Finance Report On Next Plc - Final

➢ Executive summary ………………………………..3 ➢ Introduction………………………………………..4 ➢ Analysis(company, sector and market)…………..5. 1

➢ Conclusion……………………………………….12 ➢ Bibliography……………………………………..13

EXECUTIVE SUMMARY •

Purpose: - This Report should give the reader an overview of NEXT Plc in detail which is one of the companies listed on London Stock Exchange. It will be showing the price and index information for a period of six months starting from 1st October 2008 to 22nd march 2009. Particularly, it seeks to examine the share prices of NXT plc and compare it with the market Index.

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Approach:- The data for this report consists of annual reports, information from the London Stock Exchange. Data for the analysis of the General retailers were collected from their respective official websites.

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Findings: - The report consists of NEXT plc price and index information over the past six months. It includes the history of the company, the functions of NEXT plc. It mainly links the changes in stock prices to events, news about the company. The report also describes the general trend in the chosen financial market in the last 6 months and compares them with the chosen company’s price which is NEXT plc and is also compared with the FTSE general index.

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Limitations: -As the chosen sector is large in scale this factor may have an effect on the strength of conclusions that can be drawn. But out the conclusions brought out in

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this report are proved with statistical proof and news and articles published by the London Stock Exchange. •

Originality/Value: - With this report one can understand the stand of NEXT plc in the General retailers market my comparing it with Price index of the London Stock Exchange. It helps the investors and the general public in understanding the market and also helps them in deciding to invest in which market.

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Keywords: -London Stock Exchange, NEXT plc, General Retailers, Share price

NEXT NEXT plc is a UK based retailer that sells moderately priced clothing for men, women, and children. It also specializes in house wares and furniture through some 500 stores primarily in the UK and Ireland. It also franchises more than 160 stores in Asia, Europe, the Middle East, Russia, and Turkey.

Their main customers range from the age groups of 20- 30 who look for style but can afford such clothes that take them through the next fashion trend.

Their revenue basically comes from its retail stores, its NEXT Directory catalog business, a Web site, and Ventura, a division which provides call center and customer support services for the retailer and other firms.

Their top competitors are Arcadia Group, Debenhams plc, and Marks and Spencers plc. NXT plc got admission to trading (Listed) on the 12thof march 1948.

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ANALYSIS • Share price chart

Over the past six months since September 2008 the performance of the share price has been fluctuating. It started from 1,059 pounds in October to 858 pounds and had come upto 1,324 pounds as on 22nd march 2009.

There was an increase in the share price on the 3rd of October 2008 as NXT plc had bought women's fashion retailer Lipsy Ltd. for an initial of 17.4m pounds in cash. The share capital was acquired for 14m pounds and loan notes of 3.4m pounds were repaid.

Due to the 4.4% decrease in the like to like retail sales the share price had decreased from 4

1189 pounds to 1132 pounds on the 6th of November 2008. On the 6th of November 2008 there was an expected cut in the UK interest rates which helped Britain’s struggling retailers like NXT. This factor along with the fall of almost 1 billion pounds debt, the share price had increased to 1162 pounds on the 7th of November 2008.

Marks & Spencers is facing a market that is slowly moving towards high end brands. The mid market brands such as NXT plc have seen their market share decline and this has led to their fall in share price. Consumers across the world are reducing their expenditure following abrupt rises in food and energy costs and after the crisis in financial markets has plunged large parts of the developed world into recession. NXT plc has suffered much steeper falls in its underlying sales which in turn caused a decline in their share price in October 2008.

Due to the global recession the textile firms in Mauritius that supply some of Europe's biggest high-street stores are bracing for a tough 2009. As their average sales have dropped by almost 10%, to compensate for this fall in sales, they are fighting for better prices which would result in the middle markets to be worst hit like NXT plc which reduced the share price in December.

On December 25th 2008, the British Retail Consortium (BRC) said retail sales figures reflected a poor Christmas season this year. The BRC, which publishes the retail sales surveys in Britain, said conditions were tough and consumers were struggling. Meanwhile, a survey by market researcher Experian showed UK consumers fell 4.3 % on Christmas Eve compared with the same day last year, dampening hopes that the traditional last minute shopping for gifts and heavy discounting in the run up to 5

Christmas would have helped consumer spending hold up. It was said that retailers had discounted heavily prior to Christmas in an effort to maintain market share and sales volumes.

