annual report 2011/12
04 Financial Highlights
08 Chairman’s Letter
12 Chief Executive Officer’s Letter
16 Executive Team
18 Brand, Business, Culture
26 Burberry Group Overview
30 Our Strategy
46 Financial Review
56 Risk
61 Great Brand, Great Company
68 Board of Directors
70 Directors’ Report
74 Corporate Governance
83 Directors’ Remuneration Report
94 Statement of Directors’ Responsibilities
95
Independent Auditors’ Report to the Members
of Burberry Group plc
96 Group Income Statement
97 Group Statement of Comprehensive Income
98 Group Balance Sheet
99 Group Statement of Changes in Equity
100 Group Statement of Cash Flows
101 Notes to the Financial Statements
143 Five Year Summary
145
Independent Auditors’ Report to the Members
of Burberry Group plc
146 Company Balance Sheet
147 Notes to the Company Financial Statements
151 Shareholder Information
153 Executive Team
financial highlights
Delivering
record results
Total revenue (Year to 31 March)
£1,857m
Retail revenue (Year to 31 March)
£1,270m
12
11
10
10*
09
08
1,857
1,501
1,185
1,280
1,202
995
12
11
10
10*
09
08
Wholesale revenue (Year to 31 March)
Adjusted operating profit (Year to 31 March)
£478m
£376.9m
12
11
10
10*
09
08
478
441
377
434
489
426
12
11
10
10*
09
08
Adjusted operating profit is stated before exceptional items.
Reported operating profit £376.9m (2011: £302.1m).
1,270
962
710
749
630
484
376.9
301.1
219.9
219.9
180.8
206.2
4 Burberry Group plc Annual Report 2011/12
Adjusted diluted earnings per share (Year to 31 March)
Net cash/(debt) (As at 31 March)
61.6p
£338.3m
12
11
10
10*
09
08
Adjusted diluted EPS is stated before exceptional items.
Reported diluted EPS 59.3p (2011: 46.9p).
61.6
48.9
35.1
35.1
30.2
31.6
12
11
10
09
08
Dividend per share (Year to 31 March)
25.0p
Capital expenditure
£153.1m
12
11
10
09
08
25.0
20.0
14.0
12.0
12.0
12
11
10
09
08
338.3
297.9
262.0
7.6
(64.2)
153.1
108.4
69.9
89.9
48.5
2008, 2009 and 2010* include the results of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
Burberry Group plc Annual Report 2011/12 5
chairman’s letter
Excellent results with
a powerful foundation
for the future
With this, the Group achieved record financial results
in 2011/12. Total revenue grew 24% to £1,857m. Operating
profit increased 25% to £377m. After-tax return on capital
remained strong at 37%. All of these figures are on an
adjusted basis. The Group ended the year with a £338m
net cash balance. The board has recommended a 25%
increase in the full year dividend to 25p.
Looking ahead, 2012/13 may present continued challenge.
Although the global macroeconomic picture has generally
improved with distance from the financial crisis, this is not
uniformly true. On an economic basis, 2012/13 is likely to
be less supportive for luxury. China’s growth is slowing, some
Eurozone countries will see recession and the US recovery
is gradual. And political tensions in certain regions present
concerns. Professional observers of the sector are unusually
divided on its near-term outlook. Against this immediate
backdrop, longer-term prospects for luxury’s continued
growth are favourable – supported by democratisation,
wealth creation, the rise of growth market consumers.
In planning 2012/13, management and the board considered
these factors. During the year, the board had invested
in deepening its knowledge of Burberry’s business through
broader sector analysis, exposure to additional levels
of management, and in April 2012, a trip reviewing four
of the Group’s most important markets in Asia. In the end,
measuring an external environment potentially suggesting
short-term investment moderation against the brand’s
long-term opportunity in luxury – particularly in the context
of aggressive pursuit of market share by sector peers
– we concluded the benefits of pursuing Burberry’s
long-term opportunities in luxury should outweigh any
immediate issues stemming from a difficult environment.
This approach is further supported by the brand’s
momentum, management’s track record and the Group’s
financial resources. Accordingly, the team has committed
to another determined plan, while remaining vigilant and
prepared to react to external developments.
Before concluding, a brief look further back. July 2012
marks the tenth anniversary of Burberry as a listed company.
From its initial £1.15bn market capitalisation in July 2002,
Burberry is valued in excess of £6bn at the time of this letter
(May 2012). During these past ten years, the Group has also
returned £780m to shareholders through share repurchase
and dividends.
On behalf of the Board and shareholders, I thank the team
around the world for their contributions to these results.
Burberry possesses the right strategy, right culture and
right team for continued success.
Sir John Peace
Chairman
At this time last year, I reported an historic year for
Burberry in 2010/11, while expressing some caution
for the year ahead. For 2011/12, I am pleased to report
that the team successfully executed an ambitious plan
despite an uneven external environment, producing
another record year.
From a strategic perspective, the team focused on refining
and executing Burberry’s five core strategies. The brand
continues to ascend, backed by some of the most forward
thinking digital marketing in the consumer sector. Ongoing
design innovation sustains a compelling product proposition.
With 14% average space growth, retail expansion remains
on pace in both existing and new markets. The brand is
actively building a leading presence in the important new
growth luxury markets. Efficiency improves across operating
functions. These activities produced excellent progress
for the year, and continued to build a powerful foundation
for the future.
8 Burberry Group plc Annual Report 2011/12
chief executive officer’s letter
A Great Step Forward
Completing a record year in 2010/11, Burberry entered
2011/12 with excellent momentum – and a less certain
external outlook. Following a strong rebound for luxury
in 2010, the sector’s prospects were less predictable
amid the macro uncertainty. In this context, management
planned to drive near-term results by concentrating
on core strategies, while committing significant
investment to benefit the years ahead, ever watchful
of a changing environment. In the final analysis,
the luxury consumer broadly remained healthy and the
team successfully navigated the uncertainties realised
– Eurozone sovereign debt crisis, natural disaster
in Japan and sluggish US recovery – to advance its
long-term objectives: great brand, great growth,
great company.
Great brand
Great brands stand for clearly defined attributes which
are projected to provide a pure, uniform experience across
all consumer touch points. Our strategies are aimed at
reinforcing the Burberry brand’s digital luxury positioning,
ensuring consistency of experience and enriching the depth
and accessibility of that experience in keeping with evolving
consumer expectations.
Correcting legacy issues
We continued to correct legacy practices inconsistent
with target positioning. In the wholesale channel, Burberry
exited doors not aligned with brand status and invested
in presentation through both enhanced assortments and
dedicated, customised real estate in key doors. Although
the outlet store format is primarily an inventory management
tool, our objective is fewer stores located in the top outlet
centres in each market. Accordingly, selected outlet stores
were closed or relocated in the year.
Transitioning Japan
We continued efforts to integrate Japan with the modern
British brand. As part of upgrading today’s premium
positioning, an additional seven licensed categories were
exited or downsized during the year, while we continued
to invest in our early stage retail operation. Refining
merchandising and marketing strategies to convert this
legacy market, the team achieved solid sales gains in
the year in this initial phase of building the brand’s future
platform in Japan.
Angela Ahrendts
Chief Executive Officer
12 Burberry Group plc Annual Report 2011/12
Launching Burberry Body
Fragrance is the most widely encountered product
in the Burberry portfolio. With the creation of Burberry
Body, the brand added its most elevated proposition
in this category. Launched simultaneously across digital
and traditional platforms, the global media campaign,
featuring the iconic trench coat within a new sensual
context, communicated the brand’s modern luxury
positioning to a wide consumer audience.
Presenting Burberry Bespoke
Burberry Bespoke also debuted during the year.
This interactive online experience allows consumers
to explore the full possibilities of Burberry’s iconic trench
coat – silhouettes, fabrics, colours, hardware – and design
a completely personalised edition made at our facility
in England for delivery within eight weeks. Offering
over 12 million combinations and the most luxurious of
features, Bespoke is the highest expression of the brand.
Integrating the physical and digital
Burberry’s stores and digital platforms both offer distinct
consumer advantages. Stores, for example, provide the
immediacy of physical product, while Burberry World,
the brand’s digital headquarters, can conjure a product’s
image from the runway or place it within a customer’s
purchase history. As part of a seamless brand experience,
we are working to integrate the benefits of both arenas –
brand essence to product knowledge to selection to
service – through a range of activities, including digital
trunk shows, synchronised product presence, 360 degree
video view, 24/7 click-to-chat in 14 languages and use of
iPads in store, blurring the lines between the physical and
digital. During the year we incorporated our most up to
date thinking in the London Regent Street store project.
Scheduled to open in summer 2012, this is Burberry’s
store of the future. This is Burberry World Live.
Great growth
In serving as stewards of this 156 year old heritage brand,
management defines great growth in both qualitative and
quantitative dimensions. The goal is sustained, profitable
growth over the long-term fully consistent with the brand
vision, values and positioning.
Driving productivity
During the year, management focused on several
operational initiatives to drive store productivity –
among the most potent levers of profitable growth.
Consistent execution ensured new product flowed
to reset selling floors across all mediums monthly
to continuously engage consumers. Investment in
replenishment inventory improved availability of core
product. Continued commitment to sales training and
the addition of new modules tailored to high growth
markets enhanced consumer responsiveness globally.
For the year, comparable store sales increased 14%
on top of an 11% gain in 2010/11.
Accelerating retail investment
The Group accelerated retail expansion with the opening
of 48 mainline stores and concessions. By strengthening
the brand’s position in flagship cities around the world,
we see opportunity to increase sales and mindshare in
these high potential markets which offer a concentration
of both sophisticated local and travelling luxury consumers.
Retail capital investment increased 60% in the year with
approximately half concentrated in these markets. Larger
format stores opened in Hong Kong, Paris and Sydney.
Store renovation activity also accelerated, with emphasis
on flagship markets.
Engaging China
Mainland China is among the world’s largest and fastest
growing luxury markets today. As the economic trends
and cultural dynamics indicate that its importance will
continue to grow, Burberry is investing in China for
the long-term. Ten mainline and concession stores
were opened, for a total of 63 stores at year end. At the
country level, we are adding senior management and
talent. Marketing efforts intensified with the brand staging
one of its most prominent events of the year in Beijing
in April 2011 and the customisation of content to
gain a leading position in the local social media arena.
In stores, we continue to refine formats, assortments
and develop a targeted service proposition.
Burberry Group plc Annual Report 2011/12 13
chief executive officer’s letter Continued
Growth in adjusted diluted EPS (Year to 31 March)
is a key valuation metric for Burberry’s shareholders
61.6p 2011/12 +26%
12
11
10
09
08
61.6
+26%
48.9
+39%
35.1
+16%
30.2
31.6
-4%
+9%
Adjusted diluted EPS is stated before exceptional items. Reported diluted EPS 59.3p
(2011: 46.9p). 2008 and 2009 include the results of discontinued Spanish operations.
14 Burberry Group plc Annual Report 2011/12
Investing in growth markets
Burberry is also investing in the smaller markets of the
future. From regional headquarters in Brazil, the Group
opened two stores in Central and Latin America, in São
Paulo and Guadalajara. In India, two stores were opened
and the Middle East region also added seven stores
in the year.
Intensifying product
Outstanding product is the soul of the brand and
the object of passionate attention – whether to set
a new luxury standard in our core outerwear category
with the creation of Bespoke or to elevate the brand’s
position in fragrance with Burberry Body. In addition
to these, menswear received intensive focus during the
year. At origin Burberry is a male brand, and with rising
prominence of the male luxury consumer, particularly
in growth markets, the brand sees further opportunity
to capitalise on this heritage. During the year, the menswear
division intensified efforts in tailoring through new product
development, sourcing arrangements, marketing activities
and in-store merchandising and service. The tailoring
initiative was piloted in selected stores with expansion
planned for 2012/13. Men’s non-apparel categories are
among the fastest growing in luxury. Accordingly, the team
invested significantly to elevate and expand assortments
in this area. In the year, men’s non-apparel was Burberry’s
fastest growing business.
Building customer centricity
In an increasingly digital world, businesses have ever
greater opportunity to understand their target customer.
During the year, we accelerated investment in this area
with the addition of dedicated expertise and technology
solutions. These are early steps on a multi-year path
to gaining greater customer insight from which to
develop the foresight that informs our decision and
service processes.
Leveraging information investment
While substantial investment in core information systems
has improved Burberry’s fundamental operating capability
and enabled rapid growth in recent years, we continue
to refine and expand use of these tools. In 2011/12,
this core was further leveraged across the supply chain
to enhance procurement processes and more precisely
time the flow of product capsules to stores. In the
merchandising sphere, intelligence gained from consistent
global data and reporting sharpened both pre-season
buying and assortment decisions and in-season
responsiveness.
Great company
A truly great company is great beyond its customers.
For employees, it is an inspiring, rewarding place to
work. While society broadly benefits from the commercial
contribution of a healthy business, a great company
more actively applies its resources in favour of greater
social value. And, if a company achieves these, it should
also deliver attractive financial returns for shareholders.
Enabling creative thinking
Today, innovation is vital to every business – and essential
to luxury. At Burberry, we organise ourselves to maximise
cross-functional, collaborative interaction – reporting
relationships that integrate traditionally segregated silos
(Marketing and IT), governing bodies that pair seasoned
executives with the next generation of talent (a council
to dream), and a willingness to deconstruct and evolve
our structure as needs arise and the business grows
(a new mobile commerce department). The unconventional
interaction within this network drives the rich innovation
– the Tweetwalk (a pioneering fashion show on Twitter),
Bespoke, the addition of weather to a runway show
– that fuels our business.
Building the social enterprise
Connecting through constant communication is a key
aspect of this culture. During the year, we undertook
development of a sophisticated communications
platform built around social media architecture to
more closely connect our nearly 9,500 employees.
Incorporating interactive tools to enhance access
to people and information globally, this will be the
focal point of communication and knowledge internally
– and extend to external partners next year.
Investing in Britain
As home of the brand, Britain is a special place for
Burberry. We continue to build the team at our global
headquarters in London, committing to a second building
in Westminster during the year. The Group further invested
in its trench coat manufacturing facility in Yorkshire
in our effort to build a world-class operation. As part
of this, we are also funding a training academy and
apprentice programme to develop skills in the next
Burberry generation.
Enhancing social value
Supporting the Burberry Foundation – dedicated to
helping young people realise their dreams through the
power of creativity – is also an integral part of our culture.
During the year, the Foundation, which receives the
large majority of the Group’s annual contribution of 1%
of pre-tax profits – composed of both cash and products,
such as British-made trench coats and other outerwear,
small leather goods, handbags, totes and mufflers – to
philanthropic causes, continued to support organisations
in key communities in which Burberry operates, and
facilitated Burberry’s first global staff volunteering day.
The Foundation’s success has further raised our aspirations.
We recognise that constrained governments increasingly
need businesses with their expertise and other resources
to play a larger role in society. So we ask ourselves, given
a brand, talent and culture able to engage the interests
of consumers around the world, what else can we do?
What is Burberry’s larger role? This is work for the future.
Great financial results
These activities have positioned Burberry well for the years
ahead, while delivering record financial results in the present.
Revenue increased 23% underlying to £1,857m. A 14%
comparable store sales gain combined with 11% space
expansion and a 6% contribution from the China acquisition
to produce 31% underlying retail revenue growth to £1,270m.
Wholesale revenue increased 8% underlying (14% excluding
the China transition) to £478m. Licensing revenue increased
5% underlying driven by strong performances in fragrance,
timepieces and eyewear. The business achieved double-digit
gains across all product divisions and regions. Adjusted
operating profit increased 25% to £377m with retail/
wholesale operating profit growing 31% on a 25% revenue
gain – achieving an historical high 16.4% retail/wholesale
operating margin. Capital investment totalled £153m
and the Group ended the year with £338m of cash.
A great year
In concluding a great year, I once again thank the global
Burberry community. This starts with the internal Burberry
team, and extends equally to our external relationships –
suppliers, customers and licensing and franchise partners.
Burberry’s excellent performance springs from the work
of this amazing community with all its expertise, passion,
dedication and loyalty. It’s exciting and an honour to work
alongside all of you on this mission – the opportunity has
never been clearer. With a solid, balanced foundation in
place, we can continue to create a great brand with great
growth, resulting in a truly great company relevant for another
150 years. I look forward to Burberry’s exciting years ahead.
Burberry Group plc Annual Report 2011/12 15
brand, business, culture
brand
Founded in 1856, Burberry today remains
quintessentially British, with outerwear at its core.
Digital luxury positioning and the optimisation across
innovative mediums of the trench coat, trademark
check and Prorsum knight heritage icons make
the brand purer, more compelling and more relevant
globally, across genders and generations.
18 Burberry Group plc Annual Report 2011/12
brand, business, culture Continued
business
Disciplined execution, constant evolution and
balance across channels, regions and products
underpin the management of the business.
Innovative product design, digital marketing initiatives
and dynamic retail strategies drive consistent performance.
20 Burberry Group plc Annual Report 2011/12
brand, business, culture Continued
culture
A closely connected, creative thinking culture encourages
cross-functional collaboration, intuition and a meritocratic ethos.
United by open communication and a pure brand vision,
and inspired by the company’s core values – Protect,
Explore and Inspire – compassionate global teams
give back to their communities through the Burberry
Foundation and socially responsible initiatives.
22 Burberry Group plc Annual Report 2011/12
burberry group overview
Delivering sustained
profitable growth
Burberry is a global luxury brand with a distinctive
British heritage, core outerwear and large leather
goods base and some of the most recognised icons
in the world. Burberry designs and sources apparel
and accessories, selling through a diversified network
of retail (including digital), wholesale and licensing
channels worldwide. The business is structured
by channel, region and product division, supported
by corporate functions.
Channel mix
Burberry sells its products to the end consumer through both retail (including digital) and wholesale channels. For 2011/12,
retail accounted for 68% of revenue and wholesale 26%. Burberry also has licensing agreements in Japan and globally,
leveraging the local and technical expertise of its licence partners.
Revenue by channel
Underlying is calculated at constant exchange rates
£109m
£478m
£1,270m
Retail
Includes 192 mainline stores, 208 concessions within department
stores, digital commerce and 44 outlets
31% underlying growth
14% comparable store growth
11% growth from new space
Acquired stores in China contributed 6% to growth
23 mainline store openings in the year, including the first
large format stores in Taipei, Paris, Sydney and Hong Kong
Wholesale
Includes sales to department stores, multi-brand specialty accounts,
Travel Retail, and franchisees who operate 57 Burberry stores, mainly
in Emerging Markets
8% underlying growth
Retail
Wholesale
Licensing
14% growth excluding sales made to China
Growth driven by Emerging Markets, Travel Retail
and US department stores
New franchise stores opened in markets such as Croatia,
Romania, South Africa and Thailand
Licensing
Includes income from Burberry’s licensees, approximately two-thirds
from Japan and the balance from global products (fragrance, eyewear
and timepieces) and the European wholesale childrenswear licensee
5% underlying growth
Increased income from Japan apparel licence offset
the termination of short-term non-apparel licences
20% growth in royalty income from global product licences
26 Burberry Group plc Annual Report 2011/12
broad geographic portfolio
Burberry operates in four regions: for 2011/12, Americas represented 25% of retail /wholesale revenue, Europe 32%,
Rest of World 6% and Asia Pacific 37%.
Retail and Wholesale revenue by destination
Underlying is calculated at constant exchange rates
£434m
£553m
£109m
£652m
Americas
Includes US, Canada, Central
and Latin America
Europe
Includes Eastern Europe
Rest of world
Includes Middle East, India
and franchise partners globally
Asia Pacific
Includes China and Japanese
non-apparel
15% underlying growth
15% underlying growth
31% underlying growth
41% underlying growth
Retail accounted for approximately
Retail accounted for approximately
Retail accounted for approximately
two-thirds of revenue
two-thirds of revenue
half of revenue
Double-digit comparable
Double-digit mainline comparable
store growth
New space added in Brazil
and Mexico
Wholesale growth exceeded
20% (excluding the impact of
rationalising distribution), driven
by roll-out of department store
shop-in-shops
store growth in UK, France
and Germany
Wholesale outperformance
with key department store
and other partners offset
by the continued rationalisation
of non brand-enhancing
specialty accounts
Double-digit comparable store
sales growth in the Middle East
and India
Strong growth in wholesale driven
by Turkey and Russia
Retail accounted for approximately
85% of revenue, with the acquired
China stores contributing
for the full year
Double-digit comparable store
growth in China, Hong Kong,
Singapore and Taiwan
Significant growth in Travel Retail,
which makes up the majority
of wholesale in the region
mainline
mainline
mainline
mainline
74
1
38
53
26
2
54
152
concession
concession
concession
concession
Number of directly operated stores
Burberry Group plc Annual Report 2011/12 27
burberry group overview Continued
Diversified product mix
Burberry has a structured product offering and has seen growth across each of these business areas.
Retail and Wholesale revenue by product division
Underlying is calculated at constant exchange rates
non-apparel
womenswear
22% underlying growth
27% underlying growth
menswear
26% underlying growth
childrenswear
19% underlying growth
Large leather goods accounted
Core outerwear the main
Outperformance in core outerwear
Majority of growth driven
for around half of mainline
non-apparel sales
Men’s non-apparel increased
by over 50% in mainline retail
growth driver
Tailoring outperformed, with
London ending the year
at 45% of women’s apparel
Men’s tailoring doubled in the year
from a low base
by Asia Pacific
Eight new childrenswear
stores opened
£689m
£583m
£410m
£66m
burberry
prorsum
burberry
london
Burberry Prorsum is the most fashion forward
collection centred around runway shows,
providing the design inspiration for the brand
Burberry London is the tailored collection, typically
what a customer wears on weekdays for work
burberry
brit
Burberry Brit is the most casual collection,
typically worn on the weekend
28 Burberry Group plc Annual Report 2011/12
our strategy
an iconic british luxury
brand established in 1856,
Burberry leverages its proven
strategies and talented
team to assure sustainable,
profitable growth
strategic themes
LeveragE
Intensify
the franchise
non-apparel
AcceleratE
retail-LED
growth
Invest in
under-
penetrated
markets
PursuE
operational
excellence
The following pages outline the company’s five key strategic themes and
selected highlights during the year. These themes underpin the connected
culture, brand momentum and consistent performance.
30 Burberry Group plc Annual Report 2011/12
our strategy Continued
LeveragE The Franchise
Through more coordinated use of brand assets
and greater integration of its global organisation,
Burberry has the opportunity to enhance consumer
responsiveness and operate more efficiently
and effectively. This potential lies in both the
front and back-of-house operations.
In 2011/12, Burberry was named the fourth-fastest growing
brand globally by both Interbrand and WPP/BrandZ, behind
Apple, Google and Amazon. It was included in Interbrand’s
‘Top 100 Global Brands’ for the third consecutive year,
received the Luxury Briefing ‘Inspiring Luxury Loyalty’ award
and was recognised as one of six best practice advertising
case studies by Asia’s largest search engine, Baidu.
Brand momentum, marketing innovation and product
excellence underpin this performance.
Brand momentum
The momentum of the Burberry brand lies in pure and
consistent global articulation. Initiatives underpinning this
momentum include:
Digital synchronisation
Burberry.com – or ‘Burberry World’ – enabled more
consistent brand projection across all customer
touchpoints.
Monthly coordination of design, marketing and retail
activities resulted in seamless brand communication.
Retail Theatre technology was rolled out to 87 stores,
enabling distribution of brand content and events,
while the roll out of iPads to all mainline stores globally
was completed.
Burberry World supported retail sales as a global
inventory pool.
Brand integration
Discussions continued with Interparfums, the company’s
fragrance and beauty partner, regarding a potential new
operating structure for the business to unlock the brand’s
potential in these introductory categories.
Saudia Arabia became the latest business to transition
from a franchise model with the formation of a new
subsidiary with a local partner.
Marketing innovation
Burberry continued to extend its reach and impact through
innovative marketing, leveraging its brand content to engage
and connect consumers globally.
Burberry World
Burberry World hosted an increasingly immersive suite
of content-rich experiences, attracting millions of visitors
during the year.
Burberry Bespoke, the most luxurious expression of
the brand’s iconic outerwear product launched digitally,
enabling customers to design, share and purchase
customised trench coats, for delivery within eight weeks.
The runway show experience evolved on Burberry World,
with live Twitter and Instagram social feeds connecting
the brand’s virtual communities and motion-reactive
360-degree technology enhancing customers’ ability
to explore the collection online.
Recognising the increasingly central role that technology
plays in the success of its marketing activities, investment
in the integrity and efficiency of IT systems continued.
32 Burberry Group plc Annual Report 2011/12
our strategy Continued
Social media
Burberry continued to advance its leading position
on social media in the luxury sector, more than doubling
Facebook fans and YouTube views, while tripling its
followers on Twitter. Visits to the Art of The Trench
social media site increased by more than 60%.
Brand content was further leveraged across Chinese
social media platforms Sina Weibo, Kaixin001, Douban
and YouKu, and through 10 regional Twitter accounts.
Tweetwalk, launched in partnership with Twitter,
enabled followers to see images of the menswear
and womenswear collections first, before they went
down the runway.
Events
Burberry leveraged digital technology to increase reach
and engagement around key brand events. New initiatives
included the streaming of the AW12 womenswear show
to iconic outdoor sites at London’s Liverpool Street
station and Heathrow Terminal 5, and a collaboration with
Sina Weibo that resulted in nearly 70 million impressions
for a major brand event in Beijing.
Total revenue growth (Year to 31 March)
measures the appeal of the brand to consumers, be it through Burberry
stores or those of its department store or specialty retail customers.
£1,857m 2011/12 +23%
12
1,857
+23%
11
10
10*
09
08
1,501
+24%
1,185
1,280
+1%
1,202
+7%
995
+18%
Retail
Wholesale
Licensing
Growth rate is year-on-year underlying change i.e. at constant exchange rates.
2008, 2009 and 2010* include the result of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
In 2011/12, Burberry’s revenue was £1,857m – a 23% underlying increase
on the previous year.
34 Burberry Group plc Annual Report 2011/12
Product excellence
At Burberry everything begins and ends with great
product, combining a focus on core categories with
continuous innovation.
Outerwear core
Leveraging the brand’s unique heritage, together with
design innovation and excellence, outerwear continued
as the company’s predominant apparel category and
primary growth driver.
Outerwear represented more than half of mainline
retail apparel sales, underpinned by a robust
replenishment programme.
Menswear focus
Burberry made significant progress towards reclaiming
the brand’s menswear foundation by leveraging its core
strategies across the high-potential men’s apparel and
non-apparel categories.
The division relaunched with a tailoring test, diversified
outerwear offer, non-apparel extensions and dedicated
marketing initiatives. Men’s tailoring doubled in the
year from a low base and men’s non-apparel increased
by 50% in mainline retail.
Large leather goods
Innovation in design, materials and shapes drove
continued strength in large leather goods, particularly
in the brand’s iconic check, luxury leather and
Prorsum handbags.
2011/12 saw the continuation of efforts to correct the
diminishing number of legacy issues that are inconsistent
with the global luxury positioning of the Burberry brand.
There was significant investment during the year in
upgrading the brand’s wholesale presence, through
the addition of shop-in-shops, the closure of accounts
and exiting from outerwear departments. In Japan, where
the majority of the Burberry business is still under licence,
the company continued to terminate various non-apparel
licences while implementing merchandising and marketing
activities focused on the global collection.
our strategy Continued
INTENSIFY NON-APPAREl
Global licences
Burberry has three global licensing agreements: fragrance
and beauty (Interparfums), watches (Fossil) and eyewear
(Luxottica). The company continued to work closely with
these partners on product development, marketing and
distribution activities, and conducted regular reviews to
ensure compliance with the terms of its licence agreements.
By more closely aligning these products to the Burberry
brand image, the company continued to unlock their potential
in 2011/12.
Fragrance and beauty
The new Burberry Body women’s fragrance launched,
supported by a synchronised global marketing campaign
across all platforms and regions, including iconic outdoor
advertising, high-impact store presentations, television
advertising and sampling activity launched through
a partnership with Facebook. Body was the brand’s
most successful fragrance launch to date, enabling the
Burberry fragrance portfolio to move from 19th to 9th
in the United States.
The distribution for Burberry Beauty, launched in 2010/11,
was extended following an encouraging early performance.
Now available in over 70 wholesale doors worldwide and
through burberry.com, the range was introduced to the
first Burberry store with the opening of Taipei.
Eyewear
A heightened focus on eyewear development
and distribution resulted in good sales growth over
the year and a stronger platform for future growth.
Watches
Further progress was made towards aligning product and
distribution activities with the brand’s luxury positioning,
with a strong consumer response to the enhanced
product offer.
Intensify and focus on under-penetrated non-apparel
categories to leverage Burberry design and
merchandising expertise and iconic branding further
through investment in product development, marketing
and supply chain.
In 2011/12, non-apparel was the company’s largest product
division, contributing 39% of retail/wholesale revenue and
recording growth of 22%. At around half of non-apparel
mainline retail sales, large leather goods remain the backbone
of this category, underpinned by a robust replenishment
programme.
Men’s accessories
Men’s accessories was the largest growth driver in
non-apparel, accounting for over a third of growth.
Investment in product development and focused marketing
initiatives resulted in revenues increasing by over 50%.
Soft accessories
Continued growth in iconic cashmere and innovation in
fabrications and prints drove strong double-digit growth
in both ladies’ and men’s scarves.
Growth in non-apparel revenue (Year to 31 March)
measures the success of Burberry’s initiatives to expand in this
category, which includes large and small leather goods, scarves,
shoes, belts and jewellery.
£689m 2011/12 +22%
12
689
+22%
11
10
10*
09
08
563
+32%
417
420
+10%
366
+12%
290
+39%
Revenue is retail/wholesale only. Growth rate is year-on-year underlying change i.e.
at constant exchange rates.
2008, 2009 and 2010* include the result of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
In 2011/12, non-apparel revenue increased by 22% underlying and accounted for 39% of
retail/wholesale revenue. Large leather goods are core to non-apparel, representing about
half of non-apparel revenue, while men’s accessories contributed the largest part of the
growth in this category.
36 Burberry Group plc Annual Report 2011/12
our strategy Continued
ACCELERATE
RETAIL-LED GROWTH
Shift company culture and processes from a static
wholesale model to a dynamic retail model. Retail-led
growth refers not only to the operation of Burberry’s
own stores, but also to a fundamental shift in the
Group’s operating structure.
The Customer Service team grew considerably with the
opening of a new centre in Hong Kong to complement the
existing centres in London and New York. Together these
specialist facilities support the needs of luxury customers
24/7 by phone, email and live chat in 14 languages.
Burberry was honoured to receive three prestigious retail
awards when it was named ‘International Retailer of the
Year’ at both the National Retail Federation of America and
the Oracle World Retail Awards, and ‘Retailer of the Year’
at the UK’s Retail Week Oracle Awards. Burberry was
also recognised for the industry’s best in-store and online
customer experience by the Luxury Institute.
Highlights from 2011/12 include:
Driving productivity
Burberry continued to invest in all aspects of the retail
experience during the year, substantially increasing
productivity in its mainline stores.
Further integration of physical and digital real estate,
including through monthly floorsets, drove consistent
brand messaging across all mediums.
Retail disciplines were improved, including in
replenishment execution and inventory management.
Customer centricity
Burberry continued to focus on customer service, driving
consistency and productivity by better connecting with
customers and cultivating personalised relationships.
The extension of a specialised sales and service
programme to China was completed, alongside training
to deliver exceptional service to Chinese customers
internationally.
Client Services, dedicated to the most loyal Burberry
customers, grew to a team of 50 worldwide, with
customised sales programmes across all regions. There
was further investment in elevating the in-store experience
for these customers through the increased provision
of private areas tailored to their elevated service needs.
Real estate investment
The Burberry retail footprint was further expanded,
with a heightened focus on flagship cluster investment.
Flagship cities are characterised by high net worth local
populations, above average GDP and strong tourism
flows. Together, these characteristics provide some
insulation against global macroeconomic volatility.
A 19% increase in average selling space included the
opening of new larger format stores in Hong Kong’s
Canton Road, the Rue Faubourg St-Honoré in Paris,
and George Street in Sydney. 23 mainline stores were
opened and there was a continued focus on upgrading
the Burberry retail presence in key locations, including
13 major renovations.
Growth in retail revenue (Year to 31 March)
includes comparable store sales growth (measuring growth in productivity
of existing stores), plus revenue from new space.
31% 2011/12
12
31%
Number of stores (As at 31 March)
measures the reach of Burberry directly-operated stores around the world.
444 31 March 2012
12
11
10
09
08
Comparable stores
New space
China
32%
15%
14%
20%
11
10
10*
09
08
Growth rate is year-on-year underlying change i.e. at constant exchange rates.
Comparable store sales growth is defined as the annual percentage increase in sales
from stores that have been opened for more than 12 months, adjusted for closures
and refurbishments.
Total retail sales increased by 31% underlying in the year. Comparable store revenue growth
increased by 14% (H1: 16%; H2: 12%). Average selling prices increased again in mainline
stores driven by an increased penetration of London in women’s and men’s apparel. The
acquired stores in China contributed 6% of the 31% underlying growth, up to the anniversary
of the acquisition from September 2010. The balance of growth of 11% came from new space.
Mainline
Concessions
Outlets
2008, 2009 and 2010* include the stores of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
The number of stores directly operated by Burberry increased by 27 in 2011/12.
These included 28 new mainline stores and 10 closures, with a net two new stores
in the Americas, one in Europe, six in Asia Pacific and nine in Rest of the World
(including five stores in Saudi Arabia that were converted from franchise to retail
through a subsidiary with a local partner in June 2011).
38 Burberry Group plc Annual Report 2011/12
444
417
312
440
419
368
our strategy Continued
INVEST IN
UNDER-PENETRATED MARKETS
Focus on and invest in under-penetrated markets.
For Burberry, these consist of both developed markets
like the United States and Emerging Markets including
China, India and the Middle East. All distribution
channels and a variety of business models are used
to optimise these opportunities.
Highlights from 2011/12 include:
Engaging China
The integration of the company’s China operation
was finalised and enhanced merchandising, marketing
and store service initiatives were leveraged to increase
comparable store sales by well over 20%.
An intensified marketing focus extended reach and
relevance. Burberry achieved a leading luxury position
on Chinese social media platforms, launched a simplified
Chinese version of burberry.com and was named the
brand with the second-highest ‘digital IQ’ in China by
the influential L2 think tank.
The capabilities of the team were further developed,
cultivating full regional functions and expertise. In stores,
assortments were further elevated and refined to cater
to the needs of the country’s emerging luxury consumer,
while the service proposition benefited from
intensified investment.
Developing India and the Middle East
This sub-region was developed further during the
year, with the opening of two new stores in India and
the formation of a new subsidiary with a local partner
in Saudi Arabia.
Building Central and Latin America
Two new stores opened in Central and Latin America
as Burberry continued to build its presence in this
high-potential region. The stores, in the key luxury
hubs of São Paulo and Guadalajara, brought the total
number in the region to eight.
Entering new markets
Recognising the potentially more volatile conditions
in emerging markets, Burberry continued to work with
franchisees and partners in countries where it has
more limited experience, benefiting from local expertise.
Burberry signed new franchise agreements, including
to take the brand into the emerging luxury markets
of the Baltic states.
Elevating wholesale presence
Burberry made significant investment in its luxury brand
presence through the wholesale channel, with an intense
focus to improve real estate and upgrade assortments.
In the United States, over 30 new women’s, men’s,
accessories and children’s shop-in-shops were opened
in key department stores. Upgrading of specialty store
distribution in Europe continued.
Burberry continued to build its presence in the high growth
travel retail channel, particularly with its travel retail partner
in the Asia region. New Burberry stores opened in Macau’s
City of Dreams and in the East and West terminals
at Taiwan’s Kaohsiung airport.
Number of stores in Emerging Markets (As at 31 March)
measures the reach of the Burberry brand in these high potential countries.
154 31 March 2012
12
154
11
10
09
08
136
111
91
79
Emerging Markets include: China, the Middle East, Eastern Europe, Russia, Brazil,
India and other parts of South East Asia, South Africa and Central and Latin America.
Burberry added net 18 stores in Emerging Markets, of which ten stores were in China
and two each in Thailand, the Middle East, India and Central and Latin America. Of the
154 stores, 97 are directly operated, of which 63 are in China, five in Central and Latin
America, 22 in the Middle East and seven in India. The balance are franchise stores.
40 Burberry Group plc Annual Report 2011/12
our strategy Continued
PURSUE OPERATIONAL
EXCELLENCE
Burberry continues to pursue its goal to be recognised
as much for operational excellence as for product and
marketing excellence.
Additional investment was made at Castleford to
support the production of Burberry Bespoke trench
coats, the majority of which are made in Britain.
Burberry drove further operational improvements during
2011/12, with a particular emphasis on merchandising,
supply chain and information technology.
