annual report 2016/17
Annual report
2016/17
2016/17 Annual Report
Table of
contents
Strategic Report
Introduction
Board and Governance
68
Board of Directors
10
12
Chairman’s Letter
70
Corporate Governance Report
Chief Creative and Chief Executive Officer’s Letter
87
Directors’ Remuneration Report
112 Directors’ Report
Financial Statements
118 Statement of Directors’ Responsibilities
119
Independent Auditor’s Report to the Members
of Burberry Group plc
125 Group Income Statement
126 Group Statement of Comprehensive Income
127 Group Balance Sheet
128 Group Statement of Changes in Equity
129 Group Statement of Cash Flows
129 Analysis of Net Cash
130 Notes to the Financial Statements
177 Five Year Summary
179
Independent Auditor’s Report to the Members
of Burberry Group plc
182 Company Balance Sheet
183 Company Statement of Changes in Equity
184 Notes to the Company Financial Statements
190 Shareholder Information
Burberry Group Overview
20
Brand Highlights
22
Business Model
24
Channel Mix
25
Regional Mix
26
Product Mix
28
Key Performance Indicators
30 Market Overview
Key Strategies
34
Introduction: Driving Growth and Productivity
36
Product Focus
38
Productive Space
40
E-commerce Leadership
42 Operational Excellence
44
Inspired People
Responsibility
48
Responsibility
Performance
54 Group Financial Review
59 Capital Allocation Framework
60
Principal Risks
3
4
2016/17 Annual Report
Financial
Highlights
Revenue (Year to 31 March)
£2,766m
Adjusted profit before tax (Year to 31 March)
£462m
2017
2016
2015
2014
2013
2,766
2,515
2,523
2,330
1,999
2017
2016
2015
2014
2013
Profit before tax (Year to 31 March)
Net cash (As at 31 March)
£395m
£809m
2017
2016
2015
2014
2013
395
416
445
444
351
2017
2016
2015
2014
2013
Adjusted diluted EPS (Year to 31 March)
Dividend per share (Year to 31 March)
77.4p
38.9p
2017
2016
2015
2014
2013
77.4
69.9
76.9
75.4
70.0
2017
2016
2015
2014
2013
Adjusted diluted EPS is stated before adjusting items.
Reported diluted EPS 64.9p (2016: 69.4p)
Adjusted measures, underlying performance, comparable sales, lease adjusted net debt and free cash flow are defined
on page 54.
5
462
421
456
461
428
809
660
552
403
297
38.9
37.0
35.2
32.0
29.0
Strategic Report
10 Chairman’s Letter
47 Responsibility
12 Chief Creative and Chief Executive Officer’s letter
54 Group Financial Review
19
Burberry Group Overview
59
Capital Allocation Framework
33 Key Strategies
60
Principal Risks
Strategic Report
Strategic Report
Introduction
This is Burberry’s Strategic Report for the financial year ending 31 March 2017.
The Report sets out information on the Burberry brand, business operations,
strategy, people and responsibility activities.
The following messages from Sir John Peace and Christopher Bailey highlight
Burberry’s performance during the year and the outlook for the Company.
9
Strategic Report – Introduction
Chairman’s
Letter
Good early progress against Burberry’s ambitious plans.
As Carol Fairweather and John Smith had signalled
their intention to step down as Chief Financial Officer
and Chief Operating Officer respectively, focus was
also on the succession of these roles, with the decision
to combine them to align with the change programme.
The Board unanimously supported the appointment of
Marco Gobbetti as Chief Executive Officer who will join
the Board on 5 July 2017 (with Christopher transitioning
to his new role at that time), and Julie Brown who joined
the Board as Chief Operating and Financial Officer on
18 January 2017. The Board believes that the combination
of Christopher’s creative talent and vision for Burberry
and Marco’s extensive skills in luxury and retail, as
well as Julie’s financial and commercial track record,
will provide strong leadership for the next phase of
Burberry’s evolution.
The Board would like to thank Carol Fairweather for her
immense contribution to Burberry over the past ten years,
and John Smith for his contribution to Burberry over the
past seven years, first as a non-executive director and
latterly as Chief Operating Officer. We wish them all the
best for the future.
Financial performance and shareholder returns
As a whole, the luxury sector has continued to remain
challenging during the year, with some signs of
improvement during the second half. We have made
strategic long-term choices to strengthen the brand
and reposition Burberry for growth over time, and good
progress with the implementation of our programme
including the establishment of our five key pillars to
underpin our growth and productivity agenda. More
detail on our progress is set out in Christopher’s letter
and in this Report.
Burberry has delivered 2016/17 revenues of £2.8bn
(down 2% underlying), and adjusted profit before tax of
£462m (up £42m and down 21% underlying). This was in
part impacted by a decrease in licensing profit due to the
planned expiry of our Japanese licences and other actions
we have taken to build and reinforce our brand positioning.
We also delivered the planned £20m of cost savings in
FY 2017. This is expected to build to c. £50m in FY 2018
and is on track to deliver the target of at least £100m
annualised in FY 2019.
Sir John Peace
Chairman
Last year I highlighted the fundamental changes taking
place in the luxury sector and in consumer behaviour.
These were influenced by a challenging global environment,
which had impacted the performance of the sector as a
whole, as demand slowed sharply in many of Burberry’s
key markets. To stay ahead of these changes and to
create future value for shareholders, we announced an
acceleration of our productivity and efficiency agenda,
particularly looking at our ways of working. We identified
significant future organic revenue growth opportunities
and a programme of actions to deliver at least £100m of
annualised cost savings by FY 2019.
