25th May 2006 07:04
Burberry Group PLC25 May 2006 Part 2 of 2 29 Employee costs Staff costs, including directors' emoluments, during the year are as shownbelow. The directors' emoluments are separately disclosed in the "Report onDirectors' remuneration and related matters", this includes gains arising on theexercise of share options. Year Year to to 31 31 March March 2006 2005 £m £m Wages and salaries 124.7 107.4Social security costs 13.9 12.4Share based compensation (all awards settled in shares) 7.4 9.5Other pension costs (see note 30) 2.7 2.4 Total 148.7 131.7 The average number of full time equivalent employees (including directors)during the year are as follows: Year to Year to 31 March 31 March 2006 2005 Number of Number of employees employees * Spain 917 904Europe 2,149 1,982North America 902 837Asia Pacific 683 506 Total 4,651 4,229 *Restated to include employees omitted in prior period. The total compensation paid to key management, defined as the executive andnon-executive directors, during the year are as follows: Year Year to to 31 31 March March 2006 2005 £m £m Salaries and short term benefits 4.3 4.0Post-employment benefits 0.5 0.2Share based compensation 3.8 5.1 Total 8.6 9.3 In addition, aggregate gains on the exercise of options in the year to 31 March2006 were £8.4m (2005: £6.4m). Share options granted to directors and employees The share option schemes have been valued using the Black-Scholes option pricingmodel. The Senior Executive Restricted Share Plan 2004, which has market basedperformance conditions attached, has been valued using the Black-Scholes pricingmodel with a discount applied to this value, based on information obtained byrunning a Monte Carlo simulation model on the scheme. SAYE share option scheme A Save As You Earn (SAYE) share option scheme offering GUS plc ordinary shareswas introduced for employees in the UK by GUS plc in the year to 31 March 2002,with a further option scheme offered to all UK employees of GUS plc in the yearto 31 March 2003. For both of the grants made, employees were entitled to savefor either three years or five years. The options granted in the year to 31 March 2002 are exercisable from 1 May 2004(three year) and 1 May 2006 (five year) and are dependent on continuedemployment over the vesting period. The options granted in the year to 31 March2003 are exercisable from 1 September 2005 (three year) and 1 September 2007(five year) and are dependent on continued employment, as well as a savingobligation over the vesting period. The exercise price for these options is calculated at a 20 percent discount tomarket price over the three dealing days preceding the grant date. Three dayaverages are calculated by taking middle market quotations of a GUS plc sharefrom the London Stock Exchange. Movements in the number of SAYE share options in GUS plc shares outstanding andtheir weighted average exercise price are as follows: Weighted Number Weighted Number of average of average shares exercise shares exercise under price under option as option price at 31 as at 31 March March 2005 2006 Outstanding at 1 April 432.5p 187,891 408.3p 404,258Lapsed during the year 429.5p (15,119) 422.0p (14,389)Exercised during the year 492.3p (43,024) 384.8p (201,978) Outstanding at 31 March 413.0p 129,748 432.5p 187,891 Exercisable at 31 March - - - - SAYE share options in GUS plc shares outstanding at the end of the year have thefollowing expiry date and exercise prices: Option term Exercise Number Number price of of shares shares under under option option as at as at 31 31 March March 2006 2005 5 July 2002 - 28 February 2006 523.0p - 36,1849 February 2001 - 31 October 2006 384.0p 102,723 122,4065 July 2002 - 29 February 2008 523.0p 27,025 29,301 Total 129,748 187,891 The administrative costs of this scheme have not been borne by Burberry Groupand are not considered to be material. As a result of the demerger from GUS plc on 13 December 2005, the employees whoheld options at this date as part of the GUS SAYE share option scheme have sixmonths from the date of the demerger to exercise these options. Share options and awards i) GUS schemes Share options have been granted to Burberry employees under the GUS 1998Approved and Non-Approved Executive Share Option Schemes during the years to 31March 2001 and 2002 in respect of the ordinary shares of GUS plc. The options awarded in the year to 31 March 2001 were exercisable from 7 April2003. The options awarded in the year to 31 March 2002 were exercisable from 11June 2004. These options have a non-market performance condition attached. Theoptions may be exercised if GUS adjusted earnings per share over a period ofthree consecutive financial years have increased by an average of at least fourpercent per annum more than the growth in the Retail Prices Index. The period ofassessment commences at the beginning of the financial year of grant. Movements in the number of share options outstanding and their weighted averageexercise price are as follows: Weighted Number of Weighted Number of average shares average shares exercise under exercise under price option as option as at 31 price at 31 March March 2006 2005 Outstanding at 1 April 595.2p 500,007 608.5p 1,328,829Lapsed during the year - - 635.0p (119,624)Exercised during the year 580.9p (299,564) 613.4p (709,198) Outstanding at 31 March 616.6p 200,443 595.2p 500,007Exercisable at 31 March 616.6p 200,443 595.2p 500,007 Share options outstanding at the end of the year have the following expiry dateand exercise prices: Option term Exercise Number Number price of of shares shares under under option option as at as at 31 31 March March 2006 2005 7 April 2000 - 7 April 2010 375.7p - 40,45811 June 2001 - 11 June 2011 612.7p 165,799 421,71717 December 2001 - 17 December 2011 635.0p 34,644 37,832 Total 200,443 500,007 As a result of the demerger from GUS plc on 13 December 2005, the employees whoheld options at this date as part of the GUS share option scheme have six monthsfrom the date of the demerger to exercise these options. ii) The Burberry IPO Senior Executive Restricted Share Plan (the 'RSP') On 11 July 2002 awards in respect of a total of 8,100,198 Ordinary Shares weremade to directors and senior management under the RSP. The restricted shares vest in three stages, 50 percent are exercisable afterthree years, 25 percent are exercisable after four years and 25 percent areexercisable after five years. The vesting of these share options is dependent oncontinued employment over the vesting period. Obligations under this plan may be met by the