NEXT Plc Trading Update: Sales and Profit Growth in H1 2015, Study notes of Business

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NeXt Plc Results for the Half Year Ending July 2015  CHIEF EXECUTIVE’S REVIEW Contents Overview ............................................................................................................................................. 3 NEXT Retail .......................................................................................................................................... 4 Retail Sales and Profit Analysis ....................................................................................................... 4 Retail Space Expansion ................................................................................................................... 5 Focus on Retail Wages ........................................................................................................................ 6 Higher Wage Rates and Better Contract Hours .............................................................................. 6 Flexibility and NEXT’s Shift Market Place ........................................................................................ 6 The Living Wage Premium .............................................................................................................. 7 Directory ............................................................................................................................................. 9 Overview and Profit Analysis .......................................................................................................... 9 Directory Sales Analysis ................................................................................................................ 10 Developing Directory Overseas ..................................................................................................... 10 LABEL ............................................................................................................................................. 11 Directory Customer Base Analysis ................................................................................................ 12 Focus on NEXT Directory Credit Business ......................................................................................... 13 Development of the Directory Credit Customer Base .................................................................. 13 Promotion of Credit Offer ............................................................................................................. 13 Reduced Minimum Payments ....................................................................................................... 13 Other Trading Businesses ................................................................................................................. 15 NEXT Sourcing ............................................................................................................................... 15 International Retail and Franchise Stores ..................................................................................... 15 Lipsy .............................................................................................................................................. 16 Central Costs and Other Activities .................................................................................................... 16 Interest and Taxation .................................................................................................................... 17 Balance Sheet and Ordinary Dividends ............................................................................................. 17 Capital expenditure ........................................................................................................................... 17 Cash Generation, Share Buybacks and Special Dividends ................................................................ 18 Cash Flow in the First Half ............................................................................................................. 18 Projected Cash Flow for the Full Year ........................................................................................... 18 Share Buybacks and Special Dividends ......................................................................................... 19 Outlook for the Full Year ................................................................................................................... 20 Sales Guidance .............................................................................................................................. 20 Sales and Profit Guidance for the Full Year .................................................................................. 20 Third Quarter Trading Update ...................................................................................................... 