24th May 2005 07:02
Burberry Group PLC24 May 2005 PART 1 Burberry Group plc 2004/05 Preliminary Results 24 May 2005. Burberry Group plc reports preliminary results for its financialyear to 31 March 2005. Financial Highlights • Total revenues increased 10% on an underlying(1) basis, 6% reported - Retail sales increased 8% underlying, 3% reported - Wholesale sales increased 9% underlying, 6% reported - Licensing revenue increased 19% underlying, 17% reported• Gross profit margin increased from 57.9% to 59.3%• EBITA(2) margin expanded from 21.1% to 23.1%• EBITA increased by 16% to £165.5 million• 19% increase in diluted EPS (before goodwill amortisation and exceptional gain) to 23.0p• 50% increase in final dividend to 4.5p per ordinary share (6.5p for full year)• Commenced £250 million share repurchase programme with £58 million completed as of 31 March 2005 Strategic and Operating Highlights • Launched major infrastructure redesign initiative - £18 million investment in year one - £50 million aggregate investment over three years - £20 million annual benefits by year three• Enhanced design authority and brand presence through critically acclaimed Prorsum collections• Opened 12 directly operated retail locations and completed important store renovations• Extended presence in China and other emerging markets with 10 franchise store additions• Finalised plans with respect to non-apparel licences in Japan• Launched highly successful Burberry Brit for Men and Burberry Brit Red fragrances under attractive new licensing agreement Summary of Results Year to 31 March ----------------------------- 2005 2004 (Restated(3)) £m £m ------- --------Turnover 715.5 675.8Operating profit before goodwill amortisation andexceptional gain (EBITA) 165.5 142.6Exceptional gain (4) 0.8 2.2Profit before taxation 164.4 140.3Profit after taxation 109.9 93.0Diluted EPS before goodwill amortisation and 23.0p 19.4pexceptional gainDiluted EPS 21.8p 18.4p------------------------ ------- -------- NOTES:(1) Underlying figures are calculated at constant exchange rates(2) EBITA represents operating profit before interest, taxation, exceptionalgain and goodwill amortisation(3) The results for 2003/04 have been restated following the adoption of FRS 17,"Retirement Benefits" relating to pensionsaccounting(4) The £0.8 million pre-tax exceptional gain in the year ended 31 March 2005relates to lapsed awards under the IPO SeniorExecutive Restricted Share Plan (2003/04: £2.2 million) John Peace, Chairman of Burberry, commenting on the preliminary results: "Thismarks another successful year for Burberry. Over Burberry's almost three yearsas a public company, revenue has grown over 40% while EBITA increased in excessof 80%." Rose Marie Bravo, Chief Executive, stated: "Burberry and its management teamsucceeded across a broad range of strategic and financial objectives during 2004/05. Together, we look forward to the current year with confidence whilecontinuing to execute our growth strategies and launching a major infrastructureredesign initiative in order to generate value for shareholders over the longterm." Management will discuss these results during a presentation to analysts andinstitutional investors at 1:00pm today in London at the Merrill Lynch FinancialCentre, The Auditorium. The presentation will also be broadcast live on theInternet at www.burberryplc.com and can be accessed by telephone at 020 70817194 (UK) and 866 432 7186 (US). The webcast and telephone call will beavailable for replay. Telephone replay: +44 (0) 20 7081 9440, replay accessnumber 299766. Enquiries: Burberry 020 7968 0577Stacey Cartwright CFOMatt McEvoy Strategy and IRJohn Scaramuzza Strategy and IR Brunswick 020 7404 5959Susan GilchristLaura CummingsRobert Gardener Certain statements made in this announcement are forward looking statements.Such statements are based on current expectations and are subject to a number ofrisks and uncertainties that could cause actual results to differ materiallyfrom any expected future results in forward looking statements. This announcement does not constitute an invitation to underwrite, subscribe foror otherwise acquire or dispose of any Burberry Group plc shares. Pastperformance is not a guide to future performance and persons needing adviceshould consult an independent financial adviser. Chief Executive's Review Burberry delivered a strong performance for the year to 31 March 2005. The Groupincreased diluted EPS (before goodwill amortisation and exceptional gain) by 19%on a 10% gain in underlying revenues (ie. at constant exchange rates). Whileprogressing its strategic and operational priorities, the Group continued toenhance profitability through close attention to margin. These results reflectthe sustained efforts of Burberry's management team and the balance anddiversity of the Group's business across products, channels and regions. Strategic and Operating ProgressKey strategic highlights include: Products. Burberry's product design, development and merchandising teamsproduced notable achievements during the year. • Womenswear. The Prorsum collection was the highlight of the year in Burberry's womenswear business. Both the Spring and Autumn 2005 Collections won outstanding critical acclaim - both rated among the top ten collections of the season by Women's Wear Daily, a leading fashion industry publication. Prorsum's distinctive style statement and the substantial editorial presence it generates assert Burberry's design authority and strengthen the brand's presence among luxury consumers. In the core London collection, the Group continued to refine the balance among classic and fashion styles and develop greater product depth to serve Burberry's expansion in warm-weather regions