NEXT plc – Annual report – 30 January 2021
SECTION 172 STATEMENT
This section describes how we have engaged with and had regard to the interests of our key stakeholders when exercising our duty to promote the success of the Company under section 172(1) of the Companies Act 2006. The principles underpinning section 172 are not something that are only considered at Board level, they are embedded throughout our Company. Sometimes decisions must be made based on competing priorities of stakeholders. We describe below how the Board seeks to understand what matters to stakeholders and carefully considers all the relevant factors when selecting the appropriate course of action.
Our key stakeholder groups are set out below. Our many and varied engagement processes help lead us to a better understanding of what matters to our stakeholders. Their views and needs, as well as the consequences of any decision in the long term are then considered in the business decisions made by the Board and across the entire Company, at all levels. We do this through various methods, including: direct engagement by Board members, receiving reports and updates from members of management who engage with such groups, and coverage in our Board papers of relevant stakeholder interests with regard to proposed plans.
How the Board engages:
- Annual Recruitment, Retention and Reward forums
- Discussing the output of employee engagement surveys and agreeing follow-up actions
- Presentations on performance and strategy from the Chief Executive and the Group Finance Director following results announcements
- Attendance at Product Training Days and visits to stores and warehouses
- Online performance, development and feedback tools
Each of our executive directors joined the Company as employees before being promoted to the Board. All of them joined the Company over 25 years ago and this gives them extensive knowledge of the business as well as an acute insight into the mood, culture and views of their colleagues. All are based at NEXT Head Office and have a high degree of personal oversight and engagement in the business.
Engagement with our employees has never been more vital to the success of our business. In a year of profound uncertainty, we had ongoing engagement with our workforce about their health and safety in the face of COVID. Many of our stores were subject to changing restrictions in their operations, often at short notice, and we closed our warehouses temporarily in April 2020 to reconfigure them for COVID-safe operations following feedback from our employees. We would like to thank those colleagues for the feedback we received which helped us to provide and maintain a safe working environment as well as develop better ways of working.
Recruitment, Retention and Reward forums
During the year we held our annual Recruit, Retain and Reward (RRR) workforce forums, albeit virtually, given the impact of the pandemic. Dame Dianne Thompson, one of our non-executive directors, attended the meetings along with Lord Wolfson (Chief Executive), the Group HR Director and workforce representatives for each division. Following discussion on the key issues in different parts of the business, actions were agreed and feedback was reviewed by the Board. Agreed actions from matters raised in 2020 included:
- Producing a set of principles for remote and home working
- Reviewing ways to help people feel connected to the office while working from home
- Producing simple documents to help educate teams on key facts relating to COVID
- Considering how to improve video interviews
- Looking into offering additional incentives for high performing team members
These meetings form the workforce advisory panels as referred to in the UK Corporate Governance Code.
Our RRR forums are supplemented by Communication In Action meetings which take place regularly throughout the year. The purpose of Communication In Action meetings is to agree initiatives coming out of the RRR forums.
Employee engagement surveys
The normal format of our employee engagement survey was replaced by surveys pertinent to the COVID pandemic. Head Office, Retail and Online employees completed COVID-19 Safety & Communications surveys to gauge how well the Company responded to the pandemic. 94% of all responses rated the safety measures implemented at a NEXT site or store as either Good or Excellent and 88% of all responses regarding communication were rated Good or Excellent.
In Warehousing & Distribution, regular pulse surveys were sent via text to warehouse colleagues to gauge feelings about safety in the transformed working environment. Results of the pulse surveys for employees returning to work showed that 95% felt their safety had been put before productivity and safety changes made in the workplace scored a 96% approval rating.
In late 2020, NEXT Sourcing conducted its biannual employee survey. Communication In Action meetings were launched in Bangladesh, Sri Lanka, Vietnam, Shanghai and Hong Kong.
The Board considered the results of the surveys and the HR initiatives underway to address the matters raised.
Continuous performance management and feedback
During the year, our online performance and development tool continued to be rolled out. The tool provides a forum for positive and constructive feedback by individuals, peers and managers.