issue of Ordinary Shares of theCompany. Movements in the number of share options outstanding and their weighted averageexercise price are as follows: Weighted Number of Weighted Number of average shares average shares exercise under exercise under price option as price option as at at 31 March 31 March 2006 2005 Outstanding at 1 April Nil 6,571,640 Nil 7,718,894Granted during the year Nil - Nil 231,640Lapsed during the year Nil (911,640) Nil (343,894)Exercised during the year Nil (2,050,000) Nil (1,035,000) Outstanding at 31 March Nil 3,610,000 Nil 6,571,640Exercisable at 31 March Nil 12,499 Nil - Share options outstanding at the end of the year have the following terms andexercise prices: Option term Exercise Number of Number of price shares shares under under option as option as at at 31 31 March March 2006 2005 11 July 2002 - 11 July 2012 Nil 3,610,000 6,340,0002 August 2004 - 2 August 2014 Nil - 231,640 Total 3,610,000 6,571,640 Equity swaps have been entered into to cover future employer's NationalInsurance liability (or overseas equivalent) that may arise in respect of thisplan. iii) Burberry Senior Executive Restricted Share Plan 2004 On 21 July 2005 awards in respect of a total of 1,904,732 (2005: 1,367,592)Ordinary Shares were made to directors and senior management under the 2004 RSP. The options vest in three stages, 50 percent are exercisable after three years,25 percent are exercisable after four years and 25 percent are exercisable afterfive years. The vesting of these share options is dependent on two performanceconditions. Vesting of RSP shares is based 50 percent on Burberry's three yeartotal Shareholder return (TSR) relative to peers and 50 percent on three yeargrowth in profit before taxation ("PBT"). Awards vest in full only if Burberryachieves at least upper quartile TSR compared to its global peers and at least15 percent per annum profit growth, and the executive remains in employment withBurberry for at least five years. A proportion of an award (12.5%) may vest ifTSR performance exceeds the median of the peer group or if PBT growth exceedsfive percent per annum over three years. The vesting of these share options isalso dependent on continued employment over the vesting period. An additional grant in respect of 508,474 (2005: nil) Ordinary Shares was madeto Angela Ahrendts on 31 January 2006. These options vest in three stages, 50 percent are exercisable after threeyears, 25 percent are exercisable after four years and 25 percent areexercisable after five years. The performance conditions attached with thisaward are the same as those attached to previous awards under this scheme;however, the performance period for this award is only two years. Shares have been purchased by the Burberry Group plc ESOP Trust to meetobligations under this plan. Movements in the number of share optionsoutstanding and their weighted average exercise price are as follows: Weighted Number of Weighted Number of average shares average shares exercise under under option as exercise option as price at price at 31 March 31 March 2006 2005 Outstanding at 1 April Nil 1,342,592 - -Granted during the year Nil 2,413,206 Nil 1,367,592Lapsed during the year Nil (190,321) Nil (25,000) Outstanding at 31 March Nil 3,565,477 Nil 1,342,592Exercisable at 31 March - - Share options outstanding at the end of the year have the following terms andexercise prices: Option term Exercise Number of Exercise Number of shares shares price under price under option as option as at at 31 March 31 March 2006 2005 2 August 2004 - 2 August 2014 Nil 1,322,592 Nil 1,342,59221 July 2005 - 21 July 2015 Nil 1,734,411 - -31 January 2006 - 31 January 2016 Nil 508,474 - - Total Nil 3,565,477 Nil 1,342,592 Equity swaps have been entered into to cover future Employer's NationalInsurance liability (or overseas equivalent) that may arise in respect of thisscheme. For the new awards made on 21 July 2005, the fair value for those restrictedshares with the profit before tax performance condition was determined as £4.27by applying the Black-Scholes option pricing model. A discount was applied tothe restricted shares with the total shareholder return performance condition,by applying the Monte Carlo model. The fair value for these restricted shareswas determined to be £1.46. For the new awards made on 31 January 2006, the fair value for those restrictedshares with the profile before tax performance conditions was determined as£4.34 by applying the Black-Scholes option - price model. A discount was appliedto the restricted shares with the total Shareholder return performancecondition, by applying the Monte Carlo model. The fair value for theserestricted shares was determined to be £1.82. As dividends accrue during the vesting period, expected dividends were notincorporated into the measurement of fair value. The key factors used indetermining the fair value of the options were as follows: 21 July 31 January 2005 2006Weighted average share price at grant £4.27 £4.34dateExercise price - -Option life Equivalent to Equivalent to vesting period vesting periodExpected volatility 28.5% 29.4%Risk free interest rate 4.3% 4.2% Expected volatility was determined by calculating the historic annualisedstandard deviation of the continuously compounded rates of return on the sharesover a period of time, prior to the grant, equivalent to the life of the option.As share price information was only available for Burberry Group plc from July2002 an average of a comparator group of companies was used prior to this date.The average expected volatility over the life of the option was used. iv) Burberry Restricted Share Reinvestment Plan On 21 July 2005 awards in respect of a total of 782,500 (2004: nil) OrdinaryShares were made to senior management under the Restricted Share ReinvestmentPlan. The options vest in two stages, 50 percent are exercisable after three years and50 percent are exercisable after four years. The vesting of these share optionsis dependent on the employee holding the original IPO RSP shares which wereawarded and which vested on 11 July 2005. The vesting of these share options isalso dependent on continued employment over the vesting period. Movements in the number of share options outstanding and their weighted averageexercise price are as follows: Weighted Number Weighted Number average of average of exercise shares exercise shares price under under option price option as at as at 31 31 March March 2006 2005 Outstanding at 1 April - - - -Granted during the year Nil 782,500 - -Outstanding at 31 March Nil 