Directors' Report including Annual General Meeting & other matters

Disclosures required under the 2013 amendment to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 in respect of employee matters (including the employment, training and advancement of disabled persons), future developments, political donations and greenhouse gas emissions are given in the Strategic Report. Information on financial instruments is given in Notes 27 to 30 of the financial statements.

Annual general meeting & other matters

Notice of the Annual General Meeting ("AGM") includes the following business:

Dividends

The Directors recommend that a final dividend of 100p per share be paid on 3 August 2015 to shareholders on the register of members at close of business on 10 July 2015. This resolution relates only to the final dividend. As described in the Chief Executive's Review the directors may in future decide to pay special dividends as long as NEXT's share price remains consistently above the Board's buyback price limit. This arrangement will ensure the Company continues to return surplus cash to shareholders, whilst maintaining the flexibility to return to buying back shares if and when the share price returns to levels commensurate with the required Equivalent Rate of Return. Any such special dividends will be declared by the directors as interim dividends. The announcement of any dividend will clearly indicate whether it is a special dividend or not.

The Trustee of the NEXT Employee Share Ownership Trust ("ESOT") has waived dividends paid in the year on the shares held by it, see Note 26.

Directors

Dame Dianne Thompson was appointed as a non-executive director on 1 January 2015. Dame Dianne has significant senior management experience including 14 years as Chief Executive of Camelot Group after joining in 1997 as Commercial Operations Director. During her 42 year career she has also worked in marketing for several retail companies and more recently was Chairman of RadioCentre and a non-executive director of the Home Office. She is currently President of the Market Research Society.

Amanda James, Group Finance Director from 1 April 2015 following the retirement of David Keens, has been at NEXT for 19 years, led the management accounting and commercial finance teams from 2005 and became NEXT Brand Finance Director in 2012. Amanda has comprehensive knowledge of NEXT's operations and has played a central role in the financial management of the business.

On 15 May 2014, following the 2014 AGM, Christine Cross stepped down as a non-executive director after nine years of service and on 10 June 2014 Christos Angelides, Group Product Director, resigned from the Board to pursue an external career opportunity.

The UK Corporate Governance Code recommends that all directors of FTSE companies stand for election every year and all members of the Board will do so at this year's AGM, other than Jonathan Dawson who is stepping down. Directors' biographies are set out in the Directors and Officers section. Each of the directors standing for re-election has undergone a performance evaluation and demonstrated that they remain committed to the role and continue to be an effective and valuable member of the Board. The Board is satisfied that each non-executive director offering themselves for election or re-election is independent in both character and judgement, and their knowledge and other business interests enable them to contribute significantly to the work and balance of the Board.

When Jonathan Dawson steps down from the Board in May, Francis Salway will succeed him as Senior Independent Director and Caroline Goodall will succeed him as Remuneration Committee Chair.

The interests of the directors who held office at 24 January 2015 and their families are shown in the Remuneration Report.

Auditor

Ernst & Young LLP have expressed their willingness to continue in office and their reappointment will be proposed at the AGM.

Disclosure of information to the auditor

In accordance with the provisions of Section 418 of the Companies Act 2006 (the "2006 Act"), each of the persons who is a director at the date of approval of this report confirms that:

  • so far as the director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
  • each director has taken all the steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

The NEXT Long Term Incentive Plan ("LTIP")

Ordinary resolution 14 seeks authority from shareholders to allow the continued operation of the NEXT Long Term Incentive Plan ("LTIP"). This plan, which was previously named the NEXT 2006 Performance Share Plan, has been operated by NEXT for senior executives since it was initially approved by shareholders at the 2006 AGM.

The LTIP is a senior executive share plan, and its key features remain in line with market and best practice.

Whilst not a provision of the LTIP rules, it is the Company's policy that for awards granted after January 2014 main Board executive director participants must retain the shares acquired for a holding period of 2 years from vesting (allowing for any sales to cover payment of tax). In addition, the Company includes suitable claw-back provisions in those executives' service agreements.

