Finance Report on NEXT PLC - Final
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Transcript of Finance Report on NEXT PLC - Final
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Executive summary ………………………………..3
Introduction………………………………………..4
Analysis(company, sector and market)…………..5.
Conclusion……………………………………….12
Bibliography……………………………………..13
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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.
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.
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.
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
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.
Keywords: -London Stock Exchange, NEXT plc, General Retailers, Share price
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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 12th of 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
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
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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
Christmas would have helped consumer spending hold up. It was said that retailers had
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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
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challenging year.
NXT plc is again budgeting very conservatively, with negative like for like sales for the
full year, they believe 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
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public.
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)
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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
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
Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-090
20
40
60
80
100
120
INDEXNEXT
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
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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
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.
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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
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
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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
1 I059 10032 1099 1034 1109 1122 11323 1135 1095 1013 1134 11404 1125 1058 1164 11765 1189 991.55 1091 1168 11486 1033 1132 1227 1218 11337 1059 1166 12038 991.5 1087 11899 985 1124 1198 1224 111010 947.5 1120 1080 1173 114011 1111 1085 1195 116012 1052 1035 1167 1186 112713 1047 1000 1023 1189 1223 115714 1003 981 118615 956.5 114416 862 1068 1173 1189 118917 858 945 1112 1130 120918 940 1112 1113 123119 930 1110 1200 1139 129920 900 970 1130 1105 128621 927 970.5 1102 1092 1283
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22 921 1098 1098 1088 132423 896 1080 109724 873 1067 108425 1036 114326 1034 1104 119027 885 1073 1132 116928 900 1108 119829 1011 1099 116430 1094 1093 117731 1054 1081
Bibliography
1. Financial services
NEXT Plc, Annual Report January 2008 (www.next.co.uk)
Key Note - Market Information
2. Papers
Market news-London Stock Exchange
Anonymous,(3rd October 2008). ‘ Next buys women's fashion retailer Lipsy
for initial 17.4 mln pounds cash’ Financial Times
Anonymous,(13th November) ‘UK clothes shoppers abandon mid-market’
Financial Times
3. Miscellaneous
http://www.londonstockexchange.com/en-gb/pricesnews/marketnews/
marketnews.htm?bsg=true&ns=NXT
http://www.londonstockexchange.com/en-gb/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-its-environment
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