Merchandising
Technology investment
Burberry continued to prioritise and leverage technology
investments across the business. A centralised business
intelligence team was established with global responsibility
for data management and reporting, resulting in enhanced
visibility of metrics including sales, margins and inventory.
Replenishment and planning
An ongoing focus on replenishment capability and
practices saw the penetration of replenishment styles
remain at about half of mainline revenue. Assortment
planning and execution was further improved. A more
consistent global buy provided increased supply chain
efficiency and a cohesive brand statement across the
store base, whilst allowing regional flexibility to respond
to local preferences.
Supply chain
Investing in UK manufacturing
Apprenticeship schemes were established at Castleford,
which produces the brand’s heritage trench coats, and
Woodrow, which weaves the gabardine fabric used in
their construction. Together with a new training school
at Castleford, this will develop the future skill base in
both locations.
Retail/wholesale gross margin (Year to 31 March)
measures, among other things, how efficiently Burberry
sources its products.
68.1% 2011/12
12
11
10
10*
09
08
68.1%
64.9%
61.0%
59.7%
52.1%
58.5%
Progressing logistics
Logistics execution and capabilities were further
enhanced. European logistics activities were reconfigured
with a new regional distribution hub in Piacenza, Italy
designed to bring significant speed, cost and energy
efficiency benefits.
Information technology
Social enterprise
Burberry partnered with Salesforce.com to implement
tools and processes to enable the development of a social
enterprise, better connecting all constituencies around the
brand. This included the launch of Burberry Chat, a global
digital platform dynamically linking associates and partners.
Completing SAP
The global implementation of SAP was largely
completed with the installation of China and the Middle
East. This major multi-year project forms the foundation
for the company’s global IT infrastructure.
The Group continues to monitor closely all key supplier
relationships across its global operations. Governance
processes are in place for all major strategic initiatives,
supplemented by regular reviews of operational progress
and performance by senior management. These structures
are regularly reviewed to ensure they can effectively support
Burberry’s global growth.
Adjusted retail/wholesale operating profit margin (Year to 31 March)
measures how Burberry’s initiatives and its investment to improve its business
processes, including sourcing, IT and logistics are impacting its profit margin.
16.4% 2011/12
12
16.4%
11
10
10*
09
08
15.6%
12.7%
11.6%
9.8%
14.9%
2008, 2009 and 2010* include the result of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
Gross margin in retail/wholesale increased by 320 basis points to 68.1% in 2011/12
compared to the 64.9% margin in the prior year due to the shift from wholesale to retail
coupled with the benefits of sourcing, pricing and the geographic shift to Asia Pacific.
Adjusted operating profit margin is stated before exceptional items.
2008, 2009 and 2010* include the result of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
Burberry’s adjusted retail/wholesale operating profit margin increased from 15.6%
in 2010/11 to 16.4% in 2011/12. Modest operating margin expansion was achieved
after investment in additional space, new markets and central functions.
42 Burberry Group plc Annual Report 2011/12
FINANCIAL REVIEW
GROUP FINANCIAL HIGHLIGHTS
Revenue of £1,857m, up 24%
(2011: £1,501m)
£1,857m +24%
Year-end net cash of £338m
(2011: £298m)
£338m
Adjusted retail/wholesale operating margin of 16.4%
(2011: 15.6%)
Adjusted diluted earnings per share of 61.6p, up 26%
(2011: 48.9p)
16.4% +0.8%
61.6p +26%
Adjusted profit before tax of £376m, up 26%
(2011: £298m)
Full year dividend per share of 25.0p, up 25%
(2011: 20.0p)
£376m +26%
25.0p +25%
£ million
Revenue
Cost of sales
Gross margin
Operating expenses*
Adjusted operating profit
Net finance charge*
Adjusted profit before taxation
Exceptional items
Profit before taxation
Taxation
Discontinued operations#
Non-controlling interest
Attributable profit
Adjusted EPS (pence)~
EPS (pence)~
Weighted average number of ordinary shares (millions)~
Year to 31 March
% change
2012
1,857.2
(558.3)
1,298.9
(922.0)
376.9
(0.7)
376.2
(10.2)
366.0
(100.6)
(0.3)
(1.8)
263.3
61.6
59.3
444.3
2011
reported FX
underlying
23
23
24
24
(14)
29
(30)
25
–
26
24
1,501.3
(491.6)
1,009.7
(708.6)
301.1
(3.2)
297.9
(2.2)
295.7
(83.2)
(6.2)
2.1
208.4
48.9
46.9
444.0
Adjusted measures exclude restructuring costs, the China put option liability finance charge and discontinued operations
* Operating expenses in the table above exclude restructuring costs of nil in 2012 (2011: £1.0m credit) included in the reported expenses of £922.0m (2011: £707.6m). The net finance charge
in the table above excludes a £10.2m China put option liability finance charge (2011: £3.2m) included in the reported finance charge of £10.9m (2011: £6.4m)
# Discontinued operations in Spain in 2012 delivered a loss of £0.3m (2011: £6.2m)
~ EPS is calculated on a diluted basis
46 Burberry Group plc Annual Report 2011/12
Revenue analysis
Revenue by channel
£ million
Retail
Wholesale
Licensing
Revenue – continuing operations
Discontinued Spanish operations
Year to 31 March
% growth
2012
1,270.3
478.3
108.6
1,857.2
–
1,857.2
2011
reported FX
underlying
962.3
440.6
98.4
1,501.3
49.3
1,550.6
32
9
10
24
31
8
5
23
Revenue from continuing operations was £1,857m, an increase of 23% on an underlying basis.
Retail
68% of revenue (2011: 64%); generated from 192 mainline
stores, 208 concessions within department stores, digital
commerce and 44 outlets
Asia Pacific
Retail accounted for about 85% of Asia Pacific revenue,
including a full year’s contribution from the Chinese stores
acquired in September 2010.
Retail sales increased by 31% on an underlying
basis (32% at reported FX)
Comparable store sales growth was 14%
(H1: 16%; H2 12%)
The acquired stores in China contributed 6% of
the 31% underlying growth, up to the anniversary
of their acquisition from 1 September 2010
The balance of growth (11%) came from new space
Average retail selling space increased by 14%,
with the acquired Chinese stores contributing
an additional 5% space
In mainline stores in the year, growth was balanced, with
double-digit increases in all regions and product divisions,
underpinned by core outerwear and large leather goods,
which accounted for about half of sales. The penetration
of replenishment styles remained at about 50% of mainline
revenue. New merchandising strategies gained traction,
including knitwear and men’s tailoring (doubling in the year
from a small base).
Burberry London and Prorsum accounted for around 45%
of mainline apparel revenue (2011: 40%). Average selling
prices continued to increase due to product mix, pricing
increases and better full price sell-through. Digital commerce
sales, including via iPads in store, continued to outperform.
There was double-digit growth in mainline comparable
store sales in all four regions.
There was double-digit comparable store sales growth in
China, Hong Kong, Singapore and Taiwan, while the Korean
market was soft. Burberry’s small retail operations in Japan
selling the global non-apparel collection made solid progress.
Europe
Retail accounted for about two-thirds of Europe revenue.
There was double-digit mainline comparable stores sales
growth in the UK, France and Germany, especially in flagship
markets. Southern Europe, especially Italy, remained weak.
Americas
Retail accounted for about two-thirds of Americas revenue,
with double-digit comparable store sales growth in the
year. Space was added mainly in Brazil and Mexico, while
continuing to rationalise and upgrade US outlets.
Rest of World
Retail accounted for just over half of revenue for Rest of
World. The largest contributor was Burberry Middle East
with 17 stores in the United Arab Emirates, Kuwait and
Qatar. These delivered double-digit comparable store
sales growth during the year, with some slowdown in the
fourth quarter. Five franchise stores in Saudi Arabia were
transferred into a subsidiary in which Burberry has a 60%
stake. The business in India, which has seven stores,
continued to perform strongly.
Burberry Group plc Annual Report 2011/12 47
FINANCIAL REVIEW Continued
Wholesale
26% of revenue (2011: 29%); generated from sales
to department stores, multi-brand specialty accounts,
Emerging Market franchisees and Travel Retail
Rest of World
Wholesale revenue in Rest of World, which is mainly
to franchise partners, saw strong growth, especially
in the two largest markets of Turkey and Russia.
Wholesale revenue increased by 8% underlying
(9% at reported FX)
Excluding China, underlying growth was 14%
(H1: 20%; H2: 7%)
Outerwear and consistent execution of monthly
floorsets drove growth
Wholesale revenue growth was affected by the conversion
from wholesale to retail of the China operations, the five
Saudi Arabia stores and Spanish menswear; as well as
the acceleration of the planned rationalisation of the brand’s
distribution in the United States and Europe, especially
in the second half of the year. Adjusting for all these factors,
underlying growth for the year would have been over
20% rather than 8%.
Asia Pacific
The majority of wholesale revenue in Asia Pacific is
Travel Retail which had another year of good growth,
partly reflecting increased tourism within flagship
markets in the region.
Europe
Europe remains Burberry’s largest wholesale region,
accounting for about 40% of group wholesale revenue.
Outperformance with key department store and other
partners has more than compensated for the continued
rationalisation of small, non brand-enhancing specialty
accounts.
Americas
Wholesale growth in the Americas exceeded 20% in the
year, excluding the impact of the accelerated rationalisation
of the brand’s distribution. With the move from generic
outerwear departments near completion, upgrading real
estate within the key department stores to support the
brand’s segmentation is a core strategy. Around 30 dedicated
shop-in-shops were opened, bringing the total to over 80.
At the year end, Burberry had 57 franchise stores, up
by a net one during the year. Five stores in Saudi Arabia
were transferred to retail, with franchise stores opened in
markets as diverse as Thailand, South Africa and Croatia.
Licensing
6% of revenue (2011: 7%); of which approximately
two-thirds from Japan (split roughly three-quarters apparel
and one-quarter from various short-term, mainly non-apparel,
licences), with the balance from global product licences
(fragrance, eyewear and timepieces) and European
wholesale childrenswear
Licensing revenue in the year increased by 5%
on an underlying basis (up 10% at reported FX)
Consistent with full year guidance
At constant exchange rates, royalty income from Japan
was broadly unchanged from last year. Income from the
apparel licence increased in line with the 2009 renegotiation.
This enabled further non-renewals of short-term non-apparel
licences, reducing profit by about £7m.
Burberry continued to unlock the potential of its global
licence products, with 20% growth in royalty income.
This was led by Burberry Body – Burberry’s most successful
fragrance launch to date. The innovative global digital
and outdoor advertising campaign that supported the
fragrance gave the brand unprecedented visibility across
all its major markets. Further progress was also made
on aligning the product and distribution of eyewear and
watches more closely with Burberry’s luxury positioning.
Discussions continue between Burberry and Interparfums
regarding the potential establishment of a new operating
model for the Burberry fragrance and beauty business.
48 Burberry Group plc Annual Report 2011/12
Operating profit analysis
Adjusted operating profit
£ million
Retail/wholesale
Licensing
Adjusted operating profit
Adjusted operating margin
Year to 31 March
% growth
2012
286.9
90.0
376.9
20.3%
2011
219.5
81.6
301.1
20.1%
reported FX
underlying
31
10
25
31
4
23
Adjusted operating profit increased by 25% to £376.9m, including a £5.4m translation benefit from exchange rates.
Retail/wholesale adjusted operating profit
£ million
Revenue
Cost of sales
Gross margin
Gross margin
Operating expenses
Adjusted operating profit
Operating expenses as % of sales
Adjusted operating margin
Year to 31 March
2012
1,748.6
(558.3)
1,190.3
68.1%
(903.4)
286.9
51.7%
16.4%
2011
1,402.9
(491.6)
911.3
64.9%
(691.8)
219.5
49.3%
15.6%
% change
reported FX
25
(14)
31
(31)
31
Retail/wholesale adjusted operating profit grew by 31%
to £286.9m. Burberry, as guided, dynamically managed
gross margin and operating expenses to enable further
investment in the business while modestly improving
the operating margin – up 80 basis points to 16.4%.
The improvement in the operating margin was second
half weighted (H1: up 10bp; H2 up 130bp) reflecting the
phasing of investment and costs and the higher absolute
revenue base in the second half than the first half.
Gross margin for the year increased by 320 basis points to
68.1%. The key drivers were the conversion of China from
wholesale to retail, its subsequent outperformance, benefits
from pricing and sourcing and further channel and regional
mix shifts.
Operating expenses as a percentage of revenue were
51.7%, reflecting the shift to retail. As well as general
inflation, the increase in operating expenses is attributable
to investment in three key areas:
New space;
New markets, especially China until the anniversary
of the acquisition in September 2011, as well as Saudi
Arabia, Central and Latin America and India; and
Central functions to support the growth and momentum
in the business. Investment was increased in areas such
as marketing, client services, customer insight and IT.
Burberry Group plc Annual Report 2011/12 49
FINANCIAL REVIEW Continued
Licensing operating profit
£ million
Revenue
Cost of sales
Gross margin
Gross margin
Operating expenses
Operating profit
Operating margin
Year to 31 March
Year to 31 March 2012
2012
108.6
–
108.6
100.0%
(18.6)
90.0
82.9%
2011
98.4
–
98.4
100.0%
(16.8)
81.6
82.9%
underlying
103.2
–
103.2
(18.7)
84.5
Licensing revenue increased by 5% on an underlying basis (up 10% at reported FX). With slightly higher operating expenses
as Burberry strengthened its in-house team, operating margin was unchanged at 82.9%, giving operating profit of £90.0m,
including a £5.5m FX benefit.
Exceptional items
Discontinued operations
£ million
Restructuring credit
China put option liability finance charge
Year to 31 March
2012
–
(10.2)
(10.2)
2011
1.0
(3.2)
(2.2)
£ million
Spain operating profit/(loss)
Restructuring costs
Loss for discontinued Spanish operations
Year to 31 March
2012
2.5
(2.8)
(0.3)
2011
(2.1)
(4.1)
(6.2)
The restructuring credit of £1.0m in 2011 relates to the
release of a provision held in respect of the cost efficiency
programme announced in January 2009.
In 2012, the £2.5m operating profit from the discontinued
Spanish operations was offset by restructuring costs,
including a further write-down of freehold assets held for sale.
The China put option liability finance charge relates to
the fair value movement on the put option liability over the
non-controlling interest in the acquired Chinese business.
In 2012, the charge was £10.2m (2011: £3.2m) which
has been treated as an exceptional item.
Total restructuring cash spend was £8.6m.
50 Burberry Group plc Annual Report 2011/12
Taxation
In FY 2011/12, Burberry had a tax charge of £101m
(2011: £83m), giving a tax rate on adjusted profit
of 26.7% (2011: 27.9%).
The tax rate on adjusted profit for FY 2012/13 is currently
expected to be between 25-26%.
2012/13 outlook
Retail
In the year to 31 March 2013, Burberry plans a 12-14%
increase in average retail selling space, with a shift from
smaller to larger format stores. Burberry expects to open
about a net 15 mainline stores, biased towards Emerging
Markets and flagship markets with high tourist inflows.
Net cashflow
Net cash at 31 March 2012 was £338m, up from £298m
at 31 March 2011. The Group funded £153m of capital
expenditure and £24m relating to the China and Saudi
Arabia acquisitions. Other major outflows were tax
(£108m), dividends (£99m) and the purchase of shares
by the Employee Share Option Plan (ESOP) Trust to satisfy
historic share scheme awards (£61m).
Wholesale
In the six months to 30 September 2012, Burberry
projects underlying wholesale revenue to increase by
a mid single-digit percentage, despite further rationalisation
of the brand’s distribution in both Europe and the United
States. Double-digit percentage growth is again expected
in key US department store doors, Emerging Markets
franchise partners and Asia Travel Retail.
Capital expenditure at £153m (2011: £108m) was below
guidance, reflecting the timing of payments especially on the
larger projects. The spend was biased towards larger format
new stores and refurbishments, which accounted for about
25% of the total in 2012, compared to around 10% for 2011.
Inventory at 31 March 2012 was £311m (2011: £248m),
an increase of 25% year-on-year. Over half of the growth
was to support new stores, with the balance largely
reflecting increased replenishment and stock in transit
due to shipping by sea.
Licensing
In the year to 31 March 2013, Burberry expects licensing
revenue at constant and reported exchange rates to
be broadly unchanged year-on-year. The global product
licences are again expected to deliver double-digit
percentage underlying growth. This will be offset by
the planned termination and downsizing of Japanese
non-apparel licences.
Retail/wholesale operating margin
In FY 2012/13, Burberry plans to continue to invest in
areas such as new stores, marketing and IT to drive growth.
While the phasing of revenue and investment is expected
to lead to retail/wholesale operating margin being lower
in the six months to 30 September 2012 than in the same
period last year, Burberry expects to deliver a further modest
improvement in the retail/wholesale operating margin
in the year to 31 March 2013.
Capital expenditure
For FY 2012/13, Burberry is planning capital expenditure
of between £180-200m. This will be focused on retail
expansion, with about one-third of the spend planned
in larger format stores, including Regent Street, London,
Chicago and Pacific Place, Hong Kong.
Burberry Group plc Annual Report 2011/12 51
FINANCIAL REVIEW Continued
Store portfolio
At 31 March 2011
Additions
Closures
Transfers*
At 31 March 2012
* Transfers are the five stores in Saudi Arabia
Store portfolio by region
At 31 March 2012
Asia Pacific
Europe
Americas*
Rest of World
Total
* Three franchise stores in the Americas are in Mexico
Mainline stores
Concessions
Outlets
Total
Franchise stores
Directly-operated stores
174
23
(10)
5
192
199
25
(16)
–
208
44
7
(7)
–
44
Mainline stores
Concessions
Outlets
Directly-operated stores
54
38
74
26
192
152
53
1
2
208
10
16
17
1
44
417
55
(33)
5
444
Total
216
107
92
29
444
56
9
(3)
(5)
57
Franchise stores
17
23
3
14
57
52 Burberry Group plc Annual Report 2011/12
Risk
Principal Risks
The order of the principal risks is in no way an indication
of their relative importance, and each of the risks should
be considered independently. If more than one of the
events contemplated by the risks set out below occur,
it is possible that the combined overall effect of such
events may be compounded.
When evaluating the Group’s principal risks during the
financial year under review, the following changes have
been identified:
the inability of the Group to absorb commodity
price increases is no longer viewed as a principal
risk due to the activities of the Group’s sourcing
teams during the year;
the failure by the Group to realise the benefits
of acquisitions or operations with partners is
no longer viewed as a principal risk due to the
successful integration of the Group’s China business
and its positive performance during the year; and
in the current macro-economic climate where many
country economies and financial institutions have
continued to experience severe financial difficulties
particularly in the Eurozone, the risk to the Group of
a major economic downturn has increased. The key
steps which the Group has taken to mitigate this risk
are described overleaf.
Effective management of risks is essential to
the execution of the Group’s five strategic themes,
the achievement of sustainable shareholder value,
the protection of the Brand and meeting corporate
governance requirements.
The Board has overall responsibility for ensuring that
risks are effectively managed by the Group. The Board
has delegated to the Audit Committee responsibility for
reviewing the effectiveness of the Group’s systems of
internal control and risk management methodology.
As part of this review, the Audit Committee considers
the principal risks facing the Group and the nature and
extent of these risks. The Group’s Internal Audit and Risk
Assurance function facilitate a risk assessment process
in each key business area and global support function to
review the significant risks facing its operations and to record
the relevant controls and actions in place to mitigate risks.
The detailed assessments are then consolidated to provide
input into the overall Group risk assessment. Please refer
to the Corporate Governance section for further details of
the Group’s risk management processes and internal controls.
There are areas of the Group’s business where it is necessary
to take risks to achieve a satisfactory return for shareholders.
The Board has considered the nature and extent of the
significant risks it is willing to take in achieving the Group’s
strategic objectives.
The risks set out on the following pages represent the
principal risks and uncertainties which may adversely impact
the management of the Group and the execution of its five
key strategic themes. The key steps the Group takes to
address these risks, where they are matters within its control,
are also described. Such steps will mitigate but not eliminate
risks. Some of the risks relate to external factors which are
beyond the Group’s control.
56 Burberry Group plc Annual Report 2011/12
Risk Continued
Risk
Economic downturn.
Impact
Mitigation
The Group’s performance remains strong;
however, reduced consumer wealth driven
by adverse economic conditions could lead
to a reduction in demand, disrupt its supply
chain or lead to an increase in bad debts,
all of which would impact sales and profitability.
The global reach of the Group helps to mitigate
local economic risks. In addition, the Group’s
financial reporting and review processes are
designed to highlight any on-going decrease
in sales. Counterparty credit checks are in place
for all key customers and suppliers, and flexible
payment terms are used to assist suppliers
as required. Group Treasury monitors the credit
ratings of financial institutions which hold Group
deposits to enable the Group to take appropriate
action should there be a downgrade in their
credit ratings.
Loss of key management or the inability
to attract and retain key employees.
The loss of key individuals or the inability to recruit
and retain individuals with the relevant talent and
experience would disrupt the operation of the
business and adversely impact the Group’s ability
to deliver its strategies.
Competitive incentive arrangements exist, with
specific initiatives in place designed to retain key
individuals. Recruitment is on-going and talent
review and succession planning programmes are
in place and have been updated during the year.
The Group’s operations depend on IT systems
and operational infrastructure in order to trade
efficiently. Increasingly technology is also
being used to stream major events and to
communicate through social media.
A failure in these systems or a denial of service
could have a significant impact on the Group’s
operations and reputation, and potentially
result in the loss of sensitive information.
Negative social media campaigns could impact
on the Group’s reputation.
Over-reliance on key vendors.
The Group relies on a small number of vendors
in key product categories, and for specialist digital
and IT services. Failure of one of these businesses
to deliver products or services would have
a significant impact on business operations.
Major incidents such as natural catastrophes,
global pandemics or terrorist attacks affecting
one or more of the Group’s key locations could
significantly impact its operations.
A major incident at a key location could significantly
impact business operations, the impact clearly
varying depending on the location and its nature.
The impact of the loss of a distribution hub would
clearly differ from a global pandemic, but both
would impact revenue and profits.
Failure by the Group or associated third
parties to act in accordance with ethical
and environmental standards.
A failure to act appropriately could result in
penalties, adverse press coverage and reputational
damage with a resulting drop in sales and profit.
A number of controls to maintain the integrity
and efficiency of the Group’s IT systems are
in place, including recovery plans which would
be implemented in the event of a major failure.
The IT disaster recovery plans are tested on a
regular basis. IT security is continually reviewed
and updated and third party IT security specialists
are used to regularly test these controls.
The Group continues to strengthen its supply
chain management function to enable it to evolve
and develop its manufacturing base to reduce
the dependency on key vendors. The Group has
strengthened its internal Digital and IT teams during
the year and continues to facilitate knowledge
transfer to internal resources. Annual financial
checks are carried out on all key vendors.
Business continuity plans are in place to
mitigate operational risks, but cannot ensure
the uninterrupted operation of the business,
particularly in the short term. The regional spread
of the Group’s three key distribution hubs also
helps to mitigate risk. There is a Group incident
management framework in place that addresses
the reporting and management of major incidents,
and this is tested each year using third party
specialists in this field. Tailored plans have also
been produced during the year for a number
of high impact events.
A number of initiatives are in place, led by the
Corporate Responsibility function. These include
undertaking ethical trading audits and the Ethical
Trading Initiative, further details of which are set
out in the Great Brand, Great Company section.
58 Burberry Group plc Annual Report 2011/12
Risk
Impact
Mitigation
The Group’s operations are subject
to a broad spectrum of regulatory
requirements in the various jurisdictions
in which the Group operates. The pace
of change and the consistency of application
of legislation can vary significantly across
these jurisdictions, particularly in an
environment where public sector debt
is often high and tax revenues are falling.
Failure to comply with these requirements
could leave the Group open to civil and/or
criminal legal challenge, significant penalties
and reputational damage.
The significant growth and pace of change
within the business puts pressure on both
internal and external resources.
Failure to effectively manage the pace of change
will inevitably adversely impact the Group’s
operations and return on investment.
A substantial proportion of Group profits
is reliant upon its licensed business in Japan
and other key licensed product categories.
The Group expects licensees to maintain
operational and financial control over their
businesses. Should licensees fail to manage their
operations effectively or be affected by a major
incident, the royalty income may decline directly
impacting the profits of the Group.
The Group operates in a number of emerging
markets which are typically more volatile
than developed markets, and are subject
to changing economic, regulatory, social
and political developments that are beyond
the Group’s control. Infrastructure and
services also tend to be less developed.
Seizure of assets or staff. Related party business
practice that is inconsistent with the Group’s ethical
standards and the UK regulatory environment.
Increased operational costs due to country specific
processes driven by the regulatory environment.
Unauthorised use of the Group’s trademarks
and other proprietary rights.
Trademarks and other intellectual property (IP)
rights are fundamentally important to the Group’s
reputation, success and competitive position.
Unauthorised use of these, as well as the
distribution of counterfeit products, damages
the Burberry brand image and profits.
The Group continually monitors and seeks to
improve its processes to gain assurance that its
licensees, suppliers, franchisees, distributors and
agents comply with the Group’s contractual terms
and conditions, its ethical and business policies
and relevant legislation.
Specialist teams at Group and regional level,
supported by third-party specialists where required
are responsible for ensuring employees are aware
of regulations relevant to their roles. A number
of these teams have been strengthened during
the year. Assurance processes are in place to
monitor compliance with results being reported
to the Group Risk and Audit Committees.
Governance processes are in place for each major
strategic initiative and these are supplemented
by monthly meetings with senior management
to review operational performance. Management
and operational structures are continually reviewed
to ensure that these support the Group’s growth.
To minimise risks in Japan the Group has
established its own operations in Tokyo, and there
are minimum royalty payments specified in its
licence agreements, including the apparel licence
with Sanyo Shokai and Mitsui & Company. Under
its licence agreements, the Group can control
product development, marketing and distribution.
Regular licensee royalty reviews take place to
monitor compliance with licence terms, which
can manage but not eliminate non-compliance.
The Group uses the services of professional
consultants to advise on legal and regulatory issues
when entering new markets, to undertake due
diligence and to monitor on-going developments.
The Group has continued to strengthen the teams
responsible for its emerging markets operations
and works with franchisees or partners who
compensate for its relative lack of experience
in a number of these markets.
The Group’s global Brand Protection team
has continued to expand during the year
to enable the Group to strengthen its brand
protection efforts in a number of high risk markets.
Where infringements are identified (often by
working in partnership with other luxury brands)
these are addressed through a mixture of criminal
and civil legal action and negotiated settlement.
Given the Group’s emphasis on digital innovation
the team place a particular focus on this area.
IP rights are driven largely by national laws
which afford varying degrees of protection and
enforcement priorities depending on the country.
Consequently, the Group cannot necessarily be as
effective in all jurisdictions in addressing IP issues.
Burberry Group plc Annual Report 2011/12 59
Great Brand, Great Company
Burberry believes that
to be a great brand, it must
also be a great company
Commitment to, and investment in, its extended
global community is at the heart of the Burberry
core values to Protect, Explore and Inspire, and the
global team is constantly working to evolve business
practices in line with these principles.
Burberry is leveraging the energy of its creative
thinking culture to influence positive outcomes
at all levels from its own organisation, to its business
partnerships, wider community engagement and global
societal and environmental impact.
1%
750
32%
70%
1% of Group profit before tax
donated to charitable causes, the
majority to the Burberry Foundation
Over 750 audits, visits and trainings
conducted in the global supply chain
32% points increase in primary
transport shipped by sea
Over 70% increase in uptake
of global Sharesave Scheme
148
3,000
1,500
70%
148 tonnes of sample and
raw material waste recycled
for use in the automotive and
construction industries
3,000 Burberry coats
donated to disadvantaged
young people worldwide
1,500 Burberry employees
volunteered over 5,500 hours
Over 70% of Burberry Foundation
employability programme
graduates obtained employment
or re-entered education
Burberry Group plc Annual Report 2011/12 61
Great Brand, Great Company Continued
People
Burberry recognises that its people are its greatest asset
and constantly strives to attract the best talent worldwide,
to provide meaningful development opportunities at all levels
and to reward and recognise high performance.
Recruit
Mid-year, Burberry established a new Resourcing Centre
of Expertise, with a clear set of immediate and long-term
targets. By evolving recruitment through a world-class
resourcing team and leveraging digital across its
recruitment activities, Burberry now has the potential to
fill positions faster and to reduce agency fees significantly.
Burberry maintained its commitment to diversity and
equal opportunities in recruitment. Nationals of over
100 countries are now employed across all continents,
with an age span from 16 to 76. The diversity within
the Burberry community underpins its energy, vibrancy
and connectedness.
Burberry continued to help talented young people
from all backgrounds onto the career ladder, with a new
policy for work experience and internships supporting
the professional development of young people in and
after education.
Retain
Initiatives launched to enhance the development of
the company’s highest potential associates through
international networking opportunities, global strategy
offsites, access to senior executives and leadership
training workshops, all with the ultimate objective
of creating next generation leaders for the business.
A new Retail Exchange Programme enabled high
achieving sales associates from different countries
to temporarily swap roles and work locations, enhancing
cultural understanding and service standards
in Burberry stores, whilst providing unparalleled
career development opportunities.
The company’s innovative wellbeing programme was
extended, with associates receiving benefits ranging from
additional annual leave, to free lunch, daily fruit bowls and
health and sporting activities. Additional initiatives were
designed and implemented by local teams, ensuring
the programme offering was sensitively tailored to fit the
various cultural needs and expectations of nearly 9,500
associates in 31 countries.
As part of its commitment to promoting health, safety
and wellbeing, Burberry continued using a third party
to undertake audits at its locations throughout the world.
This was supplemented by the global deployment
of an incident reporting system during the year that
incorporated accident and near miss reporting,
and a series of control processes.
Reward
Burberry continued to strengthen the link between
reward and performance across the organisation.
All associates are now in a bonus or incentive plan
and share ownership was expanded through the global
Free Share Plan, through which all associates are eligible
to become shareholders in the company. Global take
up of the Sharesave Scheme increased by 70%.
The Icon Awards programme, which recognises
exceptional performance at all levels of the company,
reached its fifth anniversary, with over 7,500 nominations
received and 81 awards made globally, across categories
inspired by the Burberry brand, heritage and core values.
The Long Service Awards programme recognised
481 associates celebrating milestone five-year
service anniversaries with Burberry. Eleven associates
celebrated anniversaries of 30 years’ service or more.
Reinvent
The company launched a full transformation of the global
Human Resources organisational structure, centralising
the operations team and creating global Centres of
Expertise to move the value proposition from the purely
functional to the strategic and transformational. This more
integrated structure is enabling the company to develop
consistent, scalable ways of working across functions
and regions.
62 Burberry Group plc Annual Report 2011/12
Ethical trading was further integrated into Burberry teams’
daily decision making, with the Ethical Trading Initiative
delivering training across the global sourcing and product
development functions on ethical trading awareness and
purchasing practices.
Connect
Burberry extended its rollout of NGO-run confidential
worker hotlines to select suppliers, complementing its
ongoing support of functioning and mature industrial
relations as a sustainable way to protect rights in the
workplace. Currently, around 18,000 workers globally
have access to confidential hotlines.
In partnership with International Resources for Fairer
Trade and the Centre for Child Rights and Corporate
Social Responsibility, Burberry introduced new
programmes to improve working conditions for migrant
workers, including training in living and communication
skills and local labour law.
Burberry continued to connect and collaborate with peers
and stakeholders, including through its membership of
the tri-partite Ethical Trading Initiative, Business for Social
Responsibility and the UN Global Compact.
Ethical trading
Burberry expects all its suppliers to comply with local labour
and environmental laws and the Burberry Ethical Trading
Code of Conduct; to provide their workers with safe working
conditions and fair pay; and to allow them to exercise their
right to freedom of association and collective bargaining.
Burberry is working with its suppliers to make meaningful
improvements to workers’ employment and workplace
conditions globally. Further information about Burberry’s
commitment to good labour practices can be found at
burberryplc.com.
Engage
Burberry continued to engage with suppliers through
its ethical trading programme, including announced
and unannounced audits; continuous improvement
programmes; and training and confidential worker hotline
services. Burberry once again recognised suppliers
demonstrating leadership in ethical trading through
awards at its annual Vendor Conference.
Over 750 audits, supplier visits and training sessions
were conducted globally.
Develop
Burberry continued to provide suppliers with practical and
classroom-based training on the Burberry Ethical Trading
Code of Conduct and related activities, supported by
human resource and management system improvement
programmes. A new approach of ‘Supplier Ownership’
further supported suppliers in building their own capacity
to take greater responsibility for ethical standards in their
supply chains.
Number of audits, supplier visits, training sessions,
improvement programme and hotline training visits
756 +5%
12
11
10
756
721
634
Burberry Group plc Annual Report 2011/12 63
Great Brand, Great Company Continued
Community
Investing and engaging in the communities where Burberry
employees live and work, while leveraging core business
competences and values, remains a key objective.
Invest
Burberry donated 1% of Group profits before tax to
charitable causes, the majority to the Burberry Foundation
(UK registered charity number 1123102). The Foundation
helps young people develop their skills, confidence
and connections, and since its establishment in 2008
has supported 21 charity partners in 12 cities globally. In
addition to financial support, the Foundation made in-kind
donations ranging from one-off gifts of non-trademark fabric
and materials to assist young people enrolled in art and
design courses, to the annual Christmas Coat Donation
programme, benefiting 3,000 disadvantaged young
people around the world.
To support the next generation of creative talent, two
multi-year scholarship funds were launched with the
Royal College of Art in the UK and Ball State University
in the United States.
Following the severe drought affecting East Africa in 2011,
Burberry and its employees contributed to the Disasters
Emergency Committee to support the provision of life-saving
aid. Burberry also continued to support Japan in the wake
of the March 2011 earthquake and tsunami through a
donation to the Burberry Foundation to be used specifically
to assist young people in the most impacted areas.
Engage
Burberry continued to encourage its associates to dedicate
up to four hours of paid leave per month in support of
Burberry Foundation charity partners. Approximately 40%
of employees based in locations with active volunteering
programmes lent their personal talents, business skills
and experience to inspire young people through more
than 5,500 hours of volunteering support.
Employability programmes were established in Hong
Kong, New York and London, as well as in Yorkshire in
the UK, where Burberry manufactures its heritage rainwear
and weaves its traditional gabardine fabric. Delivered
and supported by Burberry associates, the programmes
heighten the creative confidence, skills and aspirations
of unemployed young people through an intensive training
curriculum followed by up to 6 weeks of practical work
experience. Already 70% of programme graduates have
achieved positive outcomes, finding employment, enrolling
in training or re-entering education.
Burberry associates in 27 locations participated in the
company’s first Global Volunteer Day, dedicating over
2,000 hours to improving the lives of disadvantaged
young people in their communities. Projects ranged from
career workshops to community revitalisation activities.
Inspire
The company continued to leverage its associates’ talents,
passions, skills and experience to help young people
achieve their full potential. More than 200 young students
globally were mentored by a Burberry associate over the
last year, in programmes ranging from three months to
three years. Through these mainly one-on-one mentoring
relationships, young people broadened their horizons,
raised their aspirations and were inspired to realise
their dreams.
Community donations £
Direct contributions made by Burberry
£3.7m +24%
12
11
10
64 Burberry Group plc Annual Report 2011/12
Volunteering hours
Time volunteered by Burberry associates
5,500 +49%
12
11
10
3.7m
3.0m
1.4m
5,500
3,700
3,500
Sustainability
Burberry is committed to driving more sustainable
outcomes throughout its global operations and engages
with the FTSE4Good Index, Carbon Disclosure Project,
United Nations Conference on Trade and Development,
Forest Footprint Disclosure and Forum for the Future.
Product
Burberry extended its efforts to safeguard high welfare
standards by taking an active role in wider industry
efforts to improve visibility in the exotics supply chain;
site visits to better understand traceability in the fur
industry; and communication of its Animal Sourcing
Principles to all tanneries.
A tannery assessment project was launched in Italy
using the Leather Working Group protocol, reflecting the
company’s increased focus on monitoring and improving
the environmental management and traceability in its
leather supply chain.
Burberry continues to follow a policy of not knowingly
using sandblasting for any of its denim products.
148 tonnes of European sample and raw material
waste was shredded and reused in the automotive
and construction industries.
Process
A dedicated Sea Shipping Task Force worked with
the Burberry supply chain to divert stock from air to sea,
resulting in a 32% points increase in stock shipped by sea.
Burberry reduced further the environmental impact
of its supply chain activities. At the Castleford facility
in Yorkshire, the energy used to produce each trench coat
was reduced by 30%, while the newly-created European
distribution hub will save an estimated 400 tonnes
of carbon per year on key outbound lanes.
Property
Burberry continues to increase its purchase of renewable
electricity. All of its UK sites and 20% of those in the
Americas are now powered in this way.
Elevating the sustainability expertise of the Burberry
Construction Team is crucial to the continued pursuit of
more sustainable construction practices and more energy
efficient buildings. More than 40% of this team now holds
a sustainable building certification.
