Section 172 statement, stakeholders, director responsibilities

NEXT plc – Annual report – 25 January 2020

Industry: retail

SECTION 172 STATEMENT
This section describes how the directors have had regard to the matters set out in section 172(1)(a) to (f) Companies Act 2006 in exercising their duty to promote the success of the Company for the benefit of its members as a whole. In November 2018 the directors received training from external counsel to remind them of their duties and put the Board in a position where it could purposefully apply section 172 throughout the 2019/20 financial year.

Our stakeholders
The directors consider that the following groups are the Company’s key stakeholders. The Board seeks to understand the respective interests of such stakeholder groups so that these may be properly considered in the Board’s decisions. 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 courses of action.

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Having regard to the likely consequences of any decision in the long term
Within the fast-moving fashion retailing sector, the operational cycle is short and has become even shorter within recent years. Despite this, the Board remains mindful that its 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. During the year, in approving the Company’s budget the Board balanced:
• the need for capital expenditure on new and existing stores, warehouses and systems to support operational performance; with
• a desire to remain resilient to risks, attract and retain long term investors by maintaining a progressive dividend policy and to return surplus capital to shareholders via the continuing share buyback programme.

Having regard to the interests of the Company’s employees
The Board takes active steps to ensure that the suggestions, views and interests of the workforce are captured and considered in our decision-making.

NEXT benefits from having a Chief Executive and three other executive directors who have served with the Company as employees and, latterly, as directors over a period of 20 to 30 years. They all therefore perform a high degree of personal oversight and engagement in the Group’s affairs. This knowledge of the business and active style of engagement means our executive directors maintain an exceptionally acute insight into the mood, culture and views of the workforce, which they are then able to report on to the wider Board.

Employee engagement
NEXT has a number of effective workforce engagement mechanisms in place across the Group:

• Employees are kept informed of performance and strategy through regular presentations and updates from members of the Board
• The executive directors attend key business meetings throughout the year, including weekly trading and capex meetings, monthly international sales meetings, and presenting financial results to Head Office employees
• Employee engagement surveys are undertaken covering the vast majority of the workforce, and the results are reported to the Board
• The Chairman and other non-executive directors attend meetings with employees, including:

– Product Training Days and visits to stores and warehouses as a Board as well as individual director visits
– the attendance by a non-executive director, alongside the Chief Executive and the Group HR Director, at meetings of the Group’s Workforce Focus Forums with workforce representatives (these are workforce advisory panels as referred to in the Corporate Governance Code). This allows effective engagement and open discussion on the key business issues, policies and the working environment in different parts of the business, with actions agreed on issues raised

• During the year a new online tool was put in place to facilitate ongoing, meaningful performance and development conversations between managers and teams. The tool also provides a forum for positive and constructive feedback by individuals, peers and managers. Around 3,000 employees are currently using the tool; it will be rolled out more widely during 2020

The Group HR Director attends 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 including on safety performance, safety risk management and mental health wellbeing initiatives.

Diversity
Putting diversity and inclusion on the agenda helps the business to attract, retain and develop the best talent from every walk of life. During the year we:
• Trialled making certain roles part-time to work around school drop-off and pick-up times
• Worked towards enhancing the support offered to working parents under our Moments That Matter project
• Created a working party comprising individuals from the Online and IT teams to champion the attraction and development of female talent in technology
• Signed up to Level 1 of the Disability Confident Scheme which supports employers to make the most of the talents disabled people can bring to the workplace

Case study – Retail store contract consultation
During the year, the Board considered a number of matters where it was important to be mindful of the interests of employees. One example of this was with regard to a number of store closures considered in the year, where the Board was assured of the Group’s approach of seeking to minimise redundancies of affected store staff and, wherever possible, to offer alternative employment in other stores.

A consultation process proposal was also considered in detail by the Board. A key objective of the proposal was to re-set the base contracts in retail stores with the least disruption to all staff. The Board considered the interests of employees, concluding that there would be a reduced overall impact on employees when considered against more disruptive alternatives, and some positive employee benefits in terms of more certainty over working hours to aid the smooth running of stores.

The Board also concluded that, due to the impacts being spread across a geographically dispersed network, there would be minimal impact to customers, local communities and suppliers.

Having regard to the need to foster the Company’s business relationships with suppliers, customers and others

Suppliers
Throughout the year the Board was briefed on 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. The Board seeks to balance the benefits of maintaining strong partnering relationships with key suppliers alongside the need to obtain value for money for our investors and the desired quality and service levels for our customers. See also below with regard to ethical trading and our focus on suppliers as part of maintaining a reputation for high standards of business conduct.

Customers
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 of consumer sentiment and the market view. 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: store closures and new openings; capital expenditure on stores and warehouses; a new credit product from NEXT Finance and major freight forwarding and parcel delivery contracts.

Regulators
Our Finance business is regulated by the Financial Conduct Authority in respect of the provision of consumer credit. As a responsible authorised company, we seek always to cooperate 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 CFO 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 bank syndicates, bond trustees and credit rating agencies, and for the Group’s cash/debt management and financing activities. The Group Finance Director provides regular reports to the Board on these activities including the Company’s plans to ensure appropriate access to debt capital, monitoring the headroom and maturity schedules of our primary credit facilities. The Board approves the Company’s Treasury Policy annually.

During the year the Board approved: a debt substitution transaction between the Company and its subsidiary Next Group plc that increased the amount of reserves available for distribution to shareholders without prejudicing debt providers; the issue of a new £250m bond; and share hedging strategies in respect of the Group’s employee share plans. The Board carefully considers the Group’s cash position and forecasts when making decisions on capital allocation, the Company’s dividend policy and its share buyback programme.

Having regard to the impact of the Company’s operations on the community and the environment
The Board supports the Company’s goals and initiatives with regard to reducing adverse impacts on the environment and supporting the communities that it touches. Please see pages 70 and 71 of our Corporate Responsibility Report for details. The Board intends to give further consideration in 2020 to the Company’s approach to climate change and further measures we can take to contribute to the reduction of our impact on the environment.

Having regard to the desirability of the Company maintaining a reputation for high standards of business conduct

Corporate governance
The Board recognises the importance of operating a robust corporate governance framework, and you can read about how we comply with the UK Corporate Governance Code and our approach to governance in our Corporate Governance Report on pages 83 to 89.

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 reports to the Board on such topics as appropriate. During the year the Board approved the Group’s third Modern Slavery Transparency Statement, published at http://www.next.co.uk.

Political donations
No donations were made for political purposes (2019: £nil).

See also the description of the Company’s approach to engaging with Regulators on the previous page.

Having regard to the need to act fairly as between members of the Company
The Company has just one class of share in issue and so all shareholders benefit from the same rights, as set out in the Company’s articles of association and the Companies Act 2006. The Board recognises its legal and regulatory duties, including under the EU Market Abuse Regulation, and 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.

Shareholder engagement
During the year, the Chief Executive and Group Finance Director regularly held one-to-one meetings, calls, roadshows and conferences with institutional investors. The Chairman and Senior Independent Director (who is also the Remuneration Committee Chairman) also engaged with certain major shareholders by way of meetings and calls. There is also regular communication with institutional investors by the Company Secretary and senior management.

During 2019, we have engaged with investors on a range of topics, including:
• Governance including Board composition
• Executive remuneration and our proposed new Directors’ Remuneration Policy – see pages 100 to 110
• 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 Company’s largest shareholders are invited to the annual and half year results presentations, at which executive and non-executive directors are present
• 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 continuation of our share buyback programme.