Final Results - Part 1 of 2

25th May 2006 07:03

Burberry Group PLC25 May 2006 Part 1 of 2 Burberry Group plc 2005/06 Preliminary Results 25 May 2006. Burberry Group plc reports preliminary results for its financialyear to 31 March 2006. Summary of Results(1) Year to 31 March 2006 2005 Change £m £m %Turnover(2) 742.9 715.5 4Operating profit before Atlas costs(3) 165.6 161.3 3Operating profit 154.5 161.3 (4)Attributable profit for the year 106.4 111.9 (5)Diluted EPS before Atlas costs 24.1p 22.2p 9Diluted EPS 22.3p 22.2p 0Diluted weighted average number of Ordinary 477.6m 504.5m (5)Shares Financial Highlights •Total revenues increased 3% on an underlying(4) basis to £742.9 million - Retail revenue increased 11% underlying - Wholesale revenue declined 4% underlying - Licensing revenue increased 6% underlying •Operating profit before Atlas costs increased 3% to £165.6 million •Operating margin before Atlas costs of 22.3% vs 22.5% in prior period •Diluted EPS before Atlas costs increased 9% to 24.1p •Continued strong free cash flow with £79 million generated in the year •Completed £250 million share repurchase programme with £192 million repurchased during 2005/06 - Achieved targeted cash neutral capitalisation •Final dividend of 5.5p per Ordinary Share proposed - 8.0p for full year, a 23% increase ______________ (1) Financial results are reported under International Financial Reporting Standards. Prior year figures have been restated in line with these principles. (2) Turnover differs from the £753 million reported in the Second Half Trading Update on 12 April 2006 due to a change in foreign currency translation methodology. Following its demerger from GUS plc, the Group plans to convert financial results monthly based upon average exchange rates for each month. Previously, Burberry applied the year's cumulative average exchange rates to the period reported. This new methodology will be adopted in 2006/07. Reported results presented here for the 2005/06 financial year are consistent with this new methodology. (3) Project Atlas costs of £11.1 million (2005: nil) relate to the Group's infrastructure redesign initiative announced in May 2005. (4) Underlying figures exclude the financial effect of the Taiwan Acquisition and the portion of Burberry's business in Spain affected by the retail conversion, in both reporting periods. In addition, underlying figures are calculated at the same exchange rates used in the 2004/05 year's reported results for the period. Burberry completed the acquisition of the operations and assets of its distributors in Taiwan in August 2005 (the "Taiwan Acquisition") and initiated actions related to the retail conversion in Spain during the third quarter of 2005/06. Strategic and Operating Highlights •Advanced retail strategy through key investments - Opened 12 new stores and outlets and a net 9 new concessions - Completed 7 significant store renovations - Converted 72 womenswear doors to retail concessions in Burberry's largest wholesale market, Spain - Acquired 12 retail locations in Taiwan •Continued progress in product design and development - Strengthened core outerwear lines - Increased frequency of new product flow to stores - Burberry Creative Director named Designer of the Year by British Fashion Council •Outstanding growth in emerging markets •Prepared for direct distribution of selected international products in Japan •Launched major new fragrance, Burberry London, in spring 2006 •Project Atlas fully embedded in the organisation - Re-phased implementation to enhance long-term benefits •Commenced celebration of Burberry's 150th year Rose Marie Bravo, Chief Executive, stated, "In a year of transition andinvestment, the Group achieved solid financial results while advancing a numberof strategic initiatives aimed at Burberry's next stage of development. With astrong spring season underway, we enter our 150th year with confidence inBurberry's future." Management will discuss these results during a presentation to analysts andinstitutions at 1:00pm today at Merrill Lynch Financial Centre, King EdwardHall, 2 King Edward Street, London EC1A 1HQ (telephone +44 (0) 20 7968 0577).The presentation will also be broadcast live on the Internet atwww.burberryplc.com and can be accessed by telephone at +44 (0) 20 7081 7194 (UKand international) and +1 866 432 7186 (US). Replay: +44 (0) 20 8196 1998 (UK and international) and +1 866 583 1035 (US),access number 299766. Enquiries: Burberry 020 7968 0577Stacey Cartwright CFOMatt McEvoy Strategy and IRJohn Scaramuzza Strategy and IR Brunswick 020 7404 5959Susan GilchristRobert GardenerAlex Tweed 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. Business and Financial Review Business Review Burberry delivered solid financial results for the year to 31 March 2006. In thecontext of a period marked by strategic investment and transition, diluted EPSbefore costs associated with Project Atlas, increased 9% on a 4% revenue gain.Return on capital for the period was 33%. This performance reflects thecontinued execution of Burberry's core strategies in combination with strategicand operational transition in certain businesses. Highlights of these factorsare discussed below. Regions. Burberry maintained steady progress across its trading regions •US. Revenue rose 5% underlying, 9% reported, with strong retail growth driven by new and existing stores partially offset by the expected reduction in wholesale sales. The Group opened seven stores during the year, including those in Naples (Florida), Palm Beach Gardens (Florida), San Antonio (Texas), San Diego (California), and three outlet stores. Five major renovations were also completed in the year. •Europe. Underlying revenue was flat in the region. Soft sales in the UK and Spain offset strong retail and wholesale performance in the remainder of Continental markets. During the year, the Group opened a replacement store in Zurich, seven concessions, three outlet stores and completed renovation of the Frankfurt and Munich stores. •Non-Japan Asia Pacific. Revenue increased 6% underlying, 13% reported. Underlying growth was led by strong retail performance in Greater China (Hong Kong and mainland). In Korea, new retail space drove modest growth for the year, notwithstanding a challenging consumer spending environment. Solid gains in South Asian markets resulted from sales growth in existing stores and among wholesale customers. During the year, the Group opened a replacement store in Taipei and closed a net one concession in the region. The integration of the 12 stores in Taiwan acquired in August 2005 also contributed to the reported gain in this geographic segment. •Emerging markets. Outstanding underlying revenue growth in emerging markets was driven primarily by the opening of nine franchised stores during the year, including stores in Istanbul (Turkey), Warsaw (Poland), Sao Paolo (Brazil), Jeddah (Saudi Arabia), Riyadh (Saudi Arabia), Abu Dhabi (UAE), Dubai (UAE), Mumbai (India) and Cancun (Mexico). Channels. Performance varied by distribution channel. •Retail. Consistent with the Group's emphasis on building sales through its directly operated stores, the retail channel achieved the strongest gain. Retail sales increased 11% on an underlying basis, 20% reported, driven by contributions from newly opened and existing stores. Reported revenues were affected by the Taiwan Acquisition and Spain retail conversion, which shift sales from the Group's wholesale channel to its retail channel. In August 2005, Burberry acquired the operations of its distributors in Taiwan, which included 12 retail locations. In February 2006, the Group began the conversion of 72 womenswear doors in department stores of Burberry's largest customer in Spain into Burberry operated retail concessions. Retail sales resulting from the Taiwan Acquisition and Spain conversion contributed approximately five percentage points to the reported sales gain. In determining underlying performance, the financial effects of the relevant businesses are excluded from both reporting periods. By region, double digit sales growth in the US, Burberry's largest retailmarket, was driven by new and refurbished stores with a moderate contributionfrom existing stores. The majority of Continental European markets achievedstrong underlying gains driven by new stores and solid gains from existingstores. While the UK was generally soft, trends improved in the second half ofthe year. Asia achieved robust underlying growth, with gains in Hong Kong andSouth Asia partially balanced by a modest increase in Korea. Retail investment continued on plan. During the year, the Group opened sixBurberry stores (including two replacement stores), six outlet stores and a netnine concessions. In addition, seven stores underwent major renovation duringthe year. In total, on a year-over-year basis, average selling space increasedapproximately 8%, excluding the effect of the Taiwan Acquisition and Spainconversion. At 31 March 2006, Burberry's retail portfolio consisted of 65stores, 165 concessions and 30 outlets. •Wholesale. Wholesale sales decreased by 4% on an underlying basis, 8% reported. The US market experienced a decline for the year as a result of Burberry's ongoing adjustment of the brand's wholesale/retail balance, as well as caution on the part of certain wholesale customers. Soft demand in Spain produced a mid single digit sales decline in that market during the period. While trends varied by country, in aggregate, other Continental European markets performed well. The UK was soft throughout the year. Sales in Asia decreased slightly in the year as a second half decline, primarily driven by shipment timing differences between periods, offset first half gains. Boosted by the opening of nine new franchise stores, emerging markets achieved outstanding gains during the year. The Taiwan Acquisition and Spain retail conversion accounted for approximately five percentage points of the decrease in reported wholesale sales. • Licensing. Licensing revenues increased 6% underlying, 3% reported. In Japan, which accounted for approximately 70% of licensing revenue, salesvolumes declined primarily as a result of a soft apparel market for much of theyear as well as Burberry's ongoing programme to enhance brand positioning inthat market. This programme involves licence transitions/cancellations,improving distribution and upgrading products in terms of design and quality.Royalty rate increases on certain licences offset the effect of reduced volumes.In 2006/07, the Group will begin direct sales of men's ties, scarves and silksfrom Burberry's international collection. Imported products will replacelicensed domestic products in these categories. In addition, a limited range ofBurberry's international collection of handbags and small leather goods will beselectively distributed in this market. Burberry's product licenses produced a solid result for the year. Againstimportant product launches in 2004/05, fragrance sales were comparable to theprevious period. In February 2006, Burberry commenced a major women's fragrancelaunch, Burberry London. Marketing initiatives feature Oscar-winning Britishactress Rachel Weisz. The product was introduced to most large consumer marketsduring spring 2006, and will be followed by launch of the Burberry London men'sfragrance in autumn 2006. Watches performed well in the year, strengthened byproduct innovation and expanded distribution. With respect to eyewear, Burberryentered into a new licence with Luxottica Group in October 2005. The firstcollections under this agreement will appear in stores during autumn 2006. Products. Continuous enhancement of the product development process is animportant objective, and the Group made good progress during the year.Burberry's womenswear, menswear and accessory product teams intensified effortsto coordinate development across categories and link more closely their design,merchandising and sales functions. Continuing to respond to consumer demand fornew merchandise, Burberry increased the frequency of new product deliveries toBurberry stores and to selected wholesale customers. • Prorsum. Burberry Prorsum continues to break new ground with its runway collections attracting outstanding critical acclaim. In recognition of Prorsum's design excellence, Burberry Creative Director, Christopher Bailey, was awarded Designer of the Year by the British Fashion Council in November 2005. Consumers also responded, and Prorsum sales increased substantially during the year. • Womenswear. In Womenswear, underlying revenues increased 3% as a soft Spring 2005 season was balanced by improved Autumn/Winter 2006 collection sales and a strong start to Spring 2006. These results reflect successful efforts to adjust the product's aesthetic balance, improve fit and increase the 'wear-now' component of seasonal collections. In outerwear, the design team's work to reinvigorate key outerwear segments was rewarded with favourable reaction to new styles for both the autumn and spring seasons. Womenswear generated 34% of total revenues in the year. • Menswear. Underlying revenues increased 4% as the division made steady progress in the year. Greater emphasis on more classic styling and intensifying selection in prime classifications were important contributors to this performance. In the US, the sartorial segment of the business was boosted by successful made-to-measure events. In selected markets, Burberry launched its first marketing efforts specifically targeted at the male consumer. Menswear represented 28% of reported revenues in the year. •Accessories. Underlying revenues were flat relative to last year. New, sophisticated handbag designs, particularly Prorsum lines, performed well in the period. To capitalise on consumer demand for these more advanced styles, the Group broadened distribution within its own store network during the spring season and will add points of sale among wholesale customers for autumn/winter 2006. At the same time, Burberry also successfully upgraded its more classic core handbag ranges - the new Haymarket line of handbags and small leather goods was a highlight of the year. Ongoing innovation with respect to new styles and reinvention of the classics are critical to the vitality of this category. Accessories (excluding childrenswear) comprised 25% of reported revenues in the year. Project Atlas With the initial year of Burberry's five-year infrastructure redesign programmecomplete, Project Atlas is firmly embedded in the organisation. During the year,the team reconfigured the implementation plan in line with business processesrather than software installations. This results in the shifting of previouslyscheduled initial implementation steps to later in the programme for combinationwith secondary stages, allowing for a single point of application for mostbusiness units. The broad financial outline of the programme remains unchangedwith an approximate £50 million investment during the first three yearsgenerating in excess of £20 million annually in expense savings by the project'sthird year (2007/08). 