782,500 - -Exercisable at 31 March - - - - Share options outstanding at the end of the year have the following expiry dateand exercise prices: Option term Exercise Number Exercise Number of of Price shares price shares under under option option as at as at 31 31 March March 2006 2005 21 July 2005 - 21 July 2015 Nil 782,500 - - Total - 782,500 - - Equity swaps have been entered into to cover future Employer's NationalInsurance liability (or overseas equivalent) that may arise in respect of thisscheme. For the new awards made during the year to 31 March 2006, the fair value wasdetermined as £4.27 by applying the Black-Scholes option pricing model. Asdividends accrue during the vesting period, expected dividends were notincorporated into the measurement of fair value. The key factors used indetermining the fair value of the options were as follows: Weighted average share price at grant date £4.27Exercise price -Option life Equivalent to vesting periodExpected volatility 27.8%Risk free interest rate 4.2% Expected volatility was determined by calculating the historical annualisedstandard deviation of the continuously compounded rates of return on the sharesover a period of time, prior to the grant, equivalent to the life of the option.As share price information was only available for Burberry Group plc from July2002 an average of a comparator group of companies was used prior to this date.The average expected volatility over the life of the option was used. v) The Burberry Senior Executive IPO Share Option Scheme ("the IPO OptionScheme") On 11 July 2002 awards in respect of a total of 5,955,198 Ordinary Shares weremade to directors and senior management under the IPO Option Scheme.Participants' awards were made in the form of options with an exercise priceequal to the price on flotation, £2.30 per Ordinary Share. The options vest in three stages, 33 percent are exercisable after one year, 33percent are exercisable after two years and 33 percent are exercisable afterthree years. The vesting of these share options is dependent on continuedemployment over the vesting period. Obligations under this scheme may be met bythe issue of Ordinary Shares of the Company. Movements in the number of share options outstanding and their weighted averageexercise price are as follows: Weighted Number of Weighted Number of average shares average shares exercise under exercise under price option as option as at price at 31 March 31 March 2006 2005 Outstanding at 1 April 230.0p 2,456,683 230.0 p 4,465,998Lapsed during the year - - 230.0 p (102,966)Exercised during the year 230.0p (1,614,178) 230.0 p (1,906,349)Outstanding at 31 March 230.0p 842,505 230.0 p 2,456,683Exercisable at 31 March 230.0p 842,505 230.0 p 728,351 Share options outstanding at the end of the year have the following terms andexercise prices: Option term Exercise Number Number of price of shares shares under under option as option at as at 31 March 31 March 2005 2006 11 July 2002 - 11 July 2012 230.0p 842,505 2,456,683Total 842,505 2,456,683 Equity swaps have been entered into to cover future employer's NationalInsurance liability (or overseas equivalent) that may arise in respect of thisplan. vi) The Burberry Group plc Executive Share Option Scheme 2002 During the year ended 31 March 2006 options were granted to a director inrespect of Ordinary Shares in the Company under the Executive Share OptionScheme. A total of 833,333 (2005: 2,002,290) options were awarded to a directorat an exercise price of £4.23 (2004: £3.78). The options vest in three stages, 33 percent are exercisable after one year, 33percent are exercisable after two years and 33 percent are exercisable afterthree years. The vesting of these share options is dependent on continuedemployment over the vesting period. Movements in the number of share options outstanding and their weighted averageexercise price are as follows: Weighted Number of Weighted Number of average shares average shares exercise under under price option as exercise option as at price at 31 March 31 March 2006 2005 Outstanding at 1 April 315.4p 4,183,378 258.0p 2,939,033Granted during the year 423.0p 833,333 378.0p 2,002,290Lapsed during the year 361.7p (221,091) 258.0p (75,132)Exercised during the year 274.8p (860,128) 258.0p (682,813) Outstanding at 31 March 342.0p 3,935,492 315.4p 4,183,378Exercisable at 31 March 320.0p 1,093,276 258.0p 334,197 Share options outstanding at the end of the year have the following terms andexercise prices: Option term Exercise Number of Number of price shares shares under under option as option as at at 31 March 31 March 2006 2005 13 June 2003 - 12 June 2013 258.0p 1,411,509 2,181,0882 August 2004 - 2 August 2014 378.0p 1,690,650 2,002,29021 July 2005 - 21 July 2015 423.0p 833,333 - Total 3,935,492 4,183,378 Equity swaps have been entered into to cover future Employer's NationalInsurance liability (or overseas equivalent) that may arise in respect of thisscheme. For the new awards made during the year to 31 March 2006, the weighted averagefair value was determined as £1.16 by applying the Black-Scholes option pricingmodel. As dividends accrue during the vesting period, expected dividends werenot incorporated into the measurement of fair value. The key factors used indetermining the fair values of the options were as follows: Weighted average share price at grant date £4.27Exercise price £4.23Option life 2 years after vestingExpected volatility 24.8%Expected dividends -Risk free interest rate 4.2% Expected volatility was determined by calculating the historic annualisedstandard deviation of the continuously compounded rates of return on the sharesover a period of time, prior to the grant, equivalent to the life of the option.As share price information was only available for Burberry Group plc from July2002 an average of a comparator group of companies was used prior to this date.The average expected volatility over the life of the option was used. vii) All Employee Share Plan During the year to 31 March 2006, all employees were offered 369,240 (2005:471,050) Ordinary Shares in the Company with options over the awards at a nilexercise price under an all Employee Share Plan. All awards vest after three years and the vesting of these share options isdependent on continued employment over the vesting period. These Ordinary Shares are held in two trusts, being the Burberry Group ShareIncentive Plan and the Burberry Group plc ESOP Trust. The Ordinary Shares mustbe held in trust between three and five years. Movements in the number of share options outstanding