Governance
A global governance system enables connection and
integration across Burberry’s global community on people,
ethical trading, community investment and sustainability
policies and initiatives.
The Chief Corporate Affairs Officer is responsible for
all ethical trading, community and sustainability matters
and reports on these to the Group Risk Committee and the
Board. He also chairs the Global Sustainability Committee
and sits on the Supply Chain Risk Committee.
The Chief People Officer supports the continued evolution of
Burberry’s unique corporate culture in line with its core values.
Occupational health and safety compliance is reviewed
tri-annually in stores and annually in offices and supply chain
sites. All improvement plans are monitored by the Global
Health and Safety Committee, which is chaired by the
Executive Vice President, Chief Financial Officer.
Global buildings energy CO2
CO2 kgs per £1,000 of turnover
18 -14%
12
11
10
DEFRA 2011 conversion factors used throughout
Primary transport shipped by sea %
Based on sea vs. air freight comparison; road data has been excluded
44% +32% points
12
11
10
44
12
20
18
21
20
Burberry Group plc Annual Report 2011/12 65
board of directors
Sir John Peace (63)†‡ Chairman
Sir John Peace has been Chairman of the Board since June
2002 and is also Chairman of the Nomination Committee.
He is Chairman of Standard Chartered PLC and Experian plc.
Previously he was Group Chief Executive of GUS plc from
2000 until 2006. He has been appointed Lord-Lieutenant
of Nottinghamshire with effect from July 2012. Sir John
was knighted in 2011 for services to business and the
voluntary sector.
Ian Carter (50)*†‡ Non-Executive Director
Ian Carter was appointed as a non-executive director
in April 2007. He is currently President of Hilton Hotels
Corporation Global Operations. He was previously CEO of
Hilton International Company and Executive Vice President
of Hilton Hotels Corporation, and was a director of Hilton
Group plc until the acquisition of Hilton International by Hilton
Hotels Corporation in February 2006. He previously served
as an Officer and President of Black & Decker Corporation
between 2001 and 2004.
Executive Directors
Angela Ahrendts (51)† Chief Executive Officer
Angela Ahrendts became Chief Executive Officer in July
2006, having served as an executive director since January
2006. Angela previously held various senior appointments,
including the position of Executive Vice President at Liz
Claiborne Inc between 1998 and 2006, Executive Vice
President of Henri Bendel from 1996 to 1998 and President
of Donna Karan International from 1989 to 1996.
Stacey Cartwright (48) Executive Vice President,
Chief Financial Officer
Stacey Cartwright joined as Chief Financial Officer in March
2004 and was appointed Executive Vice President, Chief
Financial Officer in June 2008. She had previously been
Chief Financial Officer at Egg plc between 1999 and 2003,
and from 1988 to 1999 she held various finance-related
positions at Granada Group plc. Stacey was appointed a
non-executive director of GlaxoSmithKline plc in April 2011.
Non-Executive Directors
Philip Bowman (59)*†‡ Senior Independent Director
Philip Bowman was appointed as a non-executive director
in June 2002 and is the Senior Independent Director
and Chairman of the Audit Committee. He was appointed
Chief Executive of Smiths Group plc in December 2007.
He previously held the positions of Chief Executive
at Scottish Power plc from early 2006 until mid 2007
and Chief Executive at Allied Domecq plc between 1999
and 2005. His earlier career included five years as a director
of Bass plc. He was previously Chairman of Liberty plc and
Coral Eurobet plc and a non-executive director of Scottish
& Newcastle plc and British Sky Broadcasting Group plc.
Stephanie George (55)*†‡ Non-Executive Director
Stephanie George was appointed as a non-executive
director in March 2006. She is currently Executive Vice
President and Chief Marketing Officer at Time Inc., with
responsibility for the Company’s overall positioning and
promotion, and for managing and growing Time Inc.’s
Marketing Services capabilities. Before this, Stephanie
spent 12 years at Fairchild Publications, first as publisher
of W magazine and then as President, Women’s Wear
Daily Media Worldwide. Stephanie also sits on the Board
of Lincoln Center.
John Smith (54)*†‡ Non-Executive Director
John Smith was appointed as a non-executive director
in December 2009. He is currently Chief Executive of BBC
Worldwide. John joined the BBC in 1989, where he held
the positions of Chief Operating Officer, Director of Finance,
Property & Business Affairs and Finance Director. John joined
BBC Worldwide in July 2004. He previously served as a
non-executive director of Severn Trent plc and Vickers PLC,
and on the Accounting Standards Board from 2001 to 2004.
David Tyler (59)*†‡ Non-Executive Director
David Tyler was appointed as a non-executive director
in June 2002, having been a director of the Company since
1997. He was appointed Chairman of the Remuneration
Committee in March 2007. David was Group Finance
Director of GUS plc from 1997 until its demerger in October
2006. He is currently Chairman of J Sainsbury plc and
Logica plc and a non-executive director of Experian plc.
Earlier in his career, David worked at Unilever plc, County
NatWest Limited and Christie’s International plc. He has
an MA in Economics from Cambridge, is a fellow of the
Chartered Institute of Management Accountants and
a Member of the Association of Corporate Treasurers.
Key to membership of committees
* Audit Committee
† Nomination Committee
‡ Remuneration Committee
68 Burberry Group plc Annual Report 2011/12
Back row: Stephanie George, John Smith, Ian Carter, David Tyler, Philip Bowman
Front row: Angela Ahrendts, Sir John Peace, Stacey Cartwright
Burberry Group plc Annual Report 2011/12 69
Directors’ report
The directors present their Annual Report and
the audited consolidated financial statements
of the Company for the year to 31 March 2012.
Business review
Burberry Group plc is required to set out in this report
a fair review of the business of the Group during the year
to 31 March 2012 and of the position of the Group at the
end of the financial year and a description of the principal
risks and uncertainties facing the Group (known as a
‘business review’). The purpose of the business review
is to enable shareholders to assess how the directors have
performed their duty under section 172 of the Companies
Act 2006 (duty to promote the success of the company).
The Chairman’s letter on page 8, the Chief Executive Officer’s
letter on pages 12 to 15, the Group overview and Strategy
sections on pages 26 to 42 and the Financial review on
pages 46 to 52 report on the activities and results for the year
and give an indication of the Group’s future developments.
The corporate responsibility and people report is set out in
the Great Brand, Great Company section on pages 61 to 65.
A description of the principal risks and uncertainties facing
the Group is included on pages 56 to 59. The Corporate
Governance report is set out on pages 74 to 82 and the
Directors’ Remuneration Report is on pages 83 to 92.
The sections of the annual report referred to above fulfil the
requirements of the business review and are incorporated
by reference and shall be deemed to form part of this report.
Principal activities
Burberry Group plc is a holding company. The Group
designs, sources, and markets luxury men’s, women’s and
children’s clothing and non-apparel accessories globally
through a diversified network of retail (including digital),
wholesale and franchise channels worldwide. Burberry also
licenses third parties to manufacture and distribute products
using the ‘Burberry’ trademarks.
Revenue and profit
Revenue from the continuing business during the period
amounted to £1,857.2m (2011: £1,501.3m). The profit for
the year attributable to equity holders of the Company was
£263.3m (2011: £208.4m).
Dividends
The directors recommend that a final dividend of 18.0p
per ordinary share (2011: 15.0p) in respect of the year to
31 March 2012 be paid on 2 August 2012 to those persons
on the Register of Members as at 6 July 2012.
An interim dividend of 7.0p per ordinary share was
paid to shareholders on 27 January 2012 (2011: 5.0p).
This will make a total dividend of 25.0p per ordinary
share in respect of the financial year to 31 March 2012.
The aggregate dividends paid and recommended in respect
of the year to 31 March 2012 total £109.5m (2011: £87.1m).
Directors
The names and biographical details of the directors holding
office at the date of this report are set out on page 68 and
are incorporated by reference into this report.
At the 2012 Annual General Meeting all of the directors will
retire and, being eligible, will offer themselves for re-election.
The Notice of this year’s Annual General Meeting sets out
why the Board believes the directors should be re-elected.
Details of the directors’ service agreements and letters of
appointment are given in the Directors’ Remuneration
Report on pages 83 to 92.
Directors’ share interests
Interests of the directors holding office at 31 March 2012
in the shares of the Company are shown within the Directors’
Remuneration Report on page 92. There were no changes
to the beneficial interests of the directors between the period
31 March 2012 and 22 May 2012.
Directors’ insurance and indemnities
The Company maintains directors’ and officers’ liability
insurance which gives appropriate cover for any legal action
brought against its directors. In accordance with section 236
of the Companies Act 2006, qualifying third-party indemnity
provisions are in place for the directors in respect of liabilities
incurred as a result of their office, to the extent permitted by
law. Both the insurance and indemnities applied throughout
the financial year ended 31 March 2012 and through to the
date of this report.
Share capital
Details of the issued share capital, together with details of
movements in the issued share capital of Burberry Group plc
during the year are shown in note 21 which is incorporated
by reference and deemed to be part of this report.
The Company has one class of ordinary share which carries
no right to fixed income. Each share carries the right to
one vote at general meetings of the Company. The ordinary
shares are listed on the Official List and traded on the London
Stock Exchange. As at 31 March 2012, the Company had
438,768,108 ordinary shares in issue, of which 30,027 were
held as treasury shares.
In order to retain maximum flexibility, the Company proposes
to renew the authority granted by ordinary shareholders at
the Annual General Meeting in 2011, to repurchase up to
just under 10% of its issued share capital. Further details are
provided in the Notice of this year’s Annual General Meeting.
At the Annual General Meeting in 2011, shareholders
approved resolutions to allot shares up to an aggregate
nominal value of £72,000 and to allot shares for cash other
than pro rata to existing shareholders. Resolutions will be
proposed at this year’s Annual General Meeting to renew
these authorities.
70 Burberry Group plc Annual Report 2011/12
No person has any special rights of control over the
Company’s share capital and all issued shares are fully paid.
There are no specific restrictions on the size of holding nor
on the transfer of shares which are both governed by the
general provisions of the Articles of Association and prevailing
legislation. The directors are not aware of any agreements
between holders of the Company’s shares that may result
in restrictions on the transfer of securities or voting rights.
The directors have no current plans to issue shares other
than in connection with employee share schemes.
Details of employee share schemes are set out in note 25.
The Burberry Group plc ESOP Trust has waived all dividends
payable by the Company in respect of the ordinary shares
held by it. In addition, the Burberry Group plc SIP Trust has
waived all dividends payable by the Company in respect
of the unappropriated ordinary shares held by it.
The total dividends waived in the year to 31 March 2012
were in aggregate £0.2m (2011: £0.05m).
With regard to the appointment and replacement of directors,
the Company follows the UK Corporate Governance Code
and is governed by its Articles of Association, the Companies
Act 2006 and related legislation. The Articles of Association
may be amended by special resolution of the shareholders.
Substantial shareholdings
As at 31 March 2012, the Company had been notified under
Rule 5 of the Disclosure and Transparency Rules of the
following major interests in its issued ordinary share capital:
Blackrock Inc.
Capital Research and
Management Company
Schroders plc
JP Morgan Chase & Co
FMR LLC
Ameriprise Financial, Inc.
Massachusetts Financial
Services Company
Legal and General Group plc
Number of
ordinary shares
43,198,349
22,016,085
21,666,352
21,578,580
21,867,513
21,664,800
20,073,645
17,483,873
% of total
voting rights
9.92
5.05
4.99
4.99
4.98
4.97
4.61
3.98
As at 22 May 2012, the Company had not received any
further notifications under Rule 5 of the Disclosure and
Transparency Rules of major interests in its issued ordinary
share capital.
Interests in own shares
Details of the Company’s interests in its own shares
are set out in note 21 to the financial statements.
Charitable donations
During the year to 31 March 2012, the Group donated
£3.7m (2011: £3m) for the benefit of charitable causes.
These donations principally comprised cash. Further
information regarding the charitable donations made
during the year are contained in the Great Brand, Great
Company section on pages 61 to 65.
Political donations
The Company made no political donations during the year in
line with its policy. In keeping with the Company’s approach
in prior years, shareholder approval is being sought at the
forthcoming Annual General Meeting, as a precautionary
measure, for the Company and its subsidiaries to make
donations and/or incur expenditure which may be construed
as ‘political’ by the wide definition of that term included in
the relevant legislation. Further details are provided in the
Notice of this year’s Annual General Meeting.
Employment policies
Diversity and inclusion
The Group takes a very inclusive approach to diversity.
As a global business, we value people of all cultures,
nationalities, races, religions, and ethnicities, regardless
of characteristics such as gender, gender identity and/or
expression, age, disability, or sexual orientation. Burberry
is passionate about attracting, developing and rewarding
the most talented and skilled individuals, regardless of
background. The Group encourages its employees to
work across functions, geographies and cultures to enhance
understanding and create a connected global community.
As the Group continues to grow globally, it is building on
its long-term commitment to diversity and inclusion –
embracing the cultures of all the countries where we do
business. Burberry is committed to making the necessary
adjustments to support the employment of people with
disabilities and provide training and development to
ensure they have the opportunity to achieve their potential.
In a situation where an employee becomes disabled during
their employment, the Group will endeavour to assist the
employee by offering additional training, adapting the job
if appropriate or by offering a transfer to another position.
Health and safety
The Group has a health and safety policy approved by the
Board and a Global Health and Safety Committee which
is chaired by the Executive Vice President, Chief Financial
Officer. Each region has a local Committee which reports
into the Global Committee. There have been a number of
internal and external audits carried out to provide assurance.
There has been no enforcement action following a routine
visit by inspectors.
Further information regarding the Group’s employment
policies are provided in the Great Brand, Great Company
section on pages 61 to 65.
Burberry Group plc Annual Report 2011/12 71
Directors’ report continued
Employee involvement
Employee communication
The Group believes that employee communication is
important in building strong relationships with, and in
motivating and retaining, employees. The Group makes
use of various methods and channels, all of which are
implemented globally, including, face-to-face briefings,
open discussion forums with senior management, email
and a corporate intranet as well as a new internal social
media platform, Burberry Chat. These enable all employees
to connect, consult and collaborate globally, to ensure
that matters of interest and importance are conveyed to
employees quickly and effectively. In addition, quarterly
updates which highlight the Group’s performance and
its ongoing strategic initiatives are webcast globally.
Furthermore, development of content such as videos
and digital webpages to communicate key initiatives,
events and other brand messages has further enhanced
internal communication and the Burberry culture.
Employee share ownership
The Group recognises the importance of good relationships
with employees of all levels and runs incentive schemes
and share ownership schemes for the benefit of employees.
Further details of these schemes are set out in the Directors’
Remuneration Report on pages 83 to 92.
The Group again intends to grant during 2012/13 free
share awards or cash-based awards to all eligible
employees. The Group also intends, where possible,
to invite employees to take part in the Sharesave Scheme.
Further details on the Group’s approach to employee
involvement and communications are provided in the
Great Brand, Great Company section on pages 61 to 65.
Financial instruments
The Group’s financial risk management objectives and
policies are set out within note 24 to the financial statements.
Note 24 also details the Group’s exposure to foreign
exchange, share price, interest, credit and liquidity risks.
These notes are incorporated by reference and are deemed
to form part of this report.
Creditor payment policy
For all trade creditors, it is the Company’s policy to:
agree and confirm the terms of payment at the
commencement of business with that supplier;
pay in accordance with contractual and other legal
obligations; and
continually review the payment procedures and liaise
with suppliers as a means of eliminating difficulties
and maintaining a good working relationship.
The Company had no trade creditors at 31 March 2012
(2011: £nil).
Significant contracts – change of control
Pursuant to the Companies Act 2006, the directors disclose
that in the event of a change of control in the Company, the
Group’s £300m Revolving Credit Facility (dated 28 March
2011) could become repayable.
In circumstances of change of control of the Company,
Angela Ahrendts may terminate her employment. Her
entitlement in respect of remuneration in such circumstances
is set out on pages 87 to 88 of the Directors’ Remuneration
Report and is the same as it would be if her service agreement
is terminated where the Remuneration Committee determines
that Angela Ahrendts’ performance does not meet the
financial expectations of the Board or shareholders.
In circumstances where the Company’s shares cease to be
listed, Stacey Cartwright may terminate her employment on
three months’ notice and would be entitled to her base salary
for a period of nine months following termination.
Details of the service agreements of the executive
directors are set out on pages 87 to 88 of the Directors’
Remuneration Report.
The provisions of the Company’s employee share plans may
cause options and awards granted under such plans to vest
upon a change of control.
72 Burberry Group plc Annual Report 2011/12
Essential contracts
The Group has a number of contractual arrangements with
suppliers (both of goods and services), wholesale customers,
licensees who manufacture and distribute products using
the Burberry trademarks, subsidiary partners and franchisees.
In addition, the Group occupies leasehold premises for
the purpose of conducting its business. Whilst these
arrangements are important to the business of the Group,
individually none of them are essential to the business
of the Group and do not require disclosure under section
417(5)(c) of the Companies Act 2006.
The directors have reviewed the Group’s forecasts and
projections. These include the assumptions around the
Group’s products and markets, expenditure commitments,
expected cash flows and borrowing facilities. Taking into
account reasonably possible changes in trading performance,
and after making enquiries, the directors have a reasonable
expectation that the Group and the Company have adequate
resources to continue in operational existence for the
foreseeable future. Accordingly the directors consider
it appropriate to continue to adopt the going concern
basis in preparing the financial statements.
Independent Auditors
In accordance with section 418(2) of the Companies Act
2006, each of the Company’s directors in office as at the
date of this report confirms that:
so far as the director is aware, there is no relevant
audit information of which the Company’s auditors
are unaware; and
he or she has taken all the steps that he or she ought to
have taken as a director in order to make himself or herself
aware of any relevant audit information and to establish
that the Company’s auditors are aware of that information.
The Group’s auditors are PricewaterhouseCoopers LLP.
A resolution to re-appoint PricewaterhouseCoopers LLP as
auditors to the Company will be proposed at the forthcoming
Annual General Meeting.
Note 5 in the financial statements states the auditors’
fees both for audit and non-audit work.
Going concern
The Group’s business activities, together with the factors
likely to affect its future development, performance and
position are set out in the Financial review on pages 46
to 52, along with details of the Group’s cash flows, liquidity
position and borrowing facilities. Financial risk management
objectives, details of financial instruments and hedging
activities, and exposures to credit risk and liquidity risk
are described in note 24.
Annual General Meeting
The Annual General Meeting of the Company will be held at
the offices of Slaughter and May, One Bunhill Row, London,
EC1Y 8YY commencing at 9.30am on Thursday, 12 July
2012. The Notice of this year’s Annual General Meeting
will be available to view on the Company’s website at
burberryplc.com.
The directors consider that each of the proposed resolutions
to be considered at the Annual General Meeting are in the
best interests of the Company and its shareholders as a whole
and are most likely to promote the success of the Company
for the benefit of its shareholders as a whole. The directors
unanimously recommend that shareholders vote in favour
of each of the proposed resolutions, as the directors intend
to do in respect of their own shareholdings.
By order of the Board
Catherine Sukmonowski
Company Secretary
22 May 2012
Registered Office:
Horseferry House
Horseferry Road
London
SW1P 2AW
Registered Number: 03458224
Burberry Group plc Annual Report 2011/12 73
Corporate governance
Dear Shareholder,
Good corporate governance is important to support the
delivery of the Group’s five key strategic themes and ensure
long term sustainable value for our shareholders. However
as a Board we believe that good governance is also about
being a great company and that our role is to support and
encourage the evolution of the business in ways which reflect
our core values of Protect, Explore and Inspire – both for
those within the Company and those with whom we connect.
The growth of the Group’s business continues to be dynamic
despite the current uncertain global economic and political
climate. Consequently the Board’s focus during the year has
been on the execution of the Group’s strategy, identification
and mitigation of risk, ensuring that the Group’s controls and
infrastructure are appropriate in the context of the Group’s
continuing growth, and that the Group attracts and retains
the right senior talent (including on the Board) to secure the
future of the Company.
The Board welcomed Lord Davies’ report entitled “Women
on Boards”. We are proud of the fact that the Company is
diverse and not only in terms of gender. Diversity is at the
heart of our culture and brand which is characterised by a
democratic and meritocratic ethos. Our Board succession
planning is focused on ensuring the right mix of skills and
experience for the Board with due regard for the benefits
of diversity, including gender.
The debate over good corporate governance continues
at a national, EU and international level. I believe that this
dialogue is important and that as a global company it is
our responsibility to practice high standards of corporate
governance and to promote such standards wherever
we operate.
This report sets out the Board’s approach and work
during the financial year 2011/12 and, together with
the Directors’ Remuneration Report on pages 83 to 92,
includes details of how we applied and complied with the
principles and provisions of the UK Corporate Governance
Code. The Group complied with the provisions of the Code
throughout the year.
The Board and I will endeavour to ensure the Group’s
continued success as a dynamic and well governed
business over the coming year.
Sir John Peace
Chairman
74 Burberry Group plc Annual Report 2011/12
Governance
“The Board is collectively responsible for promoting
the success of the Company, and is accountable to
shareholders for ensuring that the Company achieves
its strategic objectives and is appropriately managed.”
Our Board
The Board currently consists of eight members – the
Chairman, the Chief Executive Officer, the Chief Financial
Officer and five independent non-executive directors.
A list of individual directors and their biographies is
set out on page 68.
The Chairman, Sir John Peace, has led the Board as
Chairman since 2002. The Chairman is responsible for
leading and managing the business of the Board and
ensuring its effectiveness. He sets the agenda for Board
discussions and ensures that the Board receives accurate,
timely and clear information, particularly in relation to the
Company’s performance. He promotes an open culture
which allows for debate and constructive challenge of the
executive directors.
The Chairman works collaboratively with the Chief Executive
Officer, Angela Ahrendts, in setting the Board agenda and
ensuring any actions agreed by the Board are effectively
implemented.
During the year, the Chairman maintained regular contact
and met with the Senior Independent Director and other
non-executive directors outside of formal board meetings.
The Chairman also met with the non-executive directors
without the executive directors being present.
The Chairman is also responsible for the Company’s
performance to shareholders and has frequent discussions
with the Company’s main institutional shareholders.
The major commitments of the Chairman are detailed in his
biography on page 68 and have not changed during the year.
The Senior Independent Director, Philip Bowman,
supports the Chairman in his role and leads the non-executive
directors in the oversight of the Chairman. The Senior
Independent Director is also available as an additional point
of contact for shareholders.
The Non-Executive Directors provide strong experience
and independent support to the Board. They assist in the
development of strategy and provide constructive challenge
and support to management.
The Chief Executive Officer, Angela Ahrendts, is
responsible for the management of the business, developing
the Group’s strategic direction for consideration and approval
by the Board and implementing the agreed strategy. The
Chief Executive Officer is assisted by members of her senior
management team who meet regularly. Members of the
senior management team are identified on page 153.
Role of the Board
“Developing and refining our strategy is key to our
future success. As a Board we need to understand
the competitive landscape, monitor emerging trends
and keep updated on the Group’s operations.
The Company has experienced – and is continuing to
experience – a period of considerable growth. With this
success comes a responsibility for the Board to ensure
we grow in a controlled and sustainable way for our
shareholders and wider stakeholders, and that we
understand the risks to achieving this objective.”
The Board is ultimately responsible for the activities of the
Group – its governance, strategy, risk management and
performance. The Chief Executive Officer is accountable for,
and reports to the Board on, the performance of the business.
The Board has a formal schedule of matters reserved
for its decision which includes:
the Group’s business strategy;
the annual budget and operating plans;
matters materially affecting the reputation or financial
position of the Group;
major capital expenditure, acquisitions and
divestments, licensing and franchise transactions
above defined thresholds;
the systems of corporate governance, internal control
and risk management;
the approval of the interim and annual financial
statements; and
the determination of any interim dividend
and the recommendation of the final dividend.
The Board monitors the performance of the Group:
through reports from the Chief Executive Officer and
Chief Financial Officer who are responsible for reporting
to the Board on the performance of the business;
through discussion at Board meetings where management
are challenged on the performance of the Group;
by evaluating the Group’s progress on achieving
its five strategic objectives; and
by monitoring, including through the Board Committees,
the significant risks facing the Group.
The matters reserved for the Board’s decision are set
out in writing and available on the Company’s website
at burberryplc.com.
Role of the Board Committees
The Board is supported in the activities set out above by
a number of committees including the following principal
committees: Audit Committee, Nomination Committee and
Remuneration Committee. All the non-executive directors
are members of each of the principal committees of the
Board. The Board believes this to be appropriate as the
Board remains relatively small and ensures the linkage
between the work of the Committees and the Board.
The terms of reference of each of the principal
committees can be viewed on the Company’s website
at burberryplc.com.
The Committees, if they consider it necessary, can engage
third-party consultants and independent professional advisors
and can call upon other resources of the Group to assist them
in developing their respective roles. In addition to the relevant
committee members and the Company Secretary, external
advisors and, on occasion, other directors and members
of the senior management team attend committee meetings
but only at the invitation of the Chairmen of the Committees.
Set out on pages 80 to 82 are reports from the Audit and
Nomination Committees. The report of the Remuneration
Committee is set out on pages 83 to 92.
Board
nomination
committee
remuneration
committee
audit committee
chief executive
officer
risk committee
senior
management team
supply chain risk
global health &
committee
safety committee
ethics committee
Burberry Group plc Annual Report 2011/12 75
Corporate governance continued
Highlights of Board and Committee activities
The Board has spent time on the following matters
(amongst others) during the year:
The table below gives details of directors’ attendance at
Board and Committee meetings during the financial year
ended 31 March 2012.
Continued evolution of the Board’s oversight of the
strategic plan – the Board participated in a two day
interactive session with management on strategy.
Strategic updates are regularly included on the Board
agenda giving the Board the opportunity to discuss
progress against the strategic plan and new strategic
opportunities.
Continued focus on balancing the prevailing external
conditions and the achievement of the strategic plan and
budget objectives – the Board considered the particular
risks which could impact on the strategy and/or
business model.
Continued focus on the evolution of the Company’s risk
management systems and internal control framework,
largely through the work of the Audit Committee.
Monitoring of policies and procedures in relation to the
UK Bribery Act, health and safety and governance.
Continued improvement in understanding of the business,
the competitive landscape and emerging trends – the
Board engaged with senior management below Board
level on key areas of the business such as its digital
evolution and product and licensing development. It also
obtained external expert perspectives on issues facing
the business such as the current political and economic
outlook. In April 2012 the Board visited Asia, one of the
Company’s key strategic markets, to view its operations
and better understand the market.
Continued focus on the retention and incentivisation
of executive directors and senior management through
the work of the Remuneration Committee.
Continued consideration of Board and Committee
composition and senior executive succession.
Time allocation
Each of the non-executive directors has a letter of
appointment which sets out the terms and conditions of
his or her directorship. The Chairman and the non-executive
directors are expected to devote such time as is necessary
for the proper performance of their duties. This is expected
to be approximately 20 days each year for basic duties.
The Chairman and Senior Independent Director are expected
to spend additional time over and above this to discharge
their added responsibilities.
During the year the Board held six scheduled meetings
and one additional meeting, including an in depth two day
session on strategic matters. The Board spent five days
visiting Asia in April 2012. Between meetings directors spend
a significant amount of time on Board and Committee related
matters. The Board considers that it met sufficiently often
to enable the directors to discharge their duties effectively.
Board
Audit Nomination Remuneration
Scheduled
Ad hoc
Sir John Peace
Angela Ahrendts
Philip Bowman
Ian Carter
Stacey Cartwright
Stephanie George
David Tyler
John Smith
6/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
1/1
1/1
0/1
0/1
1/1
1/1
1/1
0/1
–
–
3/3
3/3
–
3/3
3/3
3/3
2/2
2/2
2/2
2/2
–
2/2
2/2
2/2
Any absences were due to unavoidable prior commitments.
2/2
–
2/2
2/2
–
2/2
2/2
2/2
External directorships
The Board’s executive directors are permitted to hold only
one non-executive directorship of a FTSE 100 company.
Details of the directors’ other directorships can be found
in their biographies on page 68.
Board effectiveness
“As a Board we strive to provide effective leadership that
supports the Company’s five strategic themes and accords
with the Company’s core values – to protect, explore, and
inspire. To do this we must remain an open, dynamic,
connected and collaborative team.”
Composition and succession
The non-executive directors are drawn from a wide range
of industries and backgrounds, including banking and
financial services, hotels and hospitality, marketing, broadcast
and media. They have appropriate experience of complex
organisations with global reach including experience
of the Group’s key markets of Europe, the Americas and
Asia. Their varied yet relevant experience brings a wealth
of insight to Board discussions and important support to the
management team. All the directors will stand for re-election
at the upcoming Annual General Meeting on 12 July 2012.
The Board aims to continuously refresh its membership
to ensure that it reflects the growth profile of the business.
However this needs to be balanced over time to ensure that
it can draw on the valuable experience of its longer serving
directors, particularly given the significant continuing growth
of the business and the current volatile macro-economic
and global environment.
In relation to Board Committee succession matters,
on 22 May David Tyler resigned as Chairman of the
Remuneration Committee, with effect from the close
of the Group’s upcoming Annual General Meeting.
Sir John Peace has also resigned as a member of the
Committee with effect from the close of the Annual General
Meeting. The Board has appointed Ian Carter as the new
Chairman of the Remuneration Committee. David Tyler
will continue to serve as a member of the Committee.
76 Burberry Group plc Annual Report 2011/12
During the recent independent investor audit (as referred to
in “Engagement with shareholders” on page 78 below), the
view was expressed that the current Board provides a good
balance and support to the management team.
During the year, the Board (through the Nomination
Committee) focused on its future composition in relation
to both executive and non-executive succession planning.
It concluded that whilst the current composition of the Board
remained appropriate, the Board should continue to build
on its relevant skills and competencies for the future. It was
identified that the future addition of a director with experience
of operating in Asia and/or Emerging Markets would
be beneficial and this is something the Board will focus
on in the coming months.
Diversity and inclusion
The Board welcomed Lord Davies’ report entitled
“Women on Boards”. The Company is proud of the fact
that it is diverse, not only in terms of gender. Diversity is
at the heart of the culture and brand which is characterised
by a democratic and meritocratic ethos.
the Board’s role in overseeing the strategic plan was
rated highly and had improved significantly over the last
few years;
the increased use of informal meetings, presentations from
senior management and the visit to the businesses in Asia,
were all positive developments;
the annual cycle of Board and Committee work and
information provided was appropriate and well planned;
and
Board and Committee performance in managing principal
risks was rated highly.
Following its discussion the Board agreed the following
recommendations:
whilst the current composition of the Board was
considered appropriate, the Board should plan for the next
few years to build on its relevant skills and competencies.
It was identified that the future addition of a director with
experience of operating in Asia and/or Emerging Markets
would be beneficial;
At our Group headquarters in London, 54 different nationalities
are represented and approximately 70% of the total
workforce is female. Of the eight directors on the Board,
three are women including both of the executive directors.
Approximately 35% of management are female.
the Board should continue to strengthen its contribution
and impact on overseeing strategy including by affording
more opportunities throughout the year to engage with
senior management responsible for key elements of the
business and strategy; and
The Company continues to focus on its recruitment strategies
and cultural values to ensure it recruits and retains a talented
workforce operating in an inclusive and diverse environment.
Board succession planning is focused on ensuring the right
mix of skills and experience for the Board with due regard
for the benefits of diversity, including gender.
Evaluating our performance
The Board undertakes a formal review of its performance
and that of its committees each financial year, with an external
evaluation once every three years. During the year an
internally facilitated review by way of an online questionnaire
was undertaken. Feedback from the evaluation was provided
in the form of a written report to the Board followed by a
discussion of the outcomes, led by the Chairman. In 2010/11
an externally facilitated review of the Board’s effectiveness
was facilitated by Dr Tracy Long of Boardroom Review.
Consistent with Dr Long’s findings last year, the review
concluded that the Board was highly effective, the size and
continuity of the Board was felt to encourage open and,
where necessary, robust debate. The review identified that
the Board had a number of key strengths, including:
the small size and open culture of the Board encouraged
discussion and debate, fostered by the Chairman who
is viewed as a strong and positive influence and a great
ambassador for the Group;
the Board operated effectively as currently composed
with a diversity of skills and very good knowledge
of the business and management;
the Board should continue to consider its approach to
assessing Board and Committee effectiveness to ensure
that the Group’s approach to this remained meaningful
and reflective of the unique and collaborative nature
of the Board.
The non-executive directors, led by the Senior Independent
Director, also considered the performance of the Chairman
without the Chairman present. They confirmed that the
Chairman’s leadership, performance and overall contribution
were of a high standard.
Information flow and professional development
The Chairman works closely with the Company Secretary
to ensure that the Board is supplied in a timely manner with
information in a form and of a quality appropriate to enable
it to effectively discharge its duties. During the year the
Company introduced the provision of Board papers and
additional information via iPad to allow for easy and instant
access to a wide range of information.
The Board is kept up to date on legal, regulatory and
governance matters through advice and regular papers
from the Company Secretary, the General Counsel and
other advisers. During the year the Board was briefed
on boardroom diversity, various developments in narrative
and risk reporting and executive remuneration, compliance
with the UK Bribery Act 2010, and other developments
in corporate governance reporting.
Burberry Group plc Annual Report 2011/12 77
Corporate governance continued
The Company Secretary assists the Chairman in designing
and facilitating a tailored induction programme for new
directors and their on-going training. The Chairman reviews
training needs with directors on an annual basis as part
of the performance evaluation process.
The Board have direct access to the advice and services
of the Company Secretary and the appointment and removal
of the Company Secretary is a matter reserved for the Board
as a whole. Directors may also obtain, in the furtherance
of their duties, independent professional advice, if necessary,
at the Group’s expense.
Re-election of directors
At the Annual General Meeting in 2011, all directors offered
themselves for re-election. Each director was re-elected
and no director received less than 94% in favour of the
votes cast. At the Annual General Meeting in 2012, all of
the directors will again retire and all will offer themselves
for re-election.
The Board believes that each of the directors standing
for re-election continue to be effective and accordingly,
the Board recommends that shareholders approve the
resolutions to be proposed at the 2012 Annual General
Meeting relating to the re-election of the directors.
Board tenure
0-5 years
5-10 years
10 years or above
The balance of tenure of service of the directors is set out in
the diagram above. At the time of the 2012 Annual General
Meeting, Sir John Peace, Philip Bowman and David Tyler
will have served on the Board for ten years. The performance
of Philip Bowman and David Tyler has been subject to a
rigorous review including with regard to their independence.
The Board has concluded that they continue to provide
independent and constructive challenge to the executive
directors and remain effective non-executive directors.
As discussed under “Board Composition and Succession”
above, these directors bring valuable insight, experience
and balance to the Board’s deliberations.
Managing conflicts of interest
All directors have a duty under the Companies Act 2006 to
avoid a situation in which they have, or could have, a direct
or indirect conflict of interest or possible conflict of interest
with the Group.
78 Burberry Group plc Annual Report 2011/12
Under the Group’s Articles of Association, the Board has
the authority to approve such “situational” conflicts of
interest and has adopted procedures to manage and,
where appropriate, to approve such conflicts. Authorisations
granted by the Board are recorded by the Company
Secretary in a register and are noted by the Board
at its next meeting.
A review of situational conflicts which have been authorised
is undertaken by the Board annually. Following the last
review, the Board concluded that the conflicts had been
appropriately authorised and that the process for
authorisation continued to operate effectively.
Engagement with shareholders
The Board believes that effective leadership also involves
maintaining an open and constructive dialogue with
shareholders and other stakeholders, and seeks to achieve
this in various ways including at the Annual General Meeting.
The Chief Executive Officer and Executive Vice President,
Chief Financial Officer give live presentations to institutional
shareholders and analysts immediately following the release
of the half and full year results which are then made available
on the Group’s website at burberryplc.com. The Group’s
Investor Relations department acts as the centre for ongoing
communications with investors and analysts.
The Chairman also maintains a regular dialogue with major
shareholders to hear their views and discuss issues of
mutual importance and communicates their views to the
other members of the Board. The Senior Independent
Director and all the other non-executive directors are available
to meet with shareholders. The Group also carried out an
independent investor audit of its major investors through
Makinson Cowell, a capital markets advisory firm, to gauge
investor perception.
Effective internal controls
The Group has a clear and consistent strategy as reflected
in its five key strategic themes. The strategy has been
developed to exploit identified opportunities through a
diversified business model. Where material risks have been
identified within our business, the Group has implemented
an appropriate internal control environment to endeavour
to mitigate such risks.
The Board is ultimately responsible for the Group’s system
of internal controls and risk management, and it discharges
its duties in this area by:
determining the nature and extent of the significant
risks it is willing to take in achieving the Group’s
strategic objectives; and
ensuring that management implement effective systems
of risk identification, assessment and mitigation.
The Audit Committee has been delegated the responsibility
for reviewing the effectiveness of the Group’s internal controls.