The Board also considered with Christopher Bailey, the
shape of the leadership team required to maximise our
growth opportunities and to successfully implement these
plans. It was concluded that there was a need for a new
chief executive with strong luxury retail experience to lead
on the commercial, operational and financial elements of
the business, who could partner closely with Christopher,
who would continue his leadership of the brand and design
elements of the business as President and Chief Creative
Officer. Since taking on the combined role of Chief Creative
and Chief Executive Officer, Christopher has made
significant progress against a backdrop of challenging
market conditions. The Board is appreciative of his efforts
in working with the Board to identify a new chief executive
to partner with him on the execution of our growth plans.
10
Strategic Report – Introduction
Governance and diversity
The Board seeks to operate to the highest standards
of corporate governance. The work of the Board and its
Committees during the year, along with the assessment
of its performance, is set out in the Corporate Governance
Report on pages 70 to 86. Burberry continues to support
diversity in all its forms across the organisation including
the Board. While all Board appointments are made on
merit, the Board continues to believe in the importance of
a diverse Board and has always had strong gender diversity
amongst its membership, including at executive level. The
Board will continue to monitor diversity, including across
the business, and to take such steps as it considers
appropriate to maintain its position as a meritocratic
and diverse business.
Looking ahead
To conclude, this has been an important year of change
for Burberry, not only due to macro trends but also the
way that Burberry operates as a business. Looking ahead
to 2017/18, we will continue to focus on our brand, our
products and the execution of our key strategies. Although
there is still much to be done as Burberry continues its
multi-year programme, the Board firmly believes that
the new leadership team coupled with the actions we
are taking, will significantly enhance our ability to deliver
long-term sustainable growth.
Finally, I would like to thank all of our people for their hard
work and dedication, particularly during this time of change
for Burberry. I would also like to thank the Board for its hard
work and commitment to Burberry, and to thank you, our
shareholders, for your support over the past 12 months.
The Group ended the year with a strong cash balance
of £809m, up £149m year-on-year after £97m of share
buyback and £164m of dividends. Consequently, the
Board has recommended a 5% increase in the full year
dividend to 38.9p, in line with our progressive dividend
policy resulting in a 50% pay-out ratio based on adjusted
earnings per share. This reflects the Board’s confidence
in the future growth of the business.
Our approach to capital allocation is based on a framework
which defines our priorities for uses of cash, underpinned
by our principle to maintain a strong balance sheet with
solid investment grade credit metrics. This underlines our
commitment to increasing shareholder returns over time,
which remains a key priority for the Board.
Over the past five years, Burberry has returned around
£700m to shareholders through dividends, and in April 2017
completed £100m of a £150m announced share buyback.
A further share buyback of £300m will be completed
in FY 2018, in addition to the £50m already announced.
This is inclusive of the distribution of the Coty upfront sum.
Other Board developments
The composition of the Board has evolved significantly
over the past few years with the appointment of four new
non-executive directors and one longer-serving Board
member stepping down. Further changes are planned
over the coming year. The aim is to continue to refresh the
Board while ensuring stability and continuity, particularly
in the context of significant management change.
Following a previous review of the Board Committees,
changes were implemented during the year. This
included the appointment of Jeremy Darroch as Chair
of the Audit Committee and Fabiola Arredondo as Chair
of the Remuneration Committee, as well as changes to
the composition of those Committees.
People and pay
Our new Remuneration Policy will be presented to
shareholders for their vote at our upcoming Annual General
Meeting (AGM), and so our Remuneration Committee Chair
Fabiola Arredondo has been meeting with our shareholders
and consulting with them on the proposed Policy. You can
read more about the Policy in the Directors’ Remuneration
Report on pages 87 to 111.
11
Strategic Report – Introduction
Chief Creative and Chief
Executive Officer’s Letter
2016/17 was a foundational year for Burberry, in an environment that remained
challenging for luxury – although with sector dynamics improving in the second half.
Against this backdrop, we continued to elevate our luxury retail and digital business,
and began implementing wide-ranging changes for the future.
Alongside this more moderate growth outlook, we
anticipate the industry will be shaped by different
dynamics in the years ahead. Our customer is evolving
rapidly, prioritising more distinctive experiences, more
personal relationships with brands and greater product
innovation. The influence of digital technology is extending
still further across every aspect of what we do – from
production techniques to the customer experience, in every
channel. And demographic changes, from the maturing
of millennials to the intensification of wealth in cities,
mean we must keep developing and tailoring how we
think and work to stay ahead.
Against this backdrop, we continued last year to take
actions to elevate our luxury retail and digital business,
strengthen our brand and reposition Burberry for growth,
as we maintained our focus on maximising long-term
shareholder value. In addition to our ongoing actions in
wholesale and licensing, this included our announcement
last May of a multi-year programme to accelerate our
productivity and efficiency agenda, having identified
significant opportunities across our existing channels,
products and regions, and our ways of working. We
touched on these in our last report, and have since
distilled them into comprehensive plans covering five
key areas: Product Focus; Productive Space; E-commerce
Leadership; Operational Excellence and Inspired People,
the detail of which I will turn to shortly.
To deliver on this ambitious programme we have also
strengthened our executive leadership team with the
extensive luxury experience of Marco Gobbetti, who will
take on the role of Chief Executive Officer in July 2017,
and the transformation expertise of Julie Brown, our new
Chief Operating and Financial Officer. And we have made
further appointments over recent months to complement
and enhance the existing skills of our senior team, including
in key areas such as design, merchandising, technology
and brand experience.
