Next Plc
Summary
|
|
|
|
OUTLOOK FOR SALES, PROFIT, CASH FLOW AND EPS IN THE YEAR AHEAD
Sales and Profit Guidance for the Year Ahead
Our guidance for full price sales growth for the year ahead is +3.0%. At this level of sales growth, we anticipate Group profit would be £734m, up +1% on the current financial year. This guidance is based on a 52 week sales period. However, next year will be a 53 week year to 30 January 2021 and we expect the additional week of sales to generate approximately £13m of profit.
Cash Flow Guidance for the Year Ahead
Based on the guidance above we anticipate underlying surplus cash generation of £315m. This would be a £12m increase on our latest forecast for the current year. Underlying surplus cash is defined as cash generated in a 52 week period after deducting interest, tax (on the same basis as last year), capital expenditure and ordinary dividends, but before funding 15% of the increase in our nextpay receivables3.
In the year ahead, HMRC are accelerating Corporation Tax payments so that the full tax charge is paid in the year in which it is incurred. Previously, half of the tax payment was deferred until the following year. This change will result in an additional £70m cash outflow to HMRC. This has the effect of (1) reducing the Company's liability to HMRC by £70m and (2) increasing the Group's financial net debt by £70m. Our aim is to reduce this debt over a period of two years by reducing the distribution of surplus cash to shareholders by £35m in the years ending January 2021 and January 2022.
After taking account of the earlier tax payment and the profit generated from the 53rd week of sales, surplus cash available to shareholders for distribution during 2020/21 is expected to be £290m.
This cash flow assumes Group debt will increase by £14m to fund 85% of the increase in nextpay receivables. The Group's financial net debt (excluding the timing impact of the earlier payment of Corporation Tax) is forecast to increase by around +1% in line with the forecast growth in Group profit.
Surplus Cash and EPS
As usual, our intention is to return surplus cash to shareholders through share buybacks or special dividends. Our buyback share price limit will continue to be based on achieving a minimum 8% Equivalent Rate of Return (ERR) on shares purchased. As a reminder, ERR is calculated by dividing the anticipated pre-tax profits by the current market capitalisation of the Group. Based on our profit guidance for the year to January 2021 of £734m and our current number of shares in issue, our price limit for share buybacks would be £71.76.
We intend to return at least half of our surplus cash (£145m) to shareholders in the first half of the year. If we have not been able to acquire shares to the value of £145m in the first half of the year we intend to distribute the balance4 as a special dividend. We intend to use the same method for determining how we distribute surplus cash in the second half. As always, our decisions concerning buybacks or special dividends will be subject to market conditions and the interests of shareholders generally.
Our central guidance for sales, profits and EPS in the year ahead is set out in the table below. The EPS growth assumes that (1) we will be able to use all surplus cash to buy back shares at £71.76 and that (2) these will be purchased evenly throughout the year.