of the world. Responding to the strong consumer appetite for a continuous selection of new merchandise, the womenswear team further structured the collections to increase the frequency of fresh product flowing to retail selling floors. Womenswear revenue increased 11% underlying during the year and comprised 34% of revenue. • Accessories. New styles drove the 8% underlying growth in accessories for the year. New contemporary handbag designs, including the highly successful Prorsum Cinda bag, led growth in this category. Updated styling, including the Candy and Blue Bell adaptations of Burberry's iconic check pattern, refreshed Burberry's classic handbag collection. Efforts to expand and update small leather goods and gift categories produced strong sales gains in the year. The Group increased its investment in shoe design and technical resources, and is excited about the sizeable opportunity the women's shoe category presents for Burberry. Accessories comprised 26% of revenue for the period. • Menswear. Consistent with Burberry's research on shopping patterns within its stores, menswear product design and development concentrated on intensification of key merchandise classifications during the year. The team added options in colour, pattern, silhouette and fabric in core menswear categories, including jersey and knitwear. Similarly, in line with the brand's heritage, the menswear team upgraded and expanded the selection of performance and technical outerwear through the development of new fabrics and broader selections of styles and colours. The Group is adjusting its in-store merchandise presentation to reflect these classification intensification strategies. Menswear sales also benefited from the broad trend toward more sartorial dressing. Menswear revenue increased 6% underlying during the year and comprised 27% of revenue. Channels. The Group continued to execute its core retail, wholesale andlicensing strategies. • Retail. Investment in retail growth continued on plan. The Group opened five Burberry stores in the year, including stores in the US (4), Europe (1), and seven concessions. The opening of the Rome location, on Via Condotti, in autumn 2004 was a highlight. In combination with the Milan store, Burberry now has an excellent retail presence in the important Italian market. Several key stores underwent refurbishment during the year, including the San Francisco, Boston and Paris stores. Three additional US stores commenced refurbishment activity in January and are scheduled to reopen by June 2005. At March 31 2005, approximately 80% of Burberry's retail selling space had either been newly added or refurbished in the past four years. This global network of 157 directly operated retail locations provides a powerful platform to showcase the depth of Burberry's luxury offering, respond quickly to consumer demand trends and gain market intelligence through testing and customer interaction. On a year on year basis, total selling space increased approximately 7%, 9% on average. • Wholesale. Through Burberry's wholesale operations, the Group extended its presence in both emerging and developed markets. In China, among Burberry's most dynamic markets, the Group in conjunction with its local partner added six franchise stores in the year, including a 6,200 square foot flagship store in Beijing's Oriental Plaza. At 31 March 2005, 35 franchise stores, spanning 22 cities were operating in China. Outside Asia, four franchise stores were added across developing regions, including Russia, Latin America and the Middle East. In developed markets, Burberry continued to concentrate on its key accounts and selectively to add fashion retailers consistent with the brand's increasing visibility. Going forward, in light of ongoing retail expansion, the Group will continue to evaluate wholesale distribution with the objective of maintaining an optimal balance with Burberry's retail network. • Licensing. The Group works closely with its licence partners to facilitate the coherent expression of the Burberry brand across product categories. In watches, that collaboration produced excellent results during the year. The iconic charm bracelet watch was a notable success, while the watch line overall achieved strong sales and editorial presence. Fragrance had another successful year. Outstanding response to the launches of Burberry Brit for Men and Burberry Brit Red fragrances, augmented by ongoing strength from existing fragrance lines, drove strong revenue gains. In recognition of these efforts, the Group received six international Fragrance Industry Foundation awards. Also during the year, Burberry entered into a new fragrance licence with its existing partner. The terms of the new agreement provide for a substantially enhanced royalty rate and an increased marketing commitment on the part of the partner relative to the previous agreement. The new agreement also defines an organisational structure more aligned with Burberry's requirements, which will enable future development of this successful business. Regions. Burberry continued to extend its global reach and achieved strongresults across its trading regions during the year. • US. US revenues increased 11% underlying, fuelled by the addition of four stores in Charlotte, North Carolina; King of Prussia, Pennsylvania; Scottsdale, Arizona; and Boca Raton, Florida. Wholesale sales growth resulted primarily from continued intensification with Burberry's key accounts. The launch of Burberry's ecommerce site in the lead up to the holiday season experienced a favourable response, with iconic products and gift categories proving popular. This new channel extends Burberry's reach into smaller markets and broadens the brand's