20 RETAIL SPACE EXPANSION The addition of profitable new locations, the relocation and expansion of successful stores and the closure of underperforming stores remain central to the development of our retail business. We are now planning to increase net trading space by 293,000 square feet this year. This is 57,000 square feet less than planned because the opening of two large stores has slipped into the beginning of next year. The table below sets out the planned change in store numbers and space for the full year. Store Numbers Sq. Ft. (000's) January 2015 539 7,373 New stores, including 8 re-sites +22 +416 Closures, including 11 re-sites - 19 - 179 Extensions (13) - +56 January 2016 (e) 542 7,666 +4.0% Looking beyond the current year, we estimate that we will add around 350,000 square feet of net trading space in both 2016 and 2017. Of course, this is only a rough estimate at this stage and much will depend on the property deals we are able to achieve and required planning permissions. Returns on Capital and Profitability Profitability of stores opened in the last 12 months is forecast to average 24% and payback on the net capital invested is expected to be 18 months. Both figures meet Company investment hurdles of 15% store profitability and 24 months capital payback. The table below sets out the profitability and returns from new space, broken down into Fashion and large Home & Fashion stores. These new larger format stores have a two storey stand-alone Home store adjacent to a fashion store. New space Sales vs target Forecast profitability Forecast payback Fashion +2.4% 21.9% 18 months Large format Home & Fashion +15.9% 25.2% 18 months Total +10.2% 23.9% 18 months We have experienced some inflation in the cost per square foot of new space; this is partly as a result of enhanced shopfit specifications and partly down to building cost inflation. Looking at the openings we have planned for the next 12 months, there are a couple where we decided to stretch our payback criteria, although never to more than 30 months. 5 FOCUS ON RETAIL WAGES Starting wages in the retail sector have been the subject of much discussion over the last two years, culminating with the announcement of the Living Wage Premium in the July Budget. This section sets out the improvements NEXT has made in our starter wages, terms and conditions over the last four years. It goes on to examine the implications of the Living Wage Premium on the economics of our business. HIGHER WAGE RATES AND BETTER CONTRACT HOURS When we started the process of improving our Retail customer service in June 2013 we recognised that we needed to change our terms of employment. This was not only about rate of pay, just as important were the contractual terms, conditions and hours we offered to our staff. The table below shows how our starter rates of pay1, average weekly hours worked, and average weekly pay have changed over four years. As can be seen, in October of this year, the combination of increasing pay rates and longer contracts means that, on average, our staff will be earning 43% more than in 2012. Oct 2012 Oct 2013 Oct 2014 Oct 2015(e) Adult starter hourly rate1 (NB Excludes bonuses2) £6.21 £6.33 £6.70 £7.04 % growth in hourly rate versus 2012 +13% % growth in average weekly hours versus 2012 +26% % growth in average weekly pay versus 2012 +43% Retail payroll as a percentage of sales 11.9% 12.1% Despite increasing wage rates (up 13%) and declining same-store sales, branch wages have only risen by +0.2% as a percentage of sales. This is because most of the increase in wage rates has been funded through a series of productivity improvements. FLEXIBILITY AND NEXT’S SHIFT MARKET PLACE In order to achieve the increase in average hours per employee, we have moved away from large numbers of people working relatively few hours, towards employing fewer people on longer hours contracts. This means that we have fewer, better paid, better trained and more experienced staff. This change has been achieved through natural staff turnover and without any redundancies. The downside of employing fewer people on longer contracts is that we have much less potential to flex up hours in the business to meet peak trading requirements. We have addressed this problem by creating an extremely popular online Shift Market Place for our staff. Three weeks in advance, we forecast our staffing requirements according to expected trading conditions. Additional hours required to cover unexpected peaks are advertised on the Market Place and surplus hours are offered up as ‘time-off available’. Staff then have the opportunity to use Market Place hours to either boost their hours or manage additional time off. Staff who know they will always want to work certain additional hours can configure their timetable as permanently available; this enables them to automatically receive any available extra hours without having to watch the Market Place. 