and their weighted averageexercise price are as follows: Weighted Number of Weighted Number of average shares average shares exercise under exercise under price option as price option as at at 31 March 31 March 2006 2005 Outstanding at 1 April Nil 1,029,100 Nil 717,791Granted during the year Nil 369,240 Nil 471,050Lapsed during the year Nil (143,040) Nil (133,252)Exercised during the year Nil (237,720) Nil (26,489) Outstanding at 31 March Nil 1,017,580 Nil 1,029,100Exercisable at 31 March Nil 52,650 Nil - Share options outstanding at the end of the year have the following terms andexercise prices: Option term Exercise Number of Number of price shares shares under under option as option as at at 31 March 31 March 2006 2005 12 July 2002 - 18 July 2082* Nil 52,650 105,85012 July 2002 - 19 October 2005 Nil - 176,70030 August 2003 - 18 July 2082* Nil 101,350 119,75030 August 2003 - 7 October 2006 Nil 174,800 202,65030 July 2004 - 30 October 2007 Nil 212,650 252,40020 August 2004 - 18 July 2082* Nil 148,250 171,75010 June 2005 - 10 June 2008 Nil 200,720 -1 September 2005 - 18 July 2082* Nil 127,160 - Total 1,017,580 1,029,100 *No date has been specified when awards lapse. The cessation date of the trustin which the awards are held is 18 July 2082. Equity swaps have been entered into to cover future Employer's NationalInsurance liability (or overseas equivalent) that may arise in respect of thisscheme. For the new awards made during the year to 31 March 2006, the weighted averagefair value was determined as £4.16 by applying the Black-Scholes option pricingmodel. As dividends accrue during the vesting period, expected dividends werenot incorporated into the measurement of fair value. The key factors used indetermining the fair value of the options were as follows: Weighted average share price at grant date £4.16Exercise price -Option life 3 yearsExpected volatility 26.1%Risk free interest rate 4.2% Expected volatility was determined by calculating the historic annualisedstandard deviation of the continuously compounded rates of return on the sharesover a period of time, prior to the grant, equivalent to the life of the option.As share price information was only available for Burberry Group plc from July2002 an average of a comparator group of companies was used prior to this date.The average expected volatility over the life of the option was used. viii) Co-investment Scheme During the year to 31 March 2006, awards were made under this plan in respect of984,473 (2005: 221,703) Ordinary Shares in the Company. The options are exercisableafter three years and are dependent on continued employment during the vestingperiod. Shares have been purchased by the Burberry Group plc ESOP Trust to meet theobligations under this plan. Movements in the number of share options outstanding and their weighted averageexercise price are as follows: Weighted Number of Weighted Number average shares average of exercise under exercise shares price option as under at price option as at 31 March 31 2006 March 2005 Outstanding at 1 April Nil 221,703 - -Granted during the year Nil 984,473 Nil 221,703Lapsed during the year Nil (131,654) - - Outstanding at 31 March Nil 1,074,522 Nil 221,703Exercisable at 31 March - - - - Share options outstanding at the end of the year have the following expiry dateand exercise prices: Option term Exercise Number of Exercise Number price shares of under price shares option as under at option as at 31 March 31 March 2006 2005 29 July 2004 - 29 July 2009 Nil 213,996 Nil 221,70321 July 2005 - 21 July 2015 Nil 860,526 - - Total Nil 1,074,522 Nil 221,703 Equity swaps have been entered into to cover future Employer's NationalInsurance liability (or overseas equivalent) that may arise in respect of thisscheme. For the new awards made during the year to 31 March 2006, the weighted averagefair value was determined as £4.27 by applying the Black-Scholes option pricingmodel. As dividends accrue during the vesting period, expected dividends werenot incorporated into the measurement of fair value. The key factors used indetermining the fair value of the options were as follows: Weighted average share price at grant date £4.27Exercise price -Option life 3 yearsExpected volatility 26.8%Risk free interest rate 4.2% Expected volatility was determined by calculating the historic annualisedstandard deviation of the continuously compounded rates of return on the sharesover a period of time, prior to the grant, equivalent to the life of the option.As share price information was only available for Burberry Group plc from July2002 an average of a comparator group of companies was used prior to this date.The average expected volatility over the life of the option was used. 30 Retirement benefit obligations Burberry Group provides post-retirement arrangements for its employees in the UKand its overseas operations, which are both defined benefit and definedcontribution in nature. Where arrangements are funded, assets are held inindependently administered trusts. The balance sheet obligations in respect of Burberry Group's post-retirementarrangements, assessed in accordance with IAS 19, were: As at As at 31 31 March March 2006 2005 £m £mDefined benefit schemesGUS defined benefit scheme UK - 1.0Supplemental executive retirement plan US* 1.4 0.9Retirement indemnities France 0.2 0.2Burberry (Taiwan) Co Ltd retirement scheme 0.2 -Total obligation 1.8 2.1 \* The plans in the US are classified as defined benefit schemes under IAS 19because their exact cost cannot be quantified as the funds are subject tonotional indexation according to specified investment return indices. No prepayments or obligations in respect of defined contributions schemes wereoutstanding at 31 March 2006 (2005: nil). The pension costs charged to the income statement in respect of the main planswere: Year Year to to 31 31 March March 2006 2005 £m £mDefined benefit schemesGUS defined benefit scheme UK 0.4 0.7Supplemental executive retirement plan US 0.3 0.3 Defined contribution schemesGUS money purchase pension plan UK 1.0 0.7Burberry money purchase plan US 0.9 0.6Burberry Asia Limited retirement scheme 0.1 0.1 Total pension costs 2.7 2.4 Defined benefit schemes GUS defined benefit scheme UK Prior to the demerger of Burberry from GUS plc on 13 December 2005, it wasagreed that existing employees of Burberry Group who were participating in theGUS defined benefit scheme (the 'GUS Pension Scheme') would continue to do sountil 31 December 2007 or such earlier date as required by HM Customs & Revenueor by Burberry. When the