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Profit up in H1at NEXT Plc
Oct '11
Next Plc, UK based retailer, announced results for the year ended January 2011.

In a difficult year NEXT has proven resilient. Group revenue for the first half was 3.6% higher than last year and profit before tax was up 8.5% on a continuing basis. The business remains strongly cash generative and continued buyback of shares further enhanced growth in earnings per share, which were 18.6% ahead of last year. The interim dividend increases by 10% to 27.5p per share.

Financial highlights from our continuing business are as follows:
- Revenue up 3.6% to £1,565m
- Profit before tax up 8.5% to £228m
- Earnings per share up 18.6% to 98.3p
- Net debt of £640m and committed facilities of £918m
- Interim dividend up 10% to 27.5p per share

In a difficult year NEXT has proven resilient. In many ways 2011 has presented the perfect storm to the retail economy. On the buying front we experienced the first concerted rise in cost prices for nearly twenty years. This, combined with rising VAT, increased NEXT selling prices by around 7%. In a normal environment price rises would have supressed demand, but the consumer economy has been anything but normal.

Discretionary spending has been further squeezed by inflation in food and fuel, tight control of consumer credit, cuts in government expenditure and broadly stagnant wages. Against this background the NEXT Group has advanced sales, profits and earnings per share.

Our approach has been to focus on four primary objectives:
- The delivery of well stocked ranges, that reflect the latest fashion trends in a way that is accessible to our customers, whilst working hard to mitigate the effects of cost price inflation.
- Grow NEXT Retail sales through continuing to add profitable new space, with a particular focus on new large format Home stores.
- Grow NEXT Directory sales through profitably maximising the potential of our business online, both in the UK and overseas.
- Carefully manage our costs, capital expenditure and balance sheet, so that we can continue to return surplus cash through buying back shares and enhancing earning per share.

NEXT Brand sales (VAT exclusive) were towards the top end of our guidance at +3.2%, of which 2.8% came from new space. Profit before tax was up 8.5%. Our primary measure of success is sustainable long term growth in earnings per share. The business remains strongly cash generative and continued buyback of shares further enhanced growth in EPS, which were 18.6% ahead of last year.

Looking ahead to our full year results, we believe that VAT exclusive NEXT Brand sales for the year will be between 2.0% and 4.5% ahead of last year, which would result in NEXT Group profits being up between +0.4% and +8.7% and EPS up between +7.5% and +16.4%.

Early indications are that retail headwinds are likely to ease as we move into 2012. We have strong evidence that there will be little or no inflation in our own prices and it seems probable that other inflationary pressures will ease as commodity price rises begin to annualise in the first quarter of 2012.

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