2006/07 plans In line with the ongoing execution of its growth strategies, Burberry's plansfor the 2006/07 financial year include: • Retail. A minimum 10% underlying increase in average net retail selling space (excluding the impact of the Taiwan Acquisition and Spain retail conversion). The majority of space expansion will be concentrated in the US and Asian markets. • Wholesale. First half wholesale sales up a low single digit percentage underlying and reported (at constant currency) relative to the comparative period based upon orders received to date for the Autumn/Winter 2006 season. • Licensing. Broadly flat underlying licensing revenue relative to 2005/06 - Revenues from Japan are expected to experience a moderate underlying decline for the year as a result of licence transitions and Burberry's other ongoing efforts to enhance brand positioning in this market. - Global product licenses are expected to produce strong gains. - On a reported basis, the Group will also experience a significant negative exchange rate comparison. • Project Atlas. For the 2006/07 financial year, Atlas expenses are expected to be approximately £19 million and direct profit and loss account benefits are currently anticipated to total approximately £6 million. • Capital expenditure. Capital expenditure is planned to total approximately £50 million. Conclusion During the past year, Burberry delivered solid financial results while at thesame time advancing important strategic initiatives to secure the foundation forBurberry's next phase of growth. This performance was fuelled by the endeavoursof the Burberry team, the commitment of licensing partners and the support ofour wholesale customers. For Burberry, the year ahead marks the anniversary of the business's founding byThomas Burberry in 1856. The celebration of our 150th year commemorates thebrand's unique heritage and the enduring attributes of innovation, quality andstyle that continue to propel our momentum. We look to the future withconfidence and enthusiasm as we carry this legacy forward. Financial Review Group results(1) 2006 2005 £m Percentage £m PercentageYear to 31 March of turnover of turnover TurnoverRetail 318.5 42.9% 265.2 37.0%Wholesale 343.3 46.2% 371.9 52.0%Licence 81.1 10.9% 78.4 11.0% Total turnover 742.9 100.0% 715.5 100.0%Cost of sales (296.8) (40.0%) (291.3) (40.7%) Gross profit 446.1 60.0% 424.2 59.3% Net operating expenses before Atlas (280.5) (37.8%) (262.9) (36.7%)costs Operating profit before Atlas costs 165.6 22.3% 161.3 22.5%Atlas costs (11.1) (1.5%) - - Operating profit 154.5 20.8% 161.3 22.5%Net finance income 2.5 0.3% 4.9 0.7% Profit before taxation 157.0 21.1% 166.2 23.2%Taxation (50.6) (6.8%) (54.3) (7.6%) Attributable profit for the year 106.4 14.3% 111.9 15.6% Diluted EPS before Atlas costs 24.1p n/a 22.2p n/aDiluted EPS 22.3p n/a 22.2p n/a Diluted weighted average number of 477.6 n/a 504.5 n/aOrdinary Shares (millions) (1) Financial results are reported under International Financial ReportingStandards. Prior year figures have been restated in line with these principles. Turnover Total turnover advanced to £742.9m from £715.5m in the prior period,representing an increase of 4%, or 3% on an underlying basis. "Underlying"figures are adjusted to exclude the financial effects of the Taiwan Acquisition,the portion of Burberry's business in Spain affected by the retail conversionand the impact of foreign currency exchange rate movements between periods. TheTaiwan Acquisition and Spain conversion resulted in a sales shift fromBurberry's wholesale channel to its retail channel. In determining underlyingperformance, the financial effects of the relevant businesses are excluded fromboth reporting periods. Operating profit Gross profit as a percentage of turnover was 60.0% relative to 59.3% in theprior period. The increase largely resulted from stronger retail trading in thesecond half including decreased levels of seasonal clearance activity for theautumn/winter season relative to the previous year and an increase in retail'sshare of the revenue mix. Net operating expenses before Atlas costs as a percentage of turnover increasedto 37.8% from 36.7% in the previous period. The increase largely reflectedinvestment in people and infrastructure to support future growth, and costsassociated with the expanded retail network following the conversions in Taiwanand Spain. The Group also incurred a one-off pension related cost following thedemerger from GUS. As a result of these factors, operating profit before Atlas costs increased 3%to £165.6m, or 22.3% of turnover relative to 22.5% in the previous period. Net expenses associated with Project Atlas totalled £11.1m. Reported operatingprofit was £154.5m for the year. Net finance income Net interest income was £2.5m in the year to March 2006 compared to £4.9m in theprior period. The decrease was due to lower average cash balances resulting fromshare repurchase activity during the year. Profit before taxation As a result of the above factors, Burberry reported profit before taxation of£157.0m in the year to March 2006 compared to £166.2m in the prior period. Attributable profit Burberry recorded a 32.2% effective tax rate (2004/05: 32.7%) on profitresulting in a £50.6m tax charge and reported attributable profit of £106.4m forthe year to March 2006 compared to £111.9m reported in the prior period. Diluted earnings per share before Atlas costs increased 9% to 24.1p compared to22.2p in the prior period. Including Atlas costs, the Group reported dilutedearnings per share of 22.3p. In the year to March 2006, the diluted weightedaverage number of ordinary shares in issue was 477.6m (2004/05: 504.5m). Cash flow and net funds Historically, Burberry's principal uses of funds have been to support capitalexpenditures and working capital growth in connection with the expansion of itsbusiness, acquisitions and share repurchases. Principal sources of funds havebeen cash flow from operations. Burberry expects to finance the expansion of itsbusiness, capital expenditures including strategic infrastructure investments,shareholder dividends and share repurchases with existing cash balances, cashgenerated from operating activities and the use of its credit facilities. The table below sets out the principal components of cash flow for the year to31 March 2006 and 31 March 2005 and net funds at the period end: 2006 2005Year to 31 March £m £m Operating profit before Atlas costs 165.6 161.3Atlas costs (11.1) - Operating profit 154.5 161.3Depreciation and related charges 24.9 24.4Profit on disposal of fixed assets (1.6) (1.1)Charges in respect of employee share incentive 7.4 9.5schemesIncrease in stocks (17.8) (12.9)Decrease/(Increase) in debtors 2.2 (7.3)(Decrease)/Increase in creditors (21.2) 1.5 Cash generated from operations 148.4 175.4Net interest received 1.6 4.7Taxation paid (43.6) (49.5)Capital expenditure (30.7) (37.2)Property sale proceeds 3.6 3.1Net acquisition related payments (23.6) -Net sale/(purchase) of shares by ESOPs 2.4 (6.9)Issue of ordinary share capital 3.7 4.4Share repurchases (191.6) (58.4)Equity dividends paid (32.8) (24.9) Movement in net funds resulting from cash flows (162.6) 10.7Exchange gains 5.2 1.3 Movement in net funds (157.4) 12.0 Net funds at end of period 12.5 169.9 Net cash generated from operating activities was £148.4m compared to £175.4m inthe prior period. Stock levels increased £17.8m, resulting from growth of thebusiness and expansion of the Group's retail network. The £2.2 million decreasein debtors reflects seasonal growth of trade debtors offset by the change inbusiness structure resulting from the Spain and Taiwan conversions. The £21.2mdecrease in creditors includes payments of profit related fees in respect ofprior acquisitions and the settlement prior to demerger of amounts outstandingwith GUS plc. Capital expenditures of £30.7m included net purchases of fixed assets of £26.8mrelating primarily to continued investment in the Group's retail operations andinfrastructure, and Project Atlas investment of £3.9m. Proceeds from the sale ofcertain surplus properties during the year amounted to £3.6m. Net acquisitionrelated payments comprised £19.2m deferred consideration with respect to aprevious acquisition and £4.4m as partial consideration for the acquisition ofBurberry's distributors in Taiwan. In line with its risk management policy, Burberry has continued to hedge itsprincipal foreign currency transaction exposures arising in respect of Yendenominated royalty income and Euro denominated product purchases and sales. In connection with share option awards, the Group sold £2.4m (2004/05: £1.8m) ofequity from its Employee Share Ownership Trusts and received £3.7m (2004/05:£4.4m) from the issue of new shares following the exercise of share-basedoptions. Consistent with the £250m share repurchase programme announced in November 2004,Burberry commenced the repurchase of shares in January 2005. In the year toMarch 2006 the Group repurchased 45.9m shares for a total cost of £191.6m. Totalpurchases under the repurchase programme since January 2005 amounted to £250m. The Group paid an interim dividend of 2.5p per share on 2 February 2006. A finaldividend of 5.5p per share is proposed, payable August 2006. As proposed thetotal dividend for 2005/06 would increase 23% to 8.0p per share (£35.6 millionaggregate amount). Group Income Statement Note Year to Year to 31 31 March March 2006(1) 2005(2) £m £m Turnover 4 742.9 715.5Cost of sales (296.8) (291.3) Gross profit 446.1 424.2Net operating expenses 5 (291.6) (262.9) Operating profit 154.5 161.3Financing Interest receivable and similar income 7 4.3 5.5Interest payable and similar charges 7 (1.8) (0.6) Net finance income 4,7 2.5 4.9 Profit before taxation 4,6 157.0 166.2Taxation 8 (50.6) (54.3) Attributable profit for the year 106.4 111.9 The profit for the year is attributable to the equity holders of the Company andrelates to continuing operations. Pence per shareEarnings- basic 9 22.9p 22.7p- diluted 9 22.3p 22.2p DividendsDividend per share - interim 10 2.5p 2.0pDividend per share - proposed final (not recognised as a 10 5.5p 4.5pliability at 31 March) Non-GAAP measures £m £mReconciliation to adjusted operating profitOperating profit 154.5 161.3Atlas costs 5 11.1 - Operating profit before Atlas costs 165.6 161.3 Pence per shareEarnings per share before Atlas costs- basic 9 24.7p 22.7p- diluted 9 24.1p 22.2p (1) Reflects the adoption of IAS 32 and IAS 39 (2) Does not reflect the adoption of IAS 32 and IAS 39 Group Statement of Recognised Income and Expense Note Year Year to to 31 31 March March 2006 2005 (1) (2) £m £m Attributable profit for the year 106.4 111.9 Cash flow hedges 21 (3.8) -Currency translation differences 21 15.6 5.5Net actuarial gains/(losses) on defined benefit pension 21 0.7 (1.5)schemeTax on items taken directly to equity 21 1.5 (0.3) Net income recognised directly in equity 14.0 3.7TransfersTransferred to income and expense on cash flow hedges net 21 (0.7) -of taxTaxation items transferred from equity 0.2 - Net transfers (0.5) - Net gains not recognised in income statement 13.5 3.7 Total recognised income for the year 119.9 115.6 Total impact on adoption of IAS 32 and IAS 39 3, 1.9 - 21 Total 121.8 115.6 (1) Reflects the adoption of IAS 32 and IAS 39 (2) Does not reflect the adoption of