1 Rates quoted are for 21 years and older, working outside Greater London 2 Excludes customer service bonuses which this year average 50p per hour 6 THE LIVING WAGE PREMIUM Nature and Impact of the Living Wage Premium In July the Government announced the introduction of the Living Wage Premium (LWP) which sets a new minimum wage for employees who are twenty five years old and above. The LWP has been set at £7.20 from April 2016, which is 55% of the forecast 2016 median wage. The introduction of the LWP needs to be taken in the context of the scaling back of Working and Family Tax Credits. The tax credit system, by supplementing lower wages, almost certainly constrained market wage rates. So, even without the introduction of the LWP, the lowest wages are likely to have risen faster than general wage inflation anyway, through normal market forces. A Level Playing Field Importantly, this measure affects all employers equally, both within and outside the retail sector. It is therefore unlikely to affect the competitiveness of any individual business. Additional wage costs are likely to be similar for most clothing retailers, so any resulting price rises should be comparable across the industry. Calculation of the Living Wage Premium The stated intention is to raise the LWP to 60% of the median wage by 2020. This increase, combined with the Office for Budget Responsibility‘s (OBR) forecast for wage inflation of circa 4.5% per annum, means that the LWP is forecast to be £9.35 in April 2020. (The economics of this forecast are set out in Appendix B of the OBRs ‘Economic and Fiscal Outlook Report, July 20153) In assessing the economic impact of the LWP it is important to separate the two components of the increase between: 1. The impact of raising the LWP to 60% of the median wage. 2. The effect of general wage inflation which is forecast to increase the median wage. The following table breaks down the financial impact of the increase into three components. Firstly the effect of raising the LWP to 55% of the median in 2016; secondly the effect of taking the LWP to 60% of the median wage without any inflation in the median wage; and finally the effect on the LWP of forecast inflation in the median wage to 2020. Rate of pay Increase vs Oct 15 National Minimum Wage October 2015 £6.70 Effect of: Increase to 55% of median wage (2016) £7.20 +7% Increase to 60% of median wage (2020, with no inflation in median) £7.85 +17% Add effect of inflationary increase in median wage @circa 4.5% pa £9.35 +40% From a retailer’s perspective, general wage inflation is not such a worry, as long as wages are rising in real terms. In these circumstances the price rises required to cover our additional overheads could be passed on to consumers without adversely impacting sales. The logic is that if our customers’ wages are rising much faster than our prices, they are unlikely to reduce the amount of clothing they purchase. 3 http://cdn.budgetresponsibility.independent.gov.uk/July-2015-EFO-234224.pdf 7 DIRECTORY SALES ANALYSIS Over the course of the last three years the nature of the NEXT Directory business has slowly changed. As NEXT Directory matures in the UK, growth in sales has increasingly come from two new sources. In the UK, LABEL’s third party branded sales contributed more to growth than the NEXT brand; outside the UK, our online overseas business is now large enough to make a meaningful contribution to growth. The table below shows the growth in sales for each element of the business. Directory sales in the UK grew by +6.3% and overseas by +24.1%. Sales Growth UK NEXT + £19m + 3.3% UK LABEL + £22m + 30.5% UK Total + £41m + 6.3% Overseas + £17m + 24.1% Total sales growth + £58m + 8.2% DEVELOPING DIRECTORY OVERSEAS Over the last twelve months, our focus has been to improve the speed of delivery overseas, in particular through the development of local distribution hubs. In October last year we opened a hub in Northern Ireland, allowing us to offer next day delivery to both Northern Ireland and Eire. This hub stocks small amounts of each item we sell. Customer orders are satisfied from the hub which receives bulk replenishment deliveries several times a week. The operation has been successful and served as a model for additional hubs further afield. We are developing local distribution hubs in the following territories: RUSSIA In March we opened a local hub and a small call centre in Russia. This has allowed us to offer a next day delivery service to customers in Moscow, 48 hour delivery to St Petersburg and between 2-5 days for our other Russian customers, a huge improvement on our previous lead times. In operational terms (systems, recruitment, productivity) the hub has performed well. The main lesson for future hubs was that the work associated with local testing and customs took much longer than expected. CHINA We have recently commissioned a new hub in Shanghai. It is now operational and servicing our business in Hong Kong. We expect to begin servicing mainland China and Taiwan later in the year. Delivery times will improve from between 8-14 days currently to between 1-5 days, depending on customer location. The operation is managed by a third party, so there has been very little capital investment required. GERMANY We currently deliver next day, by air, to Germany, Belgium and France; however we are only able to offer the service four days a week and the air freight involved is expensive. By the end of the year we aim to open a hub in the centre of Germany, allowing us to offer a more reliable, regular and less expensive next day delivery service. This hub may also allow us to deliver more efficiently to countries neighbouring Germany. 