The Audit Committee uses information drawn from a number
of different sources to carry out this review including;
Internal Audit provides objective assurance through
its annual work plan which is approved by the Audit
Committee and focuses on the principal risks identified
in the risk assessment and key internal controls;
regular reports to the Audit Committee from executive
management and key Group support functions detailing
their risk management and compliance approaches
and highlighting any significant issues;
key outcomes from discussions at the Group Risk
Committee; and
further objective assurance is provided by external auditors.
The internal control framework has been in operation for the
whole of the year under review and continues to operate up
to the date of approval of the Annual Report and Accounts.
The system of internal controls is designed to manage rather
than eliminate the risk of not achieving business objectives,
and can only provide reasonable and not absolute assurance
against material misstatement or loss.
There are areas of the Group’s business where it is necessary
to take risks to achieve a satisfactory return for shareholders
so long as such risks reflect the Board’s overall appetite for
risk. It is the Group’s objective to apply expertise to prudently
manage rather than eliminate such risks including keeping
them under constant review.
The Board, through the Audit Committee, has reviewed
the assessment of risks and the Group’s internal control
framework and has considered the effectiveness of the
system of internal control in operation in the Group for the
year covered by the Annual Report and up to the date of its
approval by the Board. The process followed by the Board
in reviewing the system of internal controls accords with
the Turnbull guidance. It also accords with the provisions
of the UK Corporate Governance Code.
For details of the principal risks which may adversely impact
the management of the Group and the execution of its
growth strategies and the steps the Group takes to address
these risks (where they are matters within Group control),
see the Principal Risks section on pages 56 to 59.
Managing risks
The Group has an integrated approach to risk management
and internal controls to ensure that its review of risk is
used to inform the internal audit process and the design
of internal controls.
A detailed three year strategic plan and annual budget
process provides the principal metrics against which the
performance of the Group is measured. The strategic plan
and budget are agreed with the Board together with defined
performance targets and risks to delivery. The plan and the
principal risks for delivering the strategy also form part of
the Board’s annual review of Group strategy. The Audit
Committee also plays a key role by reviewing the effectiveness
of the Group’s internal controls and risk management.
Executive management assess risk on a regular basis
through the Group Risk Committee which meets at least
three times per year and reports any key findings to the
Audit Committee. The Group Risk Committee evaluates
risk through reports made to it by Internal Audit and
Risk Assurance and other assurance teams and
management committees. The Committee benefits
from cross functional membership encompassing senior
management of key areas such as IT, Finance, Legal,
Brand Protection, Company Secretariat, Corporate
Responsibility, Human Resources, Supply Chain and
a number of assurance functions. These meetings
are attended by the Chief Financial Officer and/or the
Chief Executive Officer as well as the Director of Audit
and Risk Assurance.
The executive directors also meet with senior management
on a monthly basis to discuss performance, operational and
budget issues to identify any emerging risks to achieving the
strategic plan.
All internal audit activity is conducted by the Internal Audit
team under the leadership of the Director of Audit and Risk
Assurance, who reports to the Executive Vice President,
Chief Financial Officer, but also has an independent reporting
line to the Chairman of the Audit Committee. In the light of
Internal Audit’s recommendations, management agrees and
implements corrective action plans, which are tracked to
completion by Internal Audit, with the results reported to
executive management, the Audit Committee and the Board.
As part of the Board’s consideration of the principal risks
facing the Group, Internal Audit and Risk Assurance facilitate
a risk assessment process in each key business area and
global support function to review the significant risks facing
its operations and to record the relevant controls and any
actions in place to mitigate the risks. The materiality of the
risk is measured based on financial and non-financial criteria,
and the probability of the risk arising is also mapped. The
detailed assessments are then consolidated to provide input
into the Group risk assessment. This process also enables
Internal Audit and Risk Assurance to engage with senior
management throughout the business on risk monitoring
and management.
Financial reporting
Management is responsible for establishing and
maintaining adequate internal controls over financial
reporting. These controls are designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external reporting purposes.
Burberry Group plc Annual Report 2011/12 79
Corporate governance continued
The Group has comprehensive planning, budgeting,
forecasting and monthly reporting processes in place.
A summary of Group financial results supported by
commentary and performance measures is provided
to the Board each month.
In relation to the preparation of the Group financial
statements, the controls in place include:
a centre of expertise responsible for reviewing new
developments in reporting requirements and standards
to ensure that these are reflected in Group accounting
policies;
a dedicated finance governance team who are responsible
for developing the Group’s financial control processes and
procedures and implementing them across the Group; and
a global finance structure consisting of employees with
the appropriate expertise to ensure that Group policies and
procedures are correctly applied. Effective management
and control of the finance structure is achieved through
the finance leadership team, consisting of key finance
employees from the regional and corporate centre.
The reporting process is supported by transactional and
consolidation finance systems. Reviews of the applications
of controls for external reporting purposes are carried out
by senior finance management. The results of these reviews
are considered by the Board as part of its monitoring
of the performance of controls around financial reporting.
The Audit Committee reviews the application of financial
reporting standards and any significant accounting
judgements made by management.
Control environment
The Group’s business model is based on a central design,
supply chain and distribution operation to source products
to global markets, via retail and wholesale channels.
This is reflected in the internal control framework which
includes central direction, resource allocation, oversight
and risk management of the key activities of marketing,
inventory management, brand and technology development.
This includes central support in relation to legal, human
resources, information systems and financial practice.
The Group has established procedures for the delegation
of authorities to ensure that approval for matters that are
considered significant is considered at an appropriate level,
either because of their value or the impact on the Group. In
addition the Group has policies and procedures in place that
are designed to support risk management across the Group.
These authorities, policies and procedures are being kept
under review as the Group continues to grow. These include
policies relating to treasury, the conduct of employees
and third parties with which the Group conducts business
and prohibiting bribery and corruption, amongst others.
Accountability and audit
The Board is required to present a balanced and
understandable assessment of the Group’s position and
prospects in the Annual Report and in interim and other
public reports. The Board is satisfied that it has met this
obligation. A summary of the directors’ responsibilities for
the financial statements is set out on page 94 and includes
a statement regarding the Group’s status as a going
concern as required by the UK Corporate Governance Code.
The Report of the Auditors on page 95 includes a statement
by the auditors concerning their reporting responsibilities.
Report of the Audit Committee
Dear Shareholder,
The role of the Audit Committee is to monitor the integrity of
financial information and to provide assurance to the Board
that the Company’s internal controls and risk management
systems are appropriate and regularly reviewed.
The Committee continues to focus on ensuring that the
Group’s systems and controls are operating effectively, are
evolving in line with the Group’s growth and are responsive
the demands of the external operating environment.
This will remain a priority for the coming year.
In addition to the usual work of the Committee (as set out
below), during the year the Committee focused on other
matters, including:
evaluating and taking into account any movements in
Group risks when considering budgets and forecasts that
support going concern and impairment assessments;
monitoring and seeking assurance that any effects on the
Group’s business arising from the volatility in the economic
environment (including supply of credit, bad debtors and
reliance on key vendors) are being closely monitored;
monitoring and seeking assurance of the continual
improvement of the risk and control environment
across the Group;
considering Internal Audit and Risk Assurance findings
and recommendations, and monitoring management
responses and progress on implementing remedial actions;
monitoring the establishment of the Group’s anti-bribery
and anti-corruption policies and procedures and the
on-going evolution of these against best practice; and
considering the risks of the Group’s dependency on digital
technology and Group policies to mitigate these risks.
As a Committee we are fortunate that we benefit from
a constructive and open relationship with management
and we thank them for their assistance during the year.
Philip Bowman
Chairman, Audit Committee
80 Burberry Group plc Annual Report 2011/12
Committee membership
The following directors served as members of the Committee
throughout the financial year ending 31 March 2012:
Members
Philip Bowman (Chairman)
Ian Carter
Stephanie George
John Smith
David Tyler
Appointment Date
21 June 2002
18 May 2007
19 May 2006
2 February 2010
21 June 2002
The Audit Committee met three times during the year.
The attendance record of Committee members is recorded
in the table on page 76. In addition to the scheduled
meetings the Chairman of the Committee meets separately
with the Chief Financial Officer and the Director of Audit
and Risk Assurance on a regular basis including prior
to each meeting.
Other regular attendees at Committee meetings include:
the Chairman of the Board, the Chief Executive Officer,
the Chief Financial Officer, the Director of Audit and Risk
Assurance, the Chief Corporate Affairs Officer & General
Counsel, the Company Secretary, the Senior Vice President
– Group Finance, the Group Financial Controller,
the Director of Tax and the External Auditors.
The Board is satisfied that Philip Bowman as Chairman
has recent and relevant financial experience and that
all other Committee members have past employment
experience in either finance or accounting roles or broad
experience and knowledge of financial reporting and
international businesses. Details of their experience
can be found in their biographies on page 68.
Role of the Committee
The main roles and responsibilities of the Audit Committee
are set out in written terms of reference which are
available on the Company’s website at burberryplc.com.
The Committee reviews its terms of reference annually.
These responsibilities include (among others):
the integrity of the Group’s financial statements and
formal announcements of the Group’s performance;
the Group’s internal financial, operational and compliance
controls and risk identification and management systems;
recommending the appointment of external auditors,
approving their remuneration and overseeing their work;
developing and implementing policies on the engagement
of the external auditors for the supply of non-audit
services; and
reviewing arrangements whereby employees may, in
confidence, raise concerns about possible improprieties
in matters of financial reporting and other matters.
External auditors
The Committee oversees the work undertaken by
PricewaterhouseCoopers. During the year the Committee
met with the external auditors without members of
management being present.
Appointment and fees
The Committee has primary responsibility for making a
recommendation on the appointment, re-appointment and
removal of the external auditors. The Committee assesses
on an annual basis the qualifications, expertise, resources and
independence of the external auditors and the effectiveness
of the previous audit process. Over the course of the year,
the Committee has reviewed the audit process and the quality
and experience of the audit partners engaged in the audit.
The Committee also reviewed the proposed audit fee and
terms of engagement for the 2011/12 financial year. Details
of the fees paid to the external auditors during the financial
year can be found in note 5 in the financial statements.
PricewaterhouseCoopers have remained in place as auditors
since prior to the IPO of the Company in 2002. They were
re-appointed following an audit tender process undertaken
by the Group for the 2010/11 financial year. The external
auditors are required to rotate the audit engagement partner
every five years. The current audit partner commenced
his engagement for the 2010/11 financial year and is not
subject to rotation until after the audit of the Group’s financial
statements for the 2014/15 financial year has been concluded.
During the year, the Committee approved the
re-appointment, remuneration and terms of engagement
of PricewaterhouseCoopers as the Group’s statutory
auditor. The Committee recommended to the Board that
it proposes to shareholders that PricewaterhouseCoopers
be re-appointed as the Group’s external auditors at the
Group’s forthcoming Annual General Meeting.
Non-audit services
The Committee recognises that the independence of the
auditors is an essential part of the audit framework and
the assurance that it provides. The Committee has adopted
a policy which sets out certain principles which the Group
should follow in relation to the engagement of the Group’s
auditors for non-audit services.
Under the policy, the auditors may provide non-audit services
that do not conflict with their independence, subject to prior
approval as set out in the policy. Proposed fees above a
certain level must be approved by the Audit Committee.
Such fees must be activity based and not success related.
At the half year and year end, the Audit Committee reviews
all non-audit services provided by the auditors during
the period and the fees relating to such services. If during
the year Group expenditure for non-audit services exceeds
£1m, all further requests for work must be referred to the
Chairman of the Committee.
Burberry Group plc Annual Report 2011/12 81
Corporate governance continued
During the year, the Group spent £0.5m on non-audit
services provided by PricewaterhouseCoopers. Further
details can be found in note 5.
Activities during the year
The Nomination Committee met twice during the year
under review. The table on page 76 gives details of directors’
attendance at these meetings.
Other regular attendees at Committee meetings include:
the Executive Vice President Corporate Resources, the
Chief Corporate Affairs Officer and the Company Secretary.
All directors have, since the 2011 Annual General Meeting,
offered themselves for annual re-election in accordance
with the UK Corporate Governance Code. The directors
will do so again at the 2012 Annual General Meeting.
The biographical details of the directors can be found on
page 68 of this Annual Report. The Board confirms that,
following the internal evaluation during the year led by the
Chairman, the performance of each of the directors standing
for re-election continues to be effective and demonstrates
commitment to their roles, including commitment of time
for Board and committee meetings and any other duties.
The terms and conditions of appointment of non-executive
directors, including the expected time commitment, are
available for inspection at the Company’s registered office.
Other governance disclosures
Annual General Meeting
As required by UK Corporate Governance Code, the
Notice of the 2011 Annual General Meeting was sent
to hareholders at least 20 working days before the
Meeting. A poll vote was taken on each of the resolutions
put before shareholders. All directors attended the 2011
Annual General Meeting and the Chairman of the Board
and the chairmen of each of the committees were available
to answer shareholders’ questions.
Voting at the upcoming 2012 Annual General Meeting will
be by way of poll. The results of the voting at the Annual
General Meeting will be announced and details of the
votes will be available to view on the Group’s website at
burberryplc.com as soon as possible after the meeting.
It is the intention that all directors, including the Chairmen
of the Audit, Remuneration and Nomination Committees,
will attend the Annual General Meeting and will be available
to answer shareholders’ questions.
Share capital
Further information about the Company’s share capital,
including substantial shareholdings, can be found in the
Director’s Report on pages 70 to 73.
Report of the Nomination Committee
Dear Shareholder,
The role of the Nomination Committee is to review the
balance and composition of the Board and its committees,
ensuring that they remain fit for purpose.
Our focus during the year has been on:
reviewing Board and committee succession to ensure
that the Board continues to build on its relevant skills
and competencies for the future;
executive and senior management succession planning; and
consideration of diversity issues including in the context
of Lord Davies’ report entitled “Women on Boards”.
These will remain a priority for the coming year. Set out below
is more detail on the role of the Committee and its activities
during the year.
Sir John Peace
Chairman, Nomination Committee
Committee membership
The following directors served as members of the Committee
throughout the financial year ended 31 March 2012:
Members
Sir John Peace (Chairman)
Angela Ahrendts
Philip Bowman
Ian Carter
Stephanie George
John Smith
David Tyler
Appointment Date
21 June 2002
23 March 2007
21 June 2002
18 May 2007
23 March 2007
2 February 2010
23 March 2007
Role of the Committee
The main roles and responsibilities of the Nomination
Committee are set out in written terms of reference which
are available on the Company’s website at burberryplc.com.
The Committee reviews its terms of reference annually.
The Nomination Committee is responsible for reviewing the
balance and composition of the Board and its committees
and for identifying and recommending appointments or
renewal of appointments to the Board. These regular reviews
ensure that the Group and the Board are able to draw from
a complementary balance of skills and experience and that
there is in place an appropriate plan for orderly succession
to the Board. The procedure for appointments is set out
in the Committee’s terms of reference.
82 Burberry Group plc Annual Report 2011/12
Directors’ remuneration report
Dear Shareholder,
I am pleased to introduce the Directors’ Remuneration Report for the year ended 31 March 2012 which has been prepared
by the Remuneration Committee (the “Committee”) and approved by the Board.
2011/12 has presented a challenging external environment for Burberry given economic conditions and world events.
The global economic outlook remains uncertain. The level of executive pay has been under intense scrutiny with various
reform proposals made across the political spectrum. The Committee understands the public concern where pay is awarded
in the absence of good performance, but it believes that management should be rewarded where there has been genuine
achievement and exceptionally where there has been exceptional performance. We believe that this approach is in the best
interests of Burberry and its shareholders.
Against this backdrop, Burberry has continued its strong growth trajectory, with another year of record profits. This sustained
growth is the result of our strategic investment in the Brand.
Shareholders have had exceptional returns. In the five years to 31 March 2012, Burberry’s share price has increased by 129%
and Adjusted Profit Before Tax grew by £192m. An investor with 100 Burberry shares worth £653 on 1 April 2007 would at 31
March 2012 have a shareholding worth £1,676 which represents a 157% return on investment (assuming dividends are
reinvested in Burberry shares).
The Committee aims to ensure that directors’ and senior executives’ remuneration is globally competitive so as to attract and
retain high calibre individuals and is strongly aligned to performance and a sustainable increase in shareholder value. Taking
all the factors into account and the overall levels of reward delivered in the year, the Committee did not make grants to senior
executives under the Burberry Senior Executive Restricted Share Plan (the “RSP”) in 2011/12, nor did it increase the Chief
Executive Officer’s base salary. In addition, the performance condition for the vesting of the matching shares under the
Burberry Co-Investment Plan (the “CIP”) was increased so as to be made more challenging.
The Group’s remuneration policy is set out on page 85 and the current intention is that this will continue to be the policy for the
coming year. However, the Committee reviews the policy on a regular basis, taking into account the performance and growth
of the business and the global luxury goods sector. The Committee also considers the Group’s policy against regulatory
developments, shareholder expectations and global market practice.
I have decided to step down as Chairman of the Committee, after five years in that position. I believe that it is important for
the Committee to be refreshed from time to time to continue to demonstrate its ongoing independence. While I will continue to
serve as a member of the Committee, Ian Carter will suceed me as Chairman with effect from the close of the Group’s Annual
General Meeting in July. I would like to thank shareholders for their support and I am sure that under Ian’s chairmanship the
Committee will continue its responsive and responsible approach to remuneration which has served shareholders well.
David Tyler
Chairman, Remuneration Committee
2011/12 remuneration highlights
Performance over the five years to 31 March 2012 has been outstanding
– Adjusted Profit Before Tax doubled to £376m
– £4bn of value was delivered to shareholders through share price growth and dividends
– Burberry rose from 104 to 53 in the FTSE
The Committee took into account the challenging operating environment and strong performance by the Company when
determining overall level of remuneration
– The Chief Executive Officer’s base salary was not increased
– 2011/12 annual bonuses paid out in full, as Adjusted Profit Before Tax exceeded the maximum target set
at the start of the year
– The Chief Executive Officer and Chief Financial Officer intend to invest 100% of their 2011/12 cash bonus
in Burberry shares under the CIP
– Share incentives vested in full
– No grants were made to executive directors under the RSP
– The performance condition under the CIP was increased
Burberry Group plc Annual Report 2011/12 83
Directors’ remuneration report continued
Directors’ Remuneration Report
This report has been prepared on behalf of the Board by the Remuneration Committee. It has been prepared in accordance
with the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (the “Regulations”)
issued under the Companies Act 2006 (the “Act”) and it meets the relevant requirements of the Financial Services Authority’s
Listing Rules.
Performance graph
The following graph shows the Total Shareholder Return (‘TSR’) for Burberry Group plc compared to the companies in the
FTSE 100 Index assuming £100 was invested on 31 March 2007. Burberry became a constituent of the FTSE 100 index
on 10 September 2009 and prior to that had a market capitalisation close to that of companies at the lower end of the
FTSE 100 index.
Value of £100 Invested on 31 March 2007
Burberry
FTSE 100
£
300
250
200
150
100
50
0
£257
(157%)
£110
(10%)
2007
2008
2009
2010
2011
2012
Source: DataStream
Committee Membership
The following directors served as members of the Committee throughout the financial year ending 31 March 2012:
Members
Appointment Date
David Tyler (Chairman)
Philip Bowman
Ian Carter
Stephanie George
Sir John Peace
John Smith
23 March 2007
21 June 2002
18 May 2007
19 May 2006
21 June 2002
2 February 2010
Role of the Committee
The Committee is responsible for setting the remuneration of the executive directors and the Chairman of the Board and
monitors the level and structure of senior executive pay. The terms of reference of the Committee are available on the Group’s
website at burberryplc.com.
The Board reviewed the performance of the Committee in the year. This review concluded that the Committee operated
independently and effectively. The Board believes that the collective experience of its members enables the Committee
to give a balanced view on remuneration matters.
The remuneration of the non-executive directors is a matter for the Board as a whole. No director is involved in any discussions
as to their own remuneration. During the year, the Committee met formally on two occasions. Details of attendance at those
meetings are set out in the Corporate Governance report on page 76.
84 Burberry Group plc Annual Report 2011/12
At the invitation of the Committee, except where their own remuneration was being discussed, Angela Ahrendts (Chief
Executive Officer), Stacey Cartwright (Executive Vice President, Chief Financial Officer), Michael Mahony (Chief Corporate
Affairs Officer & General Counsel), Anne-Soline Thorndike (Vice President – Reward and Recognition) and Catherine
Sukmonowski (Company Secretary) attended Committee meetings during the period under review and provided advice
that materially assisted the Committee.
In 2011, the Committee appointed Towers Watson as advisor. Towers Watson provides advice on the ongoing operation
of employee and executive share plans together with advice on executive remuneration. A term of the engagement between
the Committee and Towers Watson is that any additional consulting services provided by Towers Watson to management
are reported on a regular basis to the Committee. Where an actual or potential conflict may occur, such work is agreed
by the Chairman of the Committee prior to commencement. Since appointment, Towers Watson has provided market
benchmarking information to management in relation to a small number of roles which fall below the remit of Committee
review. Towers Watson is a member of the Remuneration Consultants’ Group, which is responsible for the development
and maintenance of the voluntary Code of Conduct that clearly sets out the role of executive remuneration consultants
and the professional standards by which they advise their clients.
Remuneration Policy
The Committee believes the Group’s remuneration should be internationally competitive and strongly linked to performance,
taking into account the global markets in which it operates. The Group’s remuneration policy is based on the following
principles:
Shareholder value: remuneration should be closely aligned with long term value creation for shareholders through
thoughtful selection of performance measures (as described on the following pages), emphasis on variable pay and
delivery of a significant proportion of remuneration in shares, some of which are expected to be retained in accordance
with the Group’s shareholding policy;
Linked to success of the business: the overall remuneration framework should provide a balance between short and
long term business objectives. Variable pay for executive directors includes (1) an annual cash bonus based on Adjusted
Profit Before Tax as per the audited income statement (‘Adjusted PBT’), and (2) long-term share-based incentives linked
primarily to increases in shareholder value and growth in Adjusted PBT; and
Competitive in the global talent market: total remuneration should be sufficient to attract, motivate and retain exceptional
talent within the global luxury goods sector. Total remuneration for executive directors and other senior executives is therefore
benchmarked against Burberry’s main global competitors and comparable UK companies. The Committee recognises that,
for each executive, the relative importance of each of these benchmarks may be different. Benefits are based on competitive
market practice for each executive, depending on individual circumstances.
The principle of shareholder alignment is reflected throughout the organisation through our all employee share plans, which
are where possible extended to all eligible Burberry employees globally.
During its deliberations on executive remuneration, the Committee considered the reward framework for all employees
worldwide, ensuring that the principles stated therein are consistent with the executive remuneration policy. Merit increases
awarded to executives also occur within the broader all employee structure, and executive share plans are extended through
the organisation to senior executives and high potential employees where appropriate. Details of the remuneration policy
for the Chairman and non-executive directors are set out on page 91.
Remuneration structure
Remuneration is structured such that for executive directors and other senior executives, performance-related elements
represent the majority of total potential remuneration.
Burberry Group plc Annual Report 2011/12 85
Directors’ remuneration report Continued
Key elements of senior executive remuneration
Purpose
Horizon
Policy
Base salary
To recognise the responsibilities,
experience and ability of our talent
in a competitive environment,
keeping our people focused on
and passionate about the Brand.
1 year
Salaries are benchmarked against global companies of similar size and/or global reach within the
luxury goods sector and/or companies which have had a significant increase in brand perception,
and to a lesser extent comparable UK companies.
Increases for the executive directors and other senior executives are set within the same framework
and same ranges as other employees, taking into account employees’ individual performance and
overall contribution to the business during the year, as well as the external economic climate.
Annual bonus
To reward senior executives for
achieving financial targets linked
to the strategic plans agreed by
the Board.
1 year
Targets are set by reference to internal budgets, external expectations and long-term financial goals.
Bonuses for executive directors are currently based on Adjusted PBT. The Committee believes that
linking incentives to profitability helps reinforce the Group’s strategy and long term growth objectives.
Targets are calibrated using benchmarks that include broker earnings estimates for Burberry and its
competitors, latest projections for the then current year, budget, strategic plan, and long term financial
goals. Actual bonus awards are subject to the discretion of the Committee.
Co-Investment Plan
To incentivise consistent
performance and further align
senior executives’ interests with
those of shareholders,
by encouraging share ownership.
This is a critical retention tool.
The maximum bonus for the Chief Executive Officer is 200% of base salary.
The maximum bonus for the Chief Financial Officer is 150% of base salary.
3 years
Executives may voluntarily defer all or part of their annual bonus and invest in Burberry shares
with a contingent award of matching shares.
The ratio for matching shares depends on performance during the year:
In a year of maximum performance, deferrals are matched at a ratio of 2:1 for executive directors.
In a year of target performance, the ratio is 1:1.
Below target performance, the match does not operate.
Matching shares are subject to a performance condition. 25% of the award may vest if growth in
Adjusted PBT achieves 5% per annum over the three year period, with full vesting where Adjusted PBT
exceeds 10% per annum over the three year period with vesting occuring on a straight line basis
between these points.
Restricted Share Plan
To focus executives on
sustainable long-term
performance.
3, 4 and 5
years
The level of vesting is determined at the end of a three year performance period:
Adjusted PBT growth: currently 25% vesting for growth of 5% per annum through
to 100% vesting for growth of 15% per annum.
For senior executives, TSR against a comparator group: 25% vesting for median TSR rising to 100%
vesting for TSR equal to the upper quartile. The TSR group for this award comprised, Coach,
Compagnie Financière Richemont, Estée Lauder, Fossil, Geox, Hermès International, Hugo Boss,
Inditex, Liz Claiborne, Luxottica Group, LVMH Moët Hennessy Louis Vuitton, Nike, Nordstrom, Polo
Ralph Lauren, PPR, Saks, Swatch, Tiffany & Co, and Tod’s.
The Committee chose TSR relative to a group of Burberry’s peers because it felt that this is an
objective measure of the Group’s success and aligns with shareholder interests. Growth in Adjusted
PBT was chosen as it continues to be the primary measure used by management and the Committee
believes strong growth in pre-tax profit is key to delivering superior shareholder returns.
Once the level of performance has been determined, vesting is phased: half of the award vests
on the third anniversary of grant, 25% on the fourth, and the remaining award on the fifth.
86 Burberry Group plc Annual Report 2011/12
Purpose
Horizon
Policy
All-Employee Share Plans
To encourage employee share
ownership at all levels.
Shareholding Policy
To ensure continued alignment
with the interests’ of shareholders.
Benefits
To protect the well being of
employees, allowing them to
focus on the Brand.
Ongoing
Burberry operates two all employee share plans:
The Sharesave Scheme offers eligible executive directors and eligible employees an opportunity
to enter into a three or five year savings contract to save a portion of their salary which can be used
to purchase Burberry shares at up to a 20% discount to the market price at the date of invitation.
Grants of shares are made annually to all eligible employees under the Burberry Share Incentive
Plan (“SIP”) and International Freeshare Plans. The executive directors elected not to participate
in these plans.
Ongoing
Senior executives are expected to achieve an interest in Burberry shares equivalent to at least:
three times base salary for the Chief Executive Officer
one and a half times base salary for the Chief Financial Officer
one times base salary for other senior executives
Senior executives are expected to retain a proportion of the shares acquired on the exercise of options
and awards until such guidelines are met.
Ongoing
Benefits for executive directors include pension, private medical insurance, life assurance, long-term
disability insurance and clothing allowances.
A one-off award was granted to Angela Ahrendts following consultation with shareholders during 2010 and the details
of this award are set out in detail on page 90.
The mix of fixed and variable pay at target and maximum performance is illustrated below for 2011/12:
Chief Executive Officer
Target
Executive Vice President, Chief Financial Officer
Target
Max
Max
0%
20%
40%
60%
80%
100% 0%
20%
40%
60%
80%
100%
Fixed = Base + Allowances
Variable Shares = Matching Shares (assuming full co investment) + RSP (+ Annualised One-Off Award for Angela Ahrendts)
Variable Cash = Annual Bonus
Service agreements
Angela Ahrendts
Angela Ahrendts relocated from the US to the UK and commenced her employment with Burberry as an executive
director on 9 January 2006 under a service agreement dated 10 October 2005. She was appointed Chief Executive
Officer on 1 July 2006 for an indefinite period.
The terms of her service agreement were negotiated when she was appointed. If Burberry terminates Angela Ahrendts’
service agreement in circumstances other than for poor performance she would be entitled to 12 months’ salary and 75%
of her annual maximum bonus opportunity. She would also receive her pension contribution for 12 months together with
overseas allowances and, if applicable, relocation expenses. Any unvested awards under the Restricted Share Plan and
unvested Matching Share awards under the Co-Investment Plan will vest but only on a time apportioned basis and subject
to the achievement of the relevant performance conditions.
Burberry Group plc Annual Report 2011/12 87
Directors’ remuneration report continued
If Burberry terminates the agreement without cause but in circumstances where the Committee determines that Angela
Ahrendts’ performance or that of the Group does not meet the financial expectations of the Board or shareholders, her
entitlements in respect of salary and bonus will be reduced so that she will receive 12 months’ salary and 37.5% of her
maximum bonus opportunity. Angela Ahrendts may terminate the service agreement on six months’ notice.
The Committee considered that these termination provisions were required to secure the appointment of a Chief Executive
Officer of the calibre of Angela Ahrendts from the small pool of sufficiently specialised candidates from around the world.
Stacey Cartwright
Stacey Cartwright is employed by Burberry as Executive Vice President, Chief Financial Officer under a service agreement
dated 17 November 2003. Her term of appointment commenced on 1 March 2004 for an indefinite period.
Burberry may terminate Stacey Cartwright’s appointment by giving 12 months’ notice. In such circumstances she will
be entitled to payment of salary and other benefits for a period of 12 months. Stacey Cartwright may terminate the service
agreement on six months’ notice. Upon termination, all share awards would be treated in accordance with the rules
of the relevant plan.
On 1 April 2011, Stacey Cartwright was appointed as a non-executive director of GlaxoSmithKline plc. It has been agreed
that fees earned in connection with this appointment may be retained by her. From 1 April 2011 to 31 March 2012 this
was £75,000.
Audited information
Directors’ remuneration
Executive directors
The remuneration of the executive directors of Burberry Group plc in the period 1 April 2011 to 31 March 2012 is detailed below.
Aggregate emoluments for director
Angela Ahrendts
Year to 31 March 2012
Year to 31 March 2011
Stacey Cartwright
Year to 31 March 2012
Year to 31 March 2011
Salary
£’000
Pension
cash supplement
£’000
Allowances
paid in cash
£’000
9901
990
600
575
2552
992
1472
1402
387
386
32
32
Bonus
£’000
1,980
1,980
900
863
Benefits
£’000
Aggregate
emoluments
£’000
76
69
10
11
3,688
3,524
1,689
1,621
1 During 2011/12, Angela Ahrendts made personal charitable donations totalling £99,000
to the Burberry Foundation.
2 Angela Ahrendts and Stacey Cartwright receive a portion of their annual pension
contribution as a cash supplement, further details of which are contained in the section
below entitled “Pension entitlements”.
For 2012/13 Angela Ahrendt’s salary will be increased by 4% to £1,030,000 and Stacey Cartwright’s salary will
be increased by 3.3% to £620,000. These increases are consistent with those for the Group’s employees generally.
Pension entitlements
Angela Ahrendts
Angela Ahrendts is entitled to an annual pension contribution equal to 30% of base salary. She has elected that a portion
be paid as a cash supplement. For the year to 31 March 2012, the cash supplement was £255,333 (2011: £98,500).
The contribution paid into the Burberry Defined Contribution Pension Plan was £41,667 (2011: £198,500).
Stacey Cartwright
Stacey Cartwright is entitled to an annual pension contribution equal to 30% of base salary. She has elected that a portion
be paid as a cash supplement. For the year to 31 March 2012, the cash supplement was £147,420 (2011: £139,920).
The contribution paid into her personal pension plan was £32,580 in the year to 31 March 2012 (2011: £32,580).
88 Burberry Group plc Annual Report 2011/12
Share schemes and long-term incentive arrangements
The executive directors held the following interests in options under the Group’s long-term incentive plans:
Date of
grant
Option price
(p)
As at
1 April
2011
Granted
during the
year
Lapsed
during the
year
Exercised
during the
year
As at 31
March 2012
Vesting
Expiry date
Number of ordinary shares
Angela Ahrendts
RSP
11/06/2007
01/06/2009
CIP Matching Shares 03/06/2008
09/06/2010
07/06/2011
26/07/2007
08/12/2010
25/06/2010
EPP
One-off grant
Sharesave
Stacey Cartwright
RSP
10/08/2006
27/11/2006
11/06/2007
01/06/2009
10/06/2010
CIP Matching Shares 03/06/2008
09/06/2010
07/06/2011
26/07/2007
30/06/2009
EPP
Sharesave
nil
nil
nil
nil
nil
nil
nil
557.0
nil
nil
nil
nil
nil
nil
nil
nil
nil
321.0
54,397
450,000
416,086
501,536
–
425,000
500,000
2,773
10,076
2,521
15,746
265,000
78,000
185,036
214,944
–
175,000
2,827
–
–
–
–
300,2522
–
–
–
–
–
–
–
–
–
–
–
416,0861,4
–
–
–
–
–
– 425,0003,5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
130,7912
–
–
– 185,0361,6
–
–
–
– 175,0003,7
–
–
54,397
450,000
–
501,536
300,252
–
500,000
2,773
10,076
2,521
15,746
265,000
78,000
–
214,944
130,791
–
2,827
11/06/2011
to 11/06/2012
01/06/2012
to 01/06/2014
10/06/2017
31/05/2019
03/06/2011 02/06/2013
09/06/2013 08/06/2015
07/06/2014 06/06/2016
26/07/2012
26/07/2011
01/04/2015
31/03/2016
01/09/2015 28/02/2016
10/08/2011 09/08/2016
26/11/2016
27/11/2011
10/06/2017
11/06/2011
to 11/06/2012
01/06/2012
to 01/06/2014
10/06/2013
to 10/06/2015
09/06/2020
31/05/2019
03/06/2011 02/06/2013
09/06/2013 08/06/2015
07/06/2014 06/06/2016
26/07/2011
26/07/2012
01/09/2012 28/02/2013
1 The market value of Burberry shares on the date of exercise (7 June 2011) was 1,318p.
2 The market value of Burberry shares on the date of grant (7 June 2011) was 1,318p.
3 The market value of Burberry shares on the date of exercise (29 July 2011) was 1,514p.
4 A cash payment of £164,978, being the amount equivalent to the value of the dividends
which would have been received as beneficial owner of the Matching Shares during
the deferred period, was paid upon exercise.
5 A cash payment of £246,500, being the amount equivalent to the value of the dividends
which would have been received as beneficial owner of the Award Shares during
the deferred period, was paid upon exercise.
6 A cash payment of £73,367, being the amount equivalent to the value of the dividends
which would have been received as beneficial owner of the Matching Shares during
the deferred period, was paid upon exercise.
7 A cash payment of £101,500, being the amount equivalent to the value of the dividends
which would have been received as beneficial owner of the Award Shares during
the deferred period, was paid upon exercise.
8 The highest and lowest share prices in the year are set out on page 92.
The Burberry Senior Executive Restricted Share Plan
No awards were made to executive directors under the RSP in 2011/12.
The third and second tranches of awards made in 2006 and 2007 vested during the year. Their performance conditions were
tested in 2009 and 2010 respectively (with 57.5% of each grant lapsing). Please see page 86 for details of the performance
conditions.
The Burberry Co-Investment Plan
Awards made in 2008 vested in full during the year. For the year ended 31 March 2012, Angela Ahrendts and Stacey
Cartwright intend to invest the whole of their bonus after the deduction of tax into Burberry shares under the Co-Investment
Plan. 25% of an award may vest if growth in Adjusted PBT achieves 5% per annum over three years, 100% may vest
if Adjusted PBT growth exceeds 10% per annum, with vesting occurring on a straight line basis between these points.
None of the award will vest if Adjusted PBT growth is below 5% per annum.
Burberry Group plc Annual Report 2011/12 89
Directors’ remuneration report continued
The Burberry Exceptional Performance Share Plan
The EPP is a one off long term incentive plan introduced in 2007, the purpose of which was to incentivise senior management
to achieve stretching goals and to help provide exceptional reward for exceptional performance. The second tranche of the
EPP vested in the year. The award was subject to performance conditions, with maximum vesting occurring if:
Burberry’s TSR outperformed the median TSR of a group of luxury peers by at least 7% per annum over the four-year
period to 31 March 2011; and
Growth in Adjusted PBT exceeded 75% over the five-year performance period to 2011.
The TSR group for this award comprised Bulgari, Coach, Compagnie Financière Richemont, Estée Lauder, Fossil, Geox,
Hermès International, Hugo Boss, Inditex, Liz Claiborne, Luxottica Group, LVMH Moët Hennessy Louis Vuitton, Nike,
Nordstrom, Polo Ralph Lauren, PPR, Saks, Swatch, Tiffany & Co, and Tod’s.