IAS 32 and IAS 39 All the recognised income and expense is attributable to the equity holders ofthe Company. Group Balance Sheet Note As at As at 31 31 March March 2006(1) 2005(2) £m £mASSETSNon-current assetsIntangible assets 11 135.4 125.2Property, plant and equipment 12 167.0 154.4Deferred taxation assets 13 16.6 15.0Trade and other receivables 14 4.2 1.3Income tax recoverable - 0.8 323.2 296.7 Current assetsStock 15 124.2 102.5Trade and other receivables 14 108.0 112.2Derivative financial assets 26 2.8 -Income tax recoverable 0.2 3.1Cash and cash equivalents 16 113.7 169.9 348.9 387.7Non-current assets classified as held for sale 17 - 1.2 348.9 388.9Total assets 672.1 685.6 LIABILITIESNon-current liabilitiesLong term liabilities 18 (14.6) (14.8)Deferred taxation liabilities 13 (10.5) (13.0)Retirement benefit obligations 30 (1.8) (2.1)Provisions for liabilities and charges 19 (2.8) (2.9) (29.7) (32.8) Current liabilitiesBank overdrafts and borrowings 27 (101.2) -Derivative financial liabilities 26 (2.1) -Trade and other payables 20 (126.9) (160.6)Income tax liabilities (25.6) (19.9) (255.8) (180.5) Total liabilities (285.5) (213.3) Net assets 386.6 472.3 EQUITYCapital and reserves attributable to the Company's equityholdersShare capital 21 0.2 1.1Share premium 21 151.8 136.1Capital reserve 21 25.8 24.9Hedging reserve 21 (0.2) -Foreign currency translation reserve 21 21.2 5.4Retained earnings 21 187.8 304.8 Total equity 386.6 472.3 (1) Reflects the adoption of IAS 32 and IAS 39 (2) Does not reflect the adoption of IAS 32 and IAS 39 Approved by the Board on 24 May 2006 and signed on its behalf by: John Peace Stacey CartwrightChairman Chief Financial Officer Group Cash Flow Statement Year to Year to 31 31 March March 2006 2005 £m £mCash flows from operating activitiesOperating profit 154.5 161.3Depreciation, impairment and intangible amortisation charges 24.9 24.4Profit on disposal of property, plant and equipment (1.6) (1.1)Charges in respect of employee share incentive schemes 7.4 9.5Increase in stocks (17.8) (12.9)Decrease/(increase) in debtors 2.2 (7.3)(Decrease)/increase in creditors (21.2) 1.5 Cash generated from operations 148.4 175.4Taxation paid (43.6) (49.5) Net cash inflow from operating activities 104.8 125.9 Cash flows from investing activitiesPurchase of tangible and intangible fixed assets (30.7) (37.2)Proceeds from sale of property, plant and equipment 3.6 3.1Payment of deferred consideration (19.2) -Acquisition of subsidiary (4.4) - Net cash outflow from investing activities (50.7) (34.1) Cash flows from financing activitiesInterest received 3.0 5.3Interest paid (1.4) (0.6)Equity dividends paid (32.8) (24.9)Issue of Ordinary Share capital 3.7 4.4Purchase of shares through share buy back (191.6) (58.4)Purchase of own shares by ESOPs - (8.7)Sale of own shares by ESOPs 2.4 1.8Draw down on loan facility 50.0 - Net cash outflow from financing activities (166.7) (81.1) Net (decrease)/increase in cash and cash equivalents (112.6) 10.7Effect of exchange rate changes on opening balances 5.2 1.3Cash and cash equivalents at beginning of period 169.9 157.9 Cash and cash equivalents at end of period 62.5 169.9 Analysis of cash and cash equivalents As at As at 31 31 March March 2006 2005 £m £m Cash 70.2 62.4Short term deposits 43.5 107.5 Cash and cash equivalents as per the balance sheet 113.7 169.9Bank overdrafts as per the balance sheet (51.2) - Cash and cash equivalents per the cash flow statement 62.5 169.9 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 Burberry Group, areowned by Burberry Group plc ("the Company") directly or indirectly. Under European Union (EU) legislation, it is mandatory for EU listed companiesto report under International Financial Reporting Standards (IFRS), forfinancial years commencing after 1 January 2005. Accordingly, the consolidatedfinancial statements for the year to 31 March 2006 have been prepared inaccordance with IFRS as adopted by the European Union and IFRS issued by theIASB, and with those parts of the Companies Act 1985 applicable to companiesreporting under IFRS. All IFRS issued by the IASB and effective at the time ofpreparing these consolidated financial statements have been adopted by the EUthrough the endorsement procedure established by the European Commission. Sincethe Group is not affected by the provisions regarding portfolio hedging whichare not required by the EU-endorsed version of IAS 39, the accompanyingfinancial statements comply with both IFRS as adopted by the EU and IFRS issuedby the IASB. The Group had previously reported under UK GAAP. The results to 31 March 2005 have been restated from UK GAAP to IFRS using thesame accounting policies as those used for the results to 31 March 2006, otherthan as described in note 3 - Changes in accounting policies and presentation.The principal adjustments that were required by Burberry Group on conversion toIFRS are set out in note 32 - Transition to IFRS. Burberry has adopted early IFRS 5 "Non-current Assets Held for Sale andDiscontinued Operations". The following IFRSs, International Financial reportingand Interpretations Committee requirements (IFRICs) and amendments thereto havebeen adopted earlier than required: - December 2004 amendment to IAS 19 Employment Benefits permitting the recognition of actuarial gains and losses directly in equity (from 1 April 2005); - April 2005 amendment to IAS 39 Financial instruments: Recognition and Measurement concerning cash flow hedges of forecast intra-group transactions (from 1 April 2005); and - June 2005 amendment to IAS 39 concerning the fair value option (from 1 June 2005). The following IFRS and IFRICs have been issued but have not been adopted earlyby the Group: IFRIC4 - Determining whether an arrangement contains a lease (effective from 1April 2006) requires the determination of whether an arrangement contains alease. IFRIC7 - Applying the restatement approach (effective from 1 April 2006)provides guidance on hyperinflation accounting. IFRS7 - Financial instruments: Disclosures (effective from 1 April 2007)introduces new disclosures for financial instruments. It replaces disclosurerequirements in IAS 32 Financial Instruments: Disclosure and presentation. The impact of these IFRS and IFRICs on the Group's financial statements iscurrently being assessed. The parent Company has not adopted IFRS as its statutory reporting basis.Audited financial statements for the parent Company, have been prepared inaccordance with UK GAAP. These consolidated financial statements have been prepared under the historicalcost convention, except in respect of certain financial instruments. Basis of consolidation The Group's annual financial statements comprise those of the parent company andits subsidiaries, presented as a single economic entity. The financialstatements of the subsidiaries are prepared for the same reporting year as theparent company, using consistent accounting policies. The effects of intra-group transactions are eliminated in preparing the Groupfinancial statements. Subsidiaries are consolidated from the date on which control is transferred tothe Group and cease to be consolidated from the date on which control istransferred out of the Group. Where there is a loss of control of a subsidiary,the consolidated financial statements include the results for the portion of thereporting period during which Burberry Group plc had control. Non-GAAP measures Non-GAAP measures are presented in order to provide a clear and consistentpresentation of the underlying performance of the Group's ongoing business. Suchpresentation will be prepared on a consistent basis in the future. Key sources of estimation uncertainty Preparation of the consolidated financial statements in conformity with IFRSrequires that management make certain estimates and assumptions that affect thereported revenues, expenses, assets and liabilities and the disclosure ofcontingent liabilities. If in the future such estimates and assumptions, whichare based on management's best judgement at the date of the financialstatements, deviate from actual circumstances, the original estimate andassumptions will be modified as appropriate in the period in which thecircumstances change. Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. Such estimates include, but are not limited to goodwill and asset impairment,stock provisioning, income and deferred tax, these are discussed below. Impairment of goodwill The Group is required to test whether goodwill has suffered any impairment. Therecoverable amounts of cash generating units have been determined based onvalue-in-use calculations. The use of this method requires the estimation offuture cash flows expected to arise from the continuing operation of the cashgenerating unit and the choice of a suitable discount rate in order to calculatethe present value. Impairment of assets Property, plant and equipment are reviewed for impairment if events or changesin circumstances indicate that the carrying amount may not be recoverable. Whena review for impairment is conducted, the recoverable amount of an asset or acash generating unit is determined based on value-in-use calculations preparedon the basis of management's assumptions and estimates. Stock provisioning The Group manufactures and sells luxury goods and is subject to changingconsumer demands and fashions trends. As a result, it is necessary to considerthe recoverability of the cost of stocks and the associated provisioningrequired. Stock provisioning is based on the method in which excess stocks canbe disposed. Income and deferred taxes The Group is subject to income taxes in numerous jurisdictions. Judgment isrequired in determining the provision for income taxes in each territory. Thereare many transactions and calculations for which the ultimate tax determinationis uncertain during the ordinary course of business. The Group recognisesliabilities for anticipated tax audit issues based on estimates of whetheradditional taxes will be due. Where the final outcome of these matters isdifferent from the amounts which were initially recorded, such differences willimpact the income tax and deferred tax provisions and assets in the period towhich such determination is made. 2 Accounting policies The consolidated financial information of Burberry Group plc and all itssubsidiaries have been prepared in accordance with IFRS. The principle accounting policies of the Group are: a) Turnover Turnover, which is stated excluding Value Added Tax and other sales relatedtaxes, is the amount receivable for goods supplied (less returns, tradediscounts and allowances) and royalties receivable. Wholesale sales are recognised when goods are despatched to trade customers, asthis reflects the transference of risks and rewards of ownership, withprovisions made for expected returns and allowances. Provisions for returns arecalculated based on historical return levels. Retail sales, returns andallowances are reflected at the dates of transactions with customers, inaddition provisions are made for expected returns. Royalties receivable fromlicensees are accrued as earned on the basis of the terms of the relevantroyalty agreement, which is typically on the basis of production volumes. b) Share schemes Incentive plans The cost of the share incentives received by employees (including directors) ismeasured with reference to the fair value of the equity instruments awarded atthe date of grant. The Black-Scholes Option Pricing Model is used to determinethe fair value of the award made. The impact of performance conditions is notconsidered in determining the fair value on the date of grant, except forconditions linked to the price of Burberry Group plc shares i.e. marketconditions. Vesting conditions which relate to non-market conditions are allowedfor in the assumptions about the number of options expected to vest. Theestimate of the number of options expected to vest is revised at each balancesheet date. The cost of the share based incentives are recognised as an expense over thevesting period of the awards, with a corresponding increase in equity. The proceeds received from the exercise of the equity instruments awarded, netof any directly attributable transaction costs, are credited to share capitaland share premium. c) Operating leases Burberry Group is a lessee of property. Gross rental expenditure in respect ofoperating leases are recognised on a straight line basis over the period of theleases. Certain rental expense is determined on the basis of turnover achievedin specific retail locations and is accrued for on that basis. Lease premiums and incentives Amounts paid to acquire the rights to a lease ("Lease premiums") are written offin equal annual instalments over the life of the lease contract. Leaseincentives, typically rent free periods and capital contributions, arerecognised over the full term of the lease. d) Dividend distribution Dividend distributions to Burberry Group plc's Shareholders are recognised as aliability in the period in which the dividends are approved by the Shareholdersfor the final dividend or paid in respect of the interim dividend. e) Pension costs Prior to the demerger of the Group from GUS plc on 13 December 2005, it wasagreed that