The Company's initial 10 year authority to operate the LTIP will expire in 2016 and, accordingly, in resolution 14 the Company is asking shareholders for a renewed authority to operate the LTIP for a further 10 years. The directors believe that it is appropriate to renew a share plan which has operated as intended and which remains "fit for purpose" rather than introducing an entirely new share plan where it is not necessary to do so. The Company is also proposing to renew its standard authority to operate LTIP with appropriate amendments in overseas jurisdictions where this is necessary to take account of local laws and regulations.

A summary of the principal terms of the LTIP is set out at Appendix 1 to the Notice of the AGM. The NEXT LTIP rules will be available for inspection at the registered office of the Company, and at the offices of Pinsent Masons, 30 Crown Place, Earl Street, London EC2A 4ES during normal working hours from the date of the Notice of the AGM up to the date of the AGM and at the Meeting itself.

Authority to allot shares

Under the 2006 Act, the directors may only allot shares or grant rights to subscribe for, or convert any security into, shares if authorised to do so by shareholders in general meeting. The authority conferred on the directors at last year's AGM under section 551 of the 2006 Act expires on the date of the forthcoming AGM and ordinary resolution 15 seeks a new authority to allow the directors to allot ordinary shares up to a maximum nominal amount of £5,000,000, representing approximately one third of the Company's existing issued share capital as at 18 March 2015. In accordance with institutional guidelines, resolution 15 will also allow directors to allot further ordinary shares, in connection with a pre-emptive offer by way of a rights issue, up to a total maximum nominal amount of £10,000,000, representing approximately two thirds of the Company's existing issued share capital as at that date. As at 18 March 2015 (being the latest practicable date prior to publication of this document) the Company's issued share capital amounted to £15,287,356 comprising 152,873,556 ordinary shares of 10 pence each, none of which are held in treasury. The directors have no present intention of exercising this authority which will expire at the conclusion of the AGM in 2016 or, if earlier, 1 August 2016.

Authority to disapply pre-emption rights

Special resolution 16 will, if passed, renew the directors' authority pursuant to sections 570 to 573 of the 2006 Act to allot equity securities for cash without first offering them to existing shareholders in proportion to their holdings. This resolution limits the aggregate nominal value of ordinary shares which may be issued by the directors on a non pre-emptive basis to £764,000, being less than 5% of the issued ordinary share capital as at 18 March 2015. This authority also allows the directors, within the same aggregate limit, to sell for cash, shares that may be held by the Company in treasury. The directors do not have any present intention of exercising this authority which will expire at the AGM in 2016 or, if earlier, 1 August 2016. In accordance with the Pre-Emption Group's Statement of Principles, the directors do not intend to issue more than 7.5% of the share capital of the Company for cash under this or previous authorities in any rolling three year period without prior consultation with shareholders.

On-market purchase of own shares

NEXT has been returning capital to its shareholders by share repurchases as well as special and ordinary dividends since March 2000 as part of its strategy for delivering sustainable long term growth in earnings per share. Over this period, and up to 18 March 2015, NEXT has returned over £3.2bn to shareholders by way of share buybacks and over £2bn in dividends, of which £297m comprised special dividends. This buyback activity has enhanced earnings per share, given shareholders the opportunity for capital returns (as well as dividends) and has been transparent to the financial markets. Share buybacks have not been made at the expense of investment in the business. Over the last five years, NEXT has invested over £567m in capital expenditure to support and grow the business.

Special resolution 17 will renew the authority for the Company to make market purchases (as defined in Section 693 of the 2006 Act) of its ordinary shares of 10p each provided that:

  1. the aggregate number of ordinary shares authorised to be purchased shall be the lesser of 22,915,000 ordinary shares of 10p each (being less than 15% of the issued share capital at 18 March 2015) and no more than 14.99% of the issued ordinary share capital outstanding at the date of the AGM, such limits to be reduced by the number of any shares to be purchased pursuant to special resolution 18: Off-market purchases of own shares, see below;
  2. the payment per ordinary share is not less than 10p and not more than 105% of the average of the middle market price according to the Daily Official List of the London Stock Exchange for the five business days immediately preceding the date of purchase or, if higher, the amount stipulated by Article 5(1) of the Buy-back and Stabilisation Regulation 2003; and
  3. the renewed authority will expire at the AGM in 2016 or, if earlier, 1 August 2016.