customer base. • Europe. Growing 4% underlying, Europe's revenue performance varied by market. Strong gains in Continental European markets were balanced by softer sales in the more developed markets of Spain and the UK. Italy, a large market for the Group, benefited from the recently opened Burberry stores in Milan and Rome. In Spain, the management team undertook several key initiatives designed to strengthen brand positioning in the domestic market. The team reorganised the sales function and opened new and expanded showrooms to improve service to wholesale customers. The team also opened five accessory concessions in the department stores of its core customer. Response to these concessions is encouraging, and the Group plans to open additional locations in 2005/06. In the ongoing evolution of its relationship with this primary customer, the Group will also explore opening apparel concessions in the future. • Asia. Growing 19% underlying, sales in Asia benefited from recent store openings, including partner operated franchise stores, and strong demand from Chinese consumers. Greater China, comprising China and Hong Kong achieved strong gains, accounting for approximately 6% of Burberry's revenues for the year. In Korea, newly opened Burberry children's (3) and golf (1) concessions performed well, and the Group plans to open a similar number of concessions in this market in 2005/06. • Japan. Burberry achieved good progress in Japan during the year. Recent efforts to upgrade brand positioning have demonstrated tangible results in terms of enhanced product design and quality and improved distribution. This work is ongoing, particularly with respect to distribution. Licence transitions initiated previously are beginning to gain momentum. In watches, for example, products from Burberry's global partner replaced local products. At the same time, Burberry finalised plans with respect to its non-apparel licenses in this market. The Group renewed licenses in domestically oriented categories, including home products and hosiery, often on improved terms. Burberry is also looking forward to its plans to launch direct distribution of imported accessories in Japan. In autumn 2006, Burberry plans to distribute selectively a limited range of accessories from its international collection, including women's handbags, small leather goods and silks. This strategy offers attractive opportunities for Burberry over the long-term in Japan's substantial luxury market. Financial Highlights Burberry achieved strong financial performance during the year. Turnoverincreased 6%, 10% at constant exchange rates, to £715.5 million. Gross marginexpanded from 57.9% to 59.3%. This gross margin increase coupled with expenseleverage resulted in EBITA* margin expansion from 21.1% to 23.1%. EBITA beforeexceptional gain increased 16% to £165.5 million and diluted EPS (beforegoodwill and exceptional gain) grew 19% to 23.0p. The directors have proposed a50% increase in the final dividend to 4.5p, resulting in a total dividend for2004/05 of 6.5p, a 44% increase. Plans for 2005/06 In line with the ongoing execution of its core growth strategies, Burberry'splans for the 2005/06 financial year include: • An approximate 8% increase in net retail selling area through the addition of new stores and concessions and expansion of existing stores. In the first quarter to date, consumer response to spring collections continues to be muted in certain markets. • First half wholesale sales broadly flat relative to the previous year based upon orders received to date for the Autumn/Winter 2005 season. • More moderate licensing revenue growth relative to the second half of 2004/05. Revenues from Japan are expected to decline moderately for the year as a result of Burberry's programme to reduce selectively the distribution of certain products in this market, a soft apparel environment and planned licensee cancellations/transitions. Global licensees are expected to continue to produce strong gains. • Capital expenditures are planned to total between £35 and £40 million. Infrastructure Redesign Moving into 2005/06 and beyond, Burberry is launching a major programme toredesign its business processes and systems, creating a substantially strongerplatform to support the long-term operation and growth of the Group. Scheduledto span five years, the project is designed to address key support areas of thebusiness which have become inconsistent with the substantial expansion of itssize and scope across product areas, regions of the world and channels ofdistribution during the past several years. Areas targeted for upgradinginclude: • Supply chain. Improving Burberry's supply chain is a key objective of the programme. Burberry sees substantial benefits from upgrading and integrating its spectrum of functions: from raw material procurement, to sourcing of finished goods, to distribution of products to own stores and wholesale customers. • Information integration and transparency. The project involves the installation of a company-wide ERP (enterprise resource planning) system as well as the implementation of a consistent and updated retail information system across Burberry's global store network, replacing a variety of non-integrated information systems today. As a result of these upgrades, employees throughout the organisation will have access to more timely and comprehensive information with which to operate the business. *EBITA represents operating profit before interest, taxation, exceptional itemsand goodwill amortisation. • Support services. The programme is also structured to develop more effective tools and organisation structures across the Group's broad range of global support services. The large majority