existing employees of members of the Burberry Group who wereparticipating in the GUS defined benefit pension scheme would continue to do sountil 31 December 2007 or such earlier date as required by HM Customs & Revenueor by Burberry. When eventual withdrawal of members of the Burberry Group fromthe GUS pension scheme takes place on or before 31 December 2007, Burberry mustpay any liabilities due under section 75 or 75A of the Pensions Act 1995. GUShas indemnified Burberry on an after tax basis against any amounts which are inexcess of £1.25m. The pension costs in these consolidated financial statements are determined inaccordance with IAS 19 "Employee Benefits". Defined benefit schemes Eligible employees of Burberry Group participate in a number of defined benefitschemes throughout the world; the principal defined benefit scheme is in the UK.The assets covering this arrangement are held in independently administeredfunds. The cost of providing defined benefit schemes to participating Burberryemployees is charged to the income statement over the anticipated period ofemployment. The asset or liability recognised in the balance sheet, in respect of definedbenefit schemes, represents Burberry's share of the present value of the definedbenefit obligation at the balance sheet date, less the fair value of planassets, together with adjustments for unrecognised actuarial gains and lossesand past service costs. Actuarial gains and losses are recognised directly to equity through the GroupStatement of Recognised Income and Expense. Defined contribution schemes Burberry Group eligible employees also participate in defined contributionpension schemes, the principal one being in the UK with its assets held in anindependently administered fund. The cost of providing these benefits toparticipating Burberry employees is recognised in the income statement andcomprises the amount of contributions payable to the schemes in respect of theyear. f) Intangible fixed assets Goodwill Goodwill is the excess of purchase consideration over the fair value ofidentifiable net assets acquired. Goodwill on acquisition is recorded as anintangible fixed asset. Fair values are attributed to the identifiable assets,liabilities and contingent liabilities that existed at the date of acquisition,reflecting their condition at that date. Adjustments are also made to bring theaccounting policies of acquired businesses into alignment with those of BurberryGroup. Prior to 31 March 2004, goodwill was held at cost less accumulated amortisation.Goodwill was assigned a finite useful economic life, not exceeding 20 years, andwas amortised in equal annual instalments. Upon transition to IFRS on 1 April2004, goodwill was assigned an indefinite useful economic life in accordancewith IFRS 3 "Business Combinations", and it ceased to be amortised. Impairment reviews are performed annually, or more frequently if events orchanges in circumstances indicate that the carrying value may not berecoverable. Trademarks and other intellectual property The cost of securing and renewing trademarks and other intellectual property iscapitalised as an intangible fixed asset and amortised by equal annualinstalments over its useful economic life, typically ten years. The usefuleconomic life of trademarks and other intellectual property is determined on acase-by-case basis, in accordance with the terms of the underlying agreement. Impairment reviews are performed if events or changes in circumstances indicatethat the carrying value may not be recoverable. Computer software The cost of acquiring computer software (including licences and separatelyidentifiable external development costs) is capitalised as an intangible assetat purchase price, plus any directly attributable cost of preparing that assetfor its intended use. Software costs are amortised by equal annual instalmentsover their estimated useful economic lives, which are up to five years. g) Property, plant and equipment Property, plant and equipment is stated at cost or deemed cost, based onhistorical revalued amounts, less accumulated depreciation and provision toreflect any impairment in value. Depreciation Depreciation of property, plant and equipment is calculated to write off thecost or deemed cost, less residual value, of the assets in equal annualinstalments over their estimated useful lives at the following rates: Land Not depreciatedFreehold buildings Up to 50 yearsLeaseholds - less than 50 years expired Over the unexpired term of the leasePlant, machinery, fixtures and fittings 3 - 8 yearsRetail fixtures and fittings 2 - 5 yearsOffice equipment 5 yearsComputer equipment Up to 5 years Impairment Impairment reviews are undertaken when performance trends or changes incircumstances suggest that the net book value of an item of property, plant orequipment is not fully recoverable. Profit/loss on disposal of property, plant and equipment Profits and losses on disposal of property, plant and equipment represent thedifference between the net proceeds and net book value at the date of sale.Disposals are accounted for when the relevant transaction becomes unconditional. h) Non-current assets held for sale A non-current asset is classified as held for sale, when its carrying value willbe recovered principally through sale. Non-current assets held for sale arecarried at the lower of cost or fair value less costs to sell and are notdepreciated. i) Impairment of assets Assets that have an indefinite useful economic life are not subject toamortisation and are tested annually for impairment. Assets that are subject toamortisation or depreciation are reviewed for impairment whenever events orchanges in circumstance indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which thecarrying amount exceeds its recoverable amount. The recoverable amount is thehigher of an asset's fair value less costs to sell and value in use. For thepurposes of assessing impairment, assets are grouped at the lowest levels forwhich there are separately identifiable cash flows (cash generating units). j) Stock Stock and work in progress are valued on a first-in-first-out basis at the lowerof cost (including an appropriate proportion of production overhead) and netrealisable value. Provision is made to reduce cost to no more than netrealisable value having regard to the age and condition of stock, as well as itsanticipated saleability. k) Taxation including deferred tax The income tax expense represents the sum of the tax currently payable anddeferred tax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense which are taxable or deductible in otheryears and it further excludes items which are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates which have beenenacted or substantially enacted by the balance sheet date. Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. However, if thetemporary difference arises from initial recognition of an asset or liability ina transaction other than a business combination that at the time of thetransaction affects neither accounting nor taxable profit or loss, it is exemptfrom deferred tax. Deferred income tax is determined using tax rates (and laws)that have been enacted or substantially enacted by the balance sheet date andare expected to apply when the related deferred income tax asset is realised orthe deferred income tax liability is settled. Deferred tax assets andliabilities are not discounted. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profits will be available against which the temporary differencescan be utilised. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries, except where the timing of the reversal of the temporarydifference is controlled by the Group and it is probable that the temporarydifference will not reverse in the foreseeable future. l) Share capital Ordinary Shares are classified as equity. Incremental costs directlyattributable to the issue of new shares or options are shown in equity as adeduction, net of tax, from the proceeds. Where any Group company purchases the Company's equity share capital (treasuryshares), the consideration paid, including any directly attributable incrementalcosts is deducted from equity attributable to the Company's equity holders untilthe shares are cancelled, reissued or disposed of. Where such shares aresubsequently sold or reissued, any consideration received, net of any directlyattributable incremental transaction costs and the related income tax effects,is included in equity attributable to the Company's equity holders. m) Financial instruments A financial instrument is initially recognised at fair value on the balancesheet when the entity becomes a party to the contractual provisions of theinstrument. A financial asset is no longer recognised when, the contractualrights to the cash flow expire or substantially all risks and rewards of theasset are transferred. A financial liability is no longer recognised, when theobligation specified in the contract is discharged, cancelled or expires. The Group's financial instruments consist primarily of cash and cashequivalents, accounts receivable, accounts payable, and derivative instruments,the accounting for which is explained below. Cash and cash equivalents Cash and cash equivalents comprise cash and short term deposits with an originalmaturity date of three months or less, held with banks, liquidity funds as wellas bank overdrafts. Bank overdrafts are recorded under current liabilities onthe balance sheet. Trade and other receivables Trade and other receivables arise when the Group provides money, goods orservices directly to a third party with no intention of trading the receivable.They are included in current assets, except for maturities greater than 12months after the balance sheet date. Receivables are recognised initially atfair value and subsequently measured at amortised cost using the effectiveinterest rate method, less provision for impairment. A provision for impairmentof trade receivables is established when there is objective evidence that theGroup will not be able to collect all amounts due according to the originalterms of receivables. The amount of the provision is recognised in the incomestatement. Trade and other payables Trade and other payables arise when the Group acquires money, goods or servicesdirectly from a creditor with no intention of trading the payable. They areincluded in current liabilities, except for maturities greater than 12 monthsafter the balance sheet date. Payables are recognised initially at fair valueand subsequently measured at amortised cost using the effective interest method. Derivative instruments Burberry Group uses derivative financial instruments to hedge its exposure tofluctuations in foreign exchange rates arising on certain trading transactions.The principal derivative instruments used are forward currency contracts takenout to hedge highly probable future royalty receivables and product purchases. The Group documents at the inception of the transaction the relationship betweenhedging instruments and hedged items, as well as its risk management objectiveand strategy for undertaking various hedge transactions. The Group alsodocuments its assessment, both at hedge inception and on an ongoing basis, ofwhether the derivatives that are used in hedging transactions are highlyeffective in offsetting changes in fair values or cash flows of hedged items. Derivatives are initially recognised at fair value on the date a derivativecontract is entered into and are subsequently remeasured at their fair value.The method of recognising the resulting gain or loss depends on whether thederivative is designated as a hedging instrument, and if so, the nature of theitem being hedged. The Group designates certain derivatives as either: (1)hedges of the fair value of recognised assets and liabilities or a firmcommitment (fair value hedge); or (2) hedges of highly probable forecasttransactions (cash flow hedges); or (3) classified as held for trading. The gain or loss on fair value hedges is taken to the income statement, alongwith the gain or loss on the hedged item for the hedged risk. The portion of the gain or loss on cash flow hedges determined to be effective,is initially taken to the hedging reserve within equity. The ineffective portionof the gain or loss is recognised to the income statement when required. Theamount recognised directly to equity is released to the income statement, whenthe underlying transaction affects the income statement. If it is expected thatall or a portion of a loss recognised directly in equity will not be recoveredin one or more future periods or the hedge is no longer expected to occur theamount that is not expected to be recovered will be reclassified to the incomestatement. If a derivative instrument is not designated as a hedge, the gain or loss onrevaluation is taken to the income statement. n) Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ("the functional currency"). Transactions in foreign currencies Transactions denominated in foreign currencies within each entity in the Group,are translated into the functional currency at the exchange rate ruling at thedate of the transaction. Monetary assets and liabilities denominated in