The directors intend that this authority to purchase the Company's shares will only be exercised if doing so will result in an increase in earnings per share and, being in the interests of shareholders generally, it is considered to promote the success of the Company. The directors will also give careful consideration to financial gearing levels of the Company and its general financial position. The purchase price would be paid out of distributable profits. It is the directors' present intention to cancel any shares purchased under this authority.

The repurchase of ordinary shares would give rise to a stamp duty liability of the Company at the rate currently of 0.5% of the consideration paid.

The total number of employee share awards and share options to subscribe for shares outstanding at 18 March 2015 was 6,223,008. This represents 4.1% of the issued share capital at that date. If the Company were to buy back the maximum number of shares permitted pursuant to both the existing authority granted at the 2014 AGM (which will expire at the 2015 AGM) and the authority sought by this resolution, then the total number of options to subscribe for shares outstanding at 18 March 2015 would represent 5.7% of the reduced issued share capital.

Off-market purchases of own shares

The directors consider that share buybacks are an important means of returning value to shareholders and maximising sustainable long term growth in EPS. Contingent contracts for off-market share purchases are an integral part of the Company's buyback strategy and offer a number of additional benefits compared to on-market share purchases:

  • Contingent contracts allow the Company to purchase shares at a discount to the market price prevailing at the date each contract is entered into. No shares have been bought back under contingent purchase contracts pursuant to the authority granted at the 2014 AGM up to 18 March 2015.
  • Low share liquidity can often prevent the Company from purchasing sufficient numbers of shares on a single day without risk of affecting the prevailing market price. Contingent contracts enable the Company to purchase shares over time without risk of distorting the prevailing share price, and also spread the cash outflow.
  • Contingent contracts entered into prior to any close period allow the Company to take delivery of shares during these periods.
  • Competitive tendering involving up to five banks is used which minimises the risk of hidden purchase costs. The pricing mechanism ensures the Company retains the benefit of declared and forecast dividends.
  • The Company would also have the option to set a suspension price in individual contracts whereby they would automatically terminate if the Company's share price was to fall.

As with any share buyback decision, the directors would use this authority only after careful consideration, taking into account market conditions prevailing at the time, other investment opportunities and the overall financial position of the Company. The directors will only purchase shares using such contracts if, based on the contract discounted price (rather than any future price), it is earnings enhancing and promotes the success of the Company for the benefit of its shareholders generally. It is the directors' present intention to cancel any shares purchased under this authority.

Special resolution 18 will give the Company authority to enter into contingent purchase contracts with any of Goldman Sachs International, UBS AG, Deutsche Bank AG, HSBC Bank plc and Barclays Bank plc under which shares may be purchased off-market at a discount to the market price prevailing at the date each contract is entered into. The maximum which the Company would be permitted to purchase pursuant to this authority would be the lower of 3,000,000 shares or a total cost of £200 million.

The principal features of the contracts are set out in Appendix 2 to the Notice of the AGM. Copies of the agreements the Company proposes to enter into with any of the banks (the "Programme Agreements") will be available for inspection at the registered office of the Company, and at the offices of Pinsent Masons, 30 Crown Place, Earl Street, London EC2A 4ES during normal working hours from the date of the Notice of the AGM up to the date of the AGM and at the Meeting itself.

Notice of General Meetings

The notice period required by the 2006 Act for general meetings of the Company is 21 days unless shareholders approve a shorter notice period, which cannot however be less than 14 clear days. However, the Company's AGM must always be held on at least 21 clear days' notice. At the AGM of the Company held in 2014, shareholders authorised the calling of general meetings other than an AGM on not less than 14 clear days' notice and it is proposed that this authority be renewed. The authority granted by special resolution 19, if passed, will be effective until the Company's AGM in 2016. In order to be able to call a general meeting on less than 21 clear days' notice, the Company will make electronic voting available to all shareholders for that meeting. The flexibility offered by this resolution will not be used as a matter of routine for such meetings, but only where the directors consider it appropriate, taking account of the business to be considered at the meeting and the interests of the Company and its shareholders as a whole.