Both conditions were met in full for the tranche vesting in the year (in 2010/11, 69.5% of the first tranche of the award lapsed).
No further awards will be made under the EPP.
One-Off Grant to Angela Ahrendts
Following consultation with the Company’s largest shareholders in 2010, the Chief Executive Officer was granted an option
over 500,000 shares which will vest on 1 April 2015 subject to strategic and financial objectives linked to the long-term growth
of the Company being achieved including:
the development of the business measured against the strategic plan approved by the Board;
Burberry’s Adjusted PBT performance;
the personal contribution made by the Chief Executive Officer;
shareholder value delivered in the context of the luxury goods market;
and any other performance factors which are appropriate in assessing the fairness of vesting the award to the Chief
Executive Officer and the shareholders.
The Committee considered the one-off grant to the Chief Executive Officer, in the context of:
continued progress along the five strategic themes including:
– Burberry continues to climb in Interbrand’s Top 100 Global Brands;
– launching Burberry Body;
– growth in non-apparel revenue;
– strong progress in building the Brand’s retail presence globally;
– the performance of the Burberry business in China following its acquisition; and
– increases in gross margin through supply chain efficiencies and the introduction of monthly flow.
Adjusted PBT growth of 26% in the 2011/12 year;
The outstanding leadership demonstrated by the Chief Executive Officer; and
the continuing share price outperformance compared to peers.
The Committee resolved that the objectives had been achieved in full during 2011/12.
The Sharesave Scheme
In order to encourage employee share ownership at all levels, the Group offers a Sharesave Scheme. The Sharesave Scheme
offers eligible employees an opportunity to enter into a three or five year savings contract to save a portion of their salary which
can be used to purchase Burberry shares at up to a 20% discount to the market price at the date of invitation.
90 Burberry Group plc Annual Report 2011/12
Gains made by directors on share options and awards
The table below shows notional gains made by individual directors from the exercise of share options and awards during the
year to 31 March 2012. The gains have arisen in respect of EPP and CIP awards granted in 2007 and 2008 and are calculated
by reference to the market value of Burberry’s shares on the date of exercise.
Angela Ahrendts
Stacey Cartwright
No of ordinary shares
Exercised
during the year
Retained as at
31 March 2012
Value of awards
at the date
of grant
£’000
Uplift due to
increase in
share price
£’000
Total notional
gain in the year
to 31 March 2012
£’000
841,086
360,036
–
–
4,700
2,003
7,221
3,086
11,921
5,089
Dilution Limits
The Group’s share schemes contain limits that govern the quantum of awards that may be granted and the amount of
newly issued shares that may be used to satisfy such awards. These limits are in line with the guidance of the Association
of British Insurers.
Chairman and non-executive directors
The Chairman’s remuneration is reviewed by the Committee. The fees for the non-executive directors are reviewed by the
Board. The structure of remuneration for the Chairman and non-executive directors is set by reference to market practice
within the limits set by the Articles of Association and was last reviewed during 2010. The Chairman and non-executive
directors are not eligible for performance related bonuses or share awards and no pension contributions are made on their
behalf.
The table below sets out the fee structure for the Chairman and non-executive directors as at 31 March 2012.
Chairman1
Senior Independent Director2
Board member
Audit Committee Chair
Remuneration Committee Chair
Attendance allowance3
Fee level
£’000
350
90
70
25
20
2
1 The Chairman is not eligible for Committee Chairmanship fees or attendance allowances.
2 The Senior Independent Director is eligible for Committee Chairmanship fees and attendance allowances.
3 Non-executive directors receive an attendance allowance for each meeting attended outside of their country of residence.
The non-executive directors serve under Letters of Appointment as detailed in the table below. Non-executive directors may
continue to serve subject to the Board’s discretion and annual re-election by shareholders at each Annual General Meeting of
the Company, subject to six months’ notice by either party. Fees paid to the Chairman and non-executive directors during the
year are set out in the table below.
Sir John Peace
Philip Bowman
Ian Carter
Stephanie George
John Smith
David Tyler
Total
Letter of
appointment
dated
20 June 2002
11 June 2002
16 April 2007
23 January 2006
27 November 2009
20 June 2002
Year to 31 March 2012
£’000
Allowances
–
2
12
12
2
2
30
Fees
350
115
70
70
70
90
765
Year to 31
March 2011
£’000
Total
330
109
75
77
67
85
743
Total
350
117
82
82
72
92
795
Burberry Group plc Annual Report 2011/12 91
Directors’ remuneration report continued
Directors’ interests
The beneficial interests of the directors in the ordinary shares of Burberry Group plc (in addition to interests in options and
share awards) are shown below:
Angela Ahrendts
Stacey Cartwright
Sir John Peace
Philip Bowman
Ian Carter
Stephanie George
John Smith
David Tyler
1 Includes Invested Shares under the Co-Investment Plan.
Holding of ordinary shares
as at 31 March 2012
Holding of ordinary shares
as at 31 March 2011
237,590 1
450,210 1
175,738
65,000
26,690
24,600
1,529
40,000
351,4661
499,0411
175,738
65,000
26,690
15,000
1,011
60,000
As potential beneficiaries under the Burberry Group plc ESOP Trust (the ‘Trust’) Angela Ahrendts and Stacey Cartwright are
deemed to have an interest in the Company’s ordinary shares held by the Trust. The Trust held 3,094,792 ordinary shares
as at 31 March 2012 (2011: 212,017).
There have been no further changes in the above interests between 31 March 2012 and 22 May 2012. There are no other
non-beneficial interests.
As part of the Group’s Shareholding Policy, the Chairman and non-executive directors are expected to hold shares with a
market value of a minimum of £6,000 for each year of their appointment and have complied with this policy. The requirements
that apply to executive directors are set out on page 87 and they have also complied with this policy.
Share Price
The market value of Burberry Group plc shares on 31 March 2012 was 1,497p. The highest and lowest market prices
of an ordinary share in the year were 1,600p and 1,092p respectively.
Audit statement
In their audit opinion on page 95, PricewaterhouseCoopers LLP refer to their audit of the disclosures required by Schedule
8 to the Regulations. These comprise the following disclosures in this remuneration report: the disclosures under the headings
‘Executive directors’, ‘Pension entitlements’, ‘Share Schemes and long-term incentive arrangements’, ‘The Burberry Senior
Executive Restricted Share Plan’, ‘The Burberry Co-Investment Plan’, ‘The Burberry Exceptional Performance Share Plan’,
‘One-Off Grant to Angela Ahrendts’, ‘The Sharesave Scheme’, ‘Gains made by directors on share options and awards’,
‘Chairman and non-executive directors’ and the disclosures under the heading, ‘Directors’ Interests’ on pages 88 to 92.
Approved by the Board and signed on its behalf by:
David Tyler
Chairman, Remuneration Committee
22 May 2012
92 Burberry Group plc Annual Report 2011/12
Financial Statements and other shareholder information
94 Statement of Directors’ Responsibilities
95
Independent Auditors’ Report to the Members
of Burberry Group plc
96 Group Income Statement
97 Group Statement of Comprehensive Income
98 Group Balance Sheet
99 Group Statement of Changes in Equity
100 Group Statement of Cash Flows
101 Notes to the Financial Statements
143 Five Year Summary
145
Independent Auditors’ Report to the Members
of Burberry Group plc
146 Company Balance Sheet
147 Notes to the Company Financial Statements
151 Shareholder Information
153 Executive Team
Burberry Group plc Annual Report 2011/12 93
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements
in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared
the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union
(the EU), and the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss
of the Group for that period. In preparing these financial statements, the directors are required to:
select suitable applicable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether IFRSs as adopted by the EU and applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the Group and parent Company financial statements respectively; and
prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that
the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the directors, whose names and functions are listed on page 68 confirm that, to the best their knowledge:
the Group financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities,
financial position and profit of the Group; and
the Directors’ Report contained on page 70 includes a fair review of the development and performance of the business and the position
of the Group, together with a description of the principal risks and uncertainties that it faces.
94 Burberry Group plc Annual Report 2011/12
354285_Burberry_finance_29may.indd 94
29/05/2012 18:38
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF BURBERRY GROUP PLC
We have audited the Group financial statements of Burberry Group plc for the year ended 31 March 2012 which comprise the Group
Income Statement, the Group Statement of Comprehensive Income, the Group Balance Sheet, the Group Statement of Changes in Equity,
the Group Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation
is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 94, the directors are responsible for the preparation
of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express
an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications
for our report.
Opinion on financial statements
In our opinion the Group financial statements:
give a true and fair view of the state of the Group’s affairs as at 31 March 2012 and of its profit and cash flows for the year
then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the lAS Regulation.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the Group financial statements are prepared
is consistent with the Group financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
the directors’ statement, set out on page 73, in relation to going concern;
the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate
Governance Code specified for our review; and
certain elements of the report to shareholders by the Board on directors’ remuneration.
Other matter
We have reported separately on the parent Company financial statements of Burberry Group plc for the year ended 31 March 2012
and on the information in the Directors’ Remuneration Report that is described as having been audited.
Andrew Kemp (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London, 22 May 2012
354285_Burberry_finance_29may.indd 95
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Burberry Group plc Annual Report 2011/12 95
group income statement
Continuing operations
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Financing
Interest income
Interest expense
Other financing charges
Net finance charge
Profit before taxation
Taxation
Profit for the year from continuing operations
Loss for the year from discontinued operations
Profit for the year
Attributable to:
Equity holders of the Company
Non-controlling interest
Profit for the year
Earnings per share
– basic
– diluted
Earnings per share from continuing operations
– basic
– diluted
Reconciliation of adjusted profit before taxation:
Profit before taxation
Exceptional items:
– restructuring credit relating to continuing operations
– put option liability finance charge
Adjusted profit before taxation – non-GAAP measure
Adjusted earnings per share – non-GAAP measure
– basic
– diluted
Dividends per share
– interim
– proposed final (not recognised as a liability at 31 March)
96 Burberry Group plc Annual Report 2011/12
Year to
31 March
2012
£m
Year to
31 March
2011
£m
1,857.2
(558.3)
1,298.9
(922.0)
376.9
2.9
(3.6)
(10.2)
(10.9)
366.0
(100.6)
265.4
(0.3)
265.1
263.3
1.8
265.1
60.4p
59.3p
60.4p
59.3p
1,501.3
(491.6)
1,009.7
(707.6)
302.1
1.9
(5.1)
(3.2)
(6.4)
295.7
(83.2)
212.5
(6.2)
206.3
208.4
(2.1)
206.3
47.9p
46.9p
49.3p
48.3p
£m
£m
366.0
295.7
–
10.2
376.2
62.8p
61.6p
(1.0)
3.2
297.9
49.9p
48.9p
7.00p
18.00p
5.00p
15.00p
Note
3
4
6
5
7
27
8
8
8
8
5
5
8
8
9
9
354285_Burberry_finance_29may.indd 96
29/05/2012 18:38
group statement of comprehensive income
Profit for the year
Other comprehensive income:
– cash flow hedges
– foreign currency translation differences
Tax on other comprehensive income:
– cash flow hedges
– foreign currency translation differences
Other comprehensive expense for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interest
Note
21
Year to
31 March
2012
£m
265.1
Year to
31 March
2011
£m
206.3
3.3
(3.8)
(0.8)
(0.2)
(1.5)
4.9
(15.3)
(1.4)
2.0
(9.8)
263.6
196.5
261.2
2.4
263.6
198.8
(2.3)
196.5
354285_Burberry_finance_29may.indd 97
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Burberry Group plc Annual Report 2011/12 97
group balance sheet
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investment properties
Deferred tax assets
Trade and other receivables
Derivative financial assets
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Income tax receivables
Cash and cash equivalents
Assets classified as held for sale
Total assets
LIABILITIES
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Derivative financial liabilities
Retirement benefit obligations
Provisions for other liabilities and charges
Current liabilities
Bank overdrafts and borrowings
Derivative financial liabilities
Trade and other payables
Provisions for other liabilities and charges
Income tax liabilities
Total liabilities
Net assets
EQUITY
Capital and reserves attributable to the Company’s equity holders
Ordinary share capital
Share premium account
Capital reserve
Hedging reserve
Foreign currency translation reserve
Retained earnings
Non-controlling interest in equity
As at
31 March
2012
£m
As at
31 March
2011
£m
Note
10
11
12
13
14
16
15
14
16
17
27
18
13
16
19
20
16
18
19
21
21
21
21
133.1
328.8
2.8
84.1
22.3
14.7
585.8
311.1
145.2
3.2
10.1
546.9
1,016.5
8.3
1,024.8
1,610.6
(104.9)
(1.4)
(0.2)
(0.8)
(15.1)
(122.4)
(208.6)
(1.9)
(324.4)
(8.2)
(53.7)
(596.8)
(719.2)
891.4
0.2
202.6
33.9
4.9
118.6
507.1
867.3
24.1
114.7
281.8
3.0
70.4
15.2
9.2
494.3
247.9
132.5
1.6
8.3
466.3
856.6
13.5
870.1
1,364.4
(84.4)
(1.8)
–
(0.6)
(9.6)
(96.4)
(168.4)
(3.9)
(283.4)
(18.6)
(60.0)
(534.3)
(630.7)
733.7
0.2
192.5
28.9
2.4
123.2
366.4
713.6
20.1
Total equity
The consolidated financial statements of Burberry Group plc (registered number 03458224) on pages 96 to 142 were approved by the Board
on 22 May 2012 and signed on its behalf by:
891.4
733.7
Sir John Peace
Chairman
Stacey Cartwright
Executive Vice President, Chief Financial Officer
98 Burberry Group plc Annual Report 2011/12
354285_Burberry_finance_29may.indd 98
29/05/2012 18:38
group statement of changes in equity
Attributable to owners
of the Company
Ordinary
share
capital
£m
Share
premium
account
£m
Note
Other
reserves
£m
Retained
earnings
£m
0.2
186.1
162.4
21
21
Balance as at 1 April 2010
Profit/(loss) for the year
Other comprehensive income:
Cash flow hedges
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive (expense)/income for the year
Transfer between reserves
Transactions with owners:
Employee share incentive schemes
– value of share options granted
– value of share options transferred to liabilities
– tax on share options granted
– exercise of share awards
Purchase of own shares by ESOP trusts
Sale of own shares by ESOP trusts
Business combinations
Liability on put option over non-controlling interest
Capital contribution by non-controlling interest
Dividends paid in the year
Balance as at 31 March 2011
Profit for the year
Other comprehensive income:
Cash flow hedges
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive (expense)/income for the year
Transfer between reserves
Transactions with owners:
Employee share incentive schemes
– value of share options granted
– value of share options transferred to liabilities
– tax on share options granted
– exercise of share awards
Purchase of own shares by ESOP trusts
Sale of own shares by ESOP trusts
Capital contribution by non-controlling interest
Dividends paid in the year
Balance as at 31 March 2012
Non-
controlling
interest
£m
Total
equity
£m
13.4
603.5
(2.1) 206.3
–
4.9
(0.2)
(15.3)
–
0.6
Total
£m
590.1
208.4
4.9
(15.1)
0.6
241.4
208.4
–
–
–
–
4.9
(15.1)
0.6
(9.6)
208.4
198.8
(2.3) 196.5
1.7
(1.7)
–
–
–
–
–
–
–
–
3.3
–
28.3
(0.7)
15.2
0.8
(6.6)
0.3
3.3
28.3
(0.7)
15.2
(5.6)
(6.6)
0.3
–
28.3
(0.7)
15.2
0.8
(6.6)
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.4
–
–
–
–
–
–
(45.2)
(45.2)
–
(45.2)
–
–
7.0
7.0
(67.4)
(67.4)
(1.3)
(68.7)
366.4
263.3
713.6
263.3
20.1
733.7
1.8
265.1
–
–
–
3.3
(4.4)
(1.0)
–
0.6
–
3.3
(3.8)
(1.0)
263.3
261.2
2.4 263.6
(5.0)
–
31.8
(0.8)
17.4
(9.5)
31.8
(0.8)
17.4
0.6
(60.7)
(60.7)
0.1
–
0.1
–
–
–
–
–
–
–
–
4.9
–
31.8
(0.8)
17.4
0.6
(60.7)
0.1
4.9
(95.9)
(95.9)
(3.3)
(99.2)
0.2
192.5
154.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10.1
–
–
–
–
–
3.3
(4.4)
(1.0)
(2.1)
5.0
–
–
–
–
–
–
–
–
0.2
202.6
157.4
507.1
867.3
24.1
891.4
354285_Burberry_finance_29may.indd 99
29/05/2012 18:38
Burberry Group plc Annual Report 2011/12 99
group statement of cash flows
Cash flows from operating activities
Operating profit
Operating loss from discontinued operations
Depreciation
Amortisation
Net impairment charges
Write-down of assets held for sale
Loss on disposal of property, plant and equipment and intangible assets
Fair value gains on derivative instruments
Charges in respect of employee share incentive schemes
Increase in inventories
Increase in receivables
Increase in payables
Cash generated from operating activities
Interest received
Interest paid
Taxation paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisition of subsidiaries, net of cash acquired
Net cash outflow from investing activities(1)
Cash flows from financing activities
Dividends paid in the year
Dividends paid to non-controlling interest
Capital contributions by non-controlling interest
Issue of ordinary share capital
Sale of own shares by ESOP trusts
Purchase of own shares by ESOP trusts
Proceeds from borrowings
Repayments of borrowings
Net cash outflow from financing activities(1)
Net increase in cash and cash equivalents
Effect of exchange rate changes
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
ANALYSIS OF NET CASH
Cash and cash equivalents as per the Balance Sheet
Bank overdrafts
Cash and cash equivalents per the Statement of Cash Flows
Bank and other borrowings
Net cash
Note
27
27
26
9
Year to
31 March
2012
£m
Year to
31 March
2011
£m
376.9
(0.3)
74.3
13.3
6.8
4.5
0.3
(5.7)
31.8
(61.8)
(17.6)
60.0
482.5
2.7
(3.3)
(108.2)
373.7
(126.1)
(27.0)
(23.5)
(176.6)
(95.9)
(3.3)
4.9
0.6
0.1
(60.7)
–
–
(154.3)
42.8
(2.4)
299.2
339.6
302.1
(6.2)
53.7
8.9
–
3.7
1.1
(6.2)
28.3
(58.9)
(11.4)
51.3
366.4
1.9
(5.1)
(98.1)
265.1
(86.5)
(21.9)
(51.9)
(160.3)
(67.4)
(1.3)
7.0
0.8
0.3
(6.6)
24.0
(24.1)
(67.3)
37.5
(1.5)
263.2
299.2
Note
17
20
20
As at
31 March
2012
£m
546.9
(207.3)
339.6
(1.3)
338.3
As at
31 March
2011
£m
466.3
(167.1)
299.2
(1.3)
297.9
(1) Net cash outflows from investing and financing activities for the year to 31 March 2011 have been re-presented to reflect the reclassification of capital contributions by non-controlling
interest.
100 Burberry Group plc Annual Report 2011/12
354285_Burberry_finance_29may.indd 100
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notes to the financial statements
1. Basis of preparation
Burberry Group plc and its subsidiaries (the Group) is a global luxury goods manufacturer, wholesaler and retailer. The Group also licenses
third parties to manufacture and distribute products using the ‘Burberry’ trade marks. All of the companies which comprise the Group
are owned by Burberry Group plc (the Company) directly or indirectly.
The consolidated financial statements of the Group have been prepared in accordance with EU endorsed International Financial Reporting
Standards (IFRSs), IFRS Interpretations Committee (IFRS IC) interpretations and parts of the Companies Act 2006 applicable to companies
reporting under IFRS. These consolidated financial statements have been prepared under the historical cost convention, except as modified
by the revaluation of financial assets and financial liabilities at fair value through profit or loss.
There have been no new standards, amendments and interpretations issued and made effective for the financial period commencing
on 1 April 2011 that have had a material impact on the financial statements of the Group.
As at 31 March 2012, the following new and revised standards, amendments and interpretations, which may be relevant to the Group’s
results, were issued but not yet effective:
IFRS 9 Financial instruments
This standard is the first step in the process to replace IAS 39 Financial instruments: Recognition and measurement, and introduces
new requirements for classifying and measuring financial assets and financial liabilities. The standard is applicable for annual periods
beginning on or after 1 January 2015 and has not currently been endorsed by the EU. Any potential impact of this new standard will
be quantified closer to the date of adoption.
IFRS 10 Consolidated financial statements
This standard establishes the principles for the presentation and preparation of consolidated financial statements and replaces similar
principles set out in IAS 27 Consolidated and separate financial statements. The standard is applicable for annual periods beginning
on or after 1 January 2013 and has not currently been endorsed by the EU. Any potential impact of this new standard will be quantified
closer to the date of adoption, but it is not considered likely to have a material impact.
IFRS 11 Joint arrangements
IFRS 11 updates the approach currently set out in IAS 28 Investments in associates by focusing on the rights and obligations
of the arrangement rather than its legal form. The standard is applicable for annual periods beginning on or after 1 January 2013
and has not currently been endorsed by the EU. The adoption of this new standard is not considered likely to have a material impact
on the financial position or financial performance of the Group.
IFRS 12 Disclosures of interests in other entities
This standard requires disclosure of information about the nature of, and risks associated with, the Group’s interests in other entities,
as well as the impact of these interests on the Group’s financial position, financial performance and cash flows. The standard
is applicable for annual periods beginning on or after 1 January 2013 and has not currently been endorsed by the EU. Any potential
impact of this new standard will be limited to disclosure which will be assessed closer to the date of adoption.
IFRS 13 Fair value measurement
This standard aims to provide a precise definition of fair value and a single source of fair value measurement and disclosure
requirements to be used across all IFRSs. The standard is applicable for annual periods beginning on or after 1 January 2013
and has not currently been endorsed by the EU. Any potential impact of this new standard will be quantified closer to the date
of adoption, but it is not considered likely to have a material impact.
Basis of consolidation
The Group’s annual financial statements comprise those of Burberry Group plc (the parent Company) and its subsidiaries, presented
as a single economic entity. The results of the subsidiaries are prepared for the same reporting year as the parent Company, using
consistent accounting policies across the Group.
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control
is transferred 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 the reporting period during which the Group had control. Intra-group transactions, balances and unrealised profits
on transactions between Group companies are eliminated in preparing the Group financial statements. The Group treats transactions
with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference
between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity.
Gains or losses on disposals to non-controlling interests are also recorded in equity.
354285_Burberry_finance_29may.indd 101
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Burberry Group plc Annual Report 2011/12 101
Notes to the financial statements continued
1. Basis of preparation (continued)
Key sources of estimation and judgement
Preparation of the consolidated financial statements in conformity with IFRS requires that management make certain judgements, estimates
and assumptions that affect the reported revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. If in the future
such estimates and assumptions, which are based on management’s best judgement at the date of the financial statements, deviate from
actual circumstances, the original estimate and assumptions will be updated as appropriate in the period in which the circumstances change.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. The key areas where the estimates and assumptions applied
have a significant risk of causing a material adjustment to the carrying value of assets and liabilities are discussed below:
Impairment of goodwill
The Group is required to test whether goodwill has suffered any impairment. The recoverable amounts of cash generating units have been
determined based on value-in-use calculations. The use of this method requires the estimation of future cash flows expected to arise from
the continuing operation of the cash generating unit and the choice of a suitable discount rate in order to calculate the present value.
Refer to note 10 for further details of goodwill balances.
Impairment of property, plant and equipment
Property, plant and equipment is reviewed for impairment if events or changes in circumstances indicate that the carrying amount
may not be recoverable. When a review for impairment is conducted, the recoverable amount of an asset or a cash generating unit
is determined based on value-in-use calculations prepared on the basis of management’s assumptions and estimates.
Refer to note 11 for further details of property, plant and equipment.
Income and deferred taxes
The Group is subject to income taxes in numerous jurisdictions. Judgement is required in determining the provision for income taxes in
each territory. There are many transactions and calculations during the ordinary course of business for which the ultimate tax determination
is uncertain. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due.
Where the final outcome of these matters is different from the amounts which were initially recorded, such differences will impact the income
tax and deferred tax provisions and assets in the period in which such determination is made. Refer to notes 7 and 13 for further details of
income and deferred tax balances.
Put option liability over non-controlling interest
The calculation of the fair value of the put option over the non-controlling interest in the Group’s business in China is based on the
contractual agreement and requires the application of key assumptions around both the future performance of the Group’s business
in China and the future performance of the Group, the Burberry Group plc market capitalisation at the date of exercise and the risk free
rate in China. Refer to notes 18 and 24 for further details of the put option liability.
Inventory provisioning
The Group manufactures and sells luxury goods and is subject to changing consumer demands and fashion trends. As a result
it is necessary to consider the recoverability of the cost of inventories and the associated provisioning required. When calculating
the inventory provision, management considers the nature and condition of the inventory, as well as applying assumptions around
anticipated saleability. Refer to note 15 for further details of the carrying value of inventory.
Impairment of trade receivables
The Group is required to make an estimate of the recoverable value of trade receivables. When assessing impairment of trade receivables,
management considers factors including the ageing profile of debtors as well as any specific known problems or risks. Given global
economic conditions and the range of countries the Group trades in, unanticipated future events may occur that could impact
the appropriateness of the assessment made as to the recoverability of the Group’s trade receivables. Refer to notes 14 and 24
for further details on the net carrying value and credit quality of trade receivables.
102 Burberry Group plc Annual Report 2011/12
354285_Burberry_finance_29may.indd 102
29/05/2012 18:38
Notes to the financial statements continued
2. Accounting policies
The principal accounting policies of the Group are:
a) Revenue
Revenue, which is stated excluding Value Added Tax and other sales related taxes, is the amount receivable for goods supplied
(less returns, trade discounts and allowances) and royalties receivable.
Wholesale sales are recognised when the significant risks and rewards of ownership have transferred to the customer, with provisions
made for expected returns and allowances. Retail sales, returns and allowances are reflected at the dates of transactions with customers.
Provisions for returns on retail and wholesale sales are calculated based on historical return levels. Royalties receivable from licensees
are accrued as earned on the basis of the terms of the relevant royalty agreement, which is typically on the basis of production volumes.
In arrangements where the Group acts as a purchasing agent to facilitate the procurement of Burberry branded products on behalf of its
licensees, the purchases and sales from the supplier to the licensee are not recorded as transactions by the Group. Any costs incurred
by the Group are recorded as operating expenses and any agency fees receivable are recorded as operating income.
b) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for allocating resources and assessing performance, has been identified
as the Board of Directors.
c) Business combinations
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition
is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.
Contingent payments are remeasured at fair value through the Income Statement. All transaction costs are expensed to the Income
Statement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially
at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition
over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than
the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Income Statement.
d) Share schemes
The cost of the share based incentives received by employees (including executive directors) is measured with reference to the fair value
of the equity instruments awarded at the date of grant. The Black-Scholes option pricing model is used to determine the fair value of the
award made. The impact of performance conditions is not considered in determining the fair value on the date of grant, except for conditions
linked to the price of Burberry Group plc shares i.e. market conditions. Vesting conditions which relate to non-market conditions are allowed
for in the assumptions used for the number of options expected to vest. The estimate of the number of options expected to vest is revised
at each balance sheet date.
The cost of the share based incentives is recognised as an expense over the vesting period of the awards, with a corresponding increase
in equity.
The proceeds received from the exercise of the equity instruments awarded, net of any directly attributable transaction costs,
are credited to share capital and share premium.
354285_Burberry_finance_29may.indd 103
29/05/2012 18:38
Burberry Group plc Annual Report 2011/12 103
Notes to the financial statements continued
2. Accounting policies (continued)
e) Leases
The Group is both a lessor and lessee of property, plant and equipment. Determining whether an arrangement is or contains a lease
is based on the substance of the arrangement. Leases in which substantially all of the risks and rewards incidental to ownership of
an asset are retained by the lessor are classified as operating leases.
Gross rental expenditure/income in respect of operating leases is recognised on a straight-line basis over the period of the leases.
Certain rental expenses are determined on the basis of revenue achieved in specific retail locations and are accrued for on that basis.
Amounts paid to/received from the landlord to acquire or transfer the rights to a lease are treated as prepayments/accrued income
on the lease contract. Lease incentives, typically rent free periods and capital contributions, are held on the Balance Sheet in accruals
and deferred income and recognised over the term of the lease.
Finance leases where the Group is a lessee are capitalised at the commencement of the lease at the lower of fair value of the leased asset
and the present value of the minimum lease payments. Interest is charged to the Income Statement and credited to the lease liability using
the effective interest rate method. Lease liabilities are held in other creditors on the Balance Sheet. The capitalised leased assets are held
in property, plant and equipment on the Balance Sheet, and are depreciated over the shorter of the lease term and the useful life of the
leased asset.
f) Dividend distributions
Dividend distributions to Burberry Group plc’s shareholders are recognised as a liability in the period in which the dividend becomes
a committed obligation. Final dividends are recognised when they are approved by the shareholders. Interim dividends are recognised
when paid.
g) Pension costs
Defined contribution schemes
Eligible employees participate in defined contribution pension schemes, the principal one being in the UK with its assets held in an
independently administered fund. The cost of providing these benefits to participating employees is recognised in the Income Statement
and comprises the amount of contributions payable to the schemes in respect of the year.
Defined benefit schemes
Eligible employees of the Group participate in defined benefit schemes in France and Taiwan.
The liability recognised in the Balance Sheet in respect of defined benefit schemes represents the Group’s share of the present value
of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised
past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the Projected Unit Credit method.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised directly in other
comprehensive income.
h) Intangible fixed assets
Goodwill
Goodwill is the excess of purchase consideration over the fair value of identifiable net assets acquired. Goodwill on acquisition
is recorded as an intangible 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 align the accounting
policies of acquired businesses with those of the Group.
Goodwill is assigned an indefinite useful economic life. Impairment reviews are performed annually, or more frequently if events or changes
in circumstances indicate that the carrying value may not be recoverable. Impairment losses recognised on goodwill are not reversed
in future periods.
Trade marks and other intangible assets
The cost of securing and renewing trade marks and the cost of acquiring other intangible assets such as key money is capitalised
at purchase price and amortised by equal annual instalments over the period in which benefits are expected to accrue, typically
ten years for trade marks, or the term of the lease. The useful economic life of trade marks and other intangible assets is determined
on a case-by-case basis, in accordance with the terms of the underlying agreement and the nature of the asset.
Computer software
The cost of acquiring computer software (including licences and separately identifiable external development costs) is capitalised
as an intangible asset at purchase price, plus any directly attributable cost of preparing that asset for its intended use. Software costs
are amortised by equal annual instalments over their estimated useful economic lives, which are up to five years.
104 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
2. Accounting policies (continued)
i) Property, plant and equipment
Property, plant and equipment, with the exception of assets under the course of construction, is stated at cost or deemed cost, based
on historical revalued amounts, less accumulated depreciation and provision to reflect any impairment in value. Assets in the course of
construction are stated at cost less any provision for impairment and transferred to completed assets when substantially all of the activities
necessary for the asset to be ready for use have occurred. Cost includes the original purchase price of the asset and costs attributable
to bringing the asset to its working condition for its intended use.
Depreciation
Depreciation of property, plant and equipment is calculated to write off the cost or deemed cost, less residual value, of the assets in equal
annual instalments over their estimated useful lives at the following rates:
Land
Freehold buildings
Leaseholds – less than 50 years expired
Plant, machinery, fixtures and fittings
Retail fixtures and fittings
Office equipment
Computer equipment
Assets in the course of construction
Not depreciated
Up to 50 years
Over the unexpired term of the lease
3 – 8 years
2 – 5 years
5 years
Up to 5 years
Not depreciated
Profit/loss on disposal of property, plant and equipment
Profits and losses on the disposal of property, plant and equipment represent the difference between the net proceeds and net book value
at the date of sale. Disposals are accounted for when the relevant transaction becomes unconditional.
j) Impairment of non-financial assets
Assets that have an indefinite useful economic life are not subject to amortisation and are tested annually for impairment. Assets that
are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstance indicate that
the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. For the purposes
of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).
k) Investment properties
Investment properties are freehold properties held to earn rentals and/or for capital appreciation. Investment properties are stated at cost
less accumulated depreciation and provision to reflect any impairment in value. Cost includes the original purchase price plus any directly
attributable transaction costs. Investment properties are depreciated on a straight-line basis over an estimated useful life of up to 50 years.
l) Discontinued operations and assets classified as held for sale
A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical
area of operations that has been disposed of, has been abandoned or meets the criteria to be classified as held for sale. Discontinued
operations are presented on the Income Statement as a separate line and are shown net of tax.
Non-current assets are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction rather
than through continued use, and a sale within the next twelve months is considered to be highly probable. Assets classified as held for sale
cease to be depreciated and they are stated as the lower of carrying amount and fair value less cost to sell.
354285_Burberry_finance_29may.indd 105
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Burberry Group plc Annual Report 2011/12 105
Notes to the financial statements continued
2. Accounting policies (continued)
m) Inventories
Inventories and work in progress are valued on a first-in-first-out basis at the lower of cost (including an appropriate proportion of production
overhead) and net realisable value. Where necessary, provision is made to reduce cost to no more than net realisable value having regard
to the nature and condition of inventory, as well as its anticipated saleability.
n) Taxation
Tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement
because it excludes items of income or expense which are taxable or deductible in other years and it further excludes items which are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates which have been enacted or substantively enacted
by the balance sheet date.
Deferred tax liabilities are provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. However, if the temporary difference arises from initial recognition of an asset or liability
in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss,
no deferred tax will be recognised. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted
by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred tax liability
is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
o) Provisions
Provisions are recognised when there is a present legal or constructive obligation as a result of past events, for which it is probable
that an outflow of economic benefits will be required to settle the obligation, and where the amount of the obligation can be reliably
estimated. When the effect of the time value of money is material, provision amounts are calculated based on the present value
of the expenditures expected to be required to settle the obligation. The present value is calculated using forward market interest
rates as measured at the balance sheet reporting date, which have been adjusted for risks reflected in future cash flow estimates.
Property obligations
A provision for the present value of future property reinstatement costs is recognised where there is an obligation to return the leased
property to its original condition at the end of an operating lease. Where a leased property is no longer expected to be fully occupied
or where the costs exceed the future expected benefits, an onerous lease provision will be recognised for that portion of the lease
excess to the Group’s requirements and not fully recovered through sub-leasing, or through value-in-use.
Restructuring costs
Provisions for costs associated with restructuring programmes are recognised when a detailed formal restructuring plan has been approved
and communicated. Examples of restructuring related costs include employee termination payments, contract termination penalties and
onerous contract payments.
p) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity
as a deduction, net of tax, from the proceeds.
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly
attributable incremental costs, is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued
or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental
transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.
106 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
2. Accounting policies (continued)
q) Financial instruments
A financial instrument is initially recognised at fair value on the Balance Sheet when the entity becomes a party to the contractual provisions
of the instrument. A financial asset is derecognised when the contractual rights to the cash flow expire or substantially all risks and rewards
of the asset are transferred. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled
or expires.
Subsequent to initial recognition, all financial liabilities are stated at amortised cost using the effective interest method except for
derivatives, which are classified as held for trading, except where they qualify for hedge accounting and are held at fair value.
Financial liabilities held at amortised cost include trade payables, accruals and borrowings.
The Group classifies its instruments in the following categories: financial assets at fair value through the profit or loss and loans
and receivables. Loans and receivables include trade and other receivables and cash and cash equivalents. Derivatives are classified
as held for trading, unless in a hedging relationship, and are held at fair value.
Financial instrument category
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Borrowings
Put option over non-controlling interest
Forward foreign exchange contracts(1)
Equity swap contracts
Onerous lease
Note
Classification
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
17
14
18
20
18
16
16
19
Derivative instrument
Fair value through profit and loss
Derivative instrument
Fair value through profit and loss
Derivative instrument
Fair value through profit and loss
Other financial liabilities
Amortised cost
Measurement
Amortised cost
Amortised cost
Amortised cost
Amortised cost
(1) Hedge accounting is applied to cash flow hedges to the extent it is achievable.
The Group’s primary categories of financial instruments are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term deposits with an original maturity date of three months or less, held with banks
and liquidity funds. Bank overdrafts are recorded under current liabilities on the Balance Sheet.
Trade and other receivables
Trade and other receivables are included in current assets, except for maturities greater than twelve months after the balance sheet date.
Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less
provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group
will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is recognised
in the Income Statement.
Trade and other payables
Trade and other payables are included in current liabilities, except for maturities greater than twelve months after the balance sheet date.
Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Borrowings
Borrowings are recognised initially at fair value, inclusive of transaction costs incurred. Borrowings are subsequently stated at amortised
cost and the difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Income Statement
over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.
Put option liabilities over non-controlling interest
Put options over shares in subsidiaries held by non-controlling interests are recognised initially at fair value through equity when granted.