10 Overseas Sales and Profitability The table below sets out the last three years’ sales, profits and net margins for Directory overseas. The fourth column gives an estimate of the sales and profitability we are expecting for the full year. Margin has been eroded by 1.5%, mainly as a result of our decision not to pass on to our customers the full cost of some local currency devaluations. £m January 2013 January 2014 January 2015 January 2016 (e) Sales 54 101 163 203 (e) Net profit 10 18 30 33 (e) Profitability 19% 18% 18% 16.5% (e) LABEL Several years ago we started selling non-competing third party brands through the NEXT Directory. Last year we printed our first LABEL catalogue, dedicated to promoting our third party offer. We now issue four, 400-page LABEL catalogues a year, to coincide with the launch of each major season. LABEL has its own dedicated website, labelonline.co.uk, and its ranges are also available through next.co.uk. We continue to engage with new premium brands that do not directly compete with NEXT ranges and that enhance our overall customer offer. In the first half of the year we added 17 major brands and expect to add a further 14 in the second half. LABEL Sales and Profitability For the full year we expect LABEL full price sales to be up +20%. This is lower than our initial plan which, in hindsight, at +30% was too ambitious. So we expect total sales (including markdown) to be up more than full price sales. The table below sets out our forecast sales and profitability for the current year. These figures now include Lipsy sales which were previously included in NEXT Directory. £m January 2015 January 2016 (e) Total Sales exc. VAT4 145 180 (e) +25% Profitability4 14% 15% (e) 4 Excludes interest income on LABEL items purchased on the NEXT Directory account 11 DIRECTORY CUSTOMER BASE ANALYSIS Active customers increased by 13% to 4.5 million. The table below sets out the growth in our UK and overseas customer base. Average customers July 2015 July 2014 UK credit account 2.66m 2.74m - 3% UK cash 1.14m 0.81m +40% Total UK 3.80m 3.55m +7% Overseas 0.71m 0.43m +65% Total active customers 4.51m 3.98m +13% Given the relative maturity and scale of the NEXT Directory customer base, it is perhaps surprising to see UK customers growing by 250,000. This continued growth is a reflection of the increased reach that the internet has given to home shopping companies. However, these new customers are also changing the structure of our customer base. There is an increasing emphasis on cash customers, who pay at the point of order with a debit or credit card, and a corresponding stagnation in our credit customer base who shop using a NEXT Directory account. This change represents a challenge to the Directory credit business, which increasingly must regard itself in competition with credit cards rather than other home shopping accounts. In our Year End Report in March we discussed the steps we were taking to make the Directory account more relevant to new customers. The progress we have made is discussed in more detail in the following focus section. 12 OTHER TRADING BUSINESSES NEXT SOURCING NEXT Sourcing (NS) is our internal sourcing agent, which procures around 40% of the product bought by NEXT Retail and Directory. The table below shows sales and profits in Sterling. £m July 2015 July 2014 Sales 304.2 272.3 +12% Operating profit 22.9 15.9 +44% Operating margin 7.5% 5.8% Sales in US Dollars were up +2% and are forecast to grow by +5% for the full year, broadly in line with the growth in NEXT Brand sales. Profit in the first half benefited from £2.2m of currency gains from the stronger US Dollar, lower overhead costs and improved margins. As previously reported, NS will reduce their commission rate by 1% for Spring Summer 2016 stock. We expect NS profits of £47m for the full year, compared with £41m last year. INTERNATIONAL RETAIL AND FRANCHISE STORES Our franchise partners operate 181 stores in 35 countries, which is similar to last year. Franchise sales in the first half have reduced by 8%, mainly due to adverse currency movements and difficult trading conditions in some territories. We do not expect the second half of the year to be impacted to the same degree. We own 14 stores in Europe which have broadly broken even. Revenue and profit are set out below, and we are budgeting for International Retail to make £11m profit for the full year. £m July 2015 July 2014 Franchise income 30.9 33.6 Own store sales 5.4 6.6 Total revenue 36.3 40.2 - 9.7% Operating profit 4.7 5.1 - 8.0% 15 LIPSY Lipsy had a satisfactory first