Next, which runs more than 450 stores as well as internet shopping, reported a 4.4 % drop in sales at 334 stores unaffected by new openings for the 14 weeks to Nov. 1 and towards end of its report it mentioned a second-half decline of between 4 and 7 percent.

According to the forecasts for the 21 weeks to Dec. 24 ranging from a decline of 6 percent to a fall of 8 percent, some analysts think the group may now miss that target, , according to three brokerages.

The combined sales of NXT retail and Next directory for the period from 29 July to 24 December 2008 were down by 1.9% compared to the same period last year. Next retail sales were down by3.0% in the period. In the 347 stores that were unaffected by new openings, the like for like sales were down by 7.0%. Next directory sales were up by 1.1% .Like for like sales were within the guidance range of -4.0% to -7.0% they gave in September and repeated in November.

After a good start to the sale period NXT plc now expects clearance rates to be ahead of last year. Their full year profit forecast for the year to January 2009 remains in line with Their previous expectation and current market agreement.

Major part of the city profit forecasts are currently in the range of £415m to £435m. This calculates to earnings per share of between 152p and 160p which represents a decline of between -5% and -10% for the full year. The year 2009 looks set to be another 6

challenging year.

NXT plc is again budgeting very conservatively, with negative like for like sales for the full year, theybelieve the first half will be particularly difficult. They expect NXT directory to remain less affected by the downturn than retail, and is currently budgeting for sales in directory to be only marginally down for the full year.

Shares in retail stocks were in demand after Citigroup upgraded its long held sector stance to 'neutral' from 'underperform' where Next Plc is up 4 % in January. NEXT suffered a loss because of their pre-Christmas as their competitors gave heavy discounts so its sales fell by 7% but d directory sales wer up 1% which made a slight change in the share price.

NEXT plc highlighted in January that it anticipated significant upward pressure on prices and downward pressure on margins in the autumn/winter of 2009 as a result of sterling's weakness. At the end of 2008 the fall in sterling against other currencies could mean much higher debt levels for UK companies versus cashflow, income and earnings before interest, tax, depreciation and amortization. Few companies will be immune from the impact of steep exchange rate falls late last year, which could raise a warning signal for some credit ratings.

On march 19th 2009 HSBC raised Next Plc price target to 1425P from 1340P; rating overweight. During the year we can see there is only a slight variation in the share prices. As the variations are minor, the company has not revealed its reasons to the public. 7

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ANNOUNCEMENTS During times like these the whole world is going through a financial crisis namely the ‘credit crunch’. This has not only affected companies but also hugely affected stock exchanges. During this time banks do not sanction loans easily, this affects the buying power of the people and the financial ability of companies. It has not only become important to gain the trust of the people in ones company but loyalty has to be earned.

“The outlook for the consumer economy remains challenging and, as we have said before, the first half will be particularly tough.” (Simon Wolfson, 2009) This can only be done when a company has the ability to pull itself together during times like these and foresee a prosperous future for the company. NEXT plc. Has not only kept itself together put it has managed to pull away from the down falling trends of the London Stock Exchange (LSE) and keep growing even through tough times. During times of recession a companies should hold on to its assets. In NEXT’s case its internal assets like a well qualified and experienced managerial team, a powerful and efficient operating model, a strong financial position make it possible for them to run their business profitably. Its biggest assets, being its customers have to be happy with what they see as the company’s future. “Our strategy remains as it was last year; to concentrate on the design, quality and value of our product, together with excellent customer service and delivery. We believe this will serve us well through the current recessionary period and leave us well placed when the recovery begins.” (John Barton, 2009) Despite the losses occurred to NEXT, it has a strong Balance Sheet which not only motivates new investors but also makes the present investors invest more. “We anticipate cash flow will again be strongly positive for the coming year, with debt 8

peaking at less than £750m after paying the final dividend in July.” (Simon Wolfson, 2009) This announcement has not only informed the investors about the plans of the Chairman and CEO for NEXT in the future but has also shown proof that it has grown in a market where others have failed. This is significant because in the long run it will gain investors and help the company grow well in the future.