of required capital is scheduled to be invested during theinitial three years of the project. Over that period, the Group expects toinvest approximately £50 million in associated expenses and capitalexpenditures, with approximately £18 million invested in 2005/06. Key areas ofinvestment include hardware and software purchases and related implementationexpenses and the addition of people to manage and execute the process andorganisation changes. Approximately 85% of the investment is expected to bedirectly expensed, with the remaining 15% capitalised. In its third year (2007/08), the programme is expected to generate over £20 million annually in directexpense savings across the supply chain and general and administrative costs.These benefits are expected to be greater in future years. Key sources ofexpense savings include improved supplier management, improved productdevelopment processes and more efficient non-stock procurement procedures.Beyond costs, through enhanced decision-making and improved ability to respondto market dynamics, the project is expected to produce substantial revenue andmargin benefits. Costs associated with investment in new business processes and systems willaffect reported earnings per share over the next three years. However, existingrevenue growth and profitability enhancement initiatives, combined with theimpact of the share repurchase programme should allow the Group to continue todeliver strong underlying growth in EPS over the three year period. Conclusion Burberry's strong performance in the year reflects the dedication of ourmanagement and employees who share a passion for the Burberry brand and itsunique position in the luxury goods market, the commitment of licensing partnersand the support of wholesale customers. Together, we look forward to the currentyear with confidence, continuing to execute our growth strategies whileinvesting in business infrastructure in order to generate value for shareholdersover the long term. Financial Review Group Results Year to Percentage Year to Percentage 31 March 2005 of turnover 31 March 2004 of turnover (Restated(1)) £m % £m %---------------------- ------- -------- -------- -------- TurnoverWholesale 371.9 52.0% 351.4 52.0%Retail 265.2 37.1% 257.4 38.1%Licence 78.4 11.0% 67.0 9.9%---------------------- ------- -------- -------- -------- Total turnover 715.5 100.0% 675.8 100.0%Cost of sales (291.3) (40.7%) (284.2) 42.1%---------------------- ------- -------- -------- -------- Gross profit 424.2 59.3% 391.6 57.9%Net operatingexpenses beforegoodwillamortisation andexceptional gain (258.7) (36.2%) (249.0) (36.8%)---------------------- ------- -------- -------- -------- EBITA 165.5 23.1% 142.6 21.1%Goodwillamortisation (6.8) (1.0%) (6.8) (1.0%)Exceptional gain (2) 0.8 0.1% 2.2 0.3%---------------------- ------- -------- -------- -------- Profit beforeinterest andtaxation 159.5 22.3% 138.0 20.4%Net interestincome 4.9 0.7% 2.3 0.3%---------------------- ------- -------- -------- -------- Profit on ordinaryactivities beforetaxation 164.4 23.0% 140.3 20.8%Tax on profit onordinaryactivities (54.5) - (47.3) ----------------------- ------- -------- -------- -------- Profit on ordinaryactivities aftertaxation 109.9 15.4% 93.0 13.8%---------------------- ------- -------- -------- -------- Diluted EPS beforegoodwillamortisation andexceptional gain 23.0p 19.4pDiluted EPS 21.8p 18.4pBasic EPS 22.2p 18.8p---------------------- ------- -------- -------- -------- Diluted weightedaverage number ofOrdinary Shares(millions) 504.6 505.9---------------------- ------- -------- -------- --------NOTES:(1) The results for 2003/04 have been restated following the adoption of FRS 17,"Retirement Benefits" relating to pensions accounting(2) The £0.8 million pre-tax exceptional gain in the year ended 31 March 2005relates to lapsed awards under the IPO Senior Executive Restricted Share Plan(2003/04: £2.2 million) Burberry Group turnover is composed of revenue from three channels ofdistribution: wholesale, retail and licensing operations. Wholesale revenuearises from the sale of men's and women's apparel and accessories to wholesalecustomers worldwide, principally leading and prestige department stores andspeciality retailers. Retail revenue is derived from sales through the Group'sdirectly operated store network. At 31 March 2005, the Group operated 157 retaillocations consisting of 59 Burberry stores, 74 concessions and 24 outlet stores.Licence revenue consists of royalties receivable from Japanese and productlicensing partners. Comparison of the year ended 31 March 2005 to the year ended 31 March 2004 Turnover Total turnover advanced to £715.5 million from £675.8 million in the comparativeperiod, an increase of 6%, or 10% underlying (ie. at constant exchange rates). Total retail sales increased 3% (8% underlying) to £265.2 million, driven bycontributions from newly opened stores. During the year, the Group opened fourstores in the US, one in Europe and seven concessions. Sales growth varied bymarket. As the result of a muted initial response to seasonal collections,particularly outerwear, deliberately restrained outlet stores sales andrenovation activity in a number of key stores, sales growth in the US was drivenby an increase in retail space. In Europe, Continental markets generallyperformed well, while the UK was soft. In Asia, Korea posted a modest gainnotwithstanding a volatile retail environment. Hong Kong experienced vigorousgrowth throughout the year, while Southeast Asia, boosted by new stores,achieved strong gains. Total wholesale sales advanced 6% (9% underlying) to £371.9 million during theyear, resulting from the contribution of double digit revenue gains for theAutumn/Winter 2004 season and