half despite the loss of a major wholesale customer, which went into administration in January. Lipsy sales are broken down by distribution channel in the table below. £m July 2015 July 2014 Lipsy.co.uk, standalone stores, franchise and wholesale 14.9 17.5 NEXT Retail 5.9 5.3 NEXT Directory 13.1 8.7 Total Sales 33.9 31.5 +7.5% Around 20% of Lipsy’s sales now come from selling third party, young fashion brands, mainly on a commission basis. This third party business is expected to increase as a percentage of Lipsy sales in the year ahead. Lipsy sales made through NEXT Retail and NEXT Directory are now reported in those divisions. First half operating profit was £1.8m and we anticipate £5m for the full year, both broadly in line with last year. CENTRAL COSTS AND OTHER ACTIVITIES The table below summarises central costs and other non-trading activities. £m July 2015 July 2014 Central costs and share options (13.3) (13.6) Property Management 6.6 2.0 Unrealised foreign exchange (6.3) 2.9 Associates 0.5 0.5 Total (12.5) (8.2) This year’s Property Management profit includes £5m from the development of a retail store. For the full year we expect Property Management profit to be £9.6m. The £6.3m unrealised foreign exchange charge is partly a reversal of accounting gains from last year. We are currently forecasting for a full year charge of £4.6m, which compares to a credit of £8.9m last year. 16 INTEREST AND TAXATION The interest charge was £15m, in line with last year, and we expect a full year charge of £31m. Our expected full year tax rate of 20.2% is commensurate with headline UK corporation tax rates. We expect our effective tax rate to be similar next year, and from 2017/18 we would expect it to fall below 20% following the UK Government’s decision to reduce the rate further. BALANCE SHEET AND ORDINARY DIVIDENDS The balance sheet remains strong with net debt of £549m at the end of July, although this was immediately before dividend payments in early August totalling £237m. Our balance sheet is financed by £788m of bonds and committed bank facilities of £550m after being recently increased and extended. Last year we declared interim and final ordinary dividends totalling 150p. This year, based on current profit guidance, we anticipate a total of 159p which would maintain cover at 2.8 times. One third of the anticipated full year dividend, that is 53p per share, will be paid as an interim ordinary dividend on Monday 4 January 2016. Shares will trade ex-dividend from 10 December 2015 and the record date will be 11 December 2015. CAPITAL EXPENDITURE In the current year we expect capital expenditure to be £155m, which is £45m ahead of last year. Our capital expenditure forecast, for the full year, is shown in the table below with the equivalent figures from last year. £m Jan 2016 (e) Jan 2015 Retail space expansion 85 74 Retail cosmetic refits 15 6 Total capex on stores 100 80 Warehouse 27 12 Systems 12 5 Head office infrastructure 16 13 Total forecast capital expenditure 155 110 New retail space remains our biggest investment at £85m. We are increasing our expenditure on cosmetic and maintenance refits to £15m which compares to £6m last year, we expect this figure to average £11m over the course of the next three years. Investment in systems is £7m higher, mainly as a result of hardware costs associated with rewriting our till software. Warehouse capex increases by £15m to £27m, which includes £20m on a new furniture warehouse. Expenditure on head office infrastructure increases to £16m as we continue the process of upgrading our central facilities. This year we are building a new photographic studio, completing a new systems building, extending our Childrenswear department and refurbishing our Finance, Call Centre, Menswear and Womenswear departments. 17 OUTLOOK FOR THE FULL YEAR SALES GUIDANCE We are maintaining our sales guidance for the full year issued with our trading statement at the end of July. NEXT Brand full price sales for the full year are expected to be up between +3.5% to +6.0%. This implies that sales in the second half will be up between +3.5% to +7.5%. At first sight guidance for the second half might appear optimistic, given that we only achieved full price sales growth of +3.5% in the first half. However last year was unusually strong in the first half and much weaker in the second half, with sales in September, October and early November adversely affected by unusually warm weather. SALES AND PROFIT GUIDANCE FOR THE FULL YEAR Our sales and profit guidance remains unchanged from our July trading statement and is shown in the table below. Guidance Estimates Full Year to January 2016 (52 week basis*) Lower end of guidance Upper end of guidance Total full price NEXT Brand sales growth +3.5% +6.0% Group profit before tax £805m £845m Group profit before tax growth +2.9% +8.0% Ordinary dividend yield† +2.2% +2.2% Special dividend yield† +3.3% +3.3% Total Shareholder Returns +8.4% +13.5% * The guidance above is based on 52 weeks for the years ending