eventual withdrawal of members of the Burberry Groupfrom the GUS Pension Scheme takes place on or before 31 December 2007, Burberrymust pay any liabilities due under section 75 or 75A of the Pensions Act 1995.GUS has indemnified Burberry on an after tax basis against any amounts which arein excess of £1.25m. The following disclosures regarding the GUS defined benefit scheme UK have beenincluded for completeness as required by IAS 19 and the assets have beenrestricted in accordance with the standard as it is not likely that Burberrywill be able to benefit from this surplus. The GUS Pension Scheme has rules which specify the benefits to be paid and isfinanced accordingly, with assets being held in independently administeredfunds. A full actuarial valuation of the GUS Pension Scheme is carried out every threeyears with interim reviews in the intervening years. The last full valuation wascarried out as at 31 March 2004 by independent qualified actuaries, Watson WyattLimited, using the projected unit method. As a result of the 31 March 2004, valuation it became possible to separatelyidentify the underlying assets and liabilities which relate to the BurberryGroup. Therefore, since the valuation, Burberry Group has accounted for itsproportionate share of the overall defined benefit obligation, scheme assets andcosts. The valuation of the GUS Pension Scheme used for Burberry Group's IAS 19disclosures for the year to 31 March 2006 has been based on an update of the 31March 2004 valuation. As at 31 March 2006, this update showed that there was anexcess in the value of the assets of the GUS Pension Scheme, when compared tothe value of the liabilities, on the basis set out below. The overall excess wasapproximately £22.2m as at 31 March 2006 (2005: deficit £6.6m) before allowingfor deferred tax. Burberry Group's proportionate share of this excess wasapproximately £1.8m (2005: deficit £1.0m) before allowing for deferred tax. Thissurplus has been restricted as explained above. Burberry Group's disclosures in respect of its continued participation in theGUS Pension Scheme are shown below. The disclosures are in accordance with IAS19 and recognise all gains/losses immediately through a Group Statement ofRecognised Income and Expense (SORIE). The valuation assumptions The principal actuarial assumptions used in the IAS 19 valuation of the BurberryGroup portion of the GUS Pension Scheme are the same as those used for the wholeof the GUS Pension Scheme and are shown below: Year Year to to 31 31 March March 2006 2005 % % Discount rate 4.9 5.4Rate of inflation 2.9 2.9Rate of salary increases 4.7 4.7Rate of increases for pensions in payment and deferred pensions 2.9 2.9Expected return on plan assets 6.8 7.0 The expected return on plan assets is calculated by reference to the GUS PensionScheme investments at the year end and is a weighted average of the expectedreturns on each main asset type (based on the market yields available on theseasset types at the year end). The main asset types held by the GUS PensionScheme (expressed as a percentage of total assets) and their expected returnsare as follows: Asset Expected Asset Expected allocation return allocation return at for the at for the next next 31 March year 31 March year 2006 2005 % % % % Equities 67 7.9 67 8.0Fixed and index linked income securities 30 4.6 31 5.1Other 3 3.7 2 3.7 Total 100 6.8 100 7.0 The IAS 19 valuation assumes mortality will be in line with standard tablesknown as PMA92C2004 for males and PFA92C2004 for females. An allowance is alsomade for anticipated future improvements in life expectancy, by assuming thatthe probability of death occurring at each age will decrease by 0.25% each year.Overall, the average expectation of life on retirement in normal health isassumed to be: • 18.9 years at age 65 for a male currently aged 65; • 22.0 years at age 65 for a female currently aged 65; • 19.6 years at age 65 for a male currently aged 50; and • 22.9 years at age 65 for a female currently aged 50. Based on the method and assumptions outlined above, the amount recognised inBurberry Group's balance sheet is determined as follows: As at As at 31 31 March March 2006 2005 £m £m Present value of Burberry Group's share of scheme's liabilities (39.4) (35.0)(the defined benefit obligation)Market value of Burberry Group's share of scheme's assets 41.2 34.0 Net asset/(liabilities) 1.8 (1.0)Restricted recognition of assets (1.8) - Net assets/(liabilities) recognised in the balance sheet - (1.0) Amounts for the current and previous two periods are as follows: As at As at As at 31 31 31 March March March 2006 2005 2004 £m £m £m Defined benefit obligation (39.4) (35.0) (30.9)Market value of assets 41.2 34.0 29.4 Surplus/(deficit) 1.8 (1.0) (1.5)Restricted recognition of assets (1.8) - - Surplus/(deficit) recognised - (1.0) (1.5) Experience adjustments on liabilities (3.3) (2.9) (2.0)Experience adjustments on assets 5.8 1.4 3.8 The amount recognised in the income statement are as follows: Year Year to to 31 31 March March 2006 2005 £m £m Current service cost (included in net operating costs) (0.9) (0.9)Interest cost (included in net finance income) (1.8) (1.7)Expected return on plan assets (included in net finance income) 2.3 1.9 Total included within employee costs (0.4) (0.7) The amount recognised in the Group Statement of Recognised Income and Expense(SORIE) is as follows: Year Year to to 31 31 March March 2006 2005 £m £m Loss on liabilities (3.3) (2.9)Gain on assets 5.8 1.4 Total gain/(loss) 2.5 (1.5)Restricted recognition of assts (1.8) - Total gain/(loss) included in statement of recognised income and 0.7 (1.5)expense in year Cumulative actuarial gain included in statement of recognised 1.0 0.3income and expense Changes in the present value of the defined benefit obligation are as follows: As at As at 31 31 March March 2006 2005 £m £m Opening defined benefit obligation (35.0) (30.9)Current service cost (0.9) (0.9)Interest cost (1.8) (1.7)Employee contributions (0.2) (0.2)Actuarial gain/(loss) on liabilities (3.3) (2.9)Benefits paid 1.8 1.6 Closing defined benefit obligation (39.4) (35.0) Changes in the fair value of the plan assets are as follows: As at As at 31 31 March March 2006 2005 £m £m Opening fair value of plan assets 34.0 29.4Expected return 2.3 1.9Actuarial gain on assets 5.8 1.4Contributions paid by employer 0.7 2.7Contributions paid by employee 0.2 0.2Benefits paid (1.8) (1.6)Closing fair value of plan assets 41.2 34.0 The actual return on the plan assets in the year to 31 March 2006 was £8.1m(2005: £3.3m). Burberry