They are subsequently re-measured at fair value at each reporting period with the change in fair value recorded in the Income Statement
as other finance expenses and income.
354285_Burberry_finance_29may.indd 107
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Burberry Group plc Annual Report 2011/12 107
Notes to the financial statements continued
2. Accounting policies (continued)
q) Financial instruments (continued)
Derivative instruments
The Group uses derivative financial instruments to hedge its exposure to fluctuations in foreign exchange rates arising on certain trading
transactions. The principal derivative instruments used are forward foreign exchange contracts taken out to hedge highly probable cash flows
in relation to future sales, royalty receivables and product purchases. To manage interest rate risk the Group manages its proportion of fixed
and floating rate borrowings to within limits approved by the Board using interest rate swap derivatives. It designates foreign currency
borrowings in a net investment hedge of the assets of overseas subsidiaries.
When hedge accounting is applied the Group documents at the inception of the transaction the relationship between hedging instruments
and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing basis, of whether the hedging instruments that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Derivatives are initially recognised at fair value at the trade date and are subsequently remeasured at their fair value. The method
of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature
of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets and liabilities
or a firm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow hedges); or (3) classified as held
for trading.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Income Statement
immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is deferred in other
comprehensive income. The gain or loss relating to the ineffective portion of the gain or loss is recognised immediately in the Income
Statement. Amounts deferred in other comprehensive income are recycled in the Income Statement in the periods when the hedged item
affects the Income Statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at the time remains in equity and is recognised when the forecast transaction
is ultimately recognised in the Income Statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss
that was reported in equity is immediately transferred to the Income Statement within ‘other gains/(losses) - net’. If a derivative instrument
is not designated as a hedge, the subsequent change to the fair value is recognised in the Income Statement within operating expenses
or interest depending upon the nature of the instrument.
Where the Group hedges net investments in foreign operations through foreign currency borrowings, the gains or losses on the retranslation
of the borrowings are recognised in other comprehensive income and will be reclassified to the Income Statement when the foreign
operation that was hedged is disposed of.
108 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
2. Accounting policies (continued)
r) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Sterling
which is the Company’s functional and the Group’s presentation currency.
Transactions in foreign currencies
Transactions denominated in foreign currencies within each entity in the Group are translated into the functional currency at the monthly
average exchange rate. Monetary assets and liabilities denominated in foreign currencies, which are held at the year end, are translated
into the functional currency at the exchange rate ruling at the balance sheet date. Exchange differences on monetary items are recognised
in the Income Statement in the period in which they arise, except where these exchange differences form part of a net investment
in overseas subsidiaries of the Group, in which case such differences are taken directly to the foreign currency translation reserve.
Translation of the results of overseas businesses
The results of overseas subsidiaries are translated into the Group’s presentation currency of Sterling each month at the weighted average
exchange rate for the month according to the phasing of the Group’s trading results. The weighted average exchange rate is used,
as it is considered to approximate the actual exchange rates on the date of the transactions. The assets and liabilities of such undertakings
are translated at the year end exchange rates. Differences arising on the retranslation of the opening net investment in subsidiary companies,
and on the translation of their results, are taken directly to the foreign currency translation reserve.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign
operation and translated at the closing rate.
The principal exchange rates used were as follows:
Euro
US Dollar
Chinese Yuan Renminbi
Hong Kong Dollar
Korean Won
Average rate
Year to
31 March
2012
Year to
31 March
2011
Closing rate
As at
31 March
2012
As at
31 March
2011
1.16
1.60
10.15
12.38
1,775
1.18
1.56
10.51
12.11
1,786
1.20
1.60
10.07
12.41
1,811
1.13
1.61
10.52
12.49
1,763
The average exchange rate achieved by the Group on its Yen royalty income, taking into account its use of Yen forward foreign exchange
contracts on a monthly basis approximately twelve months in advance of royalty receipts, was Yen 133.1: £1 in the year to 31 March 2012
(2011: Yen 143.7: £1).
s) Adjusted profit before taxation and exceptional items
Exceptional items include those items that are largely one-off and material in nature. The Group presents these items in note 5
to the accounts in profit before taxation. Fair value movements on options held over equity interests, which are held for the purpose
of future business developments, rather than speculative purposes, are also considered to be exceptional items and are separately
presented in the Income Statement. These items are added back/deducted from profit/loss before taxation to arrive at adjusted
profit/loss before taxation. These items and their related tax impacts are added back/deducted from profit attributable to equity
holders of the Company to arrive at adjusted earnings per share. These measures are disclosed in order to provide additional
consideration of the underlying performance of the Group’s ongoing business.
354285_Burberry_finance_29may.indd 109
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Burberry Group plc Annual Report 2011/12 109
Notes to the financial statements continued
3. Segmental analysis
The Chief Operating Decision Maker has been identified as the Board of Directors. The Board reviews the Group’s internal reporting
in order to assess performance and allocate resources. Management has determined the operating segments based on the reports
used by the Board.
The Board considers Burberry’s business through its two channels to market, being Retail/Wholesale and Licensing. Retail/Wholesale
revenues are generated by the sale of luxury goods through Burberry mainline stores, concessions, outlets and digital commerce
as well as Burberry franchisees, prestige department stores globally and multi-brand specialty accounts.
The flow of global product between Retail and Wholesale channels and across our regions is monitored and optimised at a corporate level
and implemented via the Group’s inventory hubs situated in Asia, Europe and the US. Licensing revenues are generated through the receipt
of royalties from Burberry’s partners in Japan and global licensees of fragrances, eyewear, timepieces and European childrenswear.
The Board assesses channel performance based on a measure of adjusted operating profit. This measurement basis excludes the effects
of exceptional items. The measure of earnings for each operating segment that is reviewed by the Board includes an allocation of corporate
and central costs. Interest income and charges are not included in the result for each operating segment that is reviewed by the Board.
Retail
Wholesale
Licensing
Total segment revenue
Inter-segment revenue(1)
Revenue from external customers
Depreciation and amortisation
Net impairment charges
Other non-cash expenses
– share based payments
Adjusted operating profit
Interest receivable and similar income
Interest payable and similar charges
Exceptional items(2)
Profit before taxation
Retail/Wholesale
Year to
31 March
2012
£m
Year to
31 March
2011
£m
1,270.3
478.3
–
962.3
440.6
–
1,748.6
1,402.9
–
–
1,748.6
1,402.9
87.6
6.8
25.4
286.9
58.1
–
22.6
219.5
Licensing
Total
Year to
31 March
2012
£m
Year to
31 March
2011
£m
–
–
118.9
118.9
(10.3)
108.6
–
–
6.4
90.0
–
–
116.5
116.5
(18.1)
98.4
–
–
5.7
81.6
Year to
31 March
2012
£m
1,270.3
478.3
118.9
Year to
31 March
2011
£m
962.3
440.6
116.5
1,867.5
1,519.4
(10.3)
(18.1)
1,857.2
1,501.3
87.6
6.8
31.8
376.9
2.9
(3.6)
(10.2)
366.0
58.1
–
28.3
301.1
1.9
(5.1)
(2.2)
295.7
(1) Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would be available to unrelated third parties.
(2) Refer to note 5 for details of exceptional items.
Additions to non-current assets
Total segment assets
Goodwill
Cash and cash equivalents
Taxation
Assets held for sale
Total assets per Balance Sheet
Retail/Wholesale
Year to
31 March
2012
£m
Year to
31 March
2011
£m
150.7
123.1
875.5
728.6
Licensing
Total
Year to
31 March
2012
£m
Year to
31 March
2011
£m
–
4.5
–
4.2
Year to
31 March
2012
£m
150.7
Year to
31 March
2011
£m
123.1
880.0
81.2
546.9
94.2
8.3
732.8
73.1
466.3
78.7
13.5
1,610.6
1,364.4
110 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
3. Segmental analysis (continued)
Revenue by product
Non-apparel
Womenswear
Menswear
Childrenswear/Other
Retail/Wholesale
Licensing
Total
Revenue by destination
Asia Pacific
Europe
Americas
Rest of the world
Retail/Wholesale
Licensing
Total
Year to
31 March
2012
£m
689.4
582.5
410.5
66.2
1,748.6
108.6
1,857.2
Year to
31 March
2012
£m
652.5
552.6
434.5
109.0
1,748.6
108.6
1,857.2
Year to
31 March
2011
£m
563.3
456.6
325.9
57.1
1,402.9
98.4
1,501.3
Year to
31 March
2011
£m
457.1
474.6
386.5
84.7
1,402.9
98.4
1,501.3
Revenue to external customers originating in the UK totalled £471.2m for the year to 31 March 2012 (2011: £402.9m).
Revenue to external customers originating in foreign countries totalled £1,386.0m for the year to 31 March 2012 (2011: £1,098.4m).
This amount includes £392.9m of external revenues originating in the US (2011: £357.6m) and £213.9m of external revenues
originating in China (2011: £93.1m).
The total of non-current assets other than financial instruments and deferred tax assets located in the UK is £111.7m (2011: £90.2m).
The remaining £375.3m of non-current assets are located in other countries (2011: £324.5m), with £146.8m located in the US
(2011: £141.3m) and £67.0m located in China (2011: £57.6m).
4. Net operating expenses
Selling and distribution costs
Administrative expenses
Property rental income under operating leases
Exceptional items
Restructuring costs
Total
Note
Year to
31 March
2012
£m
459.4
463.4
(0.8)
Year to
31 March
2011
£m
333.5
375.9
(0.8)
5
–
922.0
(1.0)
707.6
354285_Burberry_finance_29may.indd 111
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Burberry Group plc Annual Report 2011/12 111
Notes to the financial statements continued
5. Profit before taxation
Profit before taxation is stated after charging/(crediting):
Depreciation of property, plant and equipment
– within cost of sales
– within distribution costs
– within administrative expenses
Amortisation of intangible assets (included within administrative expenses)
Loss on disposal of property, plant and equipment and intangible assets
Net impairment charge relating to retail assets
Net impairment charge relating to intangible assets
Employee costs
Operating lease rentals
– minimum lease payments
– contingent rents
Net exchange loss/(gain) included in the Income Statement
Trade receivables net impairment charge
Exceptional items
Put option liability finance charges
Restructuring costs
Year to
31 March
2012
£m
Year to
31 March
2011
£m
0.3
13.4
60.5
13.3
0.3
3.8
3.0
0.3
7.6
41.3
8.9
1.1
–
–
358.7
298.9
112.0
70.9
3.3
1.4
10.2
–
88.5
51.7
(1.0)
1.3
3.2
(1.0)
The above table excludes any amounts relating to the discontinued Spanish operations. Depreciation of property, plant and equipment
in the discontinued Spanish operation was £nil for the current year (2011: £4.4m).
Exceptional financing charges
The exceptional financing charge for the years ended 31 March 2012 and 31 March 2011 relates to fair value movements and the unwinding
of the discount on the put option liability over the non-controlling interest in Burberry (Shanghai) Trading Co., Ltd. Refer to note 18 for further
details of the carrying value of the put option liability.
Exceptional operating items
The year to 31 March 2011 includes an exceptional credit for the release of £1.0m of the restructuring provision held in respect
of the cost efficiency programme announced in the year to 31 March 2009.
Auditor remuneration
Fees incurred during the year in relation to audit and non-audit services are analysed below. All work performed by the external auditors
is controlled by an authorisation policy agreed by the Audit Committee. The overriding principle precludes the auditors from engaging
in non-audit services that would compromise their independence. Non-audit services are provided by the auditors where they are best
placed to provide the service due to their previous experience or market leadership in a particular area.
Audit services in respect of the accounts of the Company and consolidation
Audit services in respect of the accounts of subsidiary companies
Audit related assurance services
Services relating to taxation
– compliance services
– advisory services
Other non-audit related services
Total
Year to
31 March
2012
£m
Year to
31 March
2011
£m
0.3
1.1
1.4
0.2
0.1
0.3
0.1
2.1
0.3
0.9
1.2
0.1
0.3
0.3
–
1.9
The Group has early adopted the statutory changes in relation to the Group auditor’s remuneration in line with the UK Companies’
Regulations 2011 (Statutory Instrument 2011/2198) for the year ended 31 March 2012.
112 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
6. Net finance charge
Bank interest income
Interest income
Interest expense on bank loans and overdrafts
Interest expense
Other financing charges - put option liability
Net finance charge
7. Taxation
Analysis of charge for the year recognised in the Group Income Statement:
Current tax
UK corporation tax
Current tax on income for the year to 31 March 2012 at 26% (2011: 28%)
Double taxation relief
Adjustments in respect of prior years
Foreign tax
Current tax on income for the year
Adjustments in respect of prior years
Total current tax
Deferred tax
UK deferred tax
Origination and reversal of temporary differences
Impact of changes to tax rates
Adjustments in respect of prior years
Foreign deferred tax
Origination and reversal of temporary differences
Impact of changes to tax rates
Adjustments in respect of prior years
Total deferred tax
Total tax charge on profit
Year to
31 March
2012
£m
Year to
31 March
2011
£m
Note
2.9
2.9
(3.6)
(3.6)
(10.2)
(10.9)
1.9
1.9
(5.1)
(5.1)
(3.2)
(6.4)
5
Year to
31 March
2012
£m
Year to
31 March
2011
£m
79.9
(1.7)
(1.7)
76.5
36.8
(1.5)
111.8
(1.1)
1.3
(0.4)
(0.2)
(16.0)
(0.1)
5.1
(11.2)
100.6
69.5
(2.2)
(5.2)
62.1
39.7
0.2
102.0
(4.8)
1.0
(1.7)
(5.5)
(11.0)
–
(2.3)
(18.8)
83.2
354285_Burberry_finance_29may.indd 113
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Burberry Group plc Annual Report 2011/12 113
Notes to the financial statements continued
7. Taxation (continued)
Analysis of charge for the year recognised in other comprehensive income and directly in equity:
Current tax
Recognised in other comprehensive income
Current tax charge/(credit) on exchange differences on loans (foreign currency translation reserve)
Total current tax recognised in other comprehensive income
Recognised in equity
Current tax credit on share options (retained earnings)
Total current tax recognised directly in equity
Deferred tax
Recognised in other comprehensive income
Deferred tax (credit)/charge on cash flow hedges deferred in equity (hedging reserve)
Deferred tax charge/(credit) on cash flow hedges transferred to income (hedging reserve)
Deferred tax charge/(credit) on exchange differences on loans (foreign currency translation reserve)
Total deferred tax recognised in other comprehensive income
Recognised in equity
Deferred tax credit on share options (retained earnings)
Total deferred tax recognised directly in equity
Year to
31 March
2012
£m
Year to
31 March
2011
£m
0.1
0.1
(13.8)
(13.8)
(0.6)
1.4
0.1
0.9
(3.6)
(3.6)
(0.9)
(0.9)
(2.1)
(2.1)
2.2
(0.8)
(1.1)
0.3
(13.1)
(13.1)
The tax rate applicable on profit varied from the standard rate of corporation tax in the UK due to the following factors:
Tax at 26% (2011: 28%) on profit before taxation
Rate adjustments relating to overseas profits
Permanent differences
Current year tax losses not recognised
Adjustments in respect of prior years
Adjustments to deferred tax relating to changes in tax rates
Total taxation charge
Total taxation recognised in the Group Income Statement arises on:
Adjusted profit before taxation
Exceptional items
Total taxation charge
Year to
31 March
2012
£m
Year to
31 March
2011
£m
95.2
(8.9)
8.3
3.2
1.5
1.3
100.6
82.8
(8.0)
11.8
4.6
(9.0)
1.0
83.2
Year to
31 March
2012
£m
100.6
–
100.6
Year to
31 March
2011
£m
83.0
0.2
83.2
114 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
8. Earnings per share
The calculation of basic earnings per share is based on profit or loss attributable to equity holders of the Company for the year divided
by the weighted average number of ordinary shares in issue during the year. Basic and diluted earnings per share based on adjusted
profit before taxation are also disclosed to indicate the underlying profitability of the Group.
Attributable profit for the year before exceptional items(1) and discontinued operations
Effect of exceptional items(1) (after taxation)
Attributable profit for the year from continuing operations
Attributable loss from discontinued operations(2)
Attributable profit for the year
(1) Refer to note 5 for details of exceptional items.
(2) Refer to note 27 for details of basic and diluted earnings per share from discontinued operations.
Year to
31 March
2012
£m
273.8
(10.2)
263.6
(0.3)
263.3
Year to
31 March
2011
£m
217.0
(2.4)
214.6
(6.2)
208.4
The weighted average number of ordinary shares represents the weighted average number of Burberry Group plc ordinary shares
in issue throughout the year, excluding ordinary shares held in the Group’s employee share option plan trusts (ESOP trusts).
Diluted earnings per share is based on the weighted average number of ordinary shares in issue during the year. In addition, account
is taken of any options and awards made under the employee share incentive schemes, which will have a dilutive effect when exercised.
Weighted average number of ordinary shares in issue during the year
Dilutive effect of the employee share incentive schemes
Diluted weighted average number of ordinary shares in issue during the year
9. Dividends paid to owners of the Company
Prior year final dividend paid 15.00p per share (2011: 10.50p)
Interim dividend paid 7.00p per share (2011: 5.00p)
Total
Year to
31 March
2012
Millions
435.9
8.4
444.3
Year to
31 March
2012
£m
65.4
30.5
95.9
Year to
31 March
2011
Millions
435.0
9.0
444.0
Year to
31 March
2011
£m
45.7
21.7
67.4
A final dividend in respect of the year to 31 March 2012 of 18.00p (2011: 15.00p) per share, amounting to £79.0m (2011: £65.4m),
has been proposed for approval by the shareholders at the Annual General Meeting subsequent to the balance sheet date.
The final dividend to Burberry Group plc shareholders has not been recognised as a liability at the year end and will be paid
on 2 August 2012 to shareholders on the register at the close of business on 6 July 2012.
354285_Burberry_finance_29may.indd 115
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Burberry Group plc Annual Report 2011/12 115
Notes to the financial statements continued
10. Intangible assets
Cost
As at 1 April 2010
Effect of foreign exchange rate changes
Additions
Disposals
Business combination
As at 31 March 2011
Effect of foreign exchange rate changes
Additions
Disposals
Reclassification from assets under construction (note 11)
Business combinations (note 26)
As at 31 March 2012
Accumulated amortisation and impairment
As at 1 April 2010
Effect of foreign exchange rate changes
Charge for the year
Disposals
As at 31 March 2011
Effect of foreign exchange rate changes
Charge for the year
Disposals
Net impairment charge on assets
As at 31 March 2012
Net book value
As at 31 March 2012
As at 31 March 2011
Trade marks and
other intangible
assets
£m
Goodwill
£m
Computer
software
£m
34.9
(1.9)
–
–
40.1
73.1
1.5
–
–
–
6.6
81.2
–
–
–
–
–
–
–
–
–
–
81.2
73.1
17.1
0.1
6.6
–
–
23.8
(0.9)
1.1
(0.2)
1.9
–
25.7
9.0
0.1
1.9
–
11.0
(0.5)
2.0
(0.2)
–
12.3
13.4
12.8
38.2
(0.4)
14.4
(0.4)
–
51.8
(0.1)
22.7
(5.8)
1.3
–
69.9
16.6
(0.2)
7.0
(0.4)
23.0
(0.1)
11.3
(5.8)
3.0
31.4
38.5
28.8
Total
£m
90.2
(2.2)
21.0
(0.4)
40.1
148.7
0.5
23.8
(6.0)
3.2
6.6
176.8
25.6
(0.1)
8.9
(0.4)
34.0
(0.6)
13.3
(6.0)
3.0
43.7
133.1
114.7
116 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
10. Intangible assets (continued)
Impairment testing of goodwill
The carrying value of the goodwill allocated to cash generating units:
China
Korea
Other
Total
As at
31 March
2012
£m
41.9
22.8
16.5
81.2
As at
31 March
2011
£m
38.9
23.4
10.8
73.1
The Group tests goodwill for impairment annually or where there is an indication that goodwill might be impaired. The recoverable amount
of all cash generating units has been determined on a value-in-use basis. Value-in-use calculations for each cash generating unit are based
on projected three year pre-tax discounted cash flows together with a discounted terminal value. The cash flows have been discounted
at pre-tax rates reflecting the Group’s weighted average cost of capital adjusted for country specific tax rates and risks. Where the cash
generating unit has a non-controlling interest which was recognised as its proportionate interest in the net identifiable assets of the acquired
subsidiary at the acquisition date, the carrying amount of the goodwill has been grossed up, to include the goodwill attributable to the
non-controlling interest, for the purpose of impairment testing the goodwill attributable to the cash generating unit. The key assumptions
contained in the value-in-use calculations include the future revenues, the margins achieved, the assumed life of the business
and the discount rates applied.
The value-in-use calculations for the initial review have been prepared using management’s approved financial plans for the year ending
31 March 2013 as the source for the first year cash flow. These plans contain management’s best view of the expected performance
for the year ended 31 March 2013, based on the performance achieved in the current year and management’s knowledge of the market
environment and future business plans.
In China and Korea, which contain the most material goodwill balances, the cash flows included in the value-in-use calculation
for the following two years and for the terminal value have assumed no growth beyond that contained within the financial plan
for the year ending 31 March 2013. The Group carries out an initial review for indication of impairment using conservative growth
assumptions beyond the first year cash flow. Should this initial review indicate that impairment may have arisen, a further review
will be carried out, using more detailed assumptions, to confirm and then quantify any potential impairment. This approach is considered
appropriate by management due to the amount of headroom between recoverable amount and carrying value of goodwill at present.
The adjusted weighted average cost of capital rates for China and Korea were 14.4% and 12.5% respectively (2011: 13.5%; 14.1%).
No impairment has been recognised in respect of the carrying value of the goodwill balance in the year as, for each cash generating unit,
the recoverable amount of goodwill exceeds its carrying value.
As the initial review using conservative assumptions does not indicate that impairment may have arisen, management do not consider
it appropriate to conduct a further sensitivity analysis because a reasonably possible change in assumptions would not result
in an impairment.
354285_Burberry_finance_29may.indd 117
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Burberry Group plc Annual Report 2011/12 117
Notes to the financial statements continued
11. Property, plant and equipment
Cost
As at 1 April 2010
Effect of foreign exchange rate changes
Additions
Disposals
Reclassification from assets under construction
Transfers to investment properties (note 12)
Business combination (note 26)
Transfers to assets held for sale (note 27)
As at 31 March 2011
Effect of foreign exchange rate changes
Additions
Disposals
Reclassification from assets under construction
Business combination (note 26)
Reclassification(2)
As at 31 March 2012
Accumulated depreciation and impairment
As at 1 April 2010
Effect of foreign exchange rate changes
Charge for the year
Disposals
Transfers to investment properties (note 12)
Transfers to assets held for sale (note 27)
As at 31 March 2011
Effect of foreign exchange rate changes
Charge for the year
Disposals
Net impairment charge on assets
Reclassification(2)
As at 31 March 2012
Net book value
As at 31 March 2012
As at 31 March 2011
Freehold land
and buildings
£m
Leasehold
improvements
£m
Fixtures,
fittings and
equipment (1)
£m
Assets in the
course of
construction
£m
92.2
(3.7)
–
–
–
(3.8)
–
(29.6)
55.1
(0.1)
0.5
(1.3)
–
–
–
54.2
33.1
(1.3)
1.9
–
(0.7)
(16.7)
16.3
–
1.9
(1.3)
–
–
16.9
37.3
38.8
169.2
(6.5)
18.7
(0.3)
4.3
–
–
–
185.4
(1.0)
40.5
(8.0)
3.2
–
27.5
247.6
62.5
(2.1)
19.6
(0.3)
–
–
79.7
(0.7)
27.9
(7.9)
2.5
8.9
110.4
137.2
105.7
226.2
(4.4)
62.2
(23.9)
6.6
–
6.3
(6.6)
266.4
(3.4)
54.2
(32.8)
11.0
3.0
(27.5)
270.9
145.5
(3.1)
32.1
(23.0)
–
(2.5)
149.0
(2.1)
44.4
(32.6)
1.3
(8.9)
151.1
119.8
117.4
9.6
–
21.4
(0.2)
(10.9)
–
–
–
19.9
0.3
31.7
–
(17.4)
–
–
Total
£m
497.2
(14.6)
102.3
(24.4)
–
(3.8)
6.3
(36.2)
526.8
(4.2)
126.9
(42.1)
(3.2)
3.0
–
34.5
607.2
–
–
–
–
–
–
–
–
–
–
–
–
–
241.1
(6.5)
53.6
(23.3)
(0.7)
(19.2)
245.0
(2.8)
74.2
(41.8)
3.8
–
278.4
34.5
19.9
328.8
281.8
(1) Included in fixtures, fittings and equipment are finance lease assets with a net book value of £2.0m (2011: £2.3m).
(2) During the current year, £18.6m of assets have been reclassified from fixtures and fittings to leasehold improvements as this is more representative of the nature of these assets.
There is no impact on the depreciation charge for the year as a result of this reclassification.
During the year to 31 March 2012, a net impairment charge of £3.8m (2011: £nil) was identified as part of the annual impairment review.
Where indicators of impairment were identified, the impairment review compared the value-in-use of the assets to the carrying values at
31 March 2012. The pre-tax cash flow projections were based on financial plans approved by management and extrapolated beyond the
budget year to the lease exit dates using growth rates and inflation rates appropriate to each country’s economic conditions. The pre-tax
discount rates used in these calculations were between 10.8% and 16.7% (2011: between 12.2% and 18.5%), based on the Group’s
weighted average cost of capital adjusted for country-specific tax rates and risks.
118 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
12. Investment properties
Cost
As at 1 April
Effect of foreign exchange rate changes
Transfers from property, plant and equipment
As at 31 March
Accumulated depreciation
As at 1 April
Effect of foreign exchange rate changes
Transfers from property, plant and equipment
Charge for the year
As at 31 March
Net book value
2012
£m
3.8
(0.2)
–
3.6
0.8
(0.1)
–
0.1
0.8
2.8
2011
£m
–
–
3.8
3.8
–
–
0.7
0.1
0.8
3.0
During the year ended 31 March 2011, a freehold property in France was leased out to a third party on commercial terms. Rental income
net of operating expenses directly attributable to the property of £0.7m is included in the profit for the year ended 31 March 2012
(2011: £0.7m).
Based on a valuation report prepared by Cushman & Wakefield, the market valuation of the investment property is £11.2m, using closing
exchange rates at 31 March 2012 (2011: £11.8m). The valuation was prepared in accordance with the Royal Institution of Chartered
Surveyors and the International Valuation Standards Council, and is supported by market evidence.
13. Deferred taxation
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and there is an intention to settle on a net basis, and to the same fiscal authority. The offset amounts are shown in the table below:
Deferred tax assets
Deferred tax liabilities
Net amount
The movement in the deferred tax account is as follows:
As at 1 April
Effect of foreign exchange rate changes
Credited to the Income Statement
Charged to other comprehensive income
Credited to equity
As at 31 March
As at
31 March
2012
£m
84.1
(1.4)
82.7
As at
31 March
2012
£m
68.6
0.2
11.2
(0.9)
3.6
82.7
As at
31 March
2011
£m
70.4
(1.8)
68.6
As at
31 March
2011
£m
37.6
(0.6)
18.8
(0.3)
13.1
68.6
354285_Burberry_finance_29may.indd 119
29/05/2012 18:38
Burberry Group plc Annual Report 2011/12 119
Notes to the financial statements continued
13. Deferred taxation (continued)
The movement in deferred tax assets and liabilities during the year, without taking into consideration the off-setting of balances
within the same tax jurisdiction, is as follows:
Deferred tax liabilities
As at 1 April 2010
Effect of foreign exchange rate changes
(Credited)/charged to the Income Statement
- continuing operations
Credited to other comprehensive income
As at 31 March 2011
Effect of foreign exchange rate changes
Charged/(credited) to the Income Statement
- continuing operations
As at 31 March 2012
Deferred tax assets
As at 1 April 2010
Effect of foreign exchange rate changes
(Charged)/credited to the Income Statement
- continuing operations
(Charged)/credited to other comprehensive
income
Credited to equity
As at 31 March 2011
Effect of foreign exchange rate changes
Credited/(charged) to the Income Statement
- continuing operations
Charged to other comprehensive income
Credited to equity
As at 31 March 2012
Unrealised
inventory
profit and
other
inventory
provisions
£m
Accelerated
capital
allowances
£m
Derivative
instruments
£m
Unused tax
losses
£m
15.8
(0.4)
(9.6)
–
5.8
(0.2)
21.2
26.8
(4.4)
0.1
3.5
–
(0.8)
–
(1.7)
(2.5)
–
–
1.6
(0.1)
1.5
–
–
1.5
(4.4)
0.1
4.3
–
–
–
(3.8)
(3.8)
Unrealised
inventory
profit and
other
inventory
provisions
£m
Accelerated
capital
allowances
£m
Share
schemes
£m
Derivative
instruments
£m
Unused tax
losses
£m
5.1
0.2
16.8
(0.7)
11.8
–
(12.9)
13.0
5.6
–
–
(7.6)
(0.1)
11.5
–
–
3.8
–
–
29.1
–
7.1
–
–
–
13.1
30.5
–
2.5
–
3.6
36.2
36.6
0.7
–
1.4
(1.5)
–
0.6
–
–
(0.8)
–
(0.2)
6.9
(1.0)
10.7
–
–
16.6
–
(11.9)
–
–
4.7
Other
£m
(0.9)
–
2.4
–
1.5
(0.1)
(11.3)
(9.9)
Other
£m
2.4
0.7
3.2
1.1
–
7.4
–
6.4
(0.1)
–
13.7
Total
£m
6.1
(0.2)
2.2
(0.1)
8.0
(0.3)
4.4
12.1
Total
£m
43.7
(0.8)
21.0
(0.4)
13.1
76.6
(0.1)
15.6
(0.9)
3.6
94.8
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related benefit through the future
taxable profits is probable. The Group did not recognise deferred tax assets of £20.3m (2011: £15.2m) in respect of losses and temporary
timing differences amounting to £57.8m (2011: £45.1m) that can be set off against future taxable income. There is a time limit for the
recovery of £13.0m of these potential assets (2011: £9.0m) which ranges from seven to ten years (2011: eight to ten years).
Included within other temporary differences above is a deferred tax liability of £0.6m (2011: £0.6m) relating to unremitted overseas earnings.
No deferred tax liability is provided in respect of any future remittance of earnings of foreign subsidiaries where the Group is able to control
the remittance of earnings and it is probable that such earnings will not be remitted in the foreseeable future, or where no liability would arise
on the remittance. The unrecognised deferred tax liability on unremitted earnings is £2.0m (2011: £1.0m).
120 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
14. Trade and other receivables
Non-current
Deposits and prepayments
Total non-current trade and other receivables
Current
Trade receivables
Provision for doubtful debts
Net trade receivables
Other receivables
Prepayments and accrued income
Total current trade and other receivables
Total trade and other receivables
As at
31 March
2012
£m
As at
31 March
2011
£m
22.3
22.3
103.0
(7.6)
95.4
26.4
23.4
145.2
167.5
15.2
15.2
100.7
(12.1)
88.6
22.3
21.6
132.5
147.7
Of the non-current deposits and prepayments balance, £16.3m (2011: £10.4m) is due within five years from the balance sheet date,
with the remainder due at various stages after this. The entire balance is non-interest bearing.
The individually impaired receivables relate to balances with trading parties which have passed their payment due dates or where
uncertainty exists over recoverability. As at 31 March 2012, trade receivables of £28.0m (2011: £18.4m) were impaired. The amount
of the provision against these receivables was £7.6m as of 31 March 2012 (2011: £12.1m). It was assessed that a portion of the receivables
is expected to be recovered. Individually impaired receivables of £2.1m (2011: £3.7m) relate to the discontinued Spanish operations.
The ageing of the impaired trade receivables is as follows:
Current
Less than one month overdue
One to three months overdue
Over three months overdue
As at
31 March
2012
£m
As at
31 March
2011
£m
0.2
21.8
1.3
4.7
28.0
3.2
7.0
3.1
5.1
18.4
As at 31 March 2012, trade receivables of £0.1m (2011: £5.3m) were overdue but not impaired. The ageing of these overdue receivables
is as follows:
Less than one month overdue
One to three months overdue
Over three months overdue
Movement on the provision for doubtful debts is as follows:
As at 1 April
Increase in provision for doubtful debts
Receivables written off during the year as uncollectable
Unused provision reversed
As at 31 March
As at
31 March
2012
£m
As at
31 March
2011
£m
0.1
–
–
0.1
4.6
0.6
0.1
5.3
Year to
31 March
2012
£m
Year to
31 March
2011
£m
12.1
2.1
(5.9)
(0.7)
7.6
16.8
5.6
(0.8)
(9.5)
12.1
There were £0.4m of impaired receivables within other receivables (2011: £nil). The maximum exposure to credit risk at the reporting date
with respect to trade receivables is the carrying amount on the Balance Sheet. The Group does not hold any collateral as security.
Burberry Group plc Annual Report 2011/12 121
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29/05/2012 18:38
Notes to the financial statements continued
14. Trade and other receivables (continued)
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Sterling
US Dollar
Euro
Chinese Yuan Renminbi
Other currencies
Year to
31 March
2012
£m
Year to
31 March
2011
£m
39.1
24.3
39.5
23.9
40.7
59.0
22.9
12.1
23.5
30.2
167.5
147.7
The nominal value less impairment provision of trade and other receivables is assumed to approximate its fair value because of the short
maturity of these instruments.
15. Inventories
Raw materials
Work in progress
Finished goods
Total inventories
As at
31 March
2012
£m
5.7
0.5
304.9
311.1
As at
31 March
2011
£m
5.1
0.6
242.2
247.9
The cost of inventories recognised as an expense and included in cost of sales for the continuing and discontinued operations amounted
to £539.3m (2011: £500.0m). The net movement in inventory provisions included in cost of sales for the year ended 31 March 2012
was a cost of £4.4m (2011: credit of £17.9m).
In the year to 31 March 2012, the Group reversed £1.5m (2011: £4.6m) of previous inventory writedowns in relation to the stock held
in the discontinued Spanish operations. The cost of inventories physically destroyed in the year is £8.3m (2011: £6.6m).
16. Derivative financial instruments
The Group Income Statement is affected by transactions denominated in foreign currency. To reduce exposure to currency fluctuations,
the Group has a policy of hedging foreign currency denominated transactions by entering into forward foreign exchange contracts.
These transactions are recorded as cash flow hedges.
Cash flow hedges
The Group’s foreign currency denominated transactions arise principally from royalty income, sales and purchases. The Group manages
these exposures through the use of forward foreign exchange contracts.
Derivative financial assets
Forward foreign exchange contracts – cash flow hedges
Equity swap contracts – held for trading
Total position
Comprising:
Total non-current position
Total current position
As at
31 March
2012
£m
As at
31 March
2011
£m
3.2
14.7
17.9
14.7
3.2
1.6
9.2
10.8
9.2
1.6
122 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
16. Derivative financial instruments (continued)
Derivative financial liabilities
Forward foreign exchange contracts – cash flow hedges
Equity swap contracts – held for trading
Total position
Comprising:
Total non-current position
Total current position
Net derivative financial instruments
– book value
– fair value
As at
31 March
2012
£m
As at
31 March
2011
£m
(1.9)
(0.2)
(2.1)
(0.2)
(1.9)
(3.9)
–
(3.9)
–
(3.9)
As at
31 March
2012
£m
15.8
15.8
As at
31 March
2011
£m
6.9
6.9
The fair value of equity swap contracts and forward foreign exchange contracts is based on a comparison of the contractual and market
rates after discounting using the appropriate yield curves as at 31 March each year. All fair value measurements are calculated using inputs
which are based on observable market data (Level 2).
Notional principal amounts of the outstanding forward foreign exchange contracts
Notional principal amounts of the outstanding equity swap contracts
Ineffective portion of cash flow hedges released from equity to the Income Statement during the year
Net gain on derivatives held for trading for the year recognised within net operating expenses
in the Income Statement
As at
31 March
2012
£m
168.6
15.9
–
As at
31 March
2011
£m
197.3
10.8
0.5
6.8
5.5
Cash flow hedges considered to be ineffective are recognised immediately in the Income Statement within net operating expenses.
In the year ended 31 March 2011 this arose from changes to forecasts of ‘highly probable’ transactions during the year.
Contractual maturities of derivatives used for hedging
The gross inflows/(outflows) disclosed in the table below represent the contractual undiscounted cash flows relating to derivative
financial assets and liabilities held for risk management purposes and which are usually not closed out prior to the contractual maturity.
The foreign currency cashflows shown are based on spot rates at balance date.
As at 31 March 2012
Forward exchange contracts used for hedging:
– outflow
– inflow
As at 31 March 2011
Forward exchange contracts used for hedging:
– outflow
– inflow
Contractual maturities
Carrying
amount
£m
Contractual
cash flows
£m
1 to 6
months
£m
6 to 12
months
£m
(165.9)
167.2
1.3
(197.3)
194.9
(2.4)
(97.2)
97.8
0.6
(123.5)
121.5
(2.0)
(68.7)
69.4
0.7
(73.8)
73.4
(0.4)
1.3
(2.3)
The contractual maturity profile of non-current financial liabilities is shown in note 24.