The Group HR Director attended certain meetings of the Board to brief on employee-related matters, including workforce demographics, engagement activities, the results of employee opinion surveys, staff retention rates, diversity, numbers and nature of whistleblowing, disciplinary and grievance procedures, learning and development activity, pay and reward including gender pay gap and HR initiatives.
The Board considers that, taken together, these arrangements deliver an effective means of ensuring the Board stays alert to the views of the workforce.
With regard to health, safety and wellbeing, during the year the Audit Committee received an update from the Group Health and Safety Manager on safety performance, safety risk management and mental health wellbeing initiatives.
During the year, and perhaps more than ever before, the Board had to consider significant matters where it was important to be mindful of the interests of employees.
One such example came early in the pandemic and at a time when all our stores had been forced to close due to Government restrictions. We listened very carefully to our colleagues working in Warehousing and Distribution Operations to fulfil Online orders and it was clear that many increasingly felt they should be at home given the circumstances. We therefore took the very difficult decision to temporarily close our Online, Warehousing and Distribution Operations in order to redesign our processes and operations to be COVID-safe. The day that our entire business operation fell silent will live long in our memories.
The scale of the task of making our Online operations COVID-safe was huge – 6.8m square feet of warehousing had to be repurposed to achieve rigorous social distancing. Before re-opening, we consulted again with our colleagues and also our recognised union, USDAW, to make sure employees felt safe with the new safe ways of working, and developed a number of induction and training programmes for the new processes. We re-inducted and retrained over 4,000 colleagues. We limited the number of daily online orders for a time to ensure that the processes worked, and we prioritised the items that our customers needed most, such as Childrenswear.
Throughout the year the Board approved major contract renegotiations and strategy with regard to key suppliers, notably with the Group’s providers of freight forwarding services, and with certain landlords of the Group’s premises. We balanced the benefits of maintaining strong partnerships with key suppliers alongside the need to obtain value for money for our investors and excellent quality and service for our customers. Further details on how we engage with our suppliers can be found on pages 81 to 83.
We endeavoured to be fair to our suppliers throughout the pandemic. We wrote to our product suppliers at the end of March 2020 committing to honour and pay our suppliers in full, on normal payment terms, for orders that were due to leave supplier factories up to 10 April 2020. Orders due to leave after this date, where no longer required, were cancelled and compensation payments made towards the raw materials that suppliers had acquired. Where possible, we carried over stock to future seasons.
As a large retail business, the sentiment of customers can be seen in the Company’s underlying sales performance figures, which the Board reviews regularly. The executive directors provide updates to the Board on their perceptions and the market view of consumer sentiment. The interests of customers are considered in key decisions e.g. relating to: store portfolio changes; selection of product lines including third-party brands; selection and monitoring of suppliers to ensure quality and safety standards are met; freight and logistics arrangements to maximise efficiencies from order to delivery; the availability of customer credit products; and the development of the Online Platform.
With the interests of customers in mind, during the year the Board reviewed proposals in respect of phased plans to reopen stores following enforced closure, compliance with Government guidance on health and safety measures in-store, store staffing levels, capital expenditure on warehouses and major freight forwarding and parcel delivery contracts.
Our Finance business is regulated by the Financial Conduct Authority (FCA) in respect of the provision of consumer credit. As a responsible authorised company, we seek always to co-operate and engage constructively with the FCA and meet its standards. The Audit Committee exercises independent oversight over the regulated Finance business that includes updates on matters under discussion with the FCA.
NEXT manages its tax affairs responsibly and proactively to comply with tax legislation. The Company’s approach is to seek to build solid and constructive working relationships with all tax authorities. NEXT’s UK tax policy can be found at nextplc.co.uk and was reviewed and approved by the Board during the year. This policy includes that the Company engages with HMRC constructively, honestly and in a timely and professional manner, and seeks to resolve disputed matters through active and transparent engagement. Engagement with HMRC is led by the Company’s inhouse tax team of qualified tax professionals. The Group Finance Director provides regular updates to the Board on tax matters.