As such, the scope and scale of the changes we are
making to our business are significant, and it will take
time to realise their full benefits, particularly in respect
of revenue growth. But our progress with laying the
foundations for the future is encouraging.
Christopher Bailey
Chief Creative and Chief Executive Officer
With recent estimates suggesting a broadly flat
performance in calendar 2016, the subdued result from
the sector as a whole reflected fundamental shifts that
have been shaping the industry over the past few years,
including slowing Chinese consumption, reduced scope
for space expansion and less pricing flexibility. The impact
of these trends was exacerbated during the early part of
the year by macro factors such as sluggish developed and
developing economies, and consumer unease and travel
disruption linked to geopolitical events.
However, we also began to see clear signs of recovery in
the industry towards the end of the year, as the Chinese
consumer rallied, Continental Europe improved and the
UK continued to enjoy strong tourism with the sustained
weakness of sterling following the Brexit vote. These
contributed to an improved sector performance in calendar
Q4, following nearly two years in flat or negative territory.
Our own performance was consistent with these
broader trends.
While these more encouraging signs have continued
into the start of 2017, some challenges remain – not
least for us given the uneven performance of the US
and Hong Kong markets, both key for Burberry. As such,
the outlook for the sector is mixed, with industry experts
continuing to anticipate more tempered growth in the
medium term, compared with the historic highs of the
post-financial crisis years.
12
Strategic Report – Introduction
Performance summary
Before turning to our renewed productivity and efficiency
agenda, let me first summarise our performance
for 2016/17.
Revenue was £2.8bn for the year, down 2% underlying,
with retail outperforming at up 3% overall and up
1% on a comparable store sales basis. A notably
strong performance in EMEIA, driven by the UK, and an
acceleration in mainland China were offset by continued
challenging conditions in other markets including the
US and Hong Kong, as well by the impact of our ongoing
actions to build and reinforce our luxury brand positioning
for the future. This included the loss of licensing income as
we build our direct operations in Japan, the rationalisation
of wholesale distribution globally, including in Beauty,
and actions to protect the brand in a highly promotional
environment in the US.
With adjusted profit before tax down 21% underlying to
£462m, these factors weighed on the bottom line – although
their impact was partially offset by the delivery of £20m of
planned cost efficiencies in the year, and our plans are on
track for at least £100m by 2018/19.
We ended the year with a strong net cash position, up
£149m to £809m, and we increased the full year dividend
to 38.9p, up 5%. In April we completed £100m of a £150m
announced share buyback. A further share buyback of
£300m is to be completed in 2017/18, in addition to the
£50m already announced. This reflects the Board’s
confidence in the growth prospects for the business and
its ongoing commitment to maintaining a strong balance
sheet with solid investment grade metrics.
While we actively managed the business through
near-term market dynamics during the year, we also
continued to take actions to position it more strongly
for the long term. As noted above, this included starting
to implement a wide-ranging productivity and efficiency
programme to enhance future growth. While we are still
early in this process, progress across its five areas of
focus underpinned a number of improvements through
the year – from the outperformance of fashion and strong
growth in leather goods, to improved mainline retail
conversion and customer retention, to the delivery of
enhanced efficiencies. These initial results give us real
confidence for the future.
Product Focus
The first pillar in this programme is to move from product
breadth to product focus. This will allow the customer
to connect more readily with the creativity, craft and
storytelling that define and differentiate our offer. With
significant scope to simplify our assortments, amplify the
excitement in our products across price points and tailor
our offer more effectively to the needs of the customer
in different locations, we began to make changes in the
year to unlock this opportunity.
Building a more strategic approach to drive outperformance
in our core categories has been a central focus, with
comprehensive plans now developed for the product areas
we have identified as having the greatest growth potential
for the coming years. The first area in which we have begun
to implement this new approach is bags, with full price
sales up 16% in the year. In line with our evolved strategy
for the category, this was driven both by new launches such
as the Bridle and Buckle bags, as well as increasing novelty
in our more established styles. While we are still at the
early stages of our plans for bags, this strong initial uplift
is illustrative of the benefits we expect to build across other
areas over time, with a pipeline of categories to follow.
The second key area of progress is how we are evolving
our merchandising approach, with particular emphasis
on cultivating the local customer – a key opportunity for
us. Our move to one Burberry label globally, together with
reducing our assortments by 15 to 20% over the year, have
been fundamental steps in creating the conditions to realise
this opportunity. Then, within this significantly simplified
assortment, we have implemented new tools and ways
of working that mean we are more effectively tailoring our
assortments to the individual needs of stores in different
locations – from climate, to customer profile. Finally, this
more streamlined approach is also allowing us to give
far greater visibility to the fashion and newness that is
so critical to building loyalty and repeat custom. This
was reflected in the outperformance of fashion during
the year, including the growth of our runway collections
and the successful introduction of our new, lightweight
tropical gabardine.
13
Strategic Report – Introduction
All this is being enabled by changes to how we work
across our product functions, to improve collaboration
and focus from design to delivery. Part of this has been
structural, with the evolution of our organisational model
towards an end-to-end category management approach,
meaning we are building cross-functional teams specific
to the potential of each category, with shared accountability
and KPIs. And we are reinforcing these structural changes
by redesigning our processes as needed, for example
getting local input earlier in the cycle. This is a significant
evolution for us and although the changes will take time
to embed, we are already seeing early benefits across
our business.
