NEXT plc – Annual report – 29 January 2022
SECTION 172 STATEMENT
This section describes how we have engaged with and considered 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 NEXT. 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.
Each of our executive directors joined NEXT as employees over 25 years ago, prior to being promoted to the Board. 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. The Board also engages in the following ways:
- Annual Recruit, Reward and Retain 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 the announcements of our trading results.
- Visits to stores and warehouses.
- Online performance, development and feedback tools.
Engagement with our employees has never been more vital to the success of our business. In another year of uncertainty, we continued to engage with our workforce about their health and safety as COVID restrictions were lifted and workers were encouraged back to their usual work locations.
Recruit, Reward and Retain forums
During the year we held our annual Recruit, Reward and Retain (RRR) workforce forums. These meetings form the workforce advisory panels as referred to in the UK Corporate Governance Code. 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 of the business. These meetings offer our employees the chance to voice their opinions on the issues that are important to them. 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 2021 included:
- Assessing the onboarding experience of new starters through remote working at Head Office.
- Phased return of staff engagement activities and rewards which were paused through our early navigation of the pandemic.
- Internal communications and support for return to work with enhanced safety measures and promotion of vaccination.
- Analysis of engagement surveys and exit interview data to better understand our culture and identify areas for improvement.
The matters raised at the 2020 forums have been addressed, including a roll out of working from home principles and new training for interviewers to improve candidates’ experience of video interviews.
Our RRR forums are supplemented by Communication In Action (CIA) meetings which take place regularly throughout the year. Each business function and area has a nominated CIA representative, and employees are able to submit question to RRR forums via CIA meetings. One purpose of CIA meetings is to agree initiatives coming out of the RRR forums.
Employee engagement surveys
In 2021, we undertook an employee engagement survey across the majority of our business. The survey was sent to nearly 40,000 employees and response rates were very good.
Respondents overwhelmingly told us they felt proud to work for NEXT, and that they felt safe at work. Employee sentiment was positive about expressing ideas and beliefs at work, and being recognised for doing a job well. We received feedback that the quality of coaching and development of employees varied. The Board considered the results of the survey and the HR initiatives underway to address the matters raised, such as plans to increase headcount in the Training and Development teams to strengthen our offering in this area.
Continuous performance management and feedback
Our online performance and development tool provides a forum for positive and constructive feedback by individuals, peers and managers.
The Group HR Director attended a meeting of the Board to brief the directors on employee-related matters, including workforce demographics, engagement activities, the results of employee engagement, staff retention rates, diversity, 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.
Case study: workforce
During the year the Board had to consider significant matters where it was important to be mindful of the interests of employees. One such matter relates to our colleagues in our Technology department.
Technology has become crucial to the development of NEXT’s business and we now employ as many people in our Technology teams as we do in our Buying and Merchandise departments. Our developer resource is now around 500 employees and, in total, our Technology team has grown to over 1,000. During the year, the Board reviewed the Technology grading structure, career paths, benefits and starting salaries. The aim is to create an environment where good people can advance their careers in a department teeming with opportunities.
Our relationships with suppliers, customers and others
Throughout the year the Board approved major contract renegotiations and strategy with regard to key suppliers, notably with the Group’s Online orders home delivery service provider, new warehouse suppliers, providers of freight forwarding services, and with certain landlords. 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 103 to 104.
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 NEXT Online platform.
With the interests of customers in mind, during the year the Board reviewed proposals in respect of plans to reopen stores following enforced closure, compliance with Government guidance on health and safety measures in-store, capital expenditure on warehouses and major freight forwarding and customer order delivery contracts.
The business is subject to a wide range of regulations. Of particular note is our Finance business which 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 in-house 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 any adverse impact of our business on the environment and the communities in which we operate. The ways in which we engage with these communities are set out in more detail on page 107 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. Details can be found on pages 90 to 100 of the Corporate Responsibility Report.
Doing the right thing – maintaining high standards of business conduct
We have a robust corporate governance framework in place, details of which are set out in our Corporate Governance Report on pages 119 to 125.
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 103 to 105 as well as our standalone Corporate Responsibility Report which is available on our corporate website.
No donations were made for political purposes (2021: £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 2021 we engaged with investors on a range of topics including:
- Governance including Board composition.
- Executive remuneration.
- Human rights and ethical trading.
- The environment, sustainability and responsible sourcing.
- Company performance against its strategy.
- Repayment of business rates relief.
- Resumption of dividends.
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 resumption of dividends.
Long term decisions
Within the fast-moving fashion retail 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 balances:
- 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. The pandemic has accelerated the shift to online shopping and we need to continue 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 and in July 2021 and January 2022 the Board declared special interim dividends. We have also confirmed that, in the year ahead, we will return to our pre-pandemic ordinary dividend cycle.