Group's total contributions to the GUS Pension Scheme during the yearended 31 March 2006 were £0.7m (2005: £2.7m). The group expects to contribute£0.7m in the year to 31 March 2007. Supplemental executive retirement plan US Rose Marie Bravo is entitled to these plans as explained in the "Report onDirectors' remuneration and related matters". Payments are made into theSupplemental executive retirement plan based on a percentage of salary andbenefits. Interest is earned on the scheme at a rate of 4.6% (2005: 4.4%). Retirement indemnities France Burberry France S.A. offers lump sum benefits at retirement to all employeesthat are employed by the company based on the length of service and salary.There are no assets held by Burberry Group companies in relation to thiscommitment. Burberry (Taiwan) Co. Ltd retirement scheme Burberry (Taiwan) Co. Ltd offers lump sum benefits at retirement to employeestransferred from one of the previous operators based on the length of service upto date of transfer (i.e. 1 August 2005) and salary at retirement. There are noassets held by Burberry Group companies in relation to this commitment Starting from 1 August 2005, all employees of the company join the definedcontribution scheme operated under local labour ordinance. Defined contribution schemes GUS money purchase pension plan UK This scheme was introduced during the year ended 31 March 1999 with the aim ofproviding pension benefits for those GUS group employees in the UK who,hitherto, had been ineligible for GUS defined benefit pension scheme membership.The assets of this scheme are held separately from those of GUS plc in anindependently administered fund. Burberry money purchase plan US Burberry Group administers a Money Purchase Plan in the US (a 401(k) scheme),which covers all eligible full-time employees who have reached the age of 21 andhave completed one full year of service. The assets of the scheme are heldseparately from those of Burberry Group in an independently administered fund. Burberry Asia Limited retirement scheme Burberry Group administers a Money Purchase Plan in Hong Kong, which covers alleligible full-time employees. The assets of the scheme are held separately fromthose of Burberry Group in an independently administered fund. 31 Related party transactions GUS plc and other GUS related companies were related parties of the BurberryGroup until 12 December 2005 as GUS plc owned the majority shareholding inBurberry Group plc. On 13 December 2005 Burberry Group demerged from GUS plc,services provided since this date have been done so in accordance with theDemerger agreement. Set out below are the transactions undertaken prior to 13December 2005. (a) Trading transactions and balances arising in the normal course of business The following purchases and balances have arisen from transactions betweenBurberry Group and GUS related companies. The services purchased by BurberryGroup include treasury and cash management, tax management, insurance andinsurance management, pension, human resources, employee benefit administration,vehicle hire, property advice, marketing services, credit references,distribution and warehouse facilities, and certain internal audit support. Purchases from GUS related companies for the year to 31 MarchRelated party Related party's relationship 2006 2005 until 13 December 2005 £m £m Purchases from related partiesGUS plc and related companies Ultimate parent company 1.8 2.4 Total 1.8 2.4 Amounts due to GUS related companies as at 31 MarchRelated party Related party's relationship 2006 2005 until 13 December 2005 £m £m Related party creditorsGUS plc and related companies Ultimate parent company - 6.8 Total - 6.8 (b) Funding transactions and balances arising in the normal course of business Amounts have been deposited with GUS group companies in accordance withBurberry's counterparty risk policy during the year. No amounts were depositedwith GUS at 31 March 2006 (2005: £18.3m). In addition forward currency contracts have been undertaken with GUS relatedcompanies during the year, which have been subject to Burberry's counterpartyrisk policy. No such hedges were outstanding as at 31 March 2006 (2005: £0.5m). (c) Share repurchase programme As part of the Share repurchase programme, 13,063,825 Ordinary Shares werepurchased by the Company from GUS, representing a total cost, includingexpenses, of £52.2m. All of Ordinary Shares purchased have been cancelled. Inaddition, 570,030 Ordinary Shares purchased in the year to 31 March 2005 werecancelled in the current year. 32 Transition to IFRS For all periods up to and including the year to 31 March 2005 the Burberry Grouphas prepared its financial statements in accordance with UK generally acceptedaccounting practice (UK GAAP). For the year to 31 March 2006 the Burberry Groupis required to prepare consolidated financial statements in accordance withInternational Financial Reporting Standards (IFRS) as endorsed by the EuropeanCommission. The Group's transition date to IFRS is 1 April 2004. This has been determined inaccordance with IFRS 1 "First Time Adoption of International Financial ReportingStandards", being the start of the earliest period of comparative information. IFRS 1 allowed an entity to produce comparative information which does notcomply with IAS 32 and IAS 39. The Group has taken advantage of this exemptionand has adopted IAS 32 and IAS 39 with effect from 1 April 2005. Thereconciliations shown below do not include the impact of adopting IAS 32 and IAS39. The impact of adopting these standards is shown in note 3 - Changes inaccounting policies and presentation. To explain the change to IFRS, a reconciliation has been provided of the equityat 1 April 2004 and 31 March 2005 and the net income for the year to 31 March2005 from the previously published consolidated financial statements, preparedin accordance with UK GAAP to the accompanying consolidated financial statementsprepared in accordance with IFRS. An explanation of the principle adjustmentsrequired by Burberry Group on conversion to IFRS are set out below. Thisinformation had been extracted from the 'Burberry Group plc financial resultsunder IFRS' as published by the Group on 10 June 2005, which is available on theGroup's website (www.burberryplc.com). Since June 2005, IFRS have been subjectto ongoing review and further clarification. The principal amendments since June2005 have been in relation to IAS 12, IAS 38 and Technical Correction 1. Theimpact on profit before taxation as a result of these amendments is £0.7m. There have