The final area I would highlight in respect of product is the
announcement we made just after the year end of a new
partnership with Coty, to accelerate the growth of Beauty.
Consistent with our drive for greater focus across our
product offer, this follows the successful repositioning and
elevation of the business over four years of direct operation.
Looking ahead, we will continue to lead all creative aspects
of Beauty, while benefiting from Coty’s first-class industry
expertise and distribution. We will transition to this new
model in October 2017 and expect the deal to be earnings
accretive from 2018/19.
Productive Space
Our second pillar is to move from new space to productive
space. Following a decade of geographic expansion, our
focus in this next phase is shifting to how we make all our
space more productive – retail and wholesale, online and
offline, and with an emphasis on our full-price channels.
We have significant opportunity here.
The foundation of our activity over the past year has
been our Retail Excellence programme, covering all
aspects of our retail operations, including how we serve
our customers, approach customer cultivation and manage
our stores. Results this year show good early traction.
Within service, we increased our investment in training
and introduced a new service model (‘CLIENT’), and
we are currently embedding a new global customer
feedback programme based on net promoter scores.
These actions helped drive improvements in conversion
and retention globally – with room for continued growth.
Within cultivation, we accelerated the expansion of our
Customer Value Management programme and Private
Client teams to bring more customers closer to our
brand and products through appointments, events and
experiences. This richer, more personalised approach
drove a significant uplift in repeat business in the year.
Finally, within operations, investments in areas including
point of sale systems and new staff scheduling tools drove
improvements as we seek to standardise and simplify
our processes globally. A standout area of progress here
was our omni-channel programme, which has significantly
increased the amount of product available to our online
customers by enabling us to fulfil e-commerce orders
from store stock.
Alongside this initial emphasis on our retail business we are
sharpening our focus on how we inspire customers more
consistently across channels, not least working closely with
our wholesale partners to create a stronger, more carefully
curated Burberry offer globally. With scope to accelerate
this activity to drive still-greater coherence and support
brand perception, this is important work for the future.
E-commerce Leadership
Through early investment and focus, we have established
a leading position in digital in our industry, with more
than 48 million followers on social media worldwide
and a ‘Genius’ ranking from the influential think-tank L2.
We aim to consolidate this leadership position over the
coming years, while deploying it more assertively to drive
online sales on our own website, and through third parties.
From enabling seamless customer journeys across digital
platforms, to using technology to service our customers
in stores, and – critically – linking these online and offline
worlds, we are well-placed to extend our leadership in
this area.
The evolution of Burberry.com was a key focus during
the year. The relaunch of the global site on mobile and
desktop offered customers a richer brand experience at
the same time as better functionality, improving conversion
on both platforms and driving mobile to nearly 60% of our
online traffic. Meanwhile, the redesign of our China site to
tailor it more effectively to local preferences and behaviours
drove increases of around 70% in direct-to-consumer
sales, while giving valuable insights for our overall site
development for the future. Finally, we soft-launched
our new customer app towards the end of the year, ahead
of a global rollout early in 2017/18. This will offer a more
personalised shopping experience for our customers,
both online and by linking them more effectively to our
stores and sales associates globally.
14
Strategic Report – Introduction
We also made further improvements to our inventory
management process as we seek to provide our customers
with a great experience, wherever and however they are
shopping with us. Actions during the year included the
expansion of our single pool of inventory programme,
which allows us to fulfil customer orders from stock in
both hubs and stores; quicker delivery times and enhanced
delivery information for online purchases; and a new,
facilitated returns process.
Finally, the further development of our technology
infrastructure is underpinning many of these early
advances and will be central to delivering on our broader
commitments across all of our strategic priorities over
time. With work well progressed for new digital tools
that will improve how we operate in areas from planning,
to supply chain, to enhancing customer service in stores,
we have an ambitious plan in place to initiate further
changes to our systems over the coming year. This will
prioritise business continuity, security and the rollout of
a common, standardised technology platform globally,
to facilitate efficiency business-wide.
Inspired People
These changes to our systems and processes will be
complemented by an evolution of our overall ways of
working, which form a critical part of our final pillar, Inspired
People. Our focus here is to ensure we have the right skills
and capabilities to meet our strategic objectives, that we
build an organisation that is the right shape and size for
the future, and that our teams are motivated and inspired.
We consider this work fundamental to the successful
delivery of our overall productivity and efficiency ambitions,
and are putting commensurate energy and care into
its execution as we manage our organisation through
a period of significant change.
An important early step has been detailed work to
consider how we might evolve our operating model.
This has focused on how our structure could better
support our aims of driving greater global consistency
while better meeting the needs of our local customers,
as well as simplifying our broader ways of working.
We are currently concluding this work as we design
our organisation for the future, and changes are
already underway.
This emphasis on facilitating experiences across the
physical and digital worlds has long been a focus for
Burberry, because it reflects how our customers live
today. And we have never been more excited about the
opportunities that technology offers in this space, nor
more convinced it must be central to how we evolve our
offer. Whether partnering with leaders in social media to
bring our physical moments to life for online audiences,
or enabling purchases straight from the runway for next
day delivery globally, we see great future potential here.
Finally, we saw particularly strong growth in sales through
third parties over the year, as we enhanced our focus on
developing our relationships in this space. For example,
we collaborated with established offline partners including
Harrods in London, Shinsegae in Korea and Barneys in the
US to develop unique products and experiences for their
websites; we deepened our relationships with pure play
online retailers such as My Theresa and Moda Operandi
through elevated digital experiences for our runway shows
and collections; and we continued to innovate in the area
of social commerce, including making exclusive products
available for purchase via WeChat. These kinds of
partnerships will form an important part of realising
our future e-commerce ambitions and we have exciting
plans ahead.