• General trend in the General retailers market in the last 6 months

NEXT plc belongs to the General retailers. Some companies tend to stay above and keep rising, whereas others jus fall with the market. As the above chart demonstrates that the price margin of Next was not affected and was also not set according to the market index. In October 2008 NEXT had a similar pricing to that of the market i.e. 101.166 pounds (index) and 103.925 pounds (NEXT) but since then it always maintained a higher pricing strategy and has not been affected by the market trends. Further on in November 2008 the index prices began to fall drastically from 101.166 pounds to 90.634 pounds as the recession started to show its effects in the market. Still NEXT maintained it standards and did not face a decline in its prices as the other markets i.e. 103.925 – 107.458 pounds.

In December 2008 it faced a decline with the recession hitting but its decline was not much as compared to that faced by the market in which index was 82.928 pounds and next being 98.43 pounds. In the following month in January 2009 it again saw a rise in its prices (index being 93.051 9

pounds where as NEXT was 108.832pounds) which thus in turn shows that NEXT tried to get back into its position. During February 2009 NEXT grew much higher than its expectations and faced the uncertainty in an optimistic manner leaving behind the index prices as it grew from 108.832 to 110.108 pounds whereas index faced a decline from 93.051 to 83.178 pounds. By March 2009 NEXT maintained its standard prices where as the markets seemed to fall even more due to global recession (index falling from 83.178 to 73.96 pounds whereas NEXT growing from 101.108 to 111.089 pounds). It thus shows that its prices are not determined by the market trends but its set according to its value and yet consumers stay brand loyal and prefer clothing and accessories from Next.

CONCLUSION

While most of its competitors struggled from the declining market, NEXT managed to increase its market share over the past years and during a n environment like the present due to global recession, they still maintained their stand in the market. Due to high sales 10

they could increase their dividends which had a positive effect on shareholders and investors. As mentioned above, the analysis shows that it is not affected by the different market trends and it sticks to maintaining its standards which in turn puts an impression on its consumers and helps them to stay brand loyal with the improvised quality and therefore results in continuous growth and efficiency as compared to different market sector The expected cut in the UK interest rates which favored most of the middle markets and the acquisition of women's fashion retailer Lipsy Ltd. for an initial of 17.4m pounds in cash were the 2 main reasons that affected the performance of NEXT plc. Based on the financial analysis using the graphs and diagrams shown above, the public would not mind investing in the company as this UK retailer has gone ahead all the other middle market retailers showing the public their trustworthiness in not letting them down even during the time of global recession. With the analysis done over the past six months, it has been noticed that the share price is not affected by the different market trends and it sticks to maintaining its standards which in turn puts an impression on the public.

APPENDICES •

Table showing share price of NEXT plc for 6 months

Date

Oct 2008

Nov 2008

Dec 2008

Jan 2009

Feb 2009

March 2009 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

I059 1099 1135 1033 1059 991.5 985 947.5 1047 1003 956.5 862 858 900 927 921 896 873 885 900 1011 1094 1054

1095 1125 1189 1132 1166 1120 1111 1052 1000 981 945 940 930 970 970.5 1067 1036 1034 1073 1108

1003 1034 1013 1058 991.55 1087 1124 1080 1085 1035 1023 1068 1112 1112 1110 1098 1080 1084

1099 1093 1081

1109 1091 1227 1203 1189 1198 1167 1189 1186 1144 1173 1200 1130 1102 1098 1097 1104 1132 1198 1164 1177

1122 1134 1164 1168 1218

1132 1140 1176 1148 1133

1224 1173 1195 1186 1223

1110 1140 1160 1127 1157

1189 1130 1113 1139 1105 1092 1088

1189 1209 1231 1299 1286 1283 1324

1143 1190 1169

Bibliography 1. Financial services •

NEXT Plc, Annual Report January 2008 (www.next.co.uk)

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Key Note - Market Information

2. Papers 12

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Market news-London Stock Exchange

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Anonymous,(3rd October 2008). ‘ Next buys women's fashion retailer Lipsy for initial 17.4 mln pounds cash’ Financial Times

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Anonymous,(13th November) ‘UK clothes shoppers abandon mid-market’ Financial Times

3. Miscellaneous •

http://www.londonstockexchange.com/engb/pricesnews/marketnews/marketnews.htm?bsg=true&ns=NXT

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http://www.londonstockexchange.com/engb/pricesnews/prices/System/DetailedPrices.htm? sym=GB0032089863GBGBXSET13208986NXT#VTChart http://www.nextplc.co.uk/nextplc/financialinfo/ http://www.grin.com/e-book/99429/analysis-of-next-plc-and-itsenvironment

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