foreigncurrencies, which are held at the year end, are translated into the functionalcurrency at the exchange rate ruling at the balance sheet date. Exchangedifferences on monetary items are taken to the income statement in the period inwhich they arise, except where these exchange differences form part of a netinvestment in overseas subsidiaries of Burberry Group, in which case suchdifferences are taken directly to the foreign currency translation reservewithin equity. Translation of the results of overseas businesses The results of overseas subsidiaries are translated into the Group'spresentation currency of Sterling at the weighted average exchange rate for theyear according to the phasing of the Group's trading results. The weightedaverage exchange rate is used, as it is considered to approximate the actualexchange rates on the date of the transactions. The assets and liabilities ofsuch undertakings are translated at the year end exchange rates. Differencesarising on the retranslation of the opening net investment in subsidiarycompanies, and on the translation of their results, are taken directly to theforeign currency translation reserve within equity and are reported in theconsolidated statement of changes in equity. The principal exchange rates usedwere as follows: Average Year to Year to 31 March 31 March 2006 2005 Euro 1.46 1.47US dollar 1.79 1.85Hong Kong dollar 13.77 14.40Korean won 1,796.97 2,040.52 Closing As at As at 31 March 31 March 2006 2005Euro 1.43 1.45US dollar 1.74 1.88Hong Kong dollar 13.48 14.69Korean won 1,687.95 1,920.46 Goodwill and fair value adjustments arising on the acquisition of a foreignoperation are treated as assets and liabilities of the foreign operation andtranslated at the closing rate. The average exchange rate achieved by Burberry Group on its Yen royalty income,taking into account its use of Yen forward sale contracts on a monthly basisapproximately 12 months in advance of royalty receipts, was Yen 190.3: £1 in theyear to 31 March 2006 (2005: Yen 184.3: £1). 3. Changes in accounting policies and presentation The results for the year to 31 March 2006 have incorporated the impact of theadoption of IAS 32 "Financial Instruments: Disclosure and Presentation" and IAS39 "Financial Instruments: Recognition and Measurement". Impact of the adoption of IAS 32 and IAS 39 IFRS 1 "First time adoption of IFRS" allows an entity, for financialinstruments, to produce comparative information, under previous UK GAAP.However, for the first IFRS reporting period, being 31 March 2006, theadjustment between the balance sheet at the comparative period's reporting date(under the previous GAAP) and the balance sheet at the start of the first IFRSreporting period must be accounted for as a change in accounting policy. The Group has taken advantage of this exemption and has adopted IAS 32"Financial Instruments: Disclosure and Presentation" and IAS 39 " FinancialInstruments: Recognition and Measurement" with effect from 1 April 2005. Theimpact of these standards on the Group's opening balance sheet is shown below. The principal impact of the adoption of IAS 32 and IAS 39 on the Group'sfinancial statements relates to the classification of redeemable preferenceshares and the recognition of derivative financial instruments. The adjustments to the opening balance sheet at 1 April 2005 are shown in thetable below, only those line items that have been impacted are shown: Opening Effect of adoption of Restated balance IAS 32 and IAS 39 opening sheet position under at IFRS 1 April 2005 £m Reclassification Remeasurement £m £m £mCurrent assetsTrade and other receivables 112.2 (0.4) - 111.8Derivative financial assets - 0.4 5.8 6.2Current liabilitiesDerivative financial liabilities - - (1.6) (1.6)Non-current liabilitiesLong term liabilities (14.8) (0.8) - (15.6)Deferred tax liabilities (13.0) - (1.5) (14.5) Impact on net assets (0.8) 2.7 Share capital 1.1 (0.8) - 0.3Hedging reserve - - 2.6 2.6Retained earnings 304.8 - 0.1 304.9 Impact on equity (0.8) 2.7 4 Segmental analysis (i) Primary segment - analysis by origin The geographical segment from which the products or services are supplied to athird party or another segment defines analysis by origin. All licensingactivity is recorded in Europe since the Intellectual Property of Burberry isowned by Burberry Limited, a UK based subsidiary. (a) Turnover and profit before taxation - by origin of business Europe comprises operations in France, Germany, Italy, Switzerland and the UK.North America comprises operations in the USA. Asia Pacific comprises operationsin Australia, Hong Kong, Japan, Korea, Malaysia, Singapore and Taiwan. Year to 31 March Spain Europe North Asia Total America Pacific 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m £m £m Gross segment 154.9 170.3 326.9 365.3 173.2 157.8 182.4 149.1 837.4 842.5turnoverInter-segment (0.5) (0.1) (93.5) (126.3) - - (0.5) (0.6) (94.5) (127.0)turnover Turnover 154.4 170.2 233.4 239.0 173.2 157.8 181.9 148.5 742.9 715.5 Operating profit 21.1 22.7 104.8 115.3 6.3 6.0 22.3 17.3 154.5 161.3Net finance income 2.5 4.9 Profit before 157.0 166.2taxationTaxation (50.6) (54.3) Attributable profit 106.4 111.9for the year The results above are stated after the allocation of costs of a Group-widenature. (b) Other segmental items - by origin of business Spain Europe North Asia Total America Pacific 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m £m £m Capital expenditure 4.0 7.0 13.6 16.7 12.5 17.6 2.9 1.6 33.0 42.9Depreciation 4.4 4.3 8.1 6.7 7.7 6.7 2.3 1.5 22.5 19.2Impairment charge - - 0.6 3.1 0.2 0.3 - - 0.8 3.4Reversal of impairment - - (0.4) (0.2) - - - - (0.4) (0.2)lossAmortisation- trademarks - - 0.9 0.8 - - - - 0.9 0.8- software 0.2 0.3 0.8 0.8 - - 0.1 0.1 1.1 1.2Other non-cashexpenses- share based payments 1.3 2.0 2.8 3.7 1.9 2.3 1.4 1.5 7.4 9.5 (c) Assets and liabilities - by origin of business As at 31 March Spain Europe North America Asia Pacific Total 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m £m £mSegmental assets 103.5 112.3 142.3 129.6 145.9 121.4 28.7 19.5 420.4 382.8Segmental (30.9) (36.7) (67.5) (79.6) (25.5) (19.0) (12.8) (12.4) (136.7) (147.7)liabilitiesNet operating 72.6 75.6 74.8 50.0 120.4 102.4 15.9 7.1 283.7 235.1assets Goodwill 121.2 114.0Deferred (11.5) (32.7)consideration foracquisitionsCash at bank, 12.5 169.9short termdeposits, lessbank overdraftsand borrowingsTaxation (19.3) (14.0)(includingdeferredtaxation)Net assets 386.6 472.3 (ii) Secondary segment - analysis by origin Segment turnover and profit before taxation - by class of business (being thechannels to market) Year to 31 March Retail Wholesale Total Licensing Total Retail and Wholesale 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m £m £m Gross segment 318.5 265.2 437.8 498.9 756.3 764.1 81.1 78.4 837.4 842.5turnoverInter-segment - - (94.5) (127.0) (94.5) (127.0) - - (94.5) (127.0)turnover Turnover 318.5 265.2 343.3 371.9 661.8 637.1 81.1 78.4 742.9 715.5 Other segmentalitemsSegment assets 418.1 380.3 2.3 2.5 420.4 382.8Capital 33.0 42.9 - - 33.0 42.9expenditure The results above are stated after the allocation of costs of a Group-widenature. (iii) Additional information Analysis of turnover is shown below as additional information: Turnover by product Year Year to to 31 31 March March 2006 2005 £m £m Womenswear 249.3 242.1Menswear 206.2 194.5Accessories (including Childrens) 203.2 197.6Other 3.1 2.9 Wholesale and Retail 661.8 637.1Licence 81.1 78.4 Total 742.9 715.5 Number of directly operated stores, concessions and outlets open at 260 15731 March Turnover by destination Year Year to to 31 31 March March 2006 2005 £m £m Spain 134.1 168.4Europe 216.3 188.0North America 180.4 165.9Asia Pacific 201.4 186.6Other 10.7 6.6 Total 742.9 715.5 5 Net operating expenses Year to Year to 31 31 March March 2006 2005 £m £m Distribution costs (125.9) (111.0)Administrative expenses (excluding Atlas costs) (156.3) (153.9)Atlas costs (11.1) -Property rental income under operating leases 0.1 0.9Profit on disposal of property, plant and equipment 1.6 1.1 Net operating expenses (291.6) (262.9) Operating profit for the year to 31 March 2006 includes a charge of £11.1m(2005: £nil) relating to Project Atlas, our major infrastructure redesigninitiative, which was announced in May 2005. In addition, a total of £3.9m(2005: £nil) has been spent on capitalised IT investment for Project Atlas inthe year to 31 March 2006. This project is designed to create a substantiallystronger platform to support the long term operations and growth of the Group.Investment in Project Atlas is expected to be around £50m over the three yearperiod to 2007/08. 6 Profit before taxation Year Year to to 31 31 March March 2006 2005 £m £mProfit before taxation is stated after charging/(crediting):Depreciation of property, plant and equipment- within cost of sales 1.3 1.3- within distribution costs 2.8 0.5- within administrative expenses 18.4 17.4Amortisation of trademarks and other intellectual property 2.0 2.0(included in administrative expenses)Fixed asset impairment charge relating to certain retail assets 0.8 3.4Reversal of asset impairment charge relating to certain retail (0.4) (0.2)assetsProfit on disposal of property, plant and equipment (1.6) (1.1)Project Atlas costs 11.1 -Employee costs (see note 29) 148.7 131.7Operating lease rentals- minimum lease payments 27.7 22.0- contingent rents 13.5 17.6Auditor's remuneration 2.4 2.1Net exchange loss/(gain) included in income statement 0.8 (0.7) Auditor's remuneration is further analysed as follows: Year Year to to 31 31 March March 2006 2005 £m £mAudit services- statutory audit 0.9 0.8- audit related services 0.1 0.3Further assurance services 0.3 0.3Tax services- compliance services 0.2 0.2- advisory services 0.9 0.5 Total 2.4 2.1 All work performed by the external auditors is controlled by an authorisationpolicy agreed by the Audit Committee. The over-riding principle is the auditorsare precluded from engaging in non-audit services that would compromise theirindependence. Non-audit services are provided by the auditors where they arebest placed to provide the service due to their previous experience or marketleadership in a particular area. (Further assurance work includes transactionrelated activities and ethical audits. Tax related services includes compliance,transfer pricing, and other activities where tax advice has been provided.) 7 Net finance income Year Year to to 31 31 March March 2006 2005 £m £m Bank interest income 3.7 4.4Interest income receivable from GUS related companies 0.1 0.9Other interest income 0.5 0.2 Interest receivable and similar income 4.3 5.5Interest on bank loans and overdrafts (1.8) (0.4)Interest expense payable to GUS related companies - (0.2) Interest expense and similar charges (1.8) (0.6) Net finance income 2.5 4.9 8 Taxation (i) Analysis of charge for the year recognised in the income statement Analysis of charge for the year Year Year to to 31 31 March March 2005 2006 £m £mCurrent tax UK corporation taxCurrent tax on income for the year to 31 March 2006 at 30% 30.4 37.3(2005: 30%)Double taxation relief (7.1) (7.4)Adjustment in respect of prior years 0.4 1.2 23.7 31.1 Foreign taxCurrent tax on income for the year 28.3 21.0Adjustments in respect of prior years 1.4 (1.1) Total current tax 53.4 51.0 Deferred tax UK deferred taxOrigination and reversal of temporary differences 0.2 0.9Adjustments in respect of prior years 0.7 (0.3) 0.9 0.6 Foreign deferred taxOrigination and reversal of temporary differences (1.9) 1.5Adjustments in respect of prior years (1.8) 1.2 Total deferred tax (2.8) 3.3 Tax on profit 50.6 54.3 (ii) Analysis of charge for the year recognised in equity Year Year to to 31 31 March March 2006 2005 £m £mCurrent taxCurrent tax charge/(credit) on share options (retained earnings) (0.6) -Current tax charge/(credit) on exchange differences on loans (0.2) (0.1)(translation reserve) Total current tax recognised in equity (0.8) (0.1) Deferred taxDeferred tax charge/(credit) on cash flow hedges recognised (1.5) -directly to equity (hedging reserve)Deferred tax charge/(credit) on cash flow hedges settled during (0.2) -the year (hedging reserve)Deferred tax charge/(credit) on share options (retained (2.0) (0.8)earnings)Deferred tax charge/(credit) on actuarial gains/losses 0.2 0.2recognised during the year (retained earnings) Total deferred tax charge/(credit) recognised in equity (3.5) (0.6) The tax rate applicable on profit varied from the standard rate of corporationtax in the UK due to the following factors: Year Year to to 31 31 March March 2006 2005 £m £m Tax at 30% on profit before taxation 47.1 49.9Rate adjustments relating to overseas profits (0.9) 0.2Permanent differences 3.6 2.3Tax losses utilised - (0.1)Tax losses for which no deferred tax recognised - (0.1)Adjustments in respect of prior years 0.8 1.5Other - 0.6Total taxation 50.6 54.3 A review is currently under way with the Competent Authorities with regard toresolving transfer pricing of internal sales between the UK and USA. As part ofthe agreements with GUS plc (Burberry Group's former parent company), certaintax liabilities, which arise and relate to matters prior to 31 March 2002 willbe met by GUS plc. From 1 April 2002, any liability will be due from BurberryGroup. No corporation tax provision has been made for additional taxationarising for these proceedings as none is anticipated overall. 