Operational Excellence
Our fourth pillar, Operational Excellence, is focused on
driving efficiency and investing appropriately to support
our wider growth plans. We have real headroom in this
area, with particular scope to simplify our processes,
procure more effectively, optimise our inventory
management and improve information and technology.
Turning first to processes, following a detailed review of
opportunities to standardise activities across our shared
services we moved towards a simpler, single global way
of working during the year, which drove good initial results.
We intend to accelerate these in 2017/18 with the planned
establishment of Burberry Business Services in Leeds,
a new centre of excellence in which we intend to bring
together our UK and EMEIA shared services teams from
Commercial Procurement, Finance and HR, as well as
some customer service and IT roles.
In procurement, we have begun to make changes that
will enable us to realise significant financial benefits
over time, including through the implementation of a
new technology solution to streamline how we manage
our non-stock purchases and using customer insight
data to target our marketing spend more effectively.
15
Strategic Report – Introduction
In tandem with changes to how we are structured
and how we work, we have also renewed our focus on
culture through a more vibrant engagement programme,
designed to reignite our values of ‘Protect, Explore and
Inspire’ and our distinctive pioneering spirit. From initiatives
designed to immerse every employee in the creativity
and craft behind our products, to new forums that bring
together our global teams around shared priorities, we
continue to explore new ways to inspire and connect our
people. This has been further reinforced by an increased
emphasis on fostering talent at all levels in the Company,
with highlights in the year including the graduation of our
first cohort of Burberry Apprentices and enhanced training
and development opportunities.
The final area I would highlight under Inspired People is our
wider commitment to the places and communities where
we live and work. This is a fundamental part of our culture
as an organisation, and our focus on this area in recent
years has seen us make a real impact, from the reductions
in the environmental impact of our operations that saw us
named last year as a Textiles, Apparel and Luxury Goods
industry leader in the Dow Jones Sustainability Index for
the first time, to the real difference we have made to the
lives of thousands of disadvantaged young people around
the world through the work of the Burberry Foundation.
Encouraged by this progress and with the appetite to
do much more, we finalised plans during the year to bring
together our sustainability work, philanthropic giving and
volunteering under a new and more ambitious Burberry
Responsibility strategy. This is designed to address the
most material social and environmental challenges in and
around our operational footprint and will focus on three
areas: positively impacting the communities that sustain
our industry; creating positive change through all our
products; and achieving carbon neutrality and revaluing
waste. Each of these will have a set of challenging,
public-facing goals and a flagship programme to be
delivered hand-in-hand with expert partners. We look
forward to announcing the detail of this programme soon.
Clear objectives, timelines and success measures
are now in place for each of these five strategies, and
their delivery is being overseen by a newly established
Transformation Management Office, reporting to our
Chief Operating and Financial Officer.
Looking ahead
And so, to close, a final few words about the future.
This will be my last letter to you as Chief Creative and
Chief Executive Officer of Burberry, with Marco assuming
the role of Chief Executive Officer in July. In many ways,
I see one of the highlights of my term as Chief Executive
Officer as the recruitment of Marco to be a partner for me,
and a great leader for this Company. As I transition into
the new role of President and Chief Creative Officer, this
evolved structure will allow me to redouble my focus on
design for this next phase, and on making products and
telling stories that inspire our customers. This is the
essence of who we are, and what we do – and my passion
for making Burberry the most compelling brand, selling the
most beautiful and finely crafted products, in the most
innovative ways has never been stronger.
Over the past three years I have worked with our
leadership team to put Burberry on what we believe
is the right track for the coming years, through a period
of real challenge and change for our business and the
industry as a whole. And, with a clear plan now in place,
I will remain fully engaged with the implementation of
this plan in my new role as I partner with Marco and our
evolved senior leadership team to drive the Company’s
future strategic direction.
So it is with huge optimism that I look forward to the
next chapter for this brand of which I am so proud.
Over the past 161 years, Burberry has never stood still.
In the past 15 years alone, this is a Company that has
transformed from a predominantly licensed business,
to a wholesale business, to our focus today on creating
a leading luxury retail and digital business for this next
phase. Which means we have shown our ability to change
and adapt in the past – and we are now positioned to
do so again for the future.
With so much opportunity identified across our business
and a detailed programme in place to unlock it, we know
this will be challenging work – and it will take time. But we
are also confident of its rewards. With the right team and
ways of working in place, we are ready.
16
17
Strategic Report
Strategic Report
Burberry group
overview
Burberry is a global luxury brand with a distinctive British heritage of design,
innovation and craftsmanship. The following pages set out brand highlights,
the Company’s business and operating models, information relating to its sales
channels, regional presence, products, its key performance indicators and the
external markets in which it operates.
19
brand highlights
Burberry’s brand strength is driven by a unique
combination of heritage and innovation.
Burberry’s ambition is to bring pioneering British creativity and culture to the world by creating beautifully made products,
inspiring with storytelling and shared experiences, delivering impeccable and distinctive services, and continually innovating.
This underpins how Burberry seeks to connect with its customers globally, from runway shows, campaign talent and music
to digital platforms, data and insight.
The Burberry brand continues to resonate strongly with luxury consumers around the world, ending the year as one of the
best known luxury brands globally*.