mid single digit gains for the Spring/Summer 2005season. The US achieved solid growth, driven by ongoing intensification of keyaccounts. In Europe, strong gains in the under-penetrated markets of Italy,France, Benelux and Germany were balanced by softer sales in the more developedmarkets of Spain and the UK, resulting in an overall flat performance for theyear. Asia, fuelled by the addition of six new franchise stores in China andstrong demand from Chinese travellers, achieved substantial gains. Sales toother emerging markets achieved strong gains, partially driven by the additionof four franchise stores in new and existing markets. Licensing revenues in the year increased 17% (19% underlying) to £78.4 million,driven by strong gains from global licenses. Fragrance related revenuesincreased substantially in the period with growth driven primarily by successfulnew fragrance launches and improved terms under the new licence agreement. InJapan, a decline in volumes arising from the soft apparel spending environment,licensee cancellations/transitions and Burberry's programme to reduceselectively the distribution of certain products was offset by an increase incertain royalty rates and the reduction in management fees payable with respectto specific licenses. Operating profit Gross profit as a percentage of turnover expanded to 59.3% in the year from57.9% in the comparative period. This increase was driven primarily by pricingand sourcing gains and an increase in licensing's share of the revenue mix. Operating expenses as a percentage of turnover improved to 36.2% from 36.8% inthe comparative period. This decrease primarily results from a one-timeaccelerated depreciation charge in the previous year; in the current year, theGroup returned to a more normalised level of depreciation. Burberry alsobenefited from operating leverage as a result of the Group's expanded anddiversified revenue base, partially offset by additional investment ininfrastructure and marketing to support growth of the business. Following theadoption of FRS 17, "Retirement benefits", the Group now accounts for itspensions on a defined benefit basis. Previously the charge to operating expenses was based on contributions made inthe various schemes. The impact on 2003/04 is to reduce net operating expensesby £1.4 million. As a result of these factors, EBITA increased by 16% to £165.5 million, or 23.1%of turnover relative to 21.1% in the previous period. Exchange rate movementsreduced reported EBITA by £4.9 million. Goodwill amortisation was £6.8 million, in line with the comparative period. In 2004/05, the Group recorded a £0.8 million exceptional gain on the lapsing ofshare awards under the IPO Senior Executive Restricted Share Plan and employers'National Insurance liability arising on the awards. An equivalent gain of £2.2million was recorded in the comparative period. Profit before interest and taxation increased 16% to £159.5 million, or 22.3% ofturnover from 20.4% in the comparative period. Net interest income Net interest income was £4.9 million in the year to March 2005 compared to £2.3million in the prior period, as a result of larger cash balances throughout thecurrent year. Profit before taxation As a result of the above factors, Burberry reported profit before taxation of£164.4 million in the year to March 2005 compared to £140.3 million in the priorperiod. Profit after taxation The Group reported a 32.0% tax rate (2003/04: 32.3%) on profit before goodwillamortisation and exceptional gain for the full financial year resulting in a£54.5 million tax charge. The rate continues to be above the UK statutory taxrate primarily as a result of the Group's operations in higher tax ratejurisdictions. Profit after tax for the period increased 18% to £109.9 million. Diluted earnings per share before goodwill amortisation and exceptional gainincreased 19% to 23.0p in the year compared to 19.4p in the prior period. In theyear to March 2005, the Group had 494.1 million (2003/04: 495.6 million)Ordinary Shares in issue on average for the purposes of calculating basicearnings per share and 504.6 million (2003/04: 505.9 million) Ordinary Shares inissue on average for the purposes of calculating diluted earnings per share. Anaverage of 6.2 million (2003/04: 4.6 million) Ordinary Shares held by theGroup's Employee Share Ownership Trusts are excluded for the purposes ofearnings per share calculations. Liquidity and Capital Resources Summary Group Balance Sheet As at 31 March As at 31 March 2005 2004 (Restated)(1) £m £m----------------------------- ------------ ------------ Fixed assetsIntangible fixed assets 107.9 111.4Tangible fixed assets 166.1 149.8Fixed asset investments 0.1 0.1----------------------------- ------------ ------------ 274.1 261.3 Current assetsStock 102.5 89.5Debtors 135.7 126.2Cash and short term deposits 169.9 158.7----------------------------- ------------ ------------ 408.1 374.4 Creditors - amounts falling duewithin one year (207.8) (163.8)----------------------------- ------------ ------------ Net current assets 200.3 210.6----------------------------- ------------ ------------ Total assets less currentliabilities 474.4 471.9Creditors - amounts falling dueafter more than one year (14.8) (35.4)Provisions for liabilities andcharges (3.2) (5.1)Pension obligations (1.8) (2.0)----------------------------- ------------ ------------ Net assets 454.6 429.4----------------------------- ------------ ------------ Total Shareholders' Funds 454.6 429.4----------------------------- ------------ ------------NOTES:(1) The results for 2003/04 have been restated following the adoption of FRS 17,"Retirement Benefits" relating to pensions accounting and for UITF38,"Accounting for ESOP Trusts." Cash