Debt capital/credit facility providers and credit reference agencies
The Group Finance Director and the Company’s Treasury team are responsible for managing the relationships with our banks, bond investors and credit rating agencies, and the management of the Group’s cash/debt and financing activities. The Group Finance Director provides regular reports to the Board on these activities including the Company’s access to liquidity, monitoring the headroom and maturity schedules of our primary credit facilities and future financing plans. The Board approves the Company’s Treasury Policy annually.
Our impact on the community and the environment
We have a number of targets and initiatives aimed at reducing the adverse impact of our business on the environment and the communities in which we operate. The ways in which we engage with the communities in which we operate are set out in more detail on page 89 of our Corporate Responsibility Report. During the year we considered our approach to climate change and agreed further measures we can take to reduce our impact on the environment. Further details can be found on pages 85 to 88 of the Corporate Responsibility Report.
Doing the right thing – maintaining high standards of business conduct
Corporate governance We have a robust corporate governance framework in place, details of which are set out in our Corporate Governance Report on pages 102 to 107.
Ethical trading and responsible sourcing
The Audit Committee exercises strong oversight over the Group’s activities in these areas including reviewing the work of the COP team and receiving regular updates on environmental, social and governance issues. It reports to the Board on these topics as appropriate. For further details on our approach to ethical trading and responsible sourcing, please see pages 81 and 82 of the Corporate Responsibility Report.
No donations were made for political purposes (2020: £nil).
The Company has just one class of share in issue and so all shareholders benefit from the same rights. The Board does not take any decisions or actions, such as selectively disclosing confidential or inside information, that would provide any shareholder or group of shareholders with any unfair advantage or position compared to the shareholders as a whole.
How the Board engages:
- Regular calls and meetings between shareholders and the Chief Executive and Group Finance Director.
- Roadshows and conferences with institutional investors.
- Major shareholders are invited to the annual and half year results presentations.
- Meetings and calls between major shareholders with the Chairman and Remuneration Committee Chairman on governance and remuneration matters.
- Regular communication with institutional investors by the Company Secretary and senior management, particularly on environmental, social and governance matters.
During 2020, we engaged with investors on a range of topics, including:
- Governance including Board composition.
- Executive remuneration and our proposed new Directors’ Remuneration Policy.
- Human rights and ethical trading.
- The environment, sustainability and responsible sourcing.
- Company performance against its strategy.
The Board receives regular information on investor views through a number of different channels:
- The Group’s corporate broker provides written feedback on market reaction and investor views after full and half year results announcements and investor roadshows.
- Reports from the Chairman and other non-executive directors who have direct dialogue with shareholders.
- Analyst/broker reports and views.
- Shareholder feedback reports and statements made by representative associations.
All shareholders have an opportunity to ask questions or represent their views formally to the Board at the AGM, or with directors after the meeting.
The interests of investors were considered as part of the Board’s decisions throughout the year including with regard to the interim and final dividends and the suspension of our share buyback programme.
Long term decisions
Within the fast-moving fashion retailing sector, the operational cycle is short and has become even shorter within recent years. Despite this, we are mindful that our strategic decisions can have long term implications for the business and its stakeholders, and these implications are carefully assessed.
The most prevalent example of this is in the Board’s decisions with regard to capital allocation. The Board balanced:
- the expectations of long term investors on dividends and the return of capital to shareholders via the share buyback programme; with
- the increased need for capital expenditure on warehouses and systems to support the growth in Online sales. Despite the reopening of retail stores later this year, we felt that the pandemic has simply accelerated the shift to online shopping and we needed to ensure that we have sufficient capacity to meet future demand.
We recognised the importance of providing our shareholders with consistent and reliable dividend returns. However, with so much uncertainty around the course of the pandemic and its economic effects, we believed it was sensible and appropriate to suspend all capital returns to shareholders for the duration of 2020/21 to protect the Group’s balance sheet.