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), political donations and greenhouse gas emissions are given in the Social, Community and Human Rights section and Environmental Matters.
Annual general meeting & other matters
The Notice of the Annual General Meeting ("AGM") includes the following business:
The Directors recommend that a final dividend of 93p per share be paid on 1 August 2014 to shareholders on the register of members at close of business on 11 July 2014. 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 an interim or final dividend and 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.
Michael Law (Group Operations Director) and Jane Shields (Group Sales and Marketing Director) were appointed executive directors on 1 July 2013. Jane joined NEXT Retail in 1985 as a Sales Assistant in one of our London stores. Jane worked her way through Store Management to be appointed Sales Director in 2000, responsible for all store operations and training. In 2006 Jane took additional responsibility for Retail Marketing and in 2010 was appointed Group Sales and Marketing Director, adding Directory and online marketing to her portfolio. Michael Law joined the Group in 1995 as Call Centre Manager for the NEXT Directory. Michael was appointed Call Centre Director in 2003. In 2006 Michael took responsibility for Group IT and in 2010 was appointed Group Operations Director, adding Warehousing and Logistics to his portfolio. Michael is now responsible for all Systems, Warehousing, Logistics and Call Centres within the Group.
Jonathan Dawson and Christine Cross are the longest serving non-executive directors, having both been first elected at the 2005 AGM; the ninth anniversary of their first election is therefore May 2014. In order to manage their succession, Christine Cross will not stand for re-election at the 2014 AGM, and a replacement will be announced in due course. It is intended that Jonathan Dawson will stand down in 2015, and a replacement non-executive will be appointed.
The UK Corporate Governance Code recommends that all directors of FTSE companies stand for election every year, and all members of the Board other than Christine Cross will do so at this year's AGM. Directors' biographies are set out in the Directors and Officers.
Each of the directors standing for election has undergone a performance evaluation and has 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 re-election, including Jonathan Dawson, are independent in both character and judgement, and their knowledge and other business interests continue to enable them to contribute significantly to the work and balance of the Board.
The interests of the directors who held office at 25 January 2014 and their families are shown in the Remuneration Report.
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.
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 16 seeks a new authority to allow the directors to allot ordinary shares up to a maximum nominal amount of £5,100,000, representing approximately one third of the Company's existing issued share capital as at 19 March 2014. In accordance with institutional guidelines, resolution 16 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 £10,200,000, representing approximately two thirds of the Company's existing issued share capital as at that date. As at 19 March 2014 (being the latest practicable date prior to publication of this document) the Company's issued share capital amounted to £15,503,232, comprising 155,032,317 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 2015 or, if earlier, 1 August 2015.
Authority to disapply pre-emption rights
Special resolution 17 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 £775,000, being less than 5% of the issued ordinary share capital as at 19 March 2014. 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 2015 or, if earlier, 1 August 2015. In accordance with the Pre-Emption Group's Statement of Principles, the directors do not intend to issue more than 7.5% of the issued 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 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 19 March 2014, NEXT has returned over £3.1bn to shareholders by way of share buybacks and almost £1.6bn in dividends, of which £74m 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 £550m in capital expenditure to support and grow the business.
Special resolution 18 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:
- the aggregate number of ordinary shares authorised to be purchased shall be the lesser of 23,239,000 ordinary shares of 10p each (being less than 15% of the issued share capital at 19 March 2014) 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 ordinary resolution 19: Off-market purchases of own shares, see below;
- 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
- the renewed authority will expire at the AGM in 2015 or, if earlier, 1 August 2015.
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 of 0.5% of the consideration paid.
The total number of employee share options to subscribe for shares outstanding at 19 March 2014 was 7,242,592. This represents 4.7% 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 2013 AGM (which will expire at the 2014 AGM) and the authority sought by this resolution, then the total number of options to subscribe for shares outstanding at 19 March 2014 would represent 6.4% 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. Pursuant to the authority granted at the 2013 AGM, and up to 19 March 2014, the Company bought back 50,000 shares for cancellation under such contracts at a discount of 5.0%.
- 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.
- In future, 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.
Ordinary resolution 19 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 4,000,000 shares or a total cost of £200 million.
The principal features of the contracts are set out in Appendix 1 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 2013, 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 20, if passed, will be effective until the Company's AGM in 2015. 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.
Your Board are of the opinion that all resolutions which are to be proposed at the 2014 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 2013 AGM to purchase its own shares. During the year the Company purchased and cancelled 6,201,920 ordinary shares with a nominal value of £620,192 (of which 50,000 were purchased off-market), at a cost of £295.8m, representing 3.8% of its issued share capital at the start of the year.
On 25 January 2014 the Company had 155,032,317 shares in issue, which remained the same as at 19 March 2014.
The following information has been received from holders of notifiable interests in the Company's issued share capital:
|Notifications received up to 25 January 2014|
|Nature of holding|
|FMR LLC (Fidelity)||23,068,634||14.14||Indirect interest|
|BlackRock, Inc.||15,449,829||9.97||Indirect interest|
|Schroders plc||8,817,239||4.79||Indirect interest|
|NEXT plc Employee Share Option Trust||6,190,747||3.99||Direct interest|
* at date of notification.
No other notifications were received after 25 January up to 19 March 2014.
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 2014 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 election at the 2014 AGM other than Christine Cross who is retiring from the Board.
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.
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.
By order of the Board
20 March 2014