been no material adjustments to the cash flow statement. Attributable profit reconciliation between UK GAAP and IFRS: Year to 31 March 2005 £m Attributable profit under UK GAAP 109.9Share based payments (5.1)Goodwill no longer amortised 6.8Deferred tax remeasurement 0.3 Attributable profit under IFRS 111.9 Equity reconciliation between UK GAAP and IFRS: As at As at 31 1 March April 2005 2004 £m £m Shareholders' equity under UK GAAP 454.6 429.4Share based payments 0.7 0.7Goodwill no longer amortised 6.8 -Deferred tax remeasurement (11.4) (12.6)Dividends 21.7 14.9Other (0.1) (0.2) Shareholders' equity under IFRS 472.3 432.2 The significant differences between UK GAAP and IFRS which affect the Group areas follows: a) Share based payments Under UK GAAP, the cost of equity settled transactions were recognised in theyear of performance to which the scheme related. The charge was recognised basedon the fair market value of the share award at the date of grant, less anyconsideration receivable from the participating Burberry employee. Under IFRS equity settled transaction charges are recognised from the date ofgrant over the vesting period of the shares. The total charge is determined withreference to the fair value of the equity instruments awarded at the date ofgrant. The fair value at the date of grant has been determined using theBlack-Scholes Option Pricing Model. Where awards are contingent upon future events an assessment of the likelihoodof these conditions being achieved is made at the time of the award. b) Goodwill no longer amortised Under UK GAAP, goodwill was capitalised and amortised over its estimated usefuleconomic life. Under IFRS, goodwill has been assigned an indefinite life as at the date oftransition and it is no longer amortised. Burberry has elected to apply theexemption related to Business Combinations and has frozen its goodwill at itscarrying value as at 1 April 2004. All accumulated amortisation at this point intime has been reclassified against the cost of the goodwill. Impairment reviewswill be carried out on goodwill on an annual basis and any impairment chargewould be charged and if applicable reported as a material item. c) Deferred taxation remeasurement Under UK GAAP, deferred tax was recognised for all timing differences, being thedifference between an entity's taxable profits and its statutory results, whichare expected to reverse. Deferred tax under IAS 12 "Income Taxes" is recognised on all taxable temporarydifferences and all deductible temporary differences and unused tax losses, tothe extent that there are sufficient taxable profits available in futureperiods. Temporary differences are the difference between the tax base of anasset/liability and its carrying amount in the financial statements. The most significant difference between IFRS and UK GAAP is that deferred tax isnow recognised on the revaluation of fixed assets. d) Dividends Under UK GAAP, proposed dividends are recorded as a liability at the balancesheet date. Under IFRS, dividends proposed at the balance sheet date are only recorded as aliability when the Shareholders have approved their distribution or for theinterim dividend when it has been paid. The recognition of the charge in theincome statement in relation to dividends does not affect the timing of thepayment of dividends or Burberry's dividend policy. Principal subsidiaries Company Country of Nature of business incorporationSpainBurberry (Spain) S.A. Spain Luxury goods wholesalerBurberry (Spain) Retail S.L. Spain Luxury goods retailerMercader y Casadevall S.A. Spain Luxury goods retailer EuropeBurberry Limited UK Luxury goods retailer, wholesaler and licensorBurberry Italy Retail Limited UK Luxury goods retailerThe Scotch House Limited* UK Luxury goods brand and licensorWoodrow-Universal Limited* UK Textile manufacturerBurberry France S.A. France Luxury goods retailer and wholesalerBurberry (Suisse) S.A.* Switzerland Luxury goods retailerBurberry Italy SRL* Italy Luxury goods wholesalerBurberry (Deutschland) GmbH Germany Luxury goods retailer and wholesalerBurberry Holdings GmbH Austria Luxury goods retailer North AmericaBurberry Limited USA Luxury goods retailerBurberry (Wholesale) Limited USA Luxury goods wholesaler Asia PacificBurberry Asia Ltd Hong Kong Luxury goods retailer and wholesalerBurberry (Singapore) Singapore Luxury goods retailer andDistribution Company Pte Ltd wholesalerBurberry Pacific Pty Ltd Australia Luxury goods retailer and wholesalerBurberry Korea Ltd Korea Luxury goods retailer and wholesalerBurberry (Taiwan) Co Ltd Taiwan Luxury goods retailerBurberry (Malaysia) Sdn Bhd Malaysia Luxury goods retailerBurberry Japan KK Japan Luxury goods retailer, wholesaler and licensor *Held directly by Burberry Group plc. All principal subsidiary undertakings are wholly owned as at 31 March 2006 andoperate in the country in which they are incorporated with the exception ofBurberry Italy Retail Limited, which operates principally in Italy. All thesubsidiary undertakings have been consolidated as at 31 March 2006.Non-operating intermediate holding and financing companies are excluded from thelist above. Up to 12 December 2005 Burberry Group plc, which is the ultimate parentundertaking as at 31 March 2006, was 65 percent owned by GUS Holdings Limited, asubsidiary of GUS plc, which is registered in England and Wales. Prior to 12December 2005 the ultimate parent undertaking and controlling party was GUS plc. Turnover by product 2002* 2003* 2004 2005 2005 2006 UK UK UK UK IFRS IFRS GAAP GAAP GAAP GAAP (Pro forma) £m £m £m £m £m £m Womenswear 165.2 197.9 225.7 242.1 242.1 249.3Menswear 149.4 162.8 190.1 194.5 194.5 206.2Accessories (including Childrens) 125.8 169.5 189.0 197.6 197.6 203.2Other 5.3 5.1 4.0 2.9 2.9 3.1Licence 53.5 58.3 67.0 78.4 78.4 81.1 Total 499.2 593.6 675.8 715.5 715.5 742.9 Turnover by destination £m £m £m £m £m £mSpain 134.1 143.4 155.8 168.4 168.4 134.1Europe 152.6 159.3 191.0 188.0 188.0 216.3North America 110.5 140.5 162.4 165.9 165.9 180.4Asia Pacific 100.1 147.0 162.6 186.6 186.6 201.4Other 1.9 3.4 4.0 6.6 6.6 10.7 Total 499.2 593.6 675.8 715.5 715.5 742.9 Turnover by operation £m £m £m £m £m £mRetail 156.9 228.4 257.4 265.2 265.2 318.5Wholesale 288.8 306.9 351.4 371.9 371.9 343.3Licence 53.5 58.3 67.0 78.4 78.4 81.1 Total 499.2 593.6 675.8 715.5 715.5 742.9 Profit by operation £m £m £m £m £m £mWholesale and Retail 42.7 64.3 86.6 98.5 94.3 96.2Licence 47.6 52.4 56.0 67.0 67.0 69.4 EBIT** (before Atlas costs) 90.3 116.7 142.6 165.5 161.3 165.6 Net interest income/(expense) (0.5) (0.9) 