9 Earnings per share The calculation of basic earnings per share is based on attributable profit forthe year divided by the weighted average number of Ordinary Shares in issueduring the year. Basic and diluted earnings per share before Atlas costs arealso disclosed to indicate the underlying profitability of Burberry Group. Year Year to to 31 31 March March 2006 2005 £m £m Attributable profit for the year before Atlas costs 114.8 111.9Effect of Atlas costs (after taxation) (8.4) - Attributable profit for the year 106.4 111.9 The weighted average number of Ordinary Shares represents the weighted averagenumber of Burberry Group plc Ordinary Shares in issue throughout the year,excluding Ordinary Shares held in Burberry Group's ESOPs. Diluted earnings per share is based on the weighted average number of OrdinaryShares in issue during the year. In addition, account is taken of any awardsmade under the share incentive schemes, which will have a dilutive effect whenexercised (full vesting of all outstanding awards is assumed). Year to Year to 31 March 31 March 2006 2005 Millions Millions Weighted average number of Ordinary Shares in issue during the 464.4 494.1yearDilutive effect of the share incentive schemes 13.2 10.4 Diluted weighted average number of Ordinary Shares in issue 477.6 504.5during the year Basic earnings per share Year Year to to 31 31 March March 2006 2005 Pence Pence Basic earnings per share before Atlas costs 24.7 22.7Effect of Atlas costs (1.8) - Basic earnings per share 22.9 22.7 Diluted earnings per share Year Year to to 31 31 March March 2006 2005 Pence Pence Diluted earnings per share before Atlas costs 24.1 22.2Effect of Atlas costs (1.8) - Diluted earnings per share 22.3 22.2 10 Dividends Ordinary dividends (Equity) Year Year to to 31 31 March March 2006 2005 £m £m Prior year final dividend paid (4.5p per share (2005: 3.0p)) - GUS group 14.2 9.9 - other Shareholders 7.3 5.0 Interim dividend paid (2.5p per share (2005: 2.0p)) - GUS group - 6.6- other Shareholders 11.3 3.4 Total 32.8 24.9 A final dividend in respect of the year to 31 March 2006 of 5.5p (2005: 4.5p)per share, amounting to £24.3m (2005: £21.7m), has been proposed for approval bythe Shareholders at the AGM subsequent to the balance sheet date. The finaldividend has not been recognised as a liability at the year end and will be paidon 3 August 2006 to Shareholders on the register at the close of business on 6July 2006. 11 Intangible assets Cost Goodwill Trademarks Computer Total and Software trading licences £m £m £m £m As at 1 April 2004 110.6 11.4 5.1 127.1Effect of foreign exchange rate changes 3.4 0.3 0.1 3.8Additions - 0.1 1.0 1.1Disposals - - (1.1) (1.1)Reclassifications - - 0.1 0.1 As at 31 March 2005 114.0 11.8 5.2 131.0Effect of foreign exchange rate changes 3.3 0.1 - 3.4Additions 3.9 0.1 4.9 8.9 As at 31 March 2006 121.2 12.0 10.1 143.3 Accumulated amortisationAs at 1 April 2004 - 1.5 3.3 4.8Effect of foreign exchange rate changes - - 0.1 0.1Charge for the year - 0.8 1.2 2.0Disposals - - (1.1) (1.1) As at 31 March 2005 - 2.3 3.5 5.8Effect of foreign exchange rate changes - - 0.1 0.1Charge for the year - 0.9 1.1 2.0 As at 31 March 2006 - 3.2 4.7 7.9 Net book valueAs at 31 March 2006 121.2 8.8 5.4 135.4As at 31 March 2005 114.0 9.5 1.7 125.2 Impairment testing of goodwill The cash generating units which have the most significant carrying values ofgoodwill allocated to them are Spain and Korea. The carrying value of thegoodwill allocated to these cash generating units is: As at As at 31 31 March March 2006 2005 £m £m Spain 89.1 87.9Korea 23.1 21.9Other 9.0 4.2 Total 121.2 114.0 At 31 March 2006 no impairment loss was recognised (2005: nil), as therecoverable amount of the goodwill for each cash generating unit exceeded itscarrying value. Spain The recoverable amount for Spain has been determined based on value in use. Thevalue in use calculation was performed using pre-tax cash flow projections forthe next three years based on financial plans approved by management. These cashflows were discounted at a rate of 12% (2005: 12%), being Burberry Group'spre-tax weighted average cost of capital adjusted for certain country specificcriteria. The future cash flows beyond the three year period were extrapolatedusing a long term growth rate of 3% (2005: 3%). Korea The recoverable amount for Korea was also calculated based on the value in use,using pre-tax cash flow projections for the next three years based on financialplans approved by management. The cash flows were discounted at a rate of 11%(2005: 13%), being Burberry group's pre-tax weighted average cost of capitaladjusted for certain country specific criteria. The future cash flows beyond thethree year period were extrapolated using a long term growth rate of 3% (2005:3%). 12 Property, plant and equipment Cost Freehold Leasehold Fixtures, Assets in Total land and Improvements fittings the course buildings and of equipment construction £m £m £m £m £m As at 1 April 2004 83.4 47.5 76.4 1.2 208.5Effect of foreign exchange rate 0.1 (0.7) 0.6 (0.1) (0.1)changesAdditions 1.2 12.3 23.6 4.7 41.8Disposals (1.1) (4.6) (7.0) - (12.7)Reclassifications - 1.0 0.1 (1.2) (0.1)Transfer to assets classified as (1.6) - - - (1.6)held for sale As at 31 March 2005 82.0 55.5 93.7 4.6 235.8Effect of foreign exchange rate 3.7 3.8 2.9 0.2 10.6changesAdditions 0.1 8.7 17.0 2.2 28.0Disposals - (0.3) (2.3) - (2.6)Reclassifications 0.3 3.7 0.3 (4.3) -Acquisition of subsidiary - - 0.6 - 0.6 As at 31 March 2006 86.1 71.4 112.2 2.7 272.4 Accumulated depreciationAs at 1 April 2004 15.1 13.8 41.4 - 70.3Effect of foreign exchange rate 0.1 (0.1) 0.5 - 0.5changesProvided in year 2.6 2.0 14.6 - 19.2Impairment charge on certain retail - 2.2 1.0 - 3.2assetsDisposals (0.2) (4.6) (6.6) - (11.4)Transfer to assets classified as (0.4) - - - (0.4)held for sale As at 31 March 2005 17.2 13.3 50.9 - 81.4Effect of foreign exchange rate 0.7 0.6 1.6 - 2.9changesProvided in year 2.5 4.3 15.7 - 22.5Impairment charge on certain retail - 0.1 0.3 - 0.4assetsDisposals - (0.1) (1.7) - (1.8)Reclassifications 0.3 - (0.3) - - As at 31 March 2006 20.7 18.2 66.5 - 105.4 Net book amountAs at 31 March 2006 65.4 53.2 45.7 2.7 167.0As at 31 March 2005 64.8 42.2 42.8 4.6 154.4 During the year to 31 March 2006 the trading performance of certain European andNorth American retail assets which had previously been impaired were furtherimpaired as trading conditions remained challenging. The impairment charge of£0.4m (2005: £3.2m) has been included in 'net operating expenses' in the incomestatement. The impairment charge was based on a review of the value of theassets in use and was based on pre-tax cash flows attributable to these assetsin accordance with IAS 36. The pre-tax discount rate used in these calculationswas 10%. Based on a valuation report prepared by Colliers Conrad Ritblat Erdman, dated 16May 2006, the existing use value of Burberry Group's ten most significantfreehold properties is £158m. This valuation is £96m higher than the net bookvalue of these assets. The directors do not intend to incorporate this valuationinto the accounts but set out the valuation for information purposes only. 13 Deferred taxation Deferred tax assets and liabilities are offset when there is a legallyenforceable right to offset current tax assets against current tax liabilitiesand there is an intention to settle on a net basis, in addition deferred incometaxes must relate to the same fiscal authority. The offset amounts are shown inthe table below: As at As at 31 31 March March 2006 2005 £m £m Deferred tax assets 16.6 15.0Deferred tax liabilities (10.5) (13.0) Net amount 6.1 2.0 The gross movement of the deferred tax account is as follows: Year Year to to 31 31 March March 2006 2005 £m £m Beginning of the year 2.0 4.6Impact of adopting IAS 32 and IAS 39 (see note 3) (1.5) -Effect of foreign exchange rate changes (0.7) 0.4(Charged)/credited to the income statement 2.8 (3.3)Tax (charged)/credited to equity 3.5 0.6Other movements - (0.3) End of the year 6.1 2.0 The movement in deferred tax assets and liabilities during the year, withouttaking into consideration the offsetting of balances within the same taxjurisdiction, are as follows: Deferred tax liabilities Accelerated Unrealised Share Derivative Unused Other Total capital stock schemes instruments tax allowances profit and losses other stock provisions £m £m £m £m £m £m £m As at 31 March 2004 (13.3) 1.2 0.5 - 0.2 (0.3) (11.7)Effect of foreign exchange rate 0.3 0.1 - - - (0.2) 0.2changesCharged/(credited) to the (3.4) 0.1 (0.1) - 0.5 (0.3) (3.2)income statement As at 31 March 2005 (16.4) 1.4 0.4 - 0.7 (0.8) (14.7)Impact of adopting IAS 32 and - - - 0.1 - - 0.1IAS 39 (see note 3)Effect of foreign exchange rate (1.2) 0.2 - - - (0.1) (1.1)changesCharged/(credited) to the 1.7 0.1 (0.4) - (0.2) 0.2 1.4income statementTax charged to equity - - - (0.1) - - (0.1)Other movements (0.1) 0.1 - - 0.2 3.4 3.6 As at 31 March 2006 (16.0) 1.8 - - 0.7 2.7 (10.8) Deferred tax assets Accelerated Unrealised Share Derivative Unused Other Total capital stock schemes instruments tax allowances profit losses and other stock provisions £m £m £m £m £m £m £m As at 1 April 2004 0.3 7.5 6.5 - 0.2 1.8 16.3Effect of foreign exchange rate - 0.1 - - - 0.1 0.2changesCharged/(credited) to the (0.2) (1.2) 0.8 - - 0.5 (0.1)income statementTax charged to equity - - 0.8 - - (0.2) 0.6Other movements - - - - - (0.3) (0.3) As at 31 March 2005 0.1 6.4 8.1 - 0.2 1.9 16.7Impact of adopting IAS 32 and - - - (1.6) - - (1.6)IAS 39 (see note 3)Effect of foreign exchange rate - 0.4 - - - - 0.4changesCharged/(credited) to the 0.6 0.5 (1.2) (0.2) - 1.7 1.4income statementTax charged to equity - - 2.0 1.8 - (0.2) 3.6Other movements (0.6) 0.7 - - (0.2) (3.5) (3.6) As at 31 March 2006 0.1 8.0 8.9 - - (0.1) 16.9 Deferred tax assets are recognised for tax loss carry forwards to the extentthat the realisation of the related benefit through the future taxable profitsis probable. The Group did not recognise deferred tax assets of £5.8m (2005:£4.9m) in respect of losses amounting to £25.2m (2005: £19.6m) that can becarried forward against the future taxable income. These losses have no setexpiry date. Other deferred tax assets of £0.1m (2005: £0.1m) were notrecognised in respect of temporary differences totalling £0.1m (2005: £0.3m), asit was not probable that there will be future taxable profits against whichthese assets can be offset. Deferred tax has not been recognised in respect of temporary differences of£70.6m (2005: £40.8m) regarding the unremitted earnings of certain subsidiaries.Such amounts are permanently reinvested. 14 Trade and other receivables As at As at 31 31 March March 2006 2005 £m £mNon-currentDeposits and prepayments 4.2 1.3 Total non-current trade and other receivables 4.2 1.3CurrentTrade receivables 93.6 95.2Provision for doubtful debts (4.2) (3.6) Net trade receivables 89.4 91.6Other receivables 3.1 1.5Prepayments and accrued income 15.5 19.1 Total current trade and other receivables 108.0 112.2 Total trade receivables 112.2 113.5 The principal non-current receivables are due within five years from the balancesheet date and are not interest bearing. 15 Stock As at As at 31 31 March March 2006 2005 £m £m Raw materials 15.6 13.5Work in progress 6.4 6.7Finished goods 102.2 82.3 Total 124.2 102.5 As at As at 31 31 March March 2006 2005 £m £m Cost of stock recognised as an expense during the year 298.9 290.3Stock written off during the year 1.3 2.0Reversal during the year of previous write downs of stock (3.4) (1.0) Total cost of sales 296.8 291.3 The reversal during the year of a previous write down of stock was consideredappropriate as a result of the change in market conditions. 16 Cash and cash equivalents As at As at 31 31 March March 2006 2005 £m £m Cash at bank and in hand 70.2 62.4Short term deposits 43.5 107.5 Total 113.7 169.9 At 31 March 2006 no balances were deposited with GUS group companies (2005:£18.3m). Prior period amounts were deposited on standards commercial terms. The effective interest rate on short term deposits was 3.4% (2005: 3.2%), thesedeposits have an average maturity of nine days (2005: 15 days). The effectiveinterest rate is the weighted average annual interest rate for the Group basedon local market rates on short term deposits. 17 Non-current asset held for sale No assets were held for sale as at 31 March 2006 (2005: £1.2m). The propertiesheld at 31 March 2005 were sold during the year and the gain is recognised inthe income statement. 