Key focus areas during the year
Runway shows
In February 2016, Burberry announced plans to change
the way it creates, presents and sells its runway collections
with the launch of its first ‘see-now-buy-now’ runway
show. From September 2016, Burberry replaced its four-
show calendar of two mens and two womens shows, with
two shows. The September and February shows featured
both womenswear and menswear collections. The new
show format and calendar were designed with a global
customer in mind. More than 300 stores had three runway
looks from the February 2017 collection, and the entire
runway collection was available to purchase in 80 stores
globally immediately following the runway show. Both the
September and February collections were also available to
purchase online as the products were shown on the runway.
This industry leading change removed the traditional gap
between the runway show and retail availability.
For the week following the September and February shows,
the public were invited to visit Makers House, the Burberry
show venue. In September, Burberry collaborated with The
New Craftsmen, a selection of Britain’s finest craft makers,
to create a daily changing programme of activities and
installations showcasing their original works. In February,
Burberry partnered with The Henry Moore Foundation to
create an exhibition of Moore’s working methods and the
evolution of his iconic sculptural ideas. The exhibition
featured over 40 of his sculptures, monumental bronzes,
working models, drawings and maquettes.
Alongside this, a programme of events featured acoustic
performances and workshops including life drawing,
maquette and object making, textile printmaking and
textile design. Makers House received over 20,000 visitors
in September and over 30,000 visitors in February.
* According to research by Morar Consulting.
Digital innovation
Burberry is one of the most followed luxury companies
on social media, with over 48 million followers and the
brand is present on 20 social platforms including Twitter,
Instagram, Facebook, Line, Kakao and WeChat. In March
2017, Burberry was ranked Number 1 Digital Leader in the
ContactLab Digital Competitive Map. Thirty-two major
luxury peers were researched for the study and were
rated across web, email, e-commerce and social media.
During the year, Burberry launched WeChat commerce
in China, and created a seamless commerce platform for
Burberry on Facebook Messenger where customers could
purchase Burberry products directly through the social
media platform. Burberry also launched its first commercial
app for iPhone with exclusive and personalised content.
Burberry partnered with Snapchat for its February show
by filming rehearsals, backstage activities and the Show
itself using Snapchat Spectacles.
At the February Makers House show, Burberry built a
portrait studio, a set inspired by Henry Moore’s studio.
Guests were invited to have their portrait taken in the
studio and share the image and GIF (animated image)
on social media. This generated over four million
impressions on social media in one week.
Product and campaign launches
Mr. Burberry – April 2016
The Mr. Burberry fragrance campaign launched in April
2016, including TV, print and a director’s cut film shot by
Academy Award®-winning director, Steve McQueen. The
film featured British actor and musician Josh Whitehouse
and British model and actress Amber Anderson, with the
soundtrack ‘I Won’t Complain’ created by British singer-
songwriter and Mercury Music prize-winner Benjamin
Clementine. Customers were able to personalise their
Mr. Burberry bottle with a monogramming service
20
Strategic Report – Burberry Group Overview explorers and pilots. The film received 22 million views and
was shared on social media platforms including YouTube,
Instagram and Twitter. The campaign was complemented
by Festive events and advertising including Burberry’s
first-ever festive partnership with Harrods, through which
Burberry designed and featured in all street level windows,
and a dedicated pop-up space.
The cape reimagined – February 2017
A collection of 78 limited-edition couture capes was
presented as part of Burberry’s February show finale.
Inspired by the scale and form of Moore’s elemental
sculptures, each design was made using unique
constructions and referencing elements from the
Burberry archive. Each individually named cape was
available for special order, and formed part of a travelling
exhibition around the world to cities including Milan,
Shanghai, Los Angeles, Dubai, New York, Hong Kong
and Tokyo.
Tropical gabardine – February 2017
During the February runway show, Burberry launched
tropical gabardine, a lightweight version of the
weatherproof fabric found in Burberry’s heritage
trench coats.
DK88 bag collection – May 2017
Named after the house code for Burberry’s signature
honey coloured gabardine, the DK88 bag collection is
a tribute to the fabric at the heart of Burberry’s history.
The collection includes top handle, satchel and luggage
inspired styles for men and women. Each design is made
from Burberry’s new trench leather, which is embossed
with the pattern of gabardine by using special plates
developed to create a unique leather finish. In May 2017,
Burberry partnered with Mr. Bags, a Chinese influencer,
for the exclusive WeChat shop launch of the DK88 in
bright toffee colour.
available at Burberry.com and selected Burberry and
wholesale stores. Users were also able to monogram
their own virtual Mr. Burberry bottle using interactive
advertising and to share it on Facebook, Twitter,
Pinterest and Instagram.
As part of the Mr. Burberry launch, Burberry became the
first luxury brand to have a dedicated experience in the
Discover section of Snapchat. The Mr. Burberry Discover
channel offered access to a wealth of style and fragrance
content, including tailoring and grooming tips.
My Burberry Black – August 2016
Burberry launched My Burberry Black, a new fragrance
for women, with the brand’s first Snapchat Lens and
a campaign starring British actress Lily James. Customers
were able to watch the campaign unfold as Lily took over
Burberry’s Snapchat channel. A unique My Burberry Black
Lens was created to immerse users into the aesthetic of
the campaign. The takeover culminated with the reveal
of the TV campaign across multiple platforms globally,
including on large outdoor screens in Piccadilly, London.
Artisans Campaign – September 2016
In its September print campaign, Burberry featured the
artisans who create key Burberry products, giving the
customers the chance to connect with, and understand
the craftsmanship behind these products.