2.3 4.9 4.9 2.5Atlas costs - - - - - (11.1)Foreign currency loss on loans with GUS (0.1) (2.3) - - - -group (pre-flotation)Goodwill amortisation (4.9) (6.4) (6.8) (6.8) - -Exceptional/material items - (22.0) 2.2 0.8 - - Profit on ordinary activities before 84.8 85.1 140.3 164.4 166.2 157.0taxationTax on profit on ordinary activities (28.3) (32.9) (47.3) (54.5) (54.3) (50.6) Profit on ordinary activities after 56.5 52.2 93.0 109.9 111.9 106.4taxation/Attributable profit Margin analysis % % % % % % Gross margin as percent of turnover 50.3 56.0 57.9 59.3 59.3 60.0EBIT** as percent of turnover 18.1 19.7 21.1 23.1 22.5 22.3 *Years to 31 March 2002 and 2003 have not been restated to reflect the impact ofadopting FRS 17 'Retirement Benefits' as the necessary data is not available. **Earnings before interest, taxation, goodwill amortisation and exceptional/material items. Pro forma financial information Pro forma financial information has been extracted from the Listing Particularsof the Company, dated 12 July 2002. The pro forma financial information has beenprepared by combining the historical financial information for each of theCompanies that comprise the Burberry Group. The pro forma information relates tothe financial years prior to the flotation of Burberry Group. On flotation theBurberry Group was reorganised and a legal statutory group was formed, as aconsequence statutory consolidations have been performed for the year to 31March 2003 and all subsequent years. Earnings and dividends 2002* 2003* 2004 2005 2005 2006 (Pro forma) UK UK UK UK IFRS IFRS GAAP GAAP GAAP GAAP pence pence pence pence pence pence per per per per per share per share share share share share Basic earnings per share 11.3 10.5 18.8 22.2 22.7 22.9Basic earnings per share before goodwill 12.3 14.9 19.8 23.4 n/a 24.7amortisation and exceptional/Atlas costsDiluted earnings per share 11.1 10.3 18.4 21.8 22.2 22.3Diluted earnings per share before 12.1 14.6 19.4 23.0 n/a 24.1goodwill amortisation and exceptional/Atlas costDividend per share (UK GAAP on an n/a 3.0 4.5 6.5 n/a n/aaccruals basis)Dividend per share (IFRS on a paid n/a n/a n/a n/a 5.0 7.0basis)Diluted weighted average number of 506.3 506.2 505.9 504.6 504.5 477.6Ordinary Shares in issue during the yearDividend cover (UK GAAP on an accruals n/a 5.0 4.4 3.7 n/a n/abasis)*Dividend cover (IFRS on a paid basis)* n/a n/a n/a n/a 4.5 3.2 *Based on attributable profit or profit after taxation before goodwillamortisation and exceptional items. Balance sheet 2002* 2003* 2004 2005 2005 2006 (Pro (Restated) forma) UK UK UK GAAP UK IFRS IFRS GAAP GAAP GAAP £m £m £m £m £m £mFixed assets, investment and other 125.4 162.4 150.7 167.0 165.6 181.2intangible assetsWorking capital (excluding cash and 87.7 73.8 66.6 77.7 79.6 121.7borrowings)Other long term liabilities (3.9) (10.6) (10.8) (9.8) (10.1) (19.2) Net operating assets 209.2 225.6 206.5 234.9 235.1 283.7Goodwill 94.9 122.8 110.6 107.1 114.0 121.2Deferred consideration for (22.5) (31.7) (31.7) (32.7) (32.7) (11.5)acquisitionsCash at bank, net of overdraft and 21.3 79.6 157.9 169.9 169.9 12.5borrowingsTaxation (including deferred taxation) (20.5) 0.4 1.0 (2.9) (14.0) (19.3)Dividends payable - (10.0) (14.9) (21.7) - - Net assets 282.4 386.7 429.4 454.6 472.3 386.6 Cash flow 2002* 2003* 2004 2005 2005 2005 (Pro (Restated) forma) UK UK UK GAAP UK IFRS IFRS GAAP GAAP GAAP £m £m £m £m £m £m Operating profit before goodwill 90.3 116.7 142.6 165.5 161.3 165.6amortisation and exceptional itemsAtlas costs - - - - - (11.1) Operating profit after Atlas costs 90.3 116.7 142.6 165.5 161.3 154.5Depreciation, impairment and trademark 14.0 19.0 28.5 24.4 24.4 24.9amortisation chargesLoss/(profit) on disposal of fixed 0.2 1.5 1.7 (1.1) (1.1) (1.7)assets and similar non-cash chargesCharges in respect of employee share - - 3.6 5.3 9.5 7.4incentive schemes(Increase)/decrease in stocks (7.0) 5.2 (7.5) (12.8) (12.9) (17.8)(Increase)/decrease in debtors (5.2) (2.4) (1.5) (7.3) (7.3) 1.8Increase/(decrease) in creditors (2.2) 25.0 18.2 1.5 1.5 (20.7) Net cash inflow from operations before 90.1 165.0 185.6 175.5 175.4 148.4capital expenditurePurchase of tangible and intangible (39.4) (55.7) (28.8) (37.2) (37.2) (30.7)fixed assetsSale of tangible fixed assets 0.5 0.2 - 3.1 3.1 3.6 Net cash inflow from operating 51.2 109.5 156.8 141.4 141.3 121.3activities *Years to 31 March 2002 and 2003 have not been restated to reflect the impact ofadopting FRS 17 'Retirement Benefits' as the necessary data is not available. Registrar Enquiries concerning holdings of the Company's shares and notification of theholder's change of address should be referred to Lloyds TSB Registrars, TheCauseway, Worthing, West Sussex, BN99 6DA, telephone: 0870 600 3970. Inaddition, Lloyds TSB Registrars offer a range of shareholder information onlineat www.shareview.co.uk. A text phone facility for those with hearingdifficulties is available by calling: 0870 600 3950. Share price information The latest Burberry Group plc share price is available on Burberry's website andalso on the Financial Times Cityline Service on 0906 843 0000 (calls charged at60p per minute). ShareGift Shareholders with a small number of Burberry shares, the value of which makes ituneconomic to sell them, may wish to consider donating their shares to thecharity ShareGift, (registered charity 1052686) which specialises in using suchholdings for charitable benefit. A ShareGift Donation form can be obtained fromLloyds TSB Registrars at the above address. For further information, ShareGift can be contacted as follows: ShareGift46 Grosvenor StreetLondonW1K 3HNTelephone: 020 7828 1151Website: www.sharegift.org Internet A full range of investor relations information on Burberry is available atwww.burberryplc.com. This includes web casts of results presentations given toanalysts and fund managers together with the slides accompanying thosepresentations. Financial calendar Final dividend record date 6 July 2006First quarter trading update 12 July 2006Annual General Meeting 14 July 2006Final dividend to be paid 3 August 2006First half trading update October 2006Preliminary announcement of interim results November 2006Third quarter trading update and Interim dividend record date January 2007Interim dividend to be paid February 2007Second half trading update April 2007Preliminary announcement of annual results May 2007 Registered office Burberry Group plc18-22 HaymarketLondonSW1Y 4DQ Telephone: 020 7968 0000Fax: 020 7980 2950 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Burberry