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Burberry Group plc Annual Report 2011/12 123
Notes to the financial statements continued
17. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Total
As at
31 March
2012
£m
262.6
284.3
546.9
As at
31 March
2011
£m
235.1
231.2
466.3
The fair value of short-term deposits approximates the carrying amount because of the short maturity of the instruments.
18. Trade and other payables
Non-current
Deferred consideration
Put option liability over non-controlling interest
Other creditors, accruals and deferred income
Total non-current trade and other payables
Current
Trade creditors
Other taxes and social security costs
Deferred consideration
Other creditors
Accruals and deferred income
Total current trade and other payables
Total trade and other payables
As at
31 March
2012
£m
As at
31 March
2011
£m
1.1
57.8
46.0
104.9
118.8
23.3
1.1
5.8
175.4
324.4
429.3
1.9
47.3
35.2
84.4
85.8
16.7
12.5
20.5
147.9
283.4
367.8
Following the acquisition of the Burberry retail and distribution business in China, Sparkle Roll Holdings Limited, a non-Group company,
retains a 15% economic interest in the Group’s business in China. Put and call options exist over this interest stake which are exercisable
after 5 years from acquisition date in the case of the call option, and 10 years from acquisition date in the case of the put option.
The net present value of the put option has been recognised as a non-current financial liability under IAS 39.
The key assumptions in arriving at the fair value of the put option are the future performance of both the Group’s business in China
and the future performance of the Group, the Burberry Group plc market capitalisation at the date of exercise and the risk free rate
in China.
The maturity of the other non-current creditors, accruals and deferred income, all of which do not bear interest, is as follows:
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
Total
The fair value of trade and other payables approximate their carrying amounts and are unsecured.
As at
31 March
2012
£m
As at
31 March
2011
£m
3.7
3.8
1.8
4.3
33.5
47.1
3.2
3.3
2.5
2.7
25.4
37.1
124 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
19. Provisions for other liabilities and charges
Balance as at 1 April 2010
Effect of foreign exchange rate changes
Created during the year
Utilised during the year
Released during the year
Balance as at 31 March 2011
Effect of foreign exchange rate changes
Created during the year
Utilised during the year
Released during the year
Balance as at 31 March 2012
Analysis of total provisions:
Non-current
Current
Total
Property
obligations
£m
Restructuring
costs
£m
9.7
(0.1)
5.0
(3.1)
–
11.5
0.1
9.4
(2.2)
(0.3)
18.5
30.2
(0.5)
7.0
(20.3)
(2.8)
13.6
(0.3)
–
(8.4)
(1.4)
3.5
Other
costs
£m
–
–
3.1
–
–
3.1
(0.2)
1.2
(2.7)
(0.1)
1.3
Total
£m
39.9
(0.6)
15.1
(23.4)
(2.8)
28.2
(0.4)
10.6
(13.3)
(1.8)
23.3
As at
31 March
2012
£m
As at
31 March
2011
£m
15.1
8.2
23.3
9.6
18.6
28.2
The non-current provisions relate to provisions for onerous leases and property reinstatement costs which are expected to be utilised within
18 years. Of the total £3.5m restructuring provision (2011: £13.6m), £3.3m (2011: £13.4m) represents a current liability. The majority of this
relates to the closure of the Spanish operations. The £0.2m (2011: £0.2m) non-current portion relates to onerous leases.
20. Bank overdrafts and borrowings
Unsecured:
Bank overdrafts
Bank borrowings
Other borrowings
Total
As at
31 March
2012
£m
As at
31 March
2011
£m
207.3
0.8
0.5
208.6
167.1
0.8
0.5
168.4
Included within bank overdrafts is £204.7m (2011: £166.1m) representing balances on cash pooling arrangements in the Group.
The remaining overdrafts of £2.6m (2011: £1.0m) are provided by a number of committed and uncommitted arrangements agreed
with third party banks.
On 28 March 2011, a £300m multi-currency revolving credit facility was agreed with a syndicate of third party banks. At 31 March 2012,
there were no outstanding drawings (2011: £nil). Interest is charged on this facility at LIBOR plus 0.90% on drawings less than £100m
at LIBOR plus 1.05% on drawings between £100m and £200m and at LIBOR plus 1.20% on drawings over £200m. The facility matures
on 30 June 2016.
On 1 October 2010, a Yen 145m bilateral facility was agreed with a third party bank. At 31 March 2012, the amount drawn down was
Yen 100.8m (2011: Yen 100.8m). Interest is charged on this facility at the Japanese short-term prime rate plus 0.5%. The facility matures
on 30 September 2012. The undrawn facility at 31 March 2012 was Yen 44.2m.
Other borrowings relate to a loan provided by a minority interest partner totalling £0.5m due to mature on 8 November 2012.
Interest is charged on this loan at the Japanese short-term prime rate plus 0.5%.
The fair value of borrowings and overdrafts approximates the carrying amount because of the short maturity of these instruments.
354285_Burberry_finance_29may.indd 125
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Burberry Group plc Annual Report 2011/12 125
Notes to the financial statements continued
21. Share capital and reserves
Allotted, called up and fully paid share capital
Ordinary shares of 0.05p (2011: 0.05p) each
As at 1 April 2011
Allotted on exercise of options during the year
As at 31 March 2012
Number
435,811,738
2,956,370
438,768,108
£m
0.2
–
0.2
At 31 March 2012, 30,027 of the 0.05p ordinary shares in issue are held as treasury shares (2011: 77,215).
The Company has a general authority from shareholders, renewed at each Annual General Meeting, to repurchase a maximum of 10%
of its issued share capital. During the year to 31 March 2012, no ordinary shares were repurchased by the Company under this authority
(2011: nil).
The cost of own shares held by the Group has been offset against retained earnings, as the amounts paid reduce the profits available
for distribution by the Company. As at 31 March 2012 the amounts offset against this reserve are £41.9m (2011: £2.8m). In the year
to 31 March 2012 the Burberry Group plc ESOP trust has waived its entitlement to dividends of £0.2m (2011: £nil).
During the year profits of £5.0m (2011: £1.7m) have been transferred to capital reserves due to statutory requirements of subsidiaries.
The capital reserve consists of non-distributable reserves and the capital redemption reserve arising on the purchase of own shares.
Balance as at 1 April 2010
Other comprehensive income:
Cash flow hedges – losses deferred in equity
Cash flow hedges – losses transferred to income
Foreign currency translation differences
Tax on other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Transfer between reserves
Balance as at 31 March 2011
Other comprehensive income:
Cash flow hedges – losses deferred in equity
Cash flow hedges – losses transferred to income
Foreign currency translation differences
Tax on other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Transfer between reserves
Balance as at 31 March 2012
Other reserves
Hedging
reserve
£m
Foreign currency
translation
reserve
£m
(1.1)
136.3
Capital
reserve
£m
27.2
(2.6)
7.5
–
(1.4)
3.5
–
2.4
(2.2)
5.5
–
(0.8)
2.5
–
4.9
–
–
(15.1)
2.0
(13.1)
–
123.2
–
–
(4.4)
(0.2)
(4.6)
–
118.6
–
–
–
–
–
1.7
28.9
–
–
–
–
–
5.0
33.9
Total
£m
162.4
(2.6)
7.5
(15.1)
0.6
(9.6)
1.7
154.5
(2.2)
5.5
(4.4)
(1.0)
(2.1)
5.0
157.4
126 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
22. Financial commitments
The Group leases various retail stores, offices, warehouses and equipment under non-cancellable operating lease arrangements.
The leases have varying terms, escalation clauses and renewal rights. The Group has commitments relating to future minimum
lease payments under these non-cancellable operating leases as follows:
Amounts falling due:
Within one year
Between two and five years
After five years
Total
As at
31 March
2012
£m
As at
31 March
2011
£m
118.6
330.6
191.1
640.3
94.6
244.5
196.2
535.3
The financial commitments for operating lease amounts calculated as a percentage of revenue (‘revenue leases’) have been based
on the minimum payment that is required under the terms of the relevant lease. Under certain revenue leases, there are no minimums
and therefore no financial commitment is included in the table above. As a result, the amounts charged to the Income Statement
may be materially higher than the financial commitment at the prior year end.
The total of future minimum payments to be received under non-cancellable leases on investment properties and subleases on land
and buildings is as follows:
Amounts falling due:
Within one year
Between two and five years
After five years
Total
23. Capital commitments
Capital commitments contracted but not provided for:
– property, plant and equipment
– intangible assets
Total
Leases
Subleases
As at
31 March
2012
£m
As at
31 March
2011
£m
As at
31 March
2012
£m
As at
31 March
2011
£m
0.7
2.8
2.0
5.5
0.7
2.9
2.8
6.4
0.7
1.6
0.4
2.7
0.8
2.3
0.4
3.5
As at
31 March
2012
£m
As at
31 March
2011
£m
35.7
2.0
37.7
10.3
1.2
11.5
Contracted capital commitments represent contracts entered into by the year end and future work in respect of major capital expenditure
projects where activity has commenced by the year end relating to property, plant and equipment and intangible assets.
354285_Burberry_finance_29may.indd 127
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Burberry Group plc Annual Report 2011/12 127
Notes to the financial statements continued
24. Financial risk management
Other than derivatives, the Group’s principal financial instruments comprise cash and short-term deposits, external borrowings, trade
receivables, and trade and other payables arising directly from operations.
The Group’s activities expose it to a variety of financial risks: market risks (including foreign exchange risk, share price risk and interest rate
risk), credit risk, liquidity risk and capital risk.
Risk management is carried out by Group Treasury to reduce financial risk and to ensure sufficient liquidity is available to meet foreseeable
needs and to invest in cash assets safely and profitably. This is done in close co-operation with the Group’s operating units. Group Treasury
does not operate as a profit centre and transacts only in relation to the underlying business requirements. The policies of the Group treasury
department are reviewed and approved by the Board of Directors. The Group uses derivative instruments to hedge certain risk exposures.
Market risk
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures.
The Group’s Income Statement is affected by transactions denominated in foreign currency. To reduce exposure to currency fluctuations,
the Group has a policy of hedging foreign currency denominated transactions by entering into forward foreign exchange contracts
(see note 16). The Group’s accounting policy in relation to derivative instruments is set out in note 2.
The Group’s treasury risk management policy is to hedge anticipated cash flows in each major foreign currency that qualify as ‘highly
probable’ forecast transactions for hedge accounting purposes within the current or previous year.
The Group monitors the desirability of hedging the net assets of overseas subsidiaries when translated into Sterling for reporting purposes.
It has not entered into any specific transactions for this purpose within the current or previous year.
At 31 March 2012, the Group has performed sensitivity analysis to determine the effect of non-Sterling currencies strengthening/weakening
by 20% (2011: 20%) against Sterling with all other variables held constant. The effect on translating foreign currency denominated net
debt, receivables, payables and financial instruments at fair value through profit or loss would have been to increase/decrease post-tax
profit for the year by £3.0m (2011: decrease/increase £0.1m). The effect on translating forward foreign exchange contracts designated
as cash flow hedges and Sterling denominated loans held in overseas subsidiaries would have been to increase/decrease equity
by £12.1m (2011: £11.4m).
The following table shows the extent to which the Group has monetary assets and liabilities at the year end in currencies other than the local
currency of operation, after accounting for the effect of any specific forward foreign exchange contracts used to manage currency exposure.
Monetary assets and liabilities refer to cash, deposits, borrowings and amounts to be received or paid in cash. Foreign exchange differences
on retranslation of these assets and liabilities are recognised in the Income Statement.
Net foreign currency monetary assets/(liabilities) held in currencies other than the local currency of operation:
Sterling
US Dollar
Euro
Other currencies
Total
As at
31 March
2012
£m
As at
31 March
2011
£m
–
(4.4)
27.6
(0.5)
22.7
0.3
(0.7)
1.5
(0.3)
0.8
128 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
24. Financial risk management (continued)
Share price risk
The Group is exposed to employer’s national insurance liability due to the implementation of various employee share based incentive
schemes.
To reduce exposure to fluctuations in the employer’s national insurance liability due to movements in the Group’s share price, the Group
has a policy of entering into equity swaps at the time of granting share options and awards. The Group does not seek hedge accounting
treatment for equity swaps. The Group monitors its exposure to fluctuations in the employer’s national insurance liability on an ongoing basis.
An increase/decrease in the share price of 50.0p would have resulted in an increase/decrease in profit after tax of £0.8m.
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to cash, short-term deposits and external borrowings.
The external borrowings are linked to the LIBOR rate, while cash and short-term borrowings are affected by local market rates around
the Group. The borrowings at variable rates expose the Group to cash flow interest rate risk. To manage interest rate risk the Group
manages its proportion of fixed and floating rate borrowings to within limits approved by the Board using interest rate swap derivatives.
The Group has no outstanding interest rate swaps at 31 March 2012.
The interest rate risk profile of the Group’s floating rate financial liabilities by currency is as follows:
Sterling
Other currencies
Total financial liabilities
As at
31 March
2012
£m
As at
31 March
2011
£m
–
3.9
3.9
0.2
2.1
2.3
The floating rate financial liabilities at 31 March 2012 and 2011 exclude cash pool overdraft balances of £204.7m (2011: £166.1m)
which are offset by cash balances for the purpose of interest calculations. At 31 March 2012, if interest rates on borrowings had been
100 basis points higher/lower (2011: 200 basis points) with all other variables held constant, post-tax profit for the year would have been
£nil (2011: £nil) lower/higher, as a result of higher/lower interest expense on floating rate borrowings.
The fixed rate financial liabilities consist of amounts owed under a finance lease of £1.8m (2011: £2.3m).
The floating rate financial assets, being short-term deposits, are £284.3m as at 31 March 2012 (2011: £231.2m). At 31 March 2012,
if interest rates on short-term deposits had been 100 basis points higher/lower (2011: 100 basis points), with all other variables held
constant, post-tax profit for the year would have been £2.8m (2011: £2.3m) higher/lower, as a result of higher/lower interest income
on short-term deposits.
The Group has no other significant floating rate foreign currency borrowings and therefore is not exposed to movements in foreign currency
interest rates.
Credit risk
The Group has no significant concentrations of credit risk. The trade receivables balance is spread across a large number of different
customers with no single debtor representing more than 8% of the total balance due. The Group has policies in place to ensure that
wholesale sales are made to customers with an appropriate credit history. Sales to retail customers are made in cash or via major credit
cards. In addition, receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not
significant and default rates have historically been very low. An ageing of overdue receivables is included in note 14. The carrying amount
of financial assets represents the maximum credit exposure to the Group.
With respect to credit risk arising from other financial assets, which comprise cash and short-term deposits and certain derivative
instruments, the Group’s exposure to credit risk arises from the default of the counterparty with a maximum exposure equal
to the carrying value of these instruments. The Group has policies that limit the amount of credit exposure to any financial
institution and only deposits funds with independently rated financial institutions with a minimum rating of “A”.
The Group has deposited €0.2m (2011: €1.1m), CHF 0.3m (2011: CHF 0.3m), BRL 0.6m (2011: BRL 0.6m), INR 0.2m (2011: INR 0.2m)
and TWD nil (2011: TWD 10.0m) which is held as collateral at a number of European banks.
354285_Burberry_finance_29may.indd 129
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Burberry Group plc Annual Report 2011/12 129
Notes to the financial statements continued
24. Financial risk management (continued)
Liquidity risk
The Group’s financial risk management policy aims to ensure that sufficient cash is maintained to meet foreseeable needs and close out
market positions. Due to the dynamic nature of the underlying business, Group Treasury aims to maintain flexibility in funding by keeping
committed credit lines available. For further details of this, see note 20.
All short-term trade creditors, accruals, bank overdrafts and borrowings mature within one year or less. The carrying value of all financial
liabilities due in less than one year is equal to their contractual undiscounted cash flows.
The maturity profile of the contractual undiscounted cash flows of the Group’s non-current financial liabilities is as follows:
In more than one year, but not more than two years
In more than two years, but not more than three years
In more than three years, but not more than four years
In more than four years, but not more than five years
In more than five years
Total financial liabilities
As at
31 March
2012
£m
As at 31
March
2011
£m
3.8
2.7
4.2
1.2
2.6
2.0
1.0
0.6
184.0
195.9
151.2
157.4
Other non-current financial liabilities relate to lease liabilities, property-related accruals and the put option liability over non-controlling
interests. The put option liability is subject to a contractual cap of £200m.
Capital risk
The Group manages its capital (defined as net cash plus equity excluding non-controlling interest) to ensure that entities in the Group
are able to operate as going concerns and optimise returns to shareholders. At 31 March 2012, the Group had net cash of £338.3m
(2011: £297.9m) and total equity excluding non-controlling interest of £867.3m (2011: £713.6m). The Group has access to a facility
of £300m which was undrawn at 31 March 2012 and a facility of Yen 145m, of which Yen 100.8m was drawn down at 31 March 2012.
For further details refer to note 20.
Cash is used to fund the continued investment in the Group and growth of the global brand. It is also used to make routine outflows
of capital expenditure, tax and dividends. The Group's dividend policy sets its payout target as 40% of adjusted diluted EPS.
The Board reviews the Group’s dividend policy and funding requirements annually.
The Group is in compliance with the financial and other covenants within its committed bank credit facilities, and has been in compliance
throughout the financial year.
25. Employee costs
Staff costs, including the cost of directors, incurred during the year are as shown below. Directors’ remuneration, which is separately
disclosed in the Directors’ Remuneration Report on pages 83 to 92 and forms part of these financial statements, includes the notional
gains arising on the exercise of share options and awards but excludes the charge in respect of these share options and awards recognised
in the Group Income Statement.
Wages and salaries
Social security costs
Share based compensation (all awards and options settled in shares)
Other pension costs
Total(1)
(1) Figures disclosed for both the year to 31 March 2012 and 31 March 2011 include costs from both continuing and discontinued operations.
Year to
31 March
2012
£m
271.4
44.5
31.8
11.0
358.7
Year to
31 March
2011
£m
232.3
41.4
28.3
7.7
309.7
130 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
25. Employee costs (continued)
The average number of full-time equivalent employees (including executive directors) during the year was as follows:
Europe
Spain
Americas
Asia Pacific
Rest of the World
Total(1)
Number of employees
Year to
31 March
2012
Year to
31 March
2011
3,579
–
1,560
2,619
233
7,991
2,986
430
1,385
1,733
147
6,681
(1) Figures disclosed for both the year to 31 March 2012 and 31 March 2011 are for both continuing and discontinued operations.
Share options granted to directors and employees
The Group has a number of share options and share awards schemes for its directors and employees. Details of each of these schemes
are set out in this note. The share option and award schemes have been valued using the Black-Scholes option pricing model. The Senior
Executive Restricted Share Plan and the Exceptional Performance Share Plan, both of which have market-based performance conditions
attached, have been valued using the Black-Scholes option pricing model with a discount applied to this value, based on information
obtained by running a Monte Carlo simulation model on the scheme.
Where applicable, equity swaps have been entered into to cover future employer’s national insurance liability (or overseas equivalent)
that may arise in respect of these schemes (refer to note 24).
Savings-Related Share Option Scheme
In the financial year ended 31 March 2007, a Savings-Related Share Option Scheme (Sharesave) offering Burberry Group plc ordinary shares
was introduced for employees.
On 24 June 2011, further options were granted under this scheme with a three-year and five-year vesting period offered to employees.
The savings contract commencement date for this grant was 1 September 2011. These options are exercisable for a period of up to six
months from 1 September 2014 and 1 September 2016 for the three-year and five-year schemes respectively, with vesting dependent
on continued employment, as well as a saving obligation over the vesting period. The exercise price for these options is calculated at a 20%
discount to market price over the three dealing days preceding the invitation date. Three day averages are calculated by taking middle
market quotations of a Burberry Group plc share from the London Stock Exchange.
The fair value per option for the grant was determined as £2.85. The key factors used in determining the fair value were as follows:
Share price at contract commencement date
Exercise price
Life of award
Dividend yield
Expected volatility
Risk free interest rate
£13.83
£10.49
Equivalent to
vesting period
2.20%
44.8%
1.23%
Expected volatility was determined by calculating the historical annualised standard deviation of the market price of the shares over
a period of time, prior to the grant, equivalent to the life of the option.
Movements in the number of share options outstanding and their weighted average exercise prices are as follows:
Outstanding at 1 April
Granted during the year
Lapsed during the year
Withdrawn during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
Weighted
average
exercise
price
430.6p
1,049.0p
550.6p
599.0p
408.4p
682.5p
399.0p
Year to
31 March
2012
863,271
436,609
(107,857)
(16,534)
(152,761)
1,022,728
1,365
Weighted
average
exercise
price
383.5p
557.0p
424.3p
456.2p
472.3p
430.6p
505.0p
Year to
31 March
2011
800,937
356,026
(88,892)
(48,153)
(156,647)
863,271
18,383
The weighted average share price at the respective exercise dates in the year was £13.15 (2011: £9.83).
Burberry Group plc Annual Report 2011/12 131
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Notes to the financial statements continued
25. Employee costs (continued)
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
Option term
24 August 2007 – 28 February 2011
28 September 2007 – 31 March 2011
26 June 2008 – 28 February 2012
30 June 2009 – 28 February 2013
30 June 2009 – 28 February 2015
30 June 2010 – 28 February 2014
30 June 2010 – 28 February 2016
24 June 2011 – 28 February 2015
24 June 2011 – 28 February 2017
Total
Exercise
price
505.0p
505.0p
399.0p
321.0p
321.0p
557.0p
557.0p
1,049.0p
1,049.0p
Number of
shares under
option as at
31 March
2012
Number of
shares under
option as at
31 March
2011
–
–
1,365
258,753
58,996
250,817
38,987
363,667
50,143
15,861
2,522
166,345
287,978
58,996
284,263
47,306
–
–
1,022,728
863,271
Burberry Senior Executive Restricted Share Plan 2004 (the RSP)
On 20 June 2011 and 21 November 2011, further awards of 1,223,402 and 59,165 ordinary shares respectively were made to senior
management under the RSP (2011: 2,500,955). Under the plan, participants may be awarded shares, structured as nil-cost options,
up to a maximum value of two times base salary per annum.
Awards granted between 2004 and 2007 vest in full only if the Group achieves at least upper quartile Total Shareholder Return (TSR)
relative to its global peers and at least 15% per annum adjusted PBT growth. A proportion of an award (12.5%) may vest if TSR performance
exceeds the median of the peer group or if adjusted PBT growth exceeds 5% per annum over three years. Vesting against each metric
occurs on a straight-line basis between threshold and maximum. Of the shares which meet the performance criteria, 50% vests after
three years. The remaining 50% vests in two equal tranches on the fourth and fifth anniversaries of the date of grant.
Awards granted in 2009 and 2010 will vest in full only if the Group achieves at least upper quartile TSR relative to its global peers and
at least 10% per annum adjusted PBT growth. A proportion of an award (12.5%) may vest if TSR performance exceeds the median
of the peer group or if adjusted PBT growth exceeds 3% per annum over three years. Vesting against each metric occurs on a straight-line
basis between threshold and maximum. Of the shares which meet the performance criteria, 50% vests after three years. The remaining
50% vests in two equal tranches on the fourth and fifth anniversaries of the date of grant.
Awards granted in 2011 will vest in full only if the Group achieves at least 15% per annum adjusted PBT growth over the three year vesting
period. A proportion of an award (25%) may vest if adjusted PBT growth exceeds 5% per annum. Vesting occurs on a straight-line basis
between the threshold and the maximum. Of the shares which meet the performance criteria, 50% vest after three years. The remaining
50% vest in two equal tranches on the fourth and fifth anniversary of the date of the grant.
Obligations under this plan will be met by the issue of ordinary shares of the Company.
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Granted during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
The weighted average share price at the respective exercise dates in the year was £14.00 (2011: £9.00).
Year to
31 March
2012
9,478,807
1,282,567
Year to
31 March
2011
9,311,476
2,500,955
(535,871)
(1,723,272)
(889,966)
(610,352)
9,335,537
9,478,807
428,043
96,146
132 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
25. Employee costs (continued)
Share awards outstanding at the end of the year have the following terms:
Term of the award
2 August 2004 – 1 August 2014
21 July 2005 – 20 July 2015
10 August 2006 – 9 August 2016
1 September 2006 – 31 August 2016
27 November 2006 – 26 November 2016
11 June 2007 – 10 June 2017
21 November 2007 – 20 November 2017
25 June 2008 – 24 June 2018
1 June 2009 – 31 May 2019
8 June 2009 – 7 June 2019
30 June 2009 – 29 June 2019
20 November 2009 – 19 November 2019
10 June 2010 – 9 June 2020
22 November 2010 – 21 November 2020
20 June 2011 – 19 June 2021
21 November 2011 – 20 November 2021
Total
Number of
awards as at
31 March
2012
Number of
awards as at
31 March
2011
15
13,021
101,820
-
4,645
232,510
34,271
583,743
4,912,999
1,192
5,500
16,019
16
26,777
172,822
2,125
6,770
367,725
53,806
1,307,387
5,095,992
1,192
5,500
16,184
2,176,747
2,360,956
33,942
1,159,948
59,165
61,555
–
–
9,335,537
9,478,807
The fair values for the awards granted on 20 June 2011 and 21 November 2011 were £12.42 and £10.96 respectively. The key factors
used in determining the fair value of the awards were as follows:
Share price at grant date
Exercise price
Life of award
Dividend yield
Expected volatility
Risk free interest rate
20 June
2011
£13.27
£nil
21 November
2011
£11.82
£nil
Equivalent to
vesting period
Equivalent to
vesting period
2.20%
45.2%
1.27%
2.20%
43.1%
0.75%
Expected volatility was determined by calculating the historical annualised standard deviation of the market price of the shares over a period
of time, prior to the grant, equivalent to the life of the option.
354285_Burberry_finance_29may.indd 133
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Burberry Group plc Annual Report 2011/12 133
Notes to the financial statements continued
25. Employee costs (continued)
The Burberry Senior Executive IPO Share Option Scheme (the IPO Option Scheme)
On 11 July 2002, options in respect of a total of 5,955,198 ordinary shares were granted to executive directors and senior management
under the IPO Option Scheme, with an exercise price equal to the price on flotation, £2.30 per ordinary share.
The options vested in three stages: 33% were exercisable after one year, 33% were exercisable after two years and the remaining 33%
were exercisable after three years. Obligations under this scheme will be met by the issue of ordinary shares of the Company.
Movements in the number of share options outstanding and their weighted average exercise price are as follows:
Outstanding at 1 April
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
Weighted average
exercise price
230.0p
230.0p
230.0p
230.0p
Year to
31 March
2012
110,000
(5,000)
105,000
105,000
Weighted average
exercise price
230.0p
230.0p
230.0p
230.0p
Year to
31 March
2011
125,000
(15,000)
110,000
110,000
The weighted average share price at the respective exercise dates in the year was £12.91 (2011: £11.09).
Share options outstanding at the end of the year have the following terms and exercise prices:
Option term
11 July 2002 – 11 July 2012
Total
Exercise
price
230.0p
Number of shares
under option as
at 31 March
2012
Number of shares
under option as
at 31 March
2011
105,000
105,000
110,000
110,000
The Burberry Group plc Executive Share Option Scheme 2002
During previous financial years, options were granted to executive directors and senior management in respect of ordinary shares
in the Company under the Executive Share Option Scheme.
The options vested in three stages: 33% were exercisable after one year, 33% were exercisable after two years and the remaining 33%
were exercisable after three years. The vesting of these share options was dependent on continued employment over the vesting period.
Movements in the number of share options outstanding and their weighted average exercise prices are as follows:
Outstanding at 1 April
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
Weighted average
exercise price
285.3p
258.0p
295.6p
295.6p
Year to
31 March
2012
150,252
(41,085)
109,167
109,167
Weighted average
exercise price
307.6p
351.7p
285.3p
285.3p
Year to
31 March
2011
226,290
(76,038)
150,252
150,252
The weighted average share price at the respective exercise dates in the year was £16.00 (2011: £9.56).
Share options outstanding at the end of the year have the following terms and exercise prices:
Option term
13 June 2003 – 12 June 2013
2 August 2004 – 1 August 2014
Total
Exercise
price
258.0p
378.0p
Number of shares
under option as
at 31 March
2012
Number of shares
under option as
at 31 March
2011
75,001
34,166
109,167
116,086
34,166
150,252
134 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
25. Employee costs (continued)
All Employee Share Plan
Employees are offered awards of ordinary shares in the Company at a nil exercise price under an All Employee Share Plan. On 1 June 2011
and 18 July 2011, 106,080 and 53,430 ordinary shares respectively were granted under this scheme (2011: 266,880). All awards vest after
three years and the vesting of these share awards is dependent on continued employment over the vesting period.
The fair values of the awards were determined as £13.26 and £15.38 respectively. The key factors used in determining the fair value
were as follows:
Share price at grant date
Exercise price
Life of award
Expected volatility
Risk free interest rate
1 June
2011
£13.26
£nil
18 July
2011
£15.38
£nil
Equivalent to
vesting period
Equivalent to
vesting period
45.2%
1.43%
44.9%
1.11%
Expected volatility was determined by calculating the historical annualised standard deviation of the continuously compounded rates of return
on the shares over a period of time, prior to the grant, equivalent to the life of the award.
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Granted during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
Year to
31 March
2012
268,060
159,510
(61,770)
(16,880)
348,920
33,980
Year to
31 March
2011
81,103
266,880
(45,780)
(34,143)
268,060
47,800
Share options were exercised on a regular basis during the period. The weighted average share price during the period was £13.31
(2011: £9.63).
Share awards outstanding at the end of the year have the following terms:
Term of the award
12 July 2002 – 18 July 2082(1)
30 August 2003 – 18 July 2082(1)
20 August 2004 – 18 July 2082(1)
1 September 2005 – 18 July 2082(1)
1 June 2010 – 18 July 2082(1)
1 June 2011 – 18 July 2082(1)
Total
(1) No date has been specified when awards lapse. The cessation date of the trust in which the awards are held is 18 July 2082.
Number of
awards as at
31 March
2012
Number of
awards as at
31 March
2011
5,600
7,550
11,950
8,880
181,740
133,200
348,920
8,000
9,950
17,250
12,600
220,260
–
268,060
354285_Burberry_finance_29may.indd 135
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Burberry Group plc Annual Report 2011/12 135
Notes to the financial statements continued
25. Employee costs (continued)
The Burberry Co-Investment Plan
Executive directors and certain senior management are able to defer receipt of all or part of their annual bonus and invest it in ordinary shares
in the Company with up to a 2:1 match based on individual and Group performance during the year. The matching share awards do not vest
for three years and are forfeited if the executive leaves within that period. The exercise price of these share awards is £nil. On 7 June 2011
and 14 June 2011, 1,749,005 and 67,502 ordinary shares respectively were awarded (2011: 2,283,340).
Awards granted in the years ended 31 March 2011 and 31 March 2012 are subject to secondary performance conditions.
Awards granted in June 2010 will vest in full only if the Group achieves at least 7% per annum adjusted PBT growth over the three
year vesting period. A proportion of the award (25%) may vest if growth in adjusted PBT achieves 5% per annum. Vesting occurs on a
straight-line basis between the threshold and the maximum. None of the award shall vest if adjusted PBT growth is below 5% per annum.
Awards granted in June 2011 will vest in full only if the Group achieves at least 10% per annum adjusted PBT growth over the three
year vesting period. A proportion of the award (25%) may vest if growth in adjusted PBT achieves 5% per annum. Vesting occurs on a
straight-line basis between the threshold and the maximum. None of the award shall vest if adjusted PBT growth is below 5% per annum.
The fair values of the awards granted on 7 June 2011 and 14 June 2011 were determined as £13.12 and £13.20 respectively.
The key factors used in determining the fair values were as follows:
Share price at grant date
Exercise price
Life of award
Expected volatility
Risk free interest rate
7 June
2011
£13.12
£nil
14 June
2011
£13.20
£nil
Equivalent to
vesting period
Equivalent to
vesting period
45.1%
1.44%
45.2%
1.36%
Expected volatility was determined by calculating the historical annualised standard deviation of the continuously compounded rates of return
on the shares over a period of time, prior to the grant, equivalent to the life of the award.
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Granted during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
The weighted average share price at the respective exercise dates in the year was £13.23 (2011: £8.20).
Share awards outstanding at the end of the year have the following terms:
Year to
31 March
2012
3,958,168
1,816,507
(20,975)
(1,657,460)
4,096,240
–
Number of
awards as at
31 March
2012
-
2,279,733
1,749,005
67,502
4,096,240
Term of the award
3 June 2008 – 2 June 2013
8 June 2010 – 7 June 2015
7 June 2011 – 6 June 2016
14 June 2011 – 13 May 2016
Total
136 Burberry Group plc Annual Report 2011/12
Year to
31 March
2011
1,874,026
2,283,340
(9,507)
(189,691)
3,958,168
–
Number of
awards as at
31 March
2011
1,678,435
2,279,733
-
-
3,958,168
354285_Burberry_finance_29may.indd 136
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Notes to the financial statements continued
25. Employee costs (continued)
The Burberry Exceptional Performance Share Plan
In 2007, awards in respect of a total of 4,210,000 ordinary shares were made to executive directors and senior management under
the Exceptional Performance Share Plan which was introduced as a one-off long-term incentive plan.
The awards vest in two stages: 50% are exercisable after three years and 50% are exercisable after four years. The vesting of these share
awards is dependent on two performance conditions. The award is based 50% on relative TSR and 50% on growth in profits over the three
and four year performance periods to 2010 and 2011. No awards vest unless Burberry’s TSR exceeds the median of the comparator group
or growth in adjusted PBT per share exceeds 50% over the four year performance period to 2010 or 75% over the five year performance
period to 2011. The vesting of these share awards is also dependent on continued employment over the vesting period. The exercise price
of these share awards is £nil.
At 1 April 2011, 1,987,962 share awards were outstanding. Of these awards, 2,812 lapsed and the remaining 1,985,150 were exercised
during the year ended 31 March 2012 at a weighted average share price of £14.86 (2011: £9.22). No more share awards remain outstanding
in relation to the Burberry Exceptional Performance Share Plan.
December 2010 One-Off Grant
On 8 December 2010, options in respect of 850,000 ordinary shares were granted as a one-off award.
The options are due to vest on 1 April 2015. Strategic and financial objectives linked to the long term growth of the Group must be met
in order for 500,000 of the options to vest. The vesting of all of the options is dependent on continued employment for the vesting period.
The exercise price of these share options is £nil.
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Granted during the year
Outstanding at 31 March
Exercisable at 31 March
Share awards outstanding at the end of the year have the following terms:
Term of the award
8 December 2010 – 31 March 2016
Total
Year to
31 March
2012
850,000
–
850,000
–
Year to
31 March
2011
–
850,000
850,000
–
Number of
awards as at
31 March
2012
850,000
850,000
Number of
awards as at
31 March
2011
850,000
850,000
354285_Burberry_finance_29may.indd 137
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Burberry Group plc Annual Report 2011/12 137
Notes to the financial statements continued
26. Business combinations
Year ended 31 March 2012
Burberry Saudi Company Limited
On 19 June 2011, the Group formed Burberry Saudi Company Limited (Burberry Saudi), a company registered in the Kingdom of Saudi
Arabia, with Fawaz Abdulaziz Alhokair & Co SLSC, a third party company registered in the Kingdom of Saudi Arabia. Burberry Saudi will
manage the Burberry retail business within the Saudi Arabian market.
Burberry has a 60% interest in the issued share capital of the company, the majority of the voting rights and the power to appoint
the majority of the directors. Burberry Saudi has been consolidated as a subsidiary as at 31 March 2012. The non-controlling interest
in the consolidated net assets of this company has been identified as a separate component of equity.
On 19 June 2011, the distribution agreement with the existing franchise partner in Saudi Arabia expired, and Burberry Saudi acquired
the Burberry retail business from that franchisee.
Details of the net assets acquired and goodwill are as follows:
Cash consideration
Total purchase consideration
Fair value of net identifiable assets acquired
Goodwill
£m
10.0
10.0
4.3
5.7
The goodwill arising on the acquisition, which is included within intangible assets, is attributable to the acquisition of the Saudi Arabian
business assets and the benefits expected from further expansion in this region. The goodwill recognised relates to equity attributable
to the owners of the company and to the non-controlling interest and is not tax deductible.
The assets and liabilities arising from the acquisition are as follows:
Inventories
Property, plant and equipment
Liabilities
Net identifiable assets acquired
Net identifiable assets acquired attributable to non-controlling interest
The Group incurred transaction costs of £0.1m in respect of the acquisition.
Fair value
£m
1.4
3.0
(0.1)
4.3
1.7
The acquired Saudi Arabian retail assets generated revenues of £9.1m and a profit of £2.7m to the Group for the period from acquisition
to 31 March 2012.