Flow and Net Funds Historically, Burberry's principal uses of funds have been to supportacquisitions, capital expenditures and working capital growth in connection withthe expansion of its business. Principal sources of funds have been cash flowfrom operations and financing from the Group's former 100% owner, GUS. Burberryexpects to finance the expansion of it business, capital expenditures includingstrategic infrastructure investments and share repurchases with existing cashbalances, cash generated from operating activities, and where necessary, the useof its credit facilities. The table below sets out the principal components of cash flow for the years to31 March 2005 and 31 March 2004 and net funds at the period end: Year to 31 Year to 31 March 2005 March 2004 (Restated) £m £m----------------------------- ------------ ------------ Operating profit beforeinterest, taxation, goodwillamortisation and exceptional gain 165.5 142.6Depreciation and relatedcharges 24.4 28.5(Profit)/loss on disposal offixed assets and similar items (1.1) 1.7Charges in respect of employeeshare incentive schemes 5.3 3.6Increase in stocks (12.8) (7.5)Increase in debtors (7.3) (1.5)Increase in creditors 1.5 18.2 ----------------------------- ------------ ------------ Net cash inflow from operatingactivities 175.5 185.6----------------------------- ------------ ------------ Net interest income 4.7 2.2Taxation paid (49.5) (49.5)Net purchase of fixed assets (34.1) (28.8)Acquisition related payments - (2.5)Net purchase of own shares (65.3) (6.6)Issue of Ordinary Sharecapital 4.4 0.9Equity dividends paid (24.9) (17.3)----------------------------- ------------ ------------ Movement in net fundsresulting from cash flows 10.8 84.0----------------------------- ------------ ------------ Exchange gains/(losses) 1.2 (5.7)----------------------------- ------------ ------------ Movement in net funds 12.0 78.3----------------------------- ------------ ------------ Net funds at end of year 169.9 157.9----------------------------- ------------ ------------ Cash Flows Net cash inflow from operating activities was £175.5 million in the year to 31March 2005 compared to £185.6 million in the previous period. Stock levels grewby £12.8 million, resulting from growth of the business. The £7.3 millionincrease in debtors was driven by seasonal growth of trade receivables andtiming of prepayments. Depreciation, impairment and related trademark amortisation charges amounted to£24.4 million in 2004/05 compared to £28.5 million in the previous period.Contributing to this decrease, was an accelerated depreciation charge withrespect to certain assets incurred in 2003/04; the Group returned to a morenormalised level of depreciation in 2004/05. Net fixed asset purchases of £34.1 million (2003/04: £28.8 million) primarilyreflect continued investment in the Group's retail and wholesale operationsincluding the opening of new stores and refurbishment activity. While the Groupmaintained the pace of store openings as in the comparative period, the increaselargely reflects differences in the actual timing of cash outlays and types ofretail investments between the two periods. Capital expenditures are expected tototal between £35 and £40 million in 2005/06. In line with its risk management policy, Burberry has continued to hedge itsprincipal foreign currency transaction exposures arising in respect of Yendenominated royalty revenue and Euro denominated product purchases and sales. During 2004/05, Burberry invested £65.3 million in its own shares, comprising£58.4 million for the purchase of shares under the share repurchase programme,and net £6.9 million in its own shares as a contribution to funding the Group'sEmployee Share Ownership Trusts (2003/04: net £6.6 million). Consistent with the share repurchase programme announced in November 2004,Burberry commenced the repurchase of shares in January 2005. By 31 March 2005the Group repurchased 14.7 million shares for a total cost of £58.4 million.Burberry is targeting a broadly cash neutral position by March 2006. Based uponshares repurchased to date, existing cash resources, operating trends andforeseeable capital requirements, Burberry expects to repurchase shares with atotal aggregate value of approximately £250 million by that date. Burberry entered into a new £200 million five year multi currency revolvingfacility with a syndicate of banks on 30 March 2005. This facility replaces theprevious £75 million facility with GUS plc. Dividends The Group paid an interim dividend of 2.0p per share on 2 February 2005. A finaldividend of 4.5p per share is proposed and would be payable in August 2005. As aresult, the total dividend for 2004/05 would increase by 44% to 6.5p per share(£31.7 million aggregate amount), and represent a payout ratio of 27%. Aspreviously stated, the Group plans to maintain a progressive dividend policy, increasing the payout ratio to approximately 30% over time. International Financial Reporting Standards For periods commencing on or after 1 January 2005, the consolidated financialstatements of all European Union listed companies are required to be reported inaccordance with International Financial Reporting Standards (IFRS). The application of IFRS will not change management's approach to operations andwill have no impact on cash flow. It will, however, be likely to lead toincreased volatility in the profit and loss account and balance sheet, with thepresentation of the financial statements also affected. Burberry has largely completed its preparations for the adoption of IFRS. Themost significant impact on net assets and profit is likely to result fromchanges to the accounting treatment of goodwill amortisation and impairment,share based