Kris Wu Edit – November 2016
Burberry revealed the ‘Kris Wu Edit’, a collaboration
with the Chinese musician, actor and the brand’s new
ambassador. The campaign, which ran in China, featured
Kris wearing five curated Burberry looks. Burberry’s work
with Kris Wu continued at the February 2017 runway show
where he featured in exclusive show content filmed for
the Asian Burberry social media platforms.
Festive – November 2016
Burberry launched its Festive campaign with the film
‘The Tale of Thomas Burberry’ directed by Academy
Award®-winning director, Asif Kapadia. The film celebrated
the life of Burberry founder, Thomas Burberry and starred
Sienna Miller, Lily James, Domhnall Gleeson and Dominic
West. Real-life moments re-enacted in the film included
Thomas Burberry’s invention of the weatherproof fabric
gabardine, dressing the military, and outfitting polar
21
Strategic Report – Burberry Group Overview BUSINESS MODEL
Founded in 1856, Burberry is a global luxury brand with a distinctive British identity.
Since the invention of gabardine by Thomas Burberry more than 130 years ago, Burberry has built a reputation
for design, innovation and craftsmanship. Outerwear has been at the core of the business and remains so
today – best expressed through the iconic Burberry trench coat.
What Burberry does
Burberry designs, develops, makes and sells luxury products under the Burberry brand.
Designs and develops: At Burberry’s London headquarters the design studio acts as the creative hub of the Company,
with creative talent and activities including product design and development centred there.
Makes: Fabrics, other materials and finished products are sourced and manufactured at Burberry-owned facilities in
the UK and through an external supplier network, predominantly located in Europe. This includes the Burberry Mill and
Burberry’s Castleford manufacturing facility, both of which are located in Yorkshire, England. More information on
Burberry’s product mix is on page 26.
Sells: Creative and marketing content and programmes to engage consumers with the Burberry brand and its products
are developed internally. Burberry products are sold globally through its directly operated store network and online at
Burberry.com, as well as through franchisees and third-party retailers, both offline and online. In a few selected areas
such as Eyewear and Beauty (from October 2017), Burberry uses the product and distribution expertise of licensing
partners. More information on Burberry’s channel and regional mix is on pages 24 and 25.
How Burberry operates
Burberry’s business is structured by channel, region and product division, supported by corporate functions as set
out in the diagram below. The Group prioritises its activities based on its key strategies (as set out on pages 33 to 44),
which are executed by a global team of over 10,000 employees.
Design
Develop
Make
Sell
Function
Design and
Creative Media
Product Development and Sourcing, Supply Chain,
Merchandising and Planning
Digital, Marketing,
Architecture,
Customer Insight
People, Operations,
Information Technology, Finance, Corporate Affairs
Product
Region
Channel
Accessories, Womens, Mens, Childrens, Beauty*
Asia Pacific, EMEIA**,
Americas
Retail (online and offline),
Wholesale, Licensing
Value creation
Engaged customers
Shareholder value
Inspired people
Responsible approach
* Burberry entered into a strategic partnership for its Beauty business to commence from October 2017.
** Europe, Middle East, India and Africa.
22
Strategic Report – Burberry Group Overview How Burberry creates value
For its customers: By creating beautifully made products, inspiring with its storytelling and shared experiences,
delivering impeccable and distinctive services and continually innovating.
For its shareholders: By maximising shareholder value through executing on Burberry’s strategies to deliver revenue
growth and capital returns. More information on the Group’s Capital Allocation Framework is on page 59.
For its people and communities: By ensuring that employees are motivated and inspired and by adopting a responsible
approach to everything it does, while investing in the communities in which Burberry operates. More information on
Inspired People is on page 44 and Responsibility is on pages 47 to 51.
Burberry’s business model is best illustrated through the iconic Burberry trench coat – one of the many products
Burberry designs, develops, makes and sells.
Design
Develop
Make
Sell
Burberry is committed to the creation of authentic and distinctive products and continuous innovation
in fashion, design and manufacturing. The original trench coat was designed to serve the needs of the
military in the early 20th century. Epaulettes displayed an officer’s rank, while the belt’s metal D-rings
were used to attach equipment. Today, all products are created and designed in Burberry's London
studios by a team of dedicated designers, with the customer front of mind.
Gabardine fabric was invented by Thomas Burberry more than 130 years ago. The innovative cotton
fabric, which is both breathable and weatherproof, revolutionised rainwear that had been heavy
and uncomfortable to wear. Burberry gabardine was used by explorers such as Sir Ernest Shackleton,
who wore Burberry gabardine for three Antarctic expeditions. Burberry’s Heritage trench coat
continues to be made from gabardine and the design reflects the key features of the original.
Burberry continues to innovate with the recent introduction of tropical gabardine, woven for ultra-
lightweight protection in mild weather.
Burberry’s gabardine and tropical gabardine fabrics are dyed and woven at the Burberry Mill located
in Keighley, Yorkshire. The Burberry Mill produces the check lining fabrics used in the Heritage trench
coat, as well as fabrics for accessories such as shoes and bags. 23% of the cotton used to create
gabardine is sourced from Peru, where Burberry has been sourcing cotton for over 30 years.
The Heritage trench coat is made in Castleford, Yorkshire, by expert craftsmen and women combining
traditional techniques with modern technology. The coats are handmade using over 100 individual
processes, with the most intricate of these being the crafting of the collar which takes more than 180
stitches to create a fluid curve. It can take up to a year for an individual to learn the sewing technique
alone, demonstrating the skill and craftsmanship which goes into creating the iconic trench coat.