January 2015 and 2016. The current year will actually be the 53 weeks to 30 January 2016 and we estimate the additional week will add approximately £15m to profit before tax. † Dividend yield is based on dividends expected to be declared for the current year. Yields are expressed as a percentage of our average share price during the first month of this financial year, which was £72.33. THIRD QUARTER TRADING UPDATE Our next statement will cover the thirteen weeks to 24 October 2015 and is scheduled for Wednesday 28 October. Lord Wolfson of Aspley Guise Chief Executive 10 September 2015 20 UNAUDITED CONSOLIDATED INCOME STATEMENT Six months to July 2015 £m Six months to July 2014 £m Revenue 1,890.5 1,849.6 Cost of sales (1,246.0) (1,250.0) ____________ ____________ Gross profit 644.5 599.6 Distribution costs (166.7) (151.5) Administrative expenses (110.0) (112.4) Unrealised foreign exchange (losses)/gains (6.3) 2.9 ____________ ____________ Trading profit 361.5 338.6 Share of results of associates 0.5 0.5 ____________ ____________ Operating profit 362.0 339.1 Finance income 0.5 0.5 Finance costs (15.4) (15.4) ____________ ____________ Profit before taxation 347.1 324.2 Taxation (70.1) (66.5) ____________ ____________ Profit for the period attributable to equity holders of the parent company 277.0 257.7 ____________ ____________ Six months to July 2015 Six months to July 2014 Earnings per share (Note 4) Basic 187.1p 173.3p Diluted 183.7p 168.8p Ordinary interim dividend per share (Note 5) 53.0p 50.0p 21 UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Six months to July 2015 £m Six months to July 2014 £m Profit for the period 277.0 257.7 Other comprehensive income and expenses: Items that will not be reclassified to profit or loss Actuarial gains on defined benefit pension scheme 3.6 0.8 Tax relating to items which will not be reclassified (0.8) (0.2) ____________ ____________ Sub-total items that will not be reclassified 2.8 0.6 ____________ ____________ Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations 2.0 (0.5) Foreign currency cash flow hedges: - fair value movements (27.9) (18.0) - reclassified to the income statement (20.3) 15.0 - recognised in inventories (8.2) 10.5 Tax relating to items which may be reclassified 11.3 (1.5) ____________ ____________ Sub-total items that may be reclassified (43.1) 5.5 ____________ ____________ Other comprehensive (expense)/income for the period (40.3) 6.1 ____________ ____________ Total comprehensive income for the period attributable to equity holders of the parent company 236.7 263.8 ____________ ____________ UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Six months to July 2015 £m Six months to July 2014 £m Opening total equity 321.9 286.2 Total comprehensive income for the period 236.7 263.8 Share buybacks & commitments 101.1 (109.2) ESOT share purchases & commitments (73.2) (61.3) Shares issued by ESOT 34.2 21.2 Share option charge 6.7 6.9 Equity awards settled in cash - (3.8) Tax recognised directly in equity 4.0 4.5 Equity dividends (Note 5) (325.9) (286.0) ____________ ____________ Closing total equity 305.5 122.3 ____________ ____________ 22 NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. Basis of preparation The Group’s interim results for the six months ended 25 July 2015 were approved by the Board of Directors on 10 September 2015, and have been prepared in accordance with IAS 34 Interim Financial Reporting. The accounting policies adopted in the preparation of the interim financial statements are the same as those set out in the Group’s annual financial statements for the year ended 24 January 2015. The financial statements have been prepared on the historical costs basis except for certain financial instruments, pension assets and liabilities and share based payment liabilities which are measured at fair value. The interim financial statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on ‘Review of Interim Financial Information’ and do not include all of the information required for full annual financial statements. The financial information contained in this report does not constitute statutory accounts of the Company within the meaning of Section 434(3) of the Companies Act 2006. Statutory accounts for the year to January 2015 have been delivered to the Registrar of Companies. The audit report for those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under 498(2) or (3) of the Companies Act 2006. Going concern The Directors report that, having reviewed current performance and forecasts, they have a reasonable expectation that the Group has adequate resources to continue its operations for the foreseeable future. For this reason, they have continued to adopt the going concern basis in preparing the financial statements. 