Pro forma full year information
Had the acquisition occurred on 1 April 2011, it would have contributed approximately £1.8m of Group revenue in addition to that
noted above, while the Group operating profit impact in addition to that noted above would have been neutral for the year ended
31 March 2012.
138 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
26. Business combinations (continued)
Year ended 31 March 2011
Burberry (Shanghai) Trading Co., Ltd
On 16 July 2010, the Group entered into an agreement to acquire the Burberry retail and distribution business within China from its
distributor in Hong Kong, Kwok Hang Holdings Ltd. The acquisition allows the Group to further leverage its proven brand in China’s
high growth luxury market.
On 1 September 2010, Burberry (Shanghai) Trading Co., Ltd, a wholly owned Group company incorporated in the People’s Republic
of China, took control of key store assets and inventory across 50 retail stores. Daily operations at 43 of the stores fully transferred
to the Group on that date. The remaining 7 stores had all transferred daily operations by 31 January 2011.
Details of the net assets acquired and goodwill are as follows:
Cash consideration
Deferred consideration(1)
Contribution of share of the Group’s existing China business
Total purchase consideration
(1) A change in assumptions applied to the value of deferred consideration to be paid was made subsequent to initial recognition, but within the measurement period.
This resulted in an increase of £0.9m to goodwill.
The assets and liabilities arising from the acquisition are as follows:
Inventories
Property, plant and equipment
Liabilities
Net identifiable assets acquired
Net identifiable assets acquired attributable to non-controlling interest
Goodwill
Total purchase consideration
£m
39.4
28.2
(1.9)
65.7
Fair value
£m
23.1
6.3
(0.3)
29.1
(4.4)
41.0
65.7
Sparkle Roll Holdings Limited, a non-Group company, retains a 15% economic interest in the Burberry retail and distribution business within
China. Put and call options exist over this economic interest which are exercisable after five years in the case of the call option, and ten years
in the case of the put option. Refer to note 18 for further details of the carrying value of the put option liability.
In total, goodwill of £41.0m arose on the acquisition of the China retail and distribution business and is included within intangible assets.
This is attributable to the benefits expected from further expansion in this region. The goodwill is not tax deductible.
Outflow of cash to acquire business, net of cash acquired:
Cash consideration on acquisition date
Cash consideration post-acquisition
Cash and cash equivalents in subsidiaries acquired
Cash outflow to acquire business
£m
39.4
26.0
–
65.4
Of the total cash outflow disclosed above, £51.9m was paid in the year ended 31 March 2011. The remaining £13.5m was paid
in the year ended 31 March 2012.
Deferred consideration of £2.2m remains outstanding at 31 March 2012 (refer to note 18).
The Group incurred transaction costs of £0.9m in respect of the acquisition.
354285_Burberry_finance_29may.indd 139
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Burberry Group plc Annual Report 2011/12 139
Notes to the financial statements continued
27. Discontinued operations and assets classified as held for sale
In the year to 31 March 2010, the Group announced the restructuring of its Spanish operations. By 31 March 2011, the production of the
local Spanish collection, and related operations had ceased. The Spanish operations have been treated as discontinued for the years ended
31 March 2012 and 31 March 2011, and the results from the discontinued operations have been shown separately from the results of the
Group’s continuing operations.
An analysis of the results of the discontinued Spanish operations is presented below:
Revenue
Cost of sales(1)
Gross profit
Net operating expenses(2)
Operating loss
Net finance charges
Loss before taxation for discontinued operations
Taxation
Loss after taxation for discontinued operations
Year to
31 March
2012
£m
Year to
31 March
2011
£m
–
1.5
1.5
(1.8)
(0.3)
–
(0.3)
–
(0.3)
49.3
(24.8)
24.5
(30.7)
(6.2)
–
(6.2)
–
(6.2)
(1) Cost of sales for the year ended 31 March 2012 results from a provision release due to more effective than anticipated clearance of residual inventory.
(2) Net operating expenses includes a charge of £4.5m (2011: £3.7m) in relation to the write-down of assets held for sale to fair value less cost to sell.
Cash flows generated from the discontinued Spanish operations have been included in the Group consolidated Statement of Cash Flows.
The cash flows relating to the discontinued operations for the years ended 31 March 2012 and 31 March 2011 are:
Net cash inflow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities(1)
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year to
31 March
2012
£m
Year to
31 March
2011
£m
1.3
–
(0.1)
1.2
–
0.1
1.3
3.6
–
(7.9)
(4.3)
–
4.4
0.1
(1) The net cash outflow from financing activities represents the repayment of intercompany loans from Group entities which form part of continuing operations.
The earnings per share attributable to the discontinued Spanish operations for the years ended 31 March 2012 and 31 March 2011 are:
Earnings per share from discontinued operations
– basic
– diluted
Note
8
8
Year to
31 March
2012
Year to
31 March
2011
(0.0)p
(0.0)p
(1.4)p
(1.4)p
Assets classified as held for sale
In September 2010, £17.0m of assets were reclassified to assets held for sale, representing the carrying value of the freehold properties
in Spain. These assets have subsequently been written down to fair value less costs to sell and at 31 March 2012 the carrying value
of the assets is £8.3m (2011: £13.5m). Management remains committed to selling these properties and continues to actively market
them as such.
140 Burberry Group plc Annual Report 2011/12
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Notes to the financial statements continued
28. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation
and are not disclosed in this note. Total compensation in respect of key management, who are defined as the Board of Directors and certain
members of senior management, is considered to be a related party transaction.
The total compensation in respect of key management for the year was as follows:
Salaries and short-term benefits
Post-employment benefits
Share based compensation
Total
Year to
31 March
2012
£m
10.2
0.2
6.9
17.3
Year to
31 March
2011
£m
9.7
0.3
7.0
17.0
354285_Burberry_finance_29may.indd 141
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Burberry Group plc Annual Report 2011/12 141
Notes to the financial statements continued
29. Principal subsidiaries
Company
EMEA
Burberry Limited
Burberry Italy Retail Limited
The Scotch House Limited(1)
Woodrow-Universal Limited(1)
Burberry France SASU
Burberry (Suisse) SA(1)
Burberry Italy SRL(1)
Burberry (Deutschland) GmbH
Burberry (Austria) GmbH
Burberry Antwerp N.V.
Burberry Czech Rep s.r.o.
Burberry Hungary kft.
Burberry Ireland Limited
Burberry Netherlands BV
Country of incorporation Nature of business
UK
UK
UK
UK
France
Switzerland
Italy
Germany
Austria
Belgium
Czech Republic
Hungary
Ireland
Netherlands
Luxury goods retailer, wholesaler and licensor
Luxury goods retailer
Luxury goods brand and licensor
Textile manufacturer
Luxury goods retailer and wholesaler
Luxury goods retailer
Luxury goods wholesaler
Luxury goods retailer and wholesaler
Luxury goods retailer
Luxury goods retailer
Luxury goods retailer
Luxury goods retailer
Luxury goods retailer
Luxury goods retailer
Burberry Middle East LLC (49%)
United Arab Emirates
Luxury goods retailer and wholesaler
Burberry India Private Limited (51%)
India
Luxury goods retailer and wholesaler
Burberry Saudi Company Limited (60%)
Kingdom of Saudi Arabia
Luxury goods retailer
Spain
Burberry (Spain) S.A.
Burberry (Spain) Retail SL
Americas
Burberry Limited
Burberry (Wholesale) Limited
Burberry Canada Inc
Burberry Brasil Participacoes Ltd
Horseferry Mexico SA de CV
Asia Pacific
Burberry (Shanghai) Trading Co., Ltd
Burberry Asia Limited
Burberry (Singapore) Distribution Company Pte Ltd
Burberry Pacific Pty Ltd
Burberry Korea Limited
Burberry (Taiwan) Co Ltd
Burberry (Malaysia) Sdn. Bhd
Burberry Japan K.K.
Burberry International K.K. (51%)
(1) Held directly by Burberry Group plc.
Spain
Spain
USA
USA
Canada
Brazil
Mexico
China
Hong Kong
Singapore
Australia
Luxury goods retailer and wholesaler - discontinued
Luxury goods retailer
Luxury goods retailer
Luxury goods wholesaler
Luxury goods retailer
Luxury goods retailer
Luxury goods retailer
Luxury goods retailer
Luxury goods retailer and wholesaler
Luxury goods retailer and wholesaler
Luxury goods retailer and wholesaler
Republic of Korea
Luxury goods retailer and wholesaler
Taiwan
Malaysia
Japan
Japan
Luxury goods retailer
Luxury goods retailer
Luxury goods retailer, wholesaler and licensor
Luxury goods retailer
In accordance with Section 410(2)(a) of the Companies Act 2006, the above information is provided solely in relation to principal subsidiaries.
As at 31 March 2012, all principal subsidiary undertakings are wholly owned, except where indicated differently above, and operate
in the country in which they are incorporated with the exception of Burberry Italy Retail Limited, which operates principally in Italy.
All shares held in subsidiary undertakings are ordinary shares, with the exception of Burberry Limited. The Group holds 100% of Burberry
Limited’s ordinary and preference shares. All the subsidiary undertakings have been consolidated as at 31 March 2012. The Group has
a 59% share in profits of Burberry Middle East LLC and has the power to appoint the majority of directors. Non-operating intermediate
holding and financing companies are excluded from the list above. Sparkle Roll Holding Limited, a non-group company, holds a 15%
economic interest in Burberry (Shanghai) Trading Co., Ltd.
Details of all Burberry subsidiaries will be annexed to the next Annual Return of Burberry Group plc to be filed at Companies House.
142 Burberry Group plc Annual Report 2011/12
354285_Burberry_finance_29may.indd 142
29/05/2012 18:38
five year summary
Year to 31 March
Revenue by channel
Retail
Wholesale
Licensing
Total
Revenue by product
Non-apparel
Womenswear
Menswear
Childrenswear/Other
Retail/Wholesale
Licensing
Total
Revenue by destination
Asia Pacific
Europe
Spain
Americas(2)
Rest of the World(2)
Retail/Wholesale
Licensing
Total
Profit by channel
Retail/Wholesale
Licensing
Adjusted operating profit(3)
Put option liability finance charge
Net interest expense
Restructuring costs
Goodwill impairment
Store impairments and onerous lease provisions
Negative goodwill
Relocation of headquarters
Project Atlas costs
Profit/(loss) before taxation
Tax on profit/(loss)
Profit/(loss) after taxation
Margin analysis
Retail/Wholesale gross margin as percentage of
Retail/Wholesale revenue
Retail/Wholesale adjusted operating profit(3) as a
percentage of Retail/Wholesale revenue
Licensing adjusted operating profit(3) as a percentage
of Licensing revenue
Total adjusted operating profit(3) as a percentage of
revenue
2009
£m
629.7
489.2
82.6
2010
£m
748.8
433.6
97.5
Continuing operations
2010(1)
£m
710.1
377.5
97.5
2011
£m
962.3
440.6
98.4
2012
£m
1,270.3
478.3
108.6
1,201.5
1,279.9
1,185.1
1,501.3
1,857.2
£m
366.3
412.8
298.4
41.4
£m
419.6
415.5
288.5
58.8
£m
416.6
373.4
249.4
48.2
£m
563.3
456.6
325.9
57.1
1,118.9
1,182.4
1,087.6
1,402.9
82.6
97.5
97.5
98.4
1,201.5
1,279.9
1,185.1
1,501.3
£m
240.0
379.8
144.5
308.9
45.7
£m
282.7
408.1
107.1
324.8
59.7
£m
282.7
421.8
–
324.7
58.4
£m
457.1
474.6
–
386.5
84.7
1,118.9
1,182.4
1,087.6
1,402.9
82.6
97.5
97.5
98.4
1,201.5
1,279.9
1,185.1
1,501.3
£m
110.1
70.7
180.8
–
(6.2)
(54.9)
(116.2)
(13.4)
1.7
(7.9)
–
(16.1)
11.0
(5.1)
%
52.1
9.8
85.6
15.0
£m
137.7
82.2
219.9
–
(5.1)
(48.8)
–
–
–
–
–
166.0
(83.8)
82.2
%
59.7
11.6
84.3
17.2
£m
137.7
82.2
219.9
–
(5.1)
(3.4)
–
–
–
–
–
211.4
(58.8)
152.6
%
61.0
12.7
84.3
18.6
£m
219.5
81.6
301.1
(3.2)
(3.2)
1.0
–
–
–
–
–
295.7
(83.2)
212.5
%
64.9
15.6
82.9
20.1
£m
689.4
582.5
410.5
66.2
1,748.6
108.6
1,857.2
£m
652.5
552.6
–
434.5
109.0
1,748.6
108.6
1,857.2
£m
286.9
90.0
376.9
(10.2)
(0.7)
–
–
–
–
–
–
366.0
(100.6)
265.4
%
68.1
16.4
82.9
20.3
2008
£m
484.4
426.2
84.8
995.4
£m
289.7
345.2
247.8
27.9
910.6
84.8
995.4
£m
189.1
291.8
161.6
234.8
33.3
910.6
84.8
995.4
£m
135.6
70.6
206.2
–
(6.0)
–
–
–
–
15.1
(19.6)
195.7
(60.5)
135.2
%
58.5
14.9
83.3
20.7
(1) The results for the year to 31 March 2010 have been re-presented to show the results of the discontinued Spanish operations separately.
(2) Revenue amounts reported for 2009 have been restated on the adoption of IFRS 8.
(3) Adjusted for exceptional items.
354285_Burberry_finance_29may.indd 143
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Burberry Group plc Annual Report 2011/12 143
five year summary continued
Year to 31 March
Earnings and dividends
Earnings per share – basic
Earnings per share from continuing operations – basic
Adjusted earnings per share – basic(1)
Earnings per share – diluted
Earnings per share from continuing operations – diluted
Adjusted earnings per share – diluted(1)
Dividend per share (on a paid basis)
Diluted weighted average number of ordinary shares in issue during
the year (millions)
Dividend cover (on a paid basis)(2)
2008
pence
per share
2009
pence
per share
2010
pence
per share
2011
pence
per share
2012
pence
per share
31.3
–
32.4
30.5
–
31.6
11.0
(1.4)
–
30.6
(1.4)
–
30.2
12.0
18.8
35.1
35.9
18.4
34.4
35.1
12.2
47.9
49.3
49.9
46.9
48.3
48.9
15.5
60.4
60.4
62.8
59.3
59.3
61.6
22.0
442.8
2.9
438.1
2.5
441.9
2.9
444.0
3.2
444.3
2.8
2008
£m
197.8
260.0
(13.7)
444.1
130.1
–
–
–
(64.2)
(14.7)
495.3
2008
£m
206.2
–
–
–
–
15.1
(19.6)
201.7
32.2
(19.1)
(0.5)
14.3
(122.6)
(29.1)
28.8
105.7
(48.5)
28.3
2009
£m
283.0
221.2
(24.4)
479.8
33.1
–
–
–
7.6
23.4
543.9
2010
£m
285.8
61.3
(27.0)
320.1
34.9
–
–
–
262.0
(13.5)
603.5
2011
£m
323.4
103.4
(83.1)
343.7
73.1
13.5
3.0
(14.4)
297.9
16.9
733.7
2012
£m
380.7
147.8
(104.6)
423.9
81.2
8.3
2.8
(2.2)
338.3
39.1
891.4
2009
£m
2010
£m
2011
£m
2012
£m
180.8
(54.9)
(116.2)
(13.4)
1.7
(7.9)
–
(9.9)
174.7
2.0
10.7
4.5
55.7
2.1
2.2
242.0
(89.9)
0.1
219.9
(48.8)
299.0
(3.1)
–
–
–
–
–
171.1
60.0
4.2
(11.9)
18.1
87.4
56.2
40.5
425.6
(69.9)
–
–
–
–
–
–
295.9
66.3
1.1
(6.2)
28.3
(58.9)
(11.4)
51.3
366.4
(108.4)
–
379.4
(2.8)
–
–
–
–
–
376.6
98.9
0.3
(5.7)
31.8
(61.8)
(17.6)
60.0
482.5
(153.1)
–
85.5
152.2
355.7
258.0
329.4
As at 31 March
Balance Sheet
Fixed assets and other intangible assets
Working capital (excluding cash and borrowings)
Other long-term liabilities
Net operating assets
Goodwill
Assets held for sale
Investment properties
Deferred consideration for acquisitions
Cash at bank, net of overdraft and borrowings
Taxation (including deferred taxation)
Net assets
Year to 31 March
Cash Flow
Adjusted operating profit from continuing and discontinued
operations(1)
Restructuring costs
Goodwill impairment
Store impairments and onerous lease provisions
Negative goodwill
Relocation of headquarters
Project Atlas costs
Operating profit/(loss) from continuing and discontinued operations
Depreciation, impairment, amortisation and negative goodwill
(Profit)/loss on disposal of fixed assets and similar non-cash charges
Fair value (gains)/losses on derivative instruments
Charges in respect of employee share incentive schemes
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase in payables
Net cash inflow from operations before capital expenditure
Purchase of tangible and intangible assets
Proceeds from sale of property, plant and equipment
Net cash inflow from operations adjusted for
capital expenditure
(1) Adjusted for exceptional items.
(2) Based on adjusted diluted earnings per share.
144 Burberry Group plc Annual Report 2011/12
354285_Burberry_finance_29may.indd 144
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independent auditors’ report
to the members of burberry group Plc
We have audited the parent Company financial statements of Burberry Group plc for the year ended 31 March 2012 which comprise
the Company Balance Sheet and the related notes. The financial reporting framework that has been applied in their preparation
is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
Respective responsibilities of directors and auditors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 94, the directors are responsible for the preparation
of the parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the parent Company financial statements in accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the parent Company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies
with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
Opinion on financial statements
In our opinion the parent Company financial statements:
give a true and fair view of the state of the Company’s affairs as at 31 March 2012;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
and
the information given in the Directors’ Report for the financial year for which the parent Company financial statements are prepared is
consistent with the parent Company financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the Group financial statements of Burberry Group plc for the year ended 31 March 2012.
Andrew Kemp (Senior Statutory Auditor)
For and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London, 22 May 2012
354285_Burberry_finance_29may.indd 145
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Burberry Group plc Annual Report 2011/12 145
company balance sheet
Fixed assets
Investments
Current assets
Debtors receivable within one year
Debtors receivable after one year
Derivative assets maturing after one year
Cash at bank and in hand
Current liabilities
Creditors – amounts falling due within one year
Net current assets
Total assets less current liabilities
Non-current liabilities
Creditors – amounts falling due after more than one year
Derivative liabilities maturing after one year
Provisions for liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital reserve
Hedging reserve
Profit and loss account
Total equity
Note
C
D
D
E
As at
31 March
2012
£m
2,055.3
2,055.3
0.4
994.9
14.7
0.1
As at
31 March
2011
£m
2,023.5
2,023.5
0.4
995.0
9.2
0.5
1,010.1
1,005.1
(336.7)
673.4
2,728.7
(214.2)
790.9
2,814.4
E
(2,092.1)
(2,101.3)
(0.2)
(1.4)
635.0
0.2
202.6
0.9
4.1
427.2
635.0
–
(1.4)
711.7
0.2
192.5
0.9
4.1
514.0
711.7
F
F
F
F
F
F
The financial statements on pages 146 to 150 were approved by the Board on 22 May 2012 and signed on its behalf by:
Sir John Peace
Chairman
Stacey Cartwright
Executive Vice President, Chief Financial Officer
146 Burberry Group plc Annual Report 2011/12
354285_Burberry_finance_29may.indd 146
29/05/2012 18:38
notes to the company financial statements
A. Basis of preparation
Burberry Group plc (‘the Company’) is the parent Company of the Burberry Group. Burberry Group plc is listed on the London Stock
Exchange and its principal business is investment.
Burberry Group is a global luxury goods manufacturer, wholesaler and retailer. Retail/Wholesale revenues are generated by the sale of luxury
goods through Burberry mainline stores, concessions and outlets as well as Burberry franchisees and prestige department stores globally.
Licensing revenues are generated through the receipt of royalties from Burberry’s licensees in Japan and global licensees of fragrances,
eyewear, timepieces and European childrenswear. All of the companies, which comprise Burberry Group, are controlled by the Company
either directly or indirectly.
These financial statements have been prepared on a going concern basis under the historical cost convention, with the exception of those
financial instruments which are included in the financial statements at fair value, and in accordance with applicable accounting standards
in the United Kingdom and the Companies Act 2006.
B. Accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
Share schemes
Employees in Burberry Group (including executive directors) receive certain share incentives relating to Burberry Group plc shares.
The cost of the share incentives is measured with reference to the fair value of the equity instruments awarded at the date of grant.
The Black-Scholes option pricing model is used to determine the fair value of the award made. The impact of performance conditions
is not considered in determining the fair value on the date of grant, except for conditions linked to the price of Burberry Group plc shares,
i.e. market conditions. Vesting conditions which relate to non-market conditions are allowed for in the assumptions about the number
of options expected to vest. The estimate of the number of options expected to vest is revised at each balance sheet date.
The cost of the share based incentives is notionally recharged to the relevant entity via a capital contribution. A corresponding increase
is recognised in equity.
The proceeds received from the exercise of the equity instruments awarded, net of any directly attributable transaction costs, are credited
to share capital and share premium.
Dividend distribution
Dividend distributions to Burberry Group plc’s shareholders are recognised as a liability in the period in which the dividend becomes
a committed obligation. Final dividends are recognised when they are approved by the shareholders. Interim dividends are recognised
when paid.
Investments in Group companies
Investments in Group companies are stated at cost, less any provisions to reflect impairment in value.
Impairment of assets
Assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset’s net realisable value and value-in-use. For the purpose of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (income-generating units).
Deferred tax
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future
have occurred at the balance sheet date.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected
to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax
is measured on an undiscounted basis.
354285_Burberry_finance_29may.indd 147
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Burberry Group plc Annual Report 2011/12 147
notes to the company financial statements continued
B. Accounting policies (continued)
Derivative financial instruments
Financial instruments are reported and measured in accordance with FRS 25 and FRS 26 respectively. The Company used the exemption
not to present FRS 29 disclosures in the notes to the entity financial statements as full equivalent disclosures are presented within
the consolidated financial statements.
Equity swap contracts are marked to market with gains and losses arising on these contracts recognised in the profit and loss account.
Foreign currency transactions
Transactions denominated in foreign currencies are translated into Sterling at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies, which are held at the year end, are translated into Sterling at the exchange
rate ruling at the balance sheet date. Exchange differences on monetary items are recognised in the profit and loss account in the period
in which they arise.
Related party transactions
FRS 8 ‘Related Party Disclosures’ requires the disclosure of the details of material transactions and balances between the reporting entity
and related parties. The Company has taken advantage of the exemption under the terms of FRS 8 not to disclose details of transactions
with entities that are wholly owned subsidiaries.
C. Investments in Group companies
Cost
As at 31 March 2011
Additions
As at 31 March 2012
£m
2,023.5
31.8
2,055.3
The directors believe that the carrying value of the investments is supported by their underlying net assets. The principal subsidiaries
of the Burberry Group are listed in note 29 of the Group financial statements.
D. Debtors
Prepayments
Debtors receivable within one year
Amounts owed by Group companies
Prepayments
Debtors receivable after one year
Total debtors
As at
31 March
2012
£m
0.4
0.4
993.6
1.3
994.9
995.3
As at
31 March
2011
£m
0.4
0.4
993.3
1.7
995.0
995.4
Included in amounts receivable from Group companies are loans of £75.0m (2011: £74.7m) which are interest bearing.
The interest rate earned is based on relevant national LIBOR equivalents plus 1.77%.
E. Creditors
Amounts owed to Group companies
Accruals
Creditors – amounts falling due within one year
Amounts owed to Group companies
Accruals
Creditors – amounts falling due after more than one year
Total creditors
Amounts due to Group companies are unsecured, interest free and repayable on 1 March 2016.
148 Burberry Group plc Annual Report 2011/12
As at
31 March
2012
£m
336.3
0.4
336.7
As at
31 March
2011
£m
214.0
0.2
214.2
2,092.1
2,100.9
–
2,092.1
2,428.8
0.4
2,101.3
2,315.5
354285_Burberry_finance_29may.indd 148
29/05/2012 18:38
notes to the company financial statements continued
F. Capital and reserves
Allotted, called up and fully paid share capital
Ordinary shares of 0.05p (2011: 0.05p) each
As at 1 April 2011
Allotted on exercise of options during the year
As at 31 March 2012
Number
435,811,738
2,956,370
438,768,108
As at 31 March 2012, 30,027 of the 0.05p ordinary shares in issue are held as treasury shares (2011: 77,215).
Reconciliation of movement in Company shareholders’ funds
As at 31 March 2010
Retained profit for the year before dividends paid
Dividends paid
Total recognised loss for the year
Employee share option scheme
– value of share options granted
– exercise of share options
Purchase of shares by ESOP trusts
Sale of shares by ESOP trusts
As at 31 March 2011
Retained profit for the year before dividends paid
Dividends paid
Total recognised loss for the year
Employee share option scheme
– value of share options granted
– exercise of share options
Purchase of shares by ESOP trusts
Sale of shares by ESOP trusts
As at 31 March 2012
Capital
reserve
£m
Profit and loss
account
£m
Share
capital
£m
0.2
Share
premium
£m
186.1
–
–
–
–
–
–
–
–
–
–
–
6.4
–
–
0.9
–
–
–
–
–
–
–
0.2
192.5
0.9
–
–
–
–
–
–
–
–
–
–
–
10.1
–
–
–
–
–
–
–
–
–
Hedging
reserve
£m
4.1
–
–
–
–
–
–
–
4.1
–
–
–
–
–
–
–
550.7
8.7
(67.4)
(58.7)
28.3
–
(6.6)
0.3
514.0
37.9
(95.9)
(58.0)
31.8
–
(60.7)
0.1
£m
0.2
–
0.2
Total
equity
£m
742.0
8.7
(67.4)
(58.7)
28.3
6.4
(6.6)
0.3
711.7
37.9
(95.9)
(58.0)
31.8
10.1
(60.7)
0.1
0.2
202.6
0.9
427.2
4.1
635.0
Profit for the year on ordinary activities, but before dividends payable, was £37.9m (2011: £8.7m). As permitted by Section 408
of the Companies Act 2006, the Company has not presented its own profit and loss account.
The Company has a general authority from shareholders, renewed at each Annual General Meeting, to repurchase a maximum of 10%
of its issued share capital. During the year to 31 March 2012, no ordinary shares were repurchased by the Company under this authority.
The cost of own shares held by the Group has been offset against the profit and loss account, as the amounts paid reduce the profits
available for distribution by the Company. As at 31 March 2012 the amounts offset against this reserve are £41.9m (2011: £2.8m).
In the year to 31 March 2012 the Burberry Group plc ESOP trust has waived its entitlement to dividends of £0.2m (2011: £nil).
The capital reserve consists of the capital redemption reserve arising on the purchase of own shares.
354285_Burberry_finance_29may.indd 149
29/05/2012 18:38
Burberry Group plc Annual Report 2011/12 149
notes to the company financial statements continued
G. Dividends
Prior year final dividend paid 15.00p per share (2011: 10.50p)
Interim dividend paid 7.00p per share (2011: 5.00p)
Total
Year to
31 March
2012
£m
65.4
30.5
95.9
Year to
31 March
2011
£m
45.7
21.7
67.4
A final dividend in respect of the year to 31 March 2012 of 18.00p (2011: 15.00p) per share, amounting to £79.0m (2011: £65.4m),
has been proposed for approval by the shareholders at the Annual General Meeting subsequent to the balance sheet date.
The final dividend has not been recognised as a liability at the year end and will be paid on 2 August 2012 to shareholders
on the register at the close of business on 6 July 2012.
H. Financial guarantees
Burberry Group plc, together with Burberry Limited, Burberry Treasury Limited, Burberry Asia Limited, Burberry (Wholesale) Limited (US)
and Burberry Limited (US) make up the Guarantor Group for a £300m multi-currency revolving facility agreement which commenced
28 March 2011 and matures 30 June 2016. Interest is charged on this facility at LIBOR plus 0.90% on drawings less than £100m,
at LIBOR plus 1.05% on drawings between £100m and £200m, and at LIBOR plus 1.20% on drawings over £200m.
The fair value of the financial guarantee as at 31 March 2012 is £nil (2011: £nil).
A potential liability may arise in the future if one of the Group members defaults on the loan facility. Each guarantor,
including Burberry Group plc, would be liable to cover the amounts outstanding, including principal and interest elements.
I. Audit fees
The Company has not been recharged audit fees of £0.1m for the current year which are borne by Burberry Limited (2011: £0.1m).
150 Burberry Group plc Annual Report 2011/12
354285_Burberry_finance_29may.indd 150
29/05/2012 18:38
Shareholder information
General shareholder enquiries
Enquiries relating to shareholdings, such as the transfer of
shares, change of name or address, lost share certificates
or dividend cheques, should be referred to the Company’s
Registrar, Equiniti, using the details below:
Dividends
Dividends can be paid by BACS directly into a UK bank
account, with the tax voucher being sent to the shareholder’s
address. A dividend mandate form is available from Equiniti
or at shareview.co.uk.
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Tel: 0871 384 2839. Calls to this number are charged at
8p per minute from a BT landline, other telephony provider
costs may vary. Lines are open 8.30am to 5.30pm,
Monday to Friday.
Please dial +44 121 415 7047 if calling from outside the
UK or see help.shareview.co.uk for additional information.
American Depositary Receipts
Burberry has a sponsored Level 1 American Depositary
Receipt (ADR) programme to enable US investors to
purchase ADRs in US Dollars. Each ADR represents
two Burberry ordinary shares.
For queries relating to ADRs in Burberry, please use the
following contact details:
Deutsche Bank Trust Company Americas
c/o American Stock Transfer & Trust Company
Peck Slip Station
PO Box 2050
New York, NY 10272-2050
Tel: toll free within the US: +1 800 301 3517
Tel: International: +1 (718) 921 8137
Email enquiries: DB@amstock.com
Annual General Meeting
Burberry’s Annual General Meeting will be held on Thursday,
12 July 2012 at 9.30am at the offices of Slaughter and May:
One Bunhill Row
London
EC1Y 8YY
The Notice of Meeting, together with details of the
business to be conducted at the meeting, is available
on the Company’s website at burberryplc.com.
The voting results for the 2012 Annual General
Meeting will be accessible on the Company’s website
at burberryplc.com shortly after the meeting.
Record date:
Final date for return of DRIP mandate forms: 12 July 2012
Payment date:
Interim dividend payable:
2 August 2012
January 2013
6 July 2012
The ADR local payment date will be approximately five
business days after the proposed dividend payment date
for ordinary shareholders.
Dividends payable in foreign currencies
Equiniti are able to pay dividends to shareholders in over 30
countries worldwide through the Overseas Payment Service.
An administrative fee will be deducted from each dividend
payment. Further details can be obtained from Equiniti
or online at shareview.co.uk.
Dividend Reinvestment Plan
The Company’s Dividend Reinvestment Plan (DRIP) enables
shareholders to use their dividends to buy further Burberry
shares. Full details of the DRIP can be obtained from Equiniti.
If shareholders would like their final 2012 and future dividends
to qualify for the DRIP, completed application forms must be
returned to Equiniti by 12 July 2012.
Duplicate accounts
Shareholders who have more than one account due to
inconsistency in account details may avoid duplicate mailings
by contacting Equiniti and requesting the amalgamation of
their share accounts.
Electronic communication
Shareholders may at any time choose to receive all
shareholder documentation in electronic form via the
internet, rather than in paper format. Shareholders who
decide to register for this option will receive an email
each time a shareholder document is published on the
internet. Shareholders who wish to receive documentation
in electronic form should register online at shareview.co.uk.
Equiniti offers a range of shareholder information and services
online at shareview.co.uk. A textphone facility for those with
hearing difficulties is available by calling: 0871 384 2255.
Calls to this number are charged at 8p per minute from a BT
landline, other telephony provider costs may vary. Lines are
open 8.30am to 5.30pm, Monday to Friday. Please call
+44 121 415 7028 if calling from outside the UK.
Burberry Group plc Annual Report 2011/12 151
Financial calendar
First quarter trading update
Annual General Meeting
First half trading update
Interim results announcement
Third quarter trading update
Second half trading update
Preliminary results announcement
11 July 2012
12 July 2012
11 October 2012
7 November 2012
15 January 2013
17 April 2013
21 May 2013
Unauthorised brokers (boiler room scams)
Shareholders are advised to be very wary of any unsolicited
advice, offers to buy shares at a discount or offers of free
company reports. These are typically from overseas-based
‘brokers’ who target UK shareholders offering to sell them
what often turn out to be worthless or high-risk shares in US
or UK investments. These operations are commonly known
as boiler rooms.
Registered office
Burberry Group plc
Horseferry House
Horseferry Road
London
SW1P 2AW
Registered in England and Wales
Registered Number 03458224
burberryplc.com
Share dealing
Burberry Group plc shares can be traded through most
banks, building societies or stock brokers. Equiniti offers
a telephone and internet dealing service. Terms and
conditions and details of the commission charges are
available on request.
For telephone dealing please telephone 08456 037 037
between 8.00am and 4.30pm, Monday to Friday, and
for internet dealing visit shareview.co.uk/dealing.
Shareholders will need their reference number which
can be found on their share certificate.
ShareGift
Shareholders with a small number of shares, the value
of which makes them uneconomic to sell, may wish to
consider donating their shares to charity through ShareGift,
a donation scheme operated by The Orr Mackintosh
Foundation. A ShareGift donation form can be obtained
from Equiniti. Further information is available at sharegift.org
or by telephone on 0207 930 3737.
Share price information
The latest Burberry Group plc share price is available
on the Company’s website at burberryplc.com.
If you receive any unsolicited investment advice:
Make sure you get the correct name of the person
and organisation
Check that they are properly authorised by the FSA
before getting involved by visiting: fsa.gov.uk/register/
Report the matter to the FSA either by calling
0845 606 1234 or visiting: fsa.gov.uk/pages/
consumerinformation
If the calls persist, hang up.
If you deal with an unauthorised firm, you will not be
eligible to receive payment under the Financial Services
Compensation Scheme. The FSA can be contacted by
completing an online form at fsa.gov.uk/Pages/Doing/
Regulated/Law/Alerts/form.shtml.
Details of any share dealing facilities that the company
endorses will be included in company mailings.
More detailed information can be found on the FSA website
at fsa.gov.uk/pages/consumerinformation.
Website
This Annual Report and other information about Burberry,
including share price information and details of results
announcements, are available on the Company’s website
at burberryplc.com.
Disclaimer
The purpose of this document is to provide information to the members of Burberry Group plc. This document contains certain statements that are forward-looking
statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those
of our officers, directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and
the business we operate. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ
materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and unless
otherwise required by applicable law the Company undertakes no obligation to update or revise these forward-looking statements. Nothing in this document should
be construed as a profit forecast. The Company and its directors accept no liability to third parties in respect of this document save as would arise under English
law. This document does not constitute an invitation to underwrite, subscribe for or otherwise acquire or dispose of any Burberry Group plc shares, in the UK, or in
the US, or under the US Securities Act 1933 or any other jurisdiction.
152 Burberry Group plc Annual Report 2011/12
Executive Team
Executive directors
Angela Ahrendts
Chief Executive Officer
Stacey Cartwright
Executive Vice President
Chief Financial Officer
Senior Management
Christopher Bailey
Chief Creative Officer
John Douglas
Chief Technology Officer
Fabrizio Fabbro
Senior Vice President
Product Development
Alessandro Fabrini
Senior Vice President
Licensing
Carol Fairweather
Senior Vice President
Group Finance
Emilio Foa
Chief Financial Officer, Europe
Senior Vice President
Emerging Markets
Marco Gentile
Chief Operating Officer, Europe
Senior Vice President
Southern Europe
Stephen Gilbert
Senior Vice President
Architecture
Jan Heppe
Chief Operations Officer, Americas
William Kim
Senior Vice President
Retail, Americas
Donald Kohler
Senior Vice President
Planning
Andrew Maag
President, Europe
Michael Mahony
Chief Corporate Affairs Officer
General Counsel
Sarah Manley
Chief Marketing Officer
Matt McEvoy
Senior Vice President
Strategy, New Business Development
& Licensing
Karin Ong
Chief Operations Officer, Asia Pacific
Pascal Perrier
President, Asia Pacific
Paul Price
Chief Merchandising Officer
Steve Sacks
Chief Customer Officer
Reg Sindall
Executive Vice President
Corporate Resources
Mark Taylor
Chief People Officer
Eugenia Ulasewicz
President, Americas
Burberry Group plc Annual Report 2011/12 153
154 Burberry Group plc Annual Report 2011/12
Burberry Group plc Annual Report 2011/12 155
156 Burberry Group plc Annual Report 2011/12
Burberry Group plc Annual Report 2011/12 67
Burberry.com