which we have a controlling interest, is £1,016m, up +16.9%.
  See page 29 for a bridge between NEXT Group profit and statutory profit, and Note 2 of the financial statements for further details.

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CHIEF EXECUTIVE'S REVIEW

STRUCTURE OF THIS REPORT

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TABLE OF CONTENTS

FOCUS ON WHOLLY-OWNEDBRANDS AND LICENCES _____________________________________________________________ 47

NEXT FINANCE _________________________________________________________________________________________________________________ 49

TOTAL PLATFORM: SERVICES AND INVESTMENTS ________________________________________________________ 52

OTHER BUSINESS ACTIVITIES ______________________________________________________________________________________________ 56

INTEREST, TAX, PENSIONS AND ESG _____________________________________________________________________________________ 58

PART SIX - CASH FLOW, SHAREHOLDER RETURNS, NET DEBT & FINANCING ____________________ 60

CASH FLOW ____________________________________________________________________________________________________________________ 60

CAPITAL EXPENDITURE ______________________________________________________________________________________________________ 62

APPENDIX 1: RECONCILIATION TO STATUTORY RESULTS _________________________________________________________ 67

APPENDIX 2: NOTE FOR ANALYSTS ON THE TREATMENT OF BRAND AMORTISATION __________________ 70

APPENDIX 3: REPORTING OF SUBSIDIARIES' SALES AND PROFITS ____________________________________________ 71

APPENDIX 4: TOTAL PLATFORM CLIENTS AND EQUITY INVESTMENTS ________________________________________ 72

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PART ONE

HEADLINES AND SUMMARY OF

FINANCIAL PERFORMANCE

SALES AND PROFIT IN THE YEAR TO JANUARY 2024

In our January Trading Statement we explained that going forward we would report our headline profit excluding the amortisation of acquired brands. This more accurately reflects the underlying profitability of the Group. Hereinafter, we will report NEXT Group profit and Earnings Per Share (EPS) excluding brand amortisation as shown above. Prior year figures are stated on the same basis.

HEADLINES

• NEXT Trading full price sales4 up +4.0% and total Group sales (including subsidiaries) up +5.9%.
• NEXT Group profit before tax £918m, up +5.0%. This is £3m ahead of the guidance of £915m5 given in January, largely due to better than expected clearance rates of Sale stock in January.
• Over and above this, we made an exceptional gain (non-cash) on the Reiss acquisition of £109m. We have excluded this gain from our headline profit number.

Guidance for the Year Ahead

• Underlying full price sales growth of +2.5% and total Group sales (including subsidiaries) +6.0%.
• NEXT Group profit guidance £960m, up +4.6%.
• Post-taxEarnings Per Share (EPS) is forecast to be 606.3p, up +4.8%.

For a more detailed analysis of our guidance see page 30.

• Total Group sales for January 2023 are restated (previously £5,415m) due to a change in the presentation of Total Platform revenue and sales in subsidiaries, see page 27. Total Group sales are not statutory sales. See page 28 for a bridge between total Group sales and statutory revenue, and Note 2 of the financial statements for further details.

• All references to EPS in the CEO Review are 'Basic' EPS, based on 'NEXT Group profit', unless otherwise stated.

• NEXT Trading full price sales include items sold in Retail and Online plus NEXT Finance interest income, but excludes Sale events, Clearance, Total Platform commission and the sales from subsidiaries.

• Guidance in our January Trading Statement was £905m including brand amortisation and £915m excluding amortisation.

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PART TWO

THE BIG PICTURE

INTRODUCTION

A GOOD PLACE TO START THE YEAR…

It has been a long time since we started a year in a more positive frame of mind. Last year was much better than we anticipated at this time last year, and the Group has delivered its highest ever levels of revenue and profit. Perhaps more encouragingly, we enter the financial year with new avenues of growth along with a cost base that feels under control.

A valuable point of self-reflection

So this report should have been easy to write; it has not. The Group has evolved so much in the last seven years and, in many ways, it feels like we are now entering a new era. With so much to explain, articulating how we plan to take the Group forward in a concise and simple way has been demanding. The aim has been to add enough detail to make it meaningful, without so much detail as to make it arduous.