2. Risks & uncertainties The Board has considered the principal risks and uncertainties for the remaining six months of the financial year and determined that the risks presented in the 2015 Annual Report, described as follows, also remain relevant to the rest of the financial year: Business strategy development & implementation; Management team; Product design & selection; Key suppliers & supply chain management; Warehousing & distribution; Customer experience; Retail store network; Information security, business continuity & cyber risk; Financial, treasury, liquidity & credit risks. These are detailed on pages 24 to 26 of the 2015 Annual Report, a copy of which is available on the Company’s website at www.nextplc.co.uk. 25 3. Segmental analysis The Group’s operating segments under IFRS 8 have been determined based on the management accounts reviewed by the Board. The performance of operating segments is assessed on profits before interest and tax, excluding equity settled share option charges recognised under IFRS 2 Share-Based Payment and unrealised foreign exchange gains or losses on derivatives which do not qualify for hedge accounting. The activities, products and services of the operating segments are detailed on page 22 of the 2015 Annual Report. The Property Management segment holds properties and property leases which are sub-let to other segments and external parties. Segment sales and revenue Six months to July 2015 Total sales excluding VAT £m Commission sales adjustment £m External Revenue £m Internal Revenue £m Total Segment Revenue £m NEXT Retail 1,083.0 (2.8) 1,080.2 2.8 1,083.0 NEXT Directory 767.0 (13.7) 753.3 - 753.3 NEXT International Retail 36.3 - 36.3 - 36.3 NEXT Sourcing 3.2 - 3.2 301.0 304.2 ____________ ____________ ____________ ____________ ____________ 1,889.5 (16.5) 1,873.0 303.8 2,176.8 Lipsy 14.9 (0.4) 14.5 11.2 25.7 Property Management 3.0 - 3.0 96.4 99.4 ____________ ____________ ____________ ____________ ____________ Total segment sales/revenues 1,907.4 (16.9) 1,890.5 411.4 2,301.9 Eliminations - - - (411.4) (411.4) ____________ ____________ ____________ ____________ ____________ Total 1,907.4 (16.9) 1,890.5 - 1,890.5 ____________ ____________ ____________ ____________ ____________ Six months to July 2014 Total sales excluding VAT £m Commission sales adjustment £m External Revenue £m Internal Revenue £m Total Segment Revenue £m NEXT Retail 1,080.9 - 1,080.9 3.2 1,084.1 NEXT Directory 709.2 (6.7) 702.5 - 702.5 NEXT International Retail 40.2 - 40.2 - 40.2 NEXT Sourcing 3.3 - 3.3 269.0 272.3 ____________ ____________ ____________ ____________ ____________ 1,833.6 (6.7) 1,826.9 272.2 2,099.1 Lipsy 17.5 (0.2) 17.3 9.8 27.1 Property Management 2.6 - 2.6 97.8 100.4 ____________ ____________ ____________ ____________ ____________ Total segment sales/revenues 1,853.7 (6.9) 1,846.8 379.8 2,226.6 Third party distribution 2.8 - 2.8 - 2.8 Eliminations - - - (379.8) (379.8) ____________ ____________ ____________ ____________ ____________ Total 1,856.5 (6.9) 1,849.6 - 1,849.6 ____________ ____________ ____________ ____________ ____________ Where third party branded goods are sold on a commission basis, only the commission receivable is included in statutory revenue. Total Sales represents the amount paid by the customer, excluding VAT. As explained in our January 2015 annual report, Lipsy sales made through NEXT Retail and Directory are now reported in those divisions. For comparability, prior year figures have been restated resulting in £5.3m of Lipsy sales being reallocated to NEXT Retail and £8.7m to NEXT Directory. 26 3. Segmental analysis (continued) Six months to July 2015 £m Six months to July 2014 £m Segment profit NEXT Retail 161.0 152.3 NEXT Directory 184.1 172.1 NEXT International Retail 4.7 5.1 NEXT Sourcing 22.9 15.9 ____________ ____________ 372.7 345.4 Lipsy 1.8 1.9 Property Management 6.6 2.0 ____________ ____________ Total segment profit 381.1 349.3 Central costs and other (6.6) (6.7) Share option charge (6.7) (6.9) Unrealised foreign exchange (losses)/gains (6.3) 2.9 ____________ ____________ Trading profit 361.5 338.6 Share of results of associates 0.5 0.5 Finance income 0.5 0.5 Finance costs (15.4) (15.4) ____________ ____________ Profit before tax 347.1 324.2 ____________ ____________ 4. Earnings per share Six months to July 2015 Six months to July 2014 Basic earnings per share 187.1p 173.3p Diluted earnings per share 183.7p 168.8p Basic earnings per share is based on the profit for the period attributable to the equity holders of the parent company and the weighted average number of shares ranking for dividend less the weighted average number of shares held by the ESOT during the period. Diluted earnings per share is based on the weighted average number of shares used for the calculation of basic earnings per share as increased by the dilutive effect of potential ordinary shares. Dilutive shares arise from employee share option schemes where the exercise price is less than the average market price of the Company’s ordinary shares during the period. Their dilutive effect is calculated on the basis of the equivalent number of nil-cost options. Where the option price is above the average market price, the option is not dilutive and is excluded from the diluted EPS calculation. 27