18 Long term liabilities As at As at 31 31 March March 2006 2005 £m £mUnsecuredOther creditors, accruals and deferred income 9.6 4.8Deferred consideration for acquisition 5.0 10.0Total 14.6 14.8 Deferred consideration due after more than one year arises from the acquisitionof the trade and certain assets of the Burberry business in Korea. Redeemable preference share capital Called up redeemable preference shares, which do not carry any voting rights,were issued prior to flotation and were held by GUS group. The redeemable preference shares had the right to a non-cumulative dividend atthe rate per annum of six monthly LIBOR minus one percent and to a furtherdividend equal to the dividend per share paid on the Burberry Group plc'sOrdinary Shares once the total dividend on those Ordinary Shares that has beenpaid in any financial year reaches £100,000 per Ordinary Share. Burberry Group plc repurchased the preference shares on 12 January 2006 for £1and the balance was transferred to other reserves as a non-distributable item. The maturity of long term liabilities, all of which do not bear interest, are asfollows: As at As at 31 31 March March 2006 2005 £m £m Between one and two years 5.9 6.4Between two and three years 1.4 5.3Between three and four years 1.2 0.3Between four and five years 0.9 0.4Over five year 5.2 2.4 Total 14.6 14.8 19 Provisions for liabilities and charges Property obligations £m As at 1 April 2005 2.9Charged during the year 0.6Utilised during the year (0.7) As at 31 March 2006 2.8 Property obligations arise from the portfolio of leasehold obligations which theGroup maintains and are expected to be utilised within two years. 20 Trade and other payables As at As at 31 31 March March 2006 2005 £m £mUnsecuredTrade creditors 28.0 27.5Trading balances owed to GUS related companies - 6.8Other taxes and social security costs 6.0 6.7Other creditors 18.9 24.6Accruals and deferred income 67.5 72.3Deferred consideration for acquisitions 6.5 22.7 Total 126.9 160.6 Deferred consideration due within one year arises from the acquisition of theBurberry business in Korea and the Burberry Taiwan acquisition. 21 Share capital and reserves Authorised share capital 2006 2005 £m £m 1,999,999,998,000 (2005: 1,999,999,998,000) Ordinary Shares of 1,000.0 1000.00.05p (2005: 0.05p) eachTotal 1,000.0 1,000.0 Allotted, called up and fully paid share capital Number £m Ordinary Shares of 0.05p (2005: 0.05p) eachAs at 1 April 2005 488,916,927 0.3Allotted on exercise of IPO Option Scheme awards during the year 3,664,178 -Cancelled on repurchase of own shares (45,868,642) (0.1) As at 31 March 2006 446,712,463 0.2 Redeemable preference shares of 0.05p eachAs at 1 April 2005 1,600,000,000 0.8Impact of adopting IAS 32 and IAS 39 (see note 3) - (0.8)Shares redeemed during the year (1,600,000,000) - As at 31 March 2006 - - Share capital and reserves £mAs at 1 April 2005 1.1Impact of adopting IAS 32 and IAS 39 (see note 3) (0.8)Cancelled on repurchase of own shares (0.1) As at 31 March 2006 0.2 Statement of changes in Shareholders' equity Share Share Hedging Foreign Capital Retained Total reserve currency reserve earnings capital premium translation equity reserve £m £m £m £m £m £m £m Balance as at 1 April 2004 1.1 124.7 - - 25.1 281.3 432.2Currency translation differences - - - 5.5 (0.2) 0.2 5.5Actuarial loss on defined - - - - - (1.5) (1.5)benefit pension schemeTax on items taken directly to - - - (0.1) - (0.2) (0.3)equity Net income recognised directly - - - 5.4 (0.2) (1.5) 3.7in equityAttributable profit for the year - - - - - 111.9 111.9 Total recognised income/ - - - 5.4 (0.2) 110.4 115.6(expenses) for the yearEmployee share option scheme- value of share options granted - - - - - 9.5 9.5- tax on share options granted - - - - - 0.8 0.8- exercise of share options - 11.4 - - - - 11.4- price differential on exercise - - - - - (7.0) (7.0)of sharesShare buy back costs - - - - - (58.4) (58.4)Purchase of own shares by ESOPs - - - - - (8.7) (8.7)Sale of shares by ESOPs - - - - - 1.8 1.8Dividend expense for the year - - - - - (24.9) (24.9) Balance as at 31 March 2005 1.1 136.1 - 5.4 24.9 304.8 472.3Impact of adopting IAS 32 and (0.8) - 2.6 - - 0.1 1.9IAS 39 (see note 3) Restated balance as at 1 April 0.3 136.1 2.6 5.4 24.9 304.9 474.22005Cash flow hedges - - (3.8) - - - (3.8)Currency translation differences - - - 15.6 - - 15.6Actuarial gains on defined - - - - - 0.7 0.7benefit pension schemeTax on items taken directly to - - 1.5 0.2 - (0.2) 1.5equity Net income recognised directly - - (2.3) 15.8 - 0.5 14.0in equityTransferred to profit and loss - - (0.7) - - - (0.7)on cash flow hedgesTax on items transferred from - - 0.2 - - - 0.2equityAttributable profit for the year - - - - - 106.4 106.4 Total recognised income/ - - (2.8) 15.8 - 106.9 119.9(expenses) for the yearEmployee share option scheme- value of share options granted - - - - - 7.4 7.4- tax on share options granted - - - - - 2.6 2.6- exercise of share options - 15.7 - - - - 15.7- price differential on exercise - - - - - (12.0) (12.0)of sharesShare buy back costs (0.1) - - - 0.1 (191.6) (191.6)Sale of shares by ESOPs - - - - - 2.4 2.4Redemption of preference shares - - - - 0.8 - 0.8Dividend expense for the year - - - - - (32.8) (32.8) Balance as at 31 March 2006 0.2 151.8 (0.2) 21.2 25.8 187.8 386.6 During the year to 31 March 2006, the Company repurchased and subsequentlycancelled 45,868,642 Ordinary Shares, representing nine percent of the issuedshare capital, at a total cost of £191.6m. The nominal value of the shares was£22,934, which was transferred to a capital redemption reserve. Retainedearnings were reduced by £191.6m. This amount included 870,030 Ordinary Sharespurchased in the year to 31 March 2005 which were cancelled in the current year.The share repurchase programme commenced in January 2005 and since then a totalof 60,584,230 Ordinary Shares have been repurchased and subsequently cancelled.This represents 12 percent of the original issued share capital at a total costof £250m. The nominal value of the shares was £30,292 and has been transferredto a capital redemption reserve and the retained earnings have been reduced by£250m since this date. The cost of own shares held in the Burberry Group ESOPs has been offset againstretained earnings, as the amounts paid reduce the profits available fordistribution by the Burberry Group and the Company. As at 31 March 2006 theamounts offset against this reserve are £16.0m (2005: £19.0m). Revaluation reserves of £23.4m (2005: £23.4m) recognised under UK GAAP have beentransferred to retained earnings and are considered non-distributable. Thisamount will become distributable if the revalued properties are sold. Dividend distributions are dependent on the Company's accumulated retainedearnings. As at 31 March 2006 the retained earnings of the Company was £541.1m(2005: £744.5m). The capital reserve consists of non-distributable reserves and the capitalredemption reserve arising on the purchase of own shares. 22 Financial commitments Burberry Group has commitments relating to future minimum lease payments undernon-cancellable operating leases as follows: As at 31 March 2006 As at 31 March 2005 Land and Other Total Land and Other Total buildings buildings £m £m £m £m £m £mAmounts falling dueWithin one year 26.0 1.3 27.3 20.7 0.5 21.2Between two and five years 80.2 1.5 81.7 64.6 0.6 65.2After five years 112.2 2.7 114.9 91.2 - 91.2 Total 218.4 5.5 223.9 176.5 1.1 177.6 The financial commitments for operating lease amounts calculated as a percentageof turnover ("turnover leases") have been based on the minimum payment that isrequired under the terms of the relevant lease. Under certain turnover leases,there are no minimums and therefore no financial commitment is included in thetable above. As a result, the amounts charged to the income statement may bematerially higher than the financial commitment at the prior year end. The total of future minimum sublease payments to be received undernon-cancellable subleases at 31 March 2006 are as follows: As at As at 31 March 31 March 2006 2005 Land and Land and buildings buildings £m £mAmounts falling due:Within one year 0.1 -Between two and five years 0.4 -After five years 0.9 - Total 1.4 - Where rental agreements include a contingent rental, this contingent rent isgenerally calculated as a percentage of turnover. Escalation clauses increasethe rental to either open market rent, a stipulated amount in the rentalagreement, or by an inflationary index percentage. There are no significantrestrictions imposed by these lease agreements. 23 Capital commitments As at As at 31 31 March March 2006 2005 £m £mCapital commitments contracted but not provided for- property, plant and equipment 3.5 9.7- intangible assets 0.1 - Total 3.6 9.7 Contracted capital commitments represent contracts entered into by the year endand major capital expenditure projects where activity has commenced by the yearend relating to property, plant and equipment. 24 Contingent liabilities Since 31 March 2005 the following changes to material contingent liabilitieshave occurred: The Group had received a claim from the liquidator of Creation Cent Mille SA("CCM") a former licensee of Burberry Group, seeking to set aside thetermination of the licence agreement between Burberry Limited and CCM. Duringthe year this matter was concluded and Burberry made no payment to CCM or theliquidator in respect of this claim. In 1994 Burberry Limited granted a licence to Safilo to manufacture and selleyewear. The licence expired on 31 December 2005. Safilo did not accept theterms of a new licence, which Burberry offered it for a period from 1 January2006. In October 2005, Burberry entered into an eyewear licence with Luxotticafor a ten year period from 1 January 2006. Safilo had alleged in correspondencethat it had a right of first refusal of any licence for eyewear from 1 January2006. On the basis of this alleged right Safilo sought a court order requiringdisclosure of the licence entered into with Luxottica. Safilo was unsuccessfulin this application. Safilo has paid outstanding royalties due under itslicence. If Safilo were to make any further claim for damages or otherwise inrelation to this matter Burberry will continue to defend any such claimvigorously, which (on legal advice) it considers without merit. Under the terms of a Demerger Agreement, entered into with GUS plc on 13December 2005, Burberry continues to participate in the GUS defined benefitscheme. Under this scheme Burberry is jointly and severally liable with theother participating GUS companies for the deficit in this scheme. When Burberryleaves the scheme it will be required to pay an exit charge calculated pursuantto Section 75 of the Pensions Act. GUS plc has agreed to pay to Burberry theamount of this liability to the extent it exceeds £1.25 million. Other material contingent liabilities reported at 31 March 2005 remain unchangedand were: Under the GUS group UK tax payment arrangements, the Group was jointly andseverally liable for any GUS liability attributable to the period of BurberryGroup's membership of this payment scheme. Burberry Group's membership of thisscheme was terminated with effect from 31 March 2002. Burberry (Spain) S.A. is liable for certain salary and social securitycontributions left unpaid by its sole contractors where the amounts areattributable to the period in which subcontracting activity is undertaken onbehalf of Burberry (Spain) S.A. It is not feasible to estimate the amount ofcontingent liability, but such expense has been minimal in prior years. 25 Acquisition of subsidiary On 1 August 2005 the Burberry Group acquired the Burberry trade and certainassets and liabilities ("the Burberry Taiwan acquisition") from Chang's Kent Co.Limited and Ming Pu Co. Limited, which were Burberry distributors in Taiwan. The Burberry Taiwan acquisition resulted in the acquisition of 12 retail storesand concessions for £5.9m. All assets were recognised at their respective fairvalues and the residual excess over the net assets acquired is recognised asgoodwill in the financial statements. The fair value adjustments contain someprovisional amounts which will be finalised by 31 July 2006, principally inrelation to amounts payable in terms of the earn out agreement. Details of the net assets acquired and goodwill are as follows: Book Fair value Fair value adjustments value £m £m £m Net assets acquiredProperty, plant and equipment 0.6 - 0.6Stock 1.6 (0.1) 1.5Trade and other receivables 0.1 - 0.1Trade and other payables - (0.2) (0.2) 2.3 (0.3) 2.0 Goodwill 3.9Total consideration 5.9 Satisfied by Cash 3.7Deferred consideration within one year 1.5Commission paid in January 2006 0.3Direct costs relating to the acquisition 0.4 5.9 The acquired business contributed turnover of £10.9m and attributable profit of£0.6m to the Group for the period from 1 August 2005 to 31 March 2006. If the acquisition had been completed on 1 April 2005, it is estimated that theimpact on the Group turnover for the full year would have been £16.3m, andattributable profit would have been £0.9m. Goodwill has arisen on the acquisition because of anticipated synergies that donot meet the criteria for recognition as an intangible asset at the date ofacquisition. 