As is so often the case, the requirement to explain ourselves has been instructive. It has prompted us to step back from the myriad of day-to-day initiatives with which we busy ourselves and reflect on where we are; take a hard look at our two main engines of growth - the NEXT brand and its Infrastructure - clarify our priorities; and determine what we need to do to maximise our chances of success going forward. Before going into all that, it is worth putting where we are in context.

WHERE WE ARE IN CONTEXT

The Company's financial goal is to deliver sustainable, long term, growth in Earnings Per Share (EPS). Whilst there are many ways to boost share prices in the short term, in the long run the best way to grow the value of a company is to grow its EPS. The chart below shows the growth in the Company's pre-tax EPS since 1997; the blue bars show the effect of underlying profit growth, the red bars show the enhancement from share buybacks, and finally the green bars show the effect of reinvesting dividends. It clearly illustrates two very different eras for the Group; twenty 'glorious' years to 2017 and seven leaner (though respectable) years, from 2017 to the present day.

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1997 - 2017: Twenty years of plain sailing

In hindsight, the twenty years from 1997 to 2017 were plain sailing, though it did not feel like it at the time. There were three avenues of profitable growth: (1) increased Retail space, (2) more Directory/Online customers and (3) the expansion of our product offer. These activities were highly cash generative. From 1997 to 2017 £4.4bn of surplus cash was returned to shareholders through share buybacks and special dividends. In total, during this period, we bought back 61.5% of shares in issue. The combined effect of rising profits, reducing share numbers and regular dividends meant that pre-tax EPS6 increased by a compound annual growth rate (CAGR) of 17.5% in the period.

2017: The formula stopped working

We had a formula, or so we thought. In 2017 the formula stopped working (as all business formulas do). NEXT's own growth Online, coupled with growing online competition, began to cannibalise revenues in our stores. Maintaining top line sales across the Group was not enough. With every new Online sale there were additional variable costs; with every lost Retail sale the dead weight of rent, rates, and other fixed costs grew heavier. And then these deep-seated structural challenges were compounded by the pandemic and the subsequent cost-of-living squeeze.

2017 - 2024: A very respectable performance in the circumstances

In the end, we managed to deliver better Online growth than expected, Retail like-for-like sales declines were not quite as bad as we feared and, we painstakingly rebased our Retail cost base to be more commensurate with reduced Retail sales. Group net margins declined, as expected, but revenue growth more than made up for the loss of profitability and we delivered a respectable, if unexciting, increase in profits of 16% in the period.

Group Pre-Tax Profit7 and Margins

• EPS CAGR calculation accounts for dividends by assuming they were reinvested in NEXT shares when paid.

• Profit in the years ending January 2023 and January 2024 are given excluding the cost of brand amortisation. (January 2023 was previously reported as £870m.) Prior to January 2023 brand amortisation costs in our accounts were minimal.

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THE LESSONS

Core strengths

The ability to weather the storm has been rooted in three core strengths. The ongoing strength of the NEXT brand, the exceptional infrastructure we have built to sell that product, both underpinned by rigorous financial discipline. A discipline that insists on appropriate margins and healthy returns on capital; enforces rigorous cost control; and consistently returns surplus cash to shareholders through share buybacks and dividends.

Cash generation and capital discipline

The ability to generate cash, and return it to shareholders, is often overlooked. It is instructive to note that while profits over the last seven years grew at a compound annual rate of just 2.2%, after accounting for reinvested dividends and share buybacks, the Company delivered a very respectable CAGR in pre-tax EPS of 8.2%. The table below powerfully demonstrates the contribution of underlying profit growth, share buybacks and dividends (assuming they are reinvested in shares) to the growth in pre-tax EPS.

