Report on the Company Next Plc Essay Example Pdf

NEXT Plc

This investor report will cover all key areas such as cash generation, income, management of assets, quality of investment made, performance in the relative sector and dividend policy and cost of capital. On the basis of current and past performance of the company and data provided in different annual sheets and news of the company, this report will help give a clear picture as to whether an investor should sell, hold or buy shares of Next plc.

Next Plc Introduction

Next Plc is one of the biggest clothing retail organisations in United Kingdom. Next Plc is known as excellent quality fashion, value for money, beautifully designed and accessories for women, men and children and together a complete range of home-ware. Organisation has 500 stores all over UK and Eire. Next plc has next directory, shopping catalogue of home and website which has 2 million and more customers all over 30 countries globally. Next as an international Plc has more than 180 operating stores all over Europe, middle east, Russia, Scandinavia, Japan and India. This organisation's retail operation started in year 1982 and listed on London stock exchange and member of FTSE100 index. Next Plc started online shopping in year 1999 and the website serves more than 35 countries outside the United Kingdom through NextDirect.com which is an international website of organisation.

Groups other businesses:

Next Sourcing as a venture through, which sources, designs, and buys brand products; Lipsy a venture through, which designing and selling of Lipsy brand products to young women's fashion products through the website, retail and wholesale channels; and Ventura, which offers customer service to clients, wishes to outsource their customer contact administration and fulfilment activities.

Business strategies and objective:-

The strategy of Next plc is to deliver continuous productivity in long term growth of the earning per share. Developing and Improving Next product ranges, in order to achieve success which reflects the total like for like sales performance and sales. The Next plc also focuses on Increasing the Next selling space and profitability ratio, meeting financial criteria for appraisal for new stores before the investment is made and level of success is measured and monitored by the profit and sales contribution as compared the appraised focused target. Increasing the number of Next Directory customers and their average spend as well as managing of net and gross margin through sourcing of the products, and efficient administration of stock, regular cost controlling and management of working capital. Apart from this the group also focuses on the maintaining the financial strengths by strong financing structure and balance sheet figures. Lastly, Next also plans to buy their share when earning enhances in the interest of shareholder as overall.

Historical financial performance:-

The revenue evaluation by historical financial performance will help us to calculate that how organisation is delivering higher returns to the shareholders. The evaluation is done by accessing the revenues which invoice the sales value, royalty and the tax through group sell products like Cloths, footwear and home ware. FT, (2009) shows that revenue is recognised when the products value and price is constant and reasonably assurance of the due collection of amount. The total revenue on Next through the brands excluding VAT in year 2010 is £3,215.1 million, which was £3,088.8 million in year 2009, the total rise of revenue is seen by 11.7%. Whereas the revenue from the Ventura is £145.6 million and from other activities was £45.8 million in year 2010 and in year 2009 it were £161.8 million and £20.8 million respectively. The NEXT PLC is 2nd highest revenue earner in United Kingdom in year 2010 (Standard and Poor's, 2010). The total revenue of the Next Plc has increased by 10.8% in year 2010 when compared to year 2009.

Year 2010 was unusual and unstable due to the economic downturn and drop in sales along with weakness of Sterling compared to the Euro and US Dollar which are the key buying currencies. The increased retail space of Next Plc by 257,000 square feet in year 2010 and rising retail store from 510 (2009) to 517 (2010) help increased the revenue. The weakness of Sterling was a massive challenge to margins. The average rate at which Next plc acquired US Dollars declined by 35 cents and if Next plc has paid the same dollar prices for organisations merchandise, bought in gross margin would have been reduced by -5%. The wage and Salary in year 2010 is £597.7 million which was increased whereas in year 2009 it was £571.4 million, Social security costs and other pension cost were nearly equal in both the year.

