BALANCE SHEET, CASH FLOW, Special Dividends and Share Buybacks
Balance Sheet and Cash Flow at the Half Year
The balance sheet remains strong, with net debt of £571m financed by £788m of long term bonds and supported by £300m of undrawn committed bank facilities. Net debt was £38m higher than at July 2013.
The cash outflow for the half year was £54m; however this was after special dividends and share buybacks of £254m.
Estimated Cash Flow for the Full Year
Cash flow for the full year is likely to be broadly neutral as the Company continues its long term policy of distributing surplus cash to shareholders. Surplus cash is the cash remaining after paying interest, capital expenditure and ordinary dividends. For clarity, NEXT only returns cash to shareholders that we believe cannot be productively invested in the business and we always prioritise investment in the business over buybacks and special dividends.
Operational Cash Flow, Special Dividends and Buybacks
Operational cash flow remains strong with cash flow after interest, capital expenditure and ordinary dividends expected to be in the order of £330m for the full year. We have returned £223m to shareholders through three 50p special dividends, of which £149m was paid in the first half. In addition we have returned a further £105m through share buybacks. The table below summarises our cash flow estimates for the full year:
|
Full Year Estimates |
£m |
|
Cash flow from operations (e) |
+690 |
|
Interest (e) |
-30 |
|
Capital expenditure (e) |
-117 |
|
Ordinary dividends |
-213 |
|
Surplus Cash Flow (e) |
+330 |
|
Special dividends |
-223 |
|
Share buybacks (e) |
-105 |
|
Full Year Net Cash Flow (estimate) |
+2 |
Further Buybacks and Price Limit
In previous statements we have set out the criteria by which we would decide the maximum price the Company would pay to buy back shares. The Equivalent Rate of Return (ERR) is the return required from an alternative investment, if that investment were to produce the same level of earnings enhancement as the proposed buyback. We set the minimum ERR at 8%, which we consider a reasonable target return on equity investments.
For the year to January 2015 our mid-point profit guidance is £795m. On this basis a buyback of £300m at an ERR of 8% requires a share price of not more than £66 and this represents our current upper price limit for share buybacks.
The Company has now distributed our expected surplus cash flow for the current year. So we do not intend to pay a further special dividend this year. However, the Company has the financial capacity to buy back further shares and it may do so if the share price were to fall below our upper price limit and we judged such purchases to be in shareholders' interests.
ORDINARY DIVIDENDS
Last year we paid interim and final ordinary dividends totalling 129p. This year we anticipate paying a total of 150p, an increase of 16.3%, which on current profit guidance would maintain cover at 2.8 times.
One third of the anticipated full year dividend, that is 50 pence per share, will be paid as an interim dividend on Friday 2 January 2015. The shares will trade ex-dividend from 4 December and the record date will be 5 December.
In addition to these ordinary dividends, we have already paid three special dividends this year; 50 pence per share in each of February, May and August. We do not anticipate paying any further special dividends in the current year and will comment on the prospects for 2015 in our October Interim Management Statement.