People who embrace change

There is one further asset, as important as the others and probably more, that has gone to the very heart of the Company's performance in good and not-so-good times. The value of talented individuals who are dedicated to the success of the business. People who love our products, ways of working and values enough to move heaven and earth to get the Company through tough times; people who are open to, and enthusiastic about, change and are prepared to take the initiative to develop new opportunities. It is this commitment that has given the Company the ability and agility to adapt and transform the business.

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CORE CAPABILITIES AND NEW OPPORTUNITIES

In many ways we emerge from these turbulent years a very different company. We have quietly reinvented NEXT plc, reshaping and restructuring the Group and emerging with new avenues of growth. However, the two capabilities that ultimately power the business remain unchanged: the ability to develop outstanding product ranges, and the creation of highly effective infrastructure to sell and distribute that product. These capabilities have delivered a brand that can play on an international stage and infrastructure whose value stretches beyond its service to the NEXT brand.

The continuing development of our brand and its infrastructure gives us three distinct, exciting and new avenues of growth.

• The growth of the NEXT brand OVERSEAS.
• The development of NEW BRANDS and LICENCES.
• The generation of revenues from TOTAL PLATFORM and its associated equity investments.

In some ways these new opportunities mirror the three avenues of growth that powered the company from 1997 to 2017. They all give our product skills and our infrastructure the opportunity to play to a wider audience. And in doing so, have the potential to create a huge amount of value for our existing customers, new customers and third-party clients.

THE REST OF THE BIG PICTURE SECTION

The rest of this section explains how we are thinking about the development of these capabilities and is divided into the following sections:

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THE NEXT BRAND - MOVING ON UP8

Raising the bar, again

The NEXT brand remains the jewel in our crown; the whole Company's success hinges on the success of NEXT's product ranges. So NEXT's success last year was a reflection of the success our product teams had in designing and selecting their ranges. It is hard to think of a year when we have delivered more consistently across all our product ranges. That said, the bar is constantly rising, and we believe that we can take the NEXT brand to another level.

Leading from the ground up…

Our ranges are built ground up; NEXT does not manage its product ranges from the Boardroom. Individual product ranges are inspired and created by small teams of designers, buyers, merchandisers, and product technologists. The success or otherwise of those areas depends on their talent and decision-making abilities. And where they have been most successful, three clear themes emerge. These are: backing newness with conviction, giving our customers genuine breadth of choice, and delivering better, more aspirational levels of quality.

Each of these themes is mutually reinforcing - embracing newness and improving quality enables breadth of design, which encourages more newness which leads to greater aspiration. To explain, each will be discussed in a little more detail below.

NEWNESS - DELIVERED WITH CONVICTION

To maximise success, we must deliver this year's most inspiring, most relevant trends in depth and with conviction; delivered in a way that is accessible and wearable. And nowadays, this year's best seller is hardly ever last year's best seller. Last year's best trend will simply never do quite as well in its second year. The internet gives us all the choices we could possibly want, 24 hours a day. People who wanted last year's most important new trend have already bought it; they will not buy as much of it again.

The trick is to learn from sales history without being trapped by it. Teams should start with the range they are inspired to buy for this year. Only once they have a range that satisfies their ambitions, should they sense-check it against what they can learn from last year's data.

BREADTH OF CHOICE

In a single year the NEXT brand produces over 75,000 different products. We can harness that volume to address the differing tastes, lifestyles and budgets of our increasingly diverse customer base; offering genuine breadth of style, fits, colours, fabrics, prints, textures, looks and prices. It is all too easy to produce multiple variations of a similar best-selling style, and as profitable as that may be in moderation, this duplication should not be confused with real choice. There is a balance.

Every season, there are lots of new trends. They will not all produce the best sellers, but they will deliver incremental sales if they add genuine choice. Of course there are boundaries. NEXT must fulfil its mission to deliver beautifully designed, excellent quality clothing and homeware that meet the aspirations of our customers at prices that represent excellent value for money. But this is a broad remit.

Investing in alternative trends, fabrics, price points, or products is rarely a mistake, if we believe in them. And today's peripheral trends have an uncanny habit of becoming more important as time goes on - perhaps even pointing the way to next year's best sellers.

• With apologies to M People.

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