Investments activities

Next plc has increased the investment in retail space by 257,000 square feet in year 2010 whereas in year 2010 organisation has 517 retail stores which were 510 in year 2009. Next has plan to spend £20 million on maintaining brand image, organisation has invested £7m to extend the stores, £26m refitting, £6m in shoe and new sports departments and £17m on extensions. In investment Next has explained that concentration of organisation on online purchasing is more as compare the one store in each city, which does not justify the investment. In other way though the organisation wants expand the online purchase still Next has not spent the money on marketing in 35 countries.

Share Buyback

Organisation has policy to invest the money through buy back the shares in year 2010 organisation acquired the 5.9m of share at the cost of £120 million. Next plc has major intention to develop core business activity rather than from buy back shares and intention to maintain an investment grade credit rating. The plc expects that IT systems & business continuity will require continuous enhancements and ongoing investment to prevent obsolescence and maintain responsiveness to business needs.

As shown in above two figures 3 and figure 4 shows that black rock investment management company has enhanced their share in next Plc in year 2010 to 12.53% in September 2010 where as in year 2009 it was 9.58 %, fidelity management and research also rose their share holding to 6.23% share in 2010 which was 5.79% in year 2009. Schroders Plc has 5.79% share holding in year 2009 and dropped the shareholding to 4.81% in year 2010 because the FTSE 100 expected growth of 20% in 2011 (Citywire.co.uk, 2010). Legal and Investment Management limited company and Standard Life insurance company have also gained 4.04% and 2.75% of share holding in year 2010 whereas the AXA SA and Barclays Global investor has withdrawn the share holding in Next Plc in year 2010 (uk.reuters, 2010). As the Retail profit increased by +12.2% and net margin increased by +1.1% organisation were focusing on the employee training and development and NEXT opened 9 home stand stores and taking out of town 18 stores these store contributes the organisation 19% contribution and expect payback period of the capital is 14 months.

Short term Finance

The short term finance is the system in which organisation borrow loan for less than a year, it is need to evaluate and to investigate the organisations debt or over draft with in short period of time which is less than a year. Working capital is the essential to carry out the day to day business, it is calculated as "current assets - current liabilities", as shown in the Appendix A, organisation has the positive working capital which helps the organisation to pay the short term liabilities. Though the significant drop of the working capital is seen in year 2010 (£283.1 million) as compared to year 2009(£360.1million) is justified on the basis of the organisation investment in the new stores, increasing the retail space in many retail store, improving the online business and training and development activities for the employee. It is also seen that debtor day's is decreased from 69 days to 66 days this shows that the better financial position of the Next Plc. In Next plc the current ratio of the organisation is positive and indicates that the organisation has the positive and good financial position to pay the debt and liabilities. As shown in appendix A in year 2009 the current ratio was 1.50 and in year 2010 it is 1.37 which is positive justify the organisational strength. Appendix shows that the industry ratio is higher than the Next but the less and more than 1 ratio is justified on the basis of the organisation market expansion and store expansion strategy, and S&P current ratio is low as compared to the organisations ratio.

Quick ratio helps to show that the organisation meets the short-term debt, (Current assets-inventories)/ Current liabilities. There is slight drop in the ratio seen in year 2010 (0.96) as compare to year 2009 (1.05), the slight drop is seen because of the increasing other creditors and accruals which is £309.0 million (2010) which was £239.6 million (2009), and other taxation and social security in year 2010 it was £60.9 million which was £46.3 million in year 2009.

Long term finance

The long term finance of the organisation is evaluated by equity. The equity of the company has £ 133.6 million which was slightly dropped as compare to year 2009 which was £140.6 million. In year 2010 the Fair value reserve of the organisation decreases drastically from £69.6 million to £ 5.1 million. The drop in the equity has seen year due to demerger of the Barclays Global Investment and AXA SA, in same way Schroder Investment management has decrease the share holding from 7.41% (2009) to 4.81% (2010) the significant drop has seen due to the Schroder Plc expects the FTSE 100 expected to rise at 20% and wanted to invest in FTSE100 (Matthew Goodburn, 2010).

 

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