Recommendation

The Board are of the opinion that all resolutions which are to be proposed at the 2015 AGM will promote the success of the Company and are in the best interests of its shareholders as a whole and, accordingly, unanimously recommend that you vote in favour of the resolutions.

Share capital and major shareholders

Details of the Company's share capital are shown in Note 23 to the financial statements.

The Company was authorised by its shareholders at the 2014 AGM to purchase its own shares. During the year the Company purchased and cancelled 2,158,761 ordinary shares with a nominal value of £215,876 (none of which were purchased off-market), at a cost of £137.9m, representing 1.4% of its issued share capital at the start of the year. Share buybacks enhanced this year's earnings per share by around 2%. Buybacks during the year were made out of cash and profits generated during the year, and therefore did not result in a reduction in the Group's net assets or an increase in debt compared with January 2014.

At the financial year end (24 January 2015) the Company had 152,873,556 shares in issue, which remained the same as at 18 March 2015.

The following information has been received from holders of notifiable interests in the Company's issued share capital:

Notifications received up to 24 January 2015 and as at date of notification
No. of voting rights% of voting rightsNature of holding
FMR LLC (Fidelity)21,470,07513.99Indirect interest
BlackRock, Inc.15,449,8299.97Indirect interest
NEXT plc Employee Share Option Trust6,190,7473.99Direct interest

No other notifications were received after 24 January up to 18 March 2015.

Additional information

Shareholder and voting rights

All members who hold ordinary shares are entitled to attend and vote at the AGM. On a show of hands at a general meeting every member present in person and every duly appointed proxy shall have one vote and on a poll, every member present in person or by proxy shall have one vote for every ordinary share held or represented. It is intended that voting at the 2015 AGM will be on a poll. The Notice of Meeting specifies deadlines for exercising voting rights.

The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and voting rights. There are no restrictions on the transfer of ordinary shares in the Company other than certain restrictions imposed by laws and regulations (such as insider trading laws and market requirements relating to close periods) and requirements of the Listing Rules whereby directors and certain employees of the Company require Board approval to deal in the Company's securities.

The Company's articles of association may only be amended by a special resolution at a general meeting. Directors are elected or re-elected by ordinary resolution at a general meeting; the Board may appoint a director but anyone so appointed must be elected by ordinary resolution at the next general meeting. Under the articles of association, directors retire and may offer themselves for re-election at a general meeting at least every three years. However, in line with the provisions of the UK Corporate Governance Code, all directors will stand for re-election at the 2015 AGM other than David Keens who is retiring from the Board in April 2015 and Jonathan Dawson who is stepping down from the Board at the 2015 AGM.

Change of control

The Company is not party to any significant agreements which take effect, alter or terminate solely upon a change of control of the Company following a takeover bid. However, in the event of a change of control, the Company's medium term borrowing facilities may be subject to early repayment if a majority of the lending banks give written notice to the Company within 30 days of the change of control. In addition, should a change of control cause a downgrading in the credit rating of the Company's corporate bonds to sub-investment grade which is not rectified within 120 days after the change in control, holders of the bonds have the option to call for redemption of the bonds by the Company at their nominal value together with accrued interest.

The Company's share option plans, and its long term incentive and share matching plans, contain provisions regarding a change of control. Outstanding options and awards may vest on a change of control, subject to the satisfaction of any relevant performance conditions.

Directors' service contracts are terminable by the Company on giving one year's notice. There are no agreements between the Company and its directors or employees providing for additional compensation for loss of office or employment (whether through resignation, redundancy or otherwise) that occurs because of a takeover bid.

Corporate governance

The corporate governance statement as required by the UK Financial Conduct Authority's Disclosure and Transparency Rules (DTR 7.2.6) comprises the Additional Information section of the Directors' Report and the Corporate Governance statement included in this Annual Report.

The following disclosures are required under Listing Rule 9.8.4 R:

Topic
Publication of unaudited financial informationIn December 2014 NEXT published a PBT forecast of £765m to £785m for the year to January 2015. Actual performance was £782m.
Shareholder waivers of dividendsThe NEXT Employee Share Ownership Trust waived its rights to receive dividends during the year.

No further LR 9.8.4 disclosures are required.

David Keens signature
David Keens
Director
19 March 2015