remuneration, financial instruments, lease incentives, proposeddividends, tax and deferred tax. Burberry will publish unaudited results for the year to 31 March 2005 restatedunder IFRS on 10 June 2005. The financial statements for the year to 31 March 2006 will be reported underIFRS, as will the interim results for the six months to 30 September 2005. Group profit and loss account Year to 31 March ------------------------------ 2005 2004--------------------------------- ------- ------- ------- (Restated)* Note £m £m--------------------------------- ------- ------- -------Turnover 4 715.5 675.8Cost of sales (291.3) (284.2)--------------------------------- ------- ------- -------Gross profit 424.2 391.6 Net operating expenses (264.7) (253.6)--------------------------------- ------- ------- -------Operating profit 5 159.5 138.0--------------------------------- ------- ------- ------- Operating profit before goodwill amortisation andexceptional items 165.5 142.6- goodwill amortisation 6 (6.8) (6.8)- exceptional credit relating to IPO Employee 7 0.8 2.2Share Plans --------------------------------- ------- ------- -------Interest and similar income 9 5.5 2.4Interest expense and similar charges 10 (0.6) (0.1)--------------------------------- ------- ------- -------Profit on ordinary activities before taxation 4,6 164.4 140.3Tax on profit on ordinary activities** 11 (54.5) (47.3)--------------------------------- ------- ------- -------Profit on ordinary activities after taxation 109.9 93.0Dividend - interim 13 (10.0) (7.4)Dividend - final 13 (21.7) (14.9)--------------------------------- ------- ------- -------Retained profit for the year 25 78.2 70.7--------------------------------- ------- ------- -------Pence per shareEarnings- basic 14 22.2p 18.8p- diluted 14 21.8p 18.4p Earnings before goodwill amortisation andexceptional items- basic 14 23.4p 19.8p- diluted 14 23.0p 19.4p Dividends- dividend per share - interim 13 2.0p 1.5p- dividend per share - final 13 4.5p 3.0p--------------------------------- ------- ------- -------All the Group's operations in both years are continuing. *Restated to reflect prior period adjustments, see note 3.*\* Tax on profit on ordinary activities includes tax credited on goodwillamortisation and exceptional items of £0.1m in the year to 31 March 2005 (2004:charged £0.5m). Statement of total recognised gains and losses Year to 31 March ----------------------- 2005 2004 (Restated)* Note £m £m --------------------------------- ------- ------- -------Retained profit for the year 25 78.2 70.7--------------------------------- ------- ------- -------Currency translation differences 5.3 (22.4)Tax impact of currency translation differences (0.1) (1.4)--------------------------------- ------- ------- -------Net impact of currency translation differences 25 5.2 (23.8)Actuarial (loss)/gain recognised in the pension 33 (1.5) 1.8schemeMovement in deferred tax relating to pension 33 (0.3) (1.2)scheme --------------------------------- ------- ------- -------Total recognised gains and losses for the year 81.6 47.5 Prior year adjustments (see note 3) (1.4)--------------------------------- ------- ------- Total gains since last annual report 80.2--------------------------------- ------- ------- *Restated to reflect prior period adjustments, see note 3. Note of historical cost profits and losses Year to 31 March -------------------- 2005 2004 (Restated)* £m £m------------------------------------- ------ -------Reported profit on ordinary activities before taxation 164.4 140.3Difference between actual and historical cost depreciationcharge 0.5 0.6------------------------------------- ------ -------Historical cost profit on ordinary activities beforetaxation 164.9 140.9Tax on profit on ordinary activities (54.5) (47.3)Dividend - interim (10.0) (7.4)Dividend - final (21.7) (14.9)------------------------------------- ------ -------Historical cost retained profit for the year aftertaxation and dividends 78.7 71.3------------------------------------- ------ -------*Restated to reflect prior period adjustments, see note 3. Reconciliation of movement in Group Shareholders' Funds Year to 31 March -------------------- 2005 2004 (Restated)* £m £m------------------------------------- ------ -------Profit on ordinary activities after taxation 109.9 93.0Dividend - interim (10.0) (7.4)Dividend - final (21.7) (14.9)------------------------------------- ------ -------Retained profit for the year 78.2 70.7Shares issued under Burberry share incentive schemes 11.4 2.5Exercise of IPO Restricted Share Plan and IPO share optionawards (7.0) -Lapse of IPO Restricted Share Plan awards (0.8) (0.8)Net purchase of own shares by ESOPs (6.9) (6.6)Charges in respect of employee share incentive schemes 5.3 3.6Purchase of own shares under share buy back programme (58.4) -Movement in pension scheme obligations (1.8) 0.6Net impact of currency translation differences 5.2 (23.8)------------------------------------- ------ -------Net addition to Shareholders' Funds 25.2 46.2------------------------------------- ------ -------Opening Shareholders' Funds - as previously reported 437.1 390.0Prior period adjustments (7.7) (6.8)------------------------------------- ------ -------Opening Shareholders' Funds - as restated 429.4 383.2------------------------------------- ------ -------Closing Shareholders' Funds 454.6 429.4------------------------------------- ------ -------*Restated to reflect prior period adjustments, see note 3. Balance sheets Group Company ----------- ------------ As at 31 March As at 31 March 2005 2004 2005 2004----------------------- ----- ------ (Restated)* --- ------- (Restated)* Note £m £m £m £m----------------------- ----- ------ ------- ------- -------Fixed assets Intangible