26 Derivative financial instruments The Group adopted IAS 32 and IAS 39 with effect from 1 April 2005 and the impactof this is shown in note 3 - Changes in accounting polices and presentation. Asa result of adopting these standards on 1 April 2005 no comparatives are shown. The Group income statement is affected by transactions denominated in foreigncurrency. To reduce exposure to currency fluctuations, the Group has a policy ofhedging foreign currency denominated transactions by entering into forwardexchange contracts. These can be analysed into two categories. Cash flow hedges Burberry Group's principal foreign currency denominated transactions arise fromroyalty income and the sale and purchase of overseas sourced products. In theUK, the Group manages these exposures by the use of Yen and Euro forwardexchange contracts for a period of 12 months in advance. In addition, theGroup's overseas subsidiaries hedge the foreign currency element of theirproduct purchases on a seasonal basis. This hedging activity involves the use ofspot and forward currency instruments. Fair value hedges Certain intercompany loan balances are hedged using forward exchange contractsto offset any volatility in foreign currency movements and tax arising thereon.The balances are hedged up to the date of repayment. Derivative financial assets As at As at 31 March 31 2006 March 2005 £m £m Forward foreign exchange contracts - cash flow hedges at - -beginning of yearImpact of adopting IAS 32 and IAS 39 5.8 -Effect of foreign exchange rate changes 0.2 -Arising during the year and taken directly to equity 2.4 -Released from equity to the income statement during the year (6.7) - Forward foreign exchange contracts - cash flow hedges at end of 1.7 -yearForward foreign exchange contracts - held for trading 0.6 -Equity swap contracts 0.5 - Total current position 2.8 - Cash flow hedges expected to be recognised in the year to 31 1.7 -March 2007 Derivative financial liabilities As at As at 31 March 31 March 2006 2005 £m £m Forward foreign exchange contracts - cash flow hedges at - -beginning of yearImpact of adopting IAS 32 and IAS 39 (1.6) -Effect of foreign exchange rate changes (0.2) -Arising during the year and taken directly to equity (4.7) -Released from equity to the income statement during the year 4.5 - Forward foreign exchange contracts - cash flow hedges at end of (2.0) -yearForward foreign exchange contracts - held for trading (0.1) - Total current position (2.1) - Cash flow hedges gain expected to be recognised in the year to 31 (2.1) -March 2007 As at As at 31 March 31 March 2006 2005 £m £m The notional principal amounts of the outstanding forward foreign 120.4 -exchange contractsThe notional principal amounts of the outstanding equity swap 3.7 -contractsThe movement on the non-designated hedges for the year recognised 0.6 -within net finance income in the income statementThe movement on the non-designated hedges for the year recognised (0.1) -within the translation reserve Gains and losses on cash flow hedges recognised directly to thehedging reserve within equityGross (3.8) -Tax 1.5 -Net (2.3) - The current portion of the financial instruments matures at various dates withinone month to one year from the balance sheet date. 27 Bank overdrafts and borrowings As at As at 31 March 31 March 2006 2005 £m £mUnsecuredBank overdrafts 51.2 -Bank borrowings 50.0 - Total 101.2 - Bank overdrafts represent balances on cash pooling arrangements in the Group.The effective interest rate for the overdraft balances is 5.3% (2005: nil). A £200m five year multi currency revolving facility was agreed with a syndicateof third party banks commencing on 30 March 2005. At 31 March 2006, the amountdrawn down was £50m (2005:nil). This drawdown was made in Sterling. Interest ischarged on this loan at LIBOR plus 0.325% per annum and the borrowing matured on27 April 2006. 28 Financial risk management The Group's principal financial instruments, other than derivatives, comprisecash and short term deposits, external borrowings, redeemable preference shares,deferred consideration, as well as trade debtors and creditors, arising directlyfrom operations. The Group's activities expose it to a variety of financial risks: market risks(including currency risk, fair value interest risk and price risk), credit risk,liquidity risk and cash flow interest rate risk. Risk management is carried out by a central treasury department (Grouptreasury). Burberry Group's treasury department seeks to reduce financial riskand to ensure sufficient liquidity is available to meet foreseeable needs and toinvest in cash assets safely and profitably. This is done in close co-operationwith the Group's operating units. Burberry Group's treasury department does notoperate as a profit centre and transacts only in relation to the underlyingbusiness requirements. The policies of the Group treasury department arereviewed and approved by the Board of Directors. The Group uses derivativeinstruments to hedge certain risk exposures. (i) Market Risk Foreign exchange risk The Group operates internationally and is exposed to foreign exchange riskarising from various currency exposures. Burberry Group monitors thedesirability of hedging the profits and the net assets of the overseassubsidiaries when translated in to Sterling for reporting purposes. It has notentered into any specific transactions for this purpose. Burberry Group's income statement is affected by transactions denominated inforeign currency. To reduce exposure to currency fluctuations, Burberry Grouphas a policy of hedging foreign currency denominated transactions by enteringinto forward exchange contracts (see note 26). The Group's accounting policy inrelation to derivative instruments are set out in note 2. Price Risk The Group's exposure to equity securities price risk is minimal. The Group isnot exposed to commodity price risk. (ii) Credit risk The Group has no significant concentrations of credit risk. It has policies inplace to ensure that wholesale sales of products are made to customers with anappropriate credit history. Sales to retail customers are made in cash or viamajor credit cards. In addition, receivables balances are monitored on anongoing basis with the result that the Group's exposure to bad debts is notsignificant. With respect to credit risk arising from other financial assets, which comprisecash and short term deposits and certain derivative instruments, the Group'sexposure to credit risk arises from the default of the counter party with amaximum exposure equal to the carrying value of these instruments. The Group haspolicies that limit the amount of credit exposure to any financial institution. (iii) Liquidity Risk The Group financial risk management policy aims to ensure that sufficient cashis maintained to meet foreseeable needs and close out market positions. Due tothe dynamic nature of the underlying business, the Group treasury departmentaims to maintain flexibility in funding by keeping committed credit linesavailable. For further details of this, see note 27. (iv) Cash flow interest rate risk The Group's exposure to market risk for changes in interest rates, relatesprimarily to cash, short term deposits and external borrowings. The external borrowings are linked to the LIBOR rate, while cash and short termborrowings are affected by local market rates around the Group. The borrowingsat variable rates exposes the Group to cash flow interest rate risk. Currently, this risk is not hedged as the risk is not considered significant.This situation is monitored by the Group treasury department. (a) Fair values of financial assets and financial liabilities Set out below is a comparison by category of book values and fair values ofBurberry Group's financial assets and financial liabilities: As at As at 31 31 March March 2006 2005 book book and and fair fair value value £m £m Primary financial instruments held or issued to finance theGroup's operationsCash at bank and in hand 70.2 62.4Short term deposits 43.5 107.5 Total financial assets 113.7 169.9 Interest bearing borrowings (101.2) (0.8)Other financial liabilities (23.9) (40.2) Total financial liabilities (125.1) (41.0) Total net financial investments (11.4) 128.9 The fair values of the trade receivables and payables are the same as theircarrying values. 2006 2005 £m £mDerivative financial instruments held to manage the currencyprofileForward foreign currency contracts- book value 0.7 -- fair value 0.7 4.2 Fair value methods and assumptions Fair value is the amount at which a financial instrument could be exchanged inan arm's length transaction between informed and willing parties, other than aforced or liquidation sale and excludes accrued interest. The principalassumptions are: i) The fair value of short term deposits, borrowings and overdrafts approximates to the carrying amount because of the short maturity of these instruments. ii) The fair value of foreign currency contracts is based on a comparison of the contractual and market rates after discounting using the prevailing interest rates at the time. (b) Interest rate risk profile Financial assets The interest rate risk profile of Burberry Group's financial assets by currencyis as follows: Currency Cash Short Total at term bank deposits and in hand £m £m £mAs at 31 March 2006Sterling 5.5 5.0 10.5US dollar 14.4 0.4 14.8Euro 37.6 14.0 51.6Other currencies 12.7 24.1 36.8 Total 70.2 43.5 113.7 Floating rate assets 56.4 43.5 99.9Balances for which no interest is paid 13.8 - 13.8 As at 31 March 2005Sterling 6.4 63.0 69.4US dollar 14.1 2.4 16.5Euro 22.0 34.8 56.8Other currencies 19.9 7.3 27.2 Total 62.4 107.5 169.9 Floating rate assets 47.7 107.5 155.2Balances for which no interest is paid 14.7 - 14.7 Floating rate assets earn interest based on the relevant national LIBIDequivalents. Balances for which no interest is paid is made up of Sterling £3.8m (2005:£0.7m), Euros £0.2m (2005: £1.8m) and Hong Kong dollars £2.2m (2005: £5.2m),Singapore dollars £3.3m (2005: £1.9m), Japanese Yen £3.9m (2005: £ 5.1m) andMalaysian Ringgit £0.4m (2005: nil). These amounts arise principally due to thetiming of transactions. Financial liabilities The interest rate risk profile of Burberry Group's financial liabilities bycurrency is as follows: Currency Floating Financial Total rate liabilities financial on which no liabilities interest is payable £m £m £mAs at 31 March 2006Sterling 50.0 16.6 66.6US dollar - 5.2 5.2Euro 27.7 1.3 29.0Other currencies 23.5 0.8 24.3 Total 101.2 23.9 125.1 As at 31 March 2005Sterling 0.8 20.4 21.2US dollar - 3.8 3.8Euro - 15.7 15.7Other currencies - 0.3 0.3 Total 0.8 40.2 41.0 The floating rate financial liabilities at 31 March 2006 and 2005 incurredinterest based on relevant national LIBOR equivalents. The floating rate financial liabilities at 31 March 2006 and 2005 includeoverdraft balances of £51.2m (2005: £0.8m). In addition, preference shares of atotal value of £0.8m were in existence as at 31 March 2005. Refer to note 18 forfurther details regarding the preference shares. (c) Maturity of financial liabilities The maturity profile of the carrying amount of Burberry Group's financialliabilities, other than short term trade creditors and accruals, are as follows: As at 31 March 2006 Debt Non-equity Deferred Other Total shares consideration financial liabilities £m £m £m £m £m In one year or less, or on demand 101.2 - 6.5 1.9 109.6In more than one year but not more than two - - 5.0 1.8 6.8yearsIn more than two years but not more than three - - - 1.4 1.4yearsIn more than three years but not more than - - - 1.2 1.2four yearsIn more than four years but not more than five - - - 0.9 0.9yearsIn more than five years - - - 5.2 5.2 Total 101.2 - 11.5 12.4 125.1 As at 31 March 2005 Debt Non-equity Deferred Other Total shares consideration financial liabilities £m £m £m £m £m In one year or less, or on demand - - 22.7 2.6 25.3In more than one year but not more than two - - - 1.5 1.5yearsIn more than two years but not more than three - 0.8 10.0 0.3 11.1yearsIn more than three years but not more than - - - 0.3 0.3four yearsIn more than four years but not more than five - - - 0.4 0.4yearsIn more than five years - - - 2.4 2.4 Total - 0.8 32.7 7.5 41.0 Non-equity shares relate to redeemable preference shares, on which anon-cumulative dividend is paid (see note 18 for further details). All deferredconsideration is payable in cash. Other financial liabilities principally relate to accrued lease liabilities£6.3m (2005: £4.2m), and property related accruals £1.2m (2005: nil) which areincluded in other creditors falling due after more than one year, and provisionsfor certain property obligations £2.8m (2005: £2.9m), which are included inprovisions. (d) Currency exposures The tables below show the extent to which Burberry Group has monetary assets andliabilities at the year end in currencies other than the local currency ofoperation, after accounting for the effect of any specific forward contractsused to manage currency exposure. Monetary assets and liabilities refer to cash,deposits, borrowings and amounts to be received or paid in cash. Foreignexchange differences on retranslation of these assets and liabilities are takento the profit and loss account. Net foreign currency monetary assets/ (liabilities) Functional currency of operation Sterling US Euro Other Total dollar currencies £m £m £m £m £mAs at 31 March 2006Sterling - 0.3 8.6 (0.1) 8.8Other currencies (1.3) (0.2) (0.1) - (1.6) Total (1.3) 0.1 8.5 (0.1) 7.2 As at 31 March 2005Sterling - 0.3 - 0.9 1.2Euro 0.4 0.3 - - 0.7Other currencies 4.3 2.8 - - 7.1 Total 4.7 3.4 - 0.9 9.0 This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW

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