fixed assets 15 107.9 111.4 - -Tangible fixed assets 16 166.1 149.8 - -Fixed asset investments 17 0.1 0.1 1,047.2 1,047.3----------------------- ----- ------ ------- ------- ------- 274.1 261.3 1,047.2 1,047.3Current assets Stock 18 102.5 89.5 - -Debtors 19 135.7 126.2 668.9 668.0Cash and short term deposits 20 169.9 158.7 0.7 0.1----------------------- ----- ------ ------- ------- ------- 408.1 374.4 669.6 668.1Creditors - amountsfalling due within one year 21 (207.8) (163.8) (172.4) (56.3)----------------------- ----- ------ ------- ------- -------Net current assets 200.3 210.6 497.2 611.8----------------------- ----- ------ ------- ------- -------Total assets lesscurrent liabilities 474.4 471.9 1,544.4 1,659.1 Creditors - amountsfalling due after more than oneyear 22 (14.8) (35.4) (686.1) (713.4)Provisions forliabilities and charges 23 (3.2) (5.1) - - Pension obligations 33 (1.8) (2.0) - ------------------------ ----- ------ ------- ------- ------- Net assets 454.6 429.4 858.3 945.7----------------------- ----- ------ ------- ------- ------- Capital and reserves Called up share capital 24 1.1 1.1 1.1 1.1Share premium account 25 136.1 124.7 136.1 124.7Revaluation reserve 25 23.4 23.5 - -Capital reserve 25 39.4 42.9 - -Profit and loss account 25 254.6 237.2 721.1 819.9----------------------- ----- ------ ------- ------- -------Equity Shareholders' Funds 453.8 428.6 857.5 944.9Non-equity Shareholders' Funds 24 0.8 0.8 0.8 0.8----------------------- ----- ------ ------- ------- -------Total Shareholders' Funds 454.6 429.4 858.3 945.7----------------------- ----- ------ ------- ------- ------- *Restated to reflect prior period adjustments, see note 3. Approved by the Board on 23 May 2005 and signed on its behalf by: John Peace Stacey CartwrightChairman Chief Financial Officer Group cash flow statement Year to 31 March ------------ 2005 2004 (Restated)* Note £m £m---------------------------------- ----- ------- -------Operating activities Operating profit after goodwill amortisation andexceptional items 159.5 138.0 Exceptional credit (0.8) (2.2) Goodwill amortisation 6.8 6.8---------------------------------- ----- ------- ------- Operating profit before goodwill amortisation andexceptional items 165.5 142.6 Depreciation, impairment and trademarkamortisation charges 24.4 28.5 (Profit)/loss on disposal of fixed assets andsimilar non-cash charges (1.1) 1.7 Charges in respect of employee share incentiveschemes 5.3 3.6 Increase in stocks (12.8) (7.5) Increase in debtors (7.3) (1.5) Increase in creditors 1.5 18.2---------------------------------- ----- ------- ------- Net cash inflow from operating activities 175.5 185.6---------------------------------- ----- ------- ------- Returns on investments and servicing of finance Interest received 5.3 2.3Interest paid (0.6) (0.1)---------------------------------- ----- ------- -------Net cash inflow from returns on investments andservicing of finance 4.7 2.2---------------------------------- ----- ------- ------- Taxation paid (49.5) (49.5)---------------------------------- ----- ------- ------- Capital expenditure and financial investment Purchase of tangible and intangible fixed assets (37.2) (28.8)Sale of tangible fixed assets 3.1 ----------------------------------- ----- ------- -------Net cash outflow from capital expenditure andfinancial investment (34.1) (28.8)---------------------------------- ----- ------- -------Acquisitions Deferred consideration for purchase of businesses - (2.5)---------------------------------- ----- ------- -------Net cash outflow from acquisitions - (2.5)---------------------------------- ----- ------- -------Net cash inflow before dividends and financingactivities 96.6 107.0DividendsEquity dividends paid (24.9) (17.3)---------------------------------- ----- ------- -------Net cash inflow before management of liquidresources and financing 71.7 89.7---------------------------------- ----- ------- -------Management of liquid resources Decrease/(increase) in short term deposits** 26,27 9.9 (69.2)---------------------------------- ----- ------- -------Financing Issue of Ordinary Share capital 4.4 0.9Receipts from sale of own shares by ESOPs 1.8 0.4Purchase of shares through share buy back 25 (58.4) -Purchase of own shares by ESOPs (8.7) (7.0)---------------------------------- ----- ------- -------Net cash outflow from financing (60.9) (5.7)---------------------------------- ----- ------- ------- Increase in cash during the year 26,27 20.7 14.8---------------------------------- ----- ------- ------- *Restated to reflect prior period adjustments, see note 3.**Increase in short term deposits has been restated to include movements in netbalances due from GUS group (2004: £15.8m). 1 Basis of preparation Burberry Group is a luxury goods manufacturer, wholesaler and retailer inEurope, North America and Asia Pacific; licensing activity is also carried out,principally in Japan. All of the companies, which comprise the Burberry Group,are owned by Burberry Group plc ("the Company") directly or indirectly. The financial information has been prepared by consolidating the historicalfinancial information for each of the companies that comprise Burberry Groupfrom applicable individual financial returns of these companies for the years to31 March 2005 and 2004. Burberry Group Reorganisation Immediately prior to the flotation on the London Stock Exchange in July 2002, areorganisation of Burberry Group took place resulting in Burberry Group directlyowning all Burberry Group companies. Prior to this, a number of Burberry Groupentities and certain Burberry-related assets and liabilities (together "the NetAssets") were held underneath GUS group companies although Burberry GroupRelated Shares:
Burberry