Once the Heritage trench coat has been finished the 'Burberry Made in England' label is applied
and it is ready for customers to purchase globally in-store and online at Burberry.com.
Monogramming is also available to enable customers to personalise their Heritage trench coat.
23
Strategic Report – Burberry Group Overview Channel
mix
Burberry sells its products through retail (online and offline) and
wholesale channels. For 2016/17, retail accounted for 77% of revenue and
wholesale for 22%. Burberry also has licensing agreements (1% of revenue),
leveraging the technical expertise of its licence partners.
Revenue by channel
Growth is presented underlying
Licensing
£25m
-48%
Wholesale
£614m
-14%
Retail
£2,127m
+3%
Retail
The retail channel comprises 77% of
our sales compared to 70% three years ago.
Includes sales through 209 mainline stores
and 200 concessions predominantly located
within department stores, digital commerce
and 60 outlets.
· 3% underlying growth
· Comparable sales 1% growth
· About 70% of our retail sales are
estimated to have involved support
from digital technology at some point
in the customer journey
Wholesale
Includes sales to department stores,
multi-brand speciality accounts, travel
retail and franchisees who operate 48 stores.
It also includes sales of Beauty products
to approximately 80 distributors globally.
· Revenue down 14% underlying
· Almost half of the decline was from Beauty
· Beauty wholesale revenue of £171m,
down 20% underlying
Licensing
Includes income from Burberry’s global
product licences (eyewear and watches*).
· Revenue was down 48% underlying
· Decline primarily due to the planned
· Burberry has entered into a strategic
expiry of the Japanese licence
partnership with Coty for its Beauty
business to commence from October 2017
* The watches licence will expire in
December 2017
24
Strategic Report – Burberry Group Overview REGIONAL
MIX
Burberry operates in three regions. For 2016/17, Asia Pacific
represented 39% of retail/wholesale revenue, Europe, Middle East,
India and Africa (EMEIA) 36% and Americas 25%.
Retail/wholesale revenue by destination
Americas
£681m
Mainline stores: 74
Concession stores: 8
Asia Pacific
£1,069m
Mainline stores: 62
Concession stores: 135
EMEIA
£991m
Mainline stores: 73
Concession stores: 57
Americas
· Revenue down 11% underlying
· Retail accounted for over 70%
· Comparable sales down by a low
of retail/wholesale revenue
single-digit percentage year-on-year
EMEIA · Revenue up 3% underlying
· Retail accounted for 70% of retail/
· Comparable sales increased by
wholesale revenue
a high single-digit percentage
year-on-year
Asia Pacific
· Revenue unchanged year-on-year
· Retail accounted for almost 90% of retail/
· Comparable sales were broadly unchanged
wholesale revenue
25
Strategic Report – Burberry Group Overview PRODUCT
MIX
Burberry has a diversified product offer across apparel categories, Accessories
and Beauty. For 2016/17, Accessories represented 38% of retail/wholesale
revenue, Womens 29%, Mens 22%, Childrens 4% and Beauty 7%.
Retail/wholesale revenue by product
Growth is presented underlying
Beauty
£184m
-18%
Childrens
£108m
+5%
Mens
£624m
+1%
Accessories
£1,033m
+2%
Womens
£792m
-4%
Accessories
· 2% underlying revenue growth
· Strong growth in womens handbags,
· Small leather goods also outperformed
an area of strategic focus
Womens
· Revenue declined by 4% underlying
· Fashion outperformed replenishment
· Good initial customer response to
as customers responded positively
to newness
newly launched tropical gabardine
Mens · 1% underlying revenue growth
· Introduced an expanded lightweight
cashmere trench programme which
delivered good early results
26
Childrens
· 5% underlying revenue growth
· Helped by the transition of European
childrenswear to direct operation
following licence expiry
Beauty
reflecting brand elevation actions
· Revenue declined by 18% underlying,
· Building pillar fragrance of My Burberry
· Successful launch of new male fragrance
· Burberry has entered into a strategic
with brand extensions, including
My Burberry Black in August 2016
pillar, Mr. Burberry, in April 2016
partnership with Coty for its Beauty
business to commence from October 2017
Strategic Report – Burberry Group Overview Key performance
indicators
The Company assesses its performance against a wide range of measures.
These key performance indicators (KPIs) help management measure progress
against the Company’s key strategies.
Financial measures
The Board believes it is important to ensure alignment between executive management’s strategic focus and the long-term
interests of shareholders. As a result, elements of executive remuneration are based on performance against the following
measures: revenue growth, adjusted PBT growth and adjusted retail/wholesale return on invested capital, which are linked
to the key strategies as shown below. For details of the Group’s key strategies, see pages 33 to 44. For details of the
Group’s remuneration policy, see pages 87 to 111.
KPI
Performance
Measure
Revenue growth*
This measures the appeal of the Burberry brand
to customers, through all its sales channels.
For more detail on the Company’s revenue
performance see pages 54 to 58.
Strategic link
All key strategies
Adjusted PBT growth*#
Adjusted PBT growth is a key profitability
measure to assess the underlying performance
of the Company.
Strategic link
All key strategies
Adjusted retail/wholesale return on
invested capital (ROIC)~
Adjusted retail/wholesale ROIC measures
the efficient use of capital to ensure returns on
future investments are attractive. It is
calculated as the post-tax adjusted operating
profit divided by average operating assets over
the period for the retail/wholesale segment.
Strategic link
All key strategies
Total revenue in FY 2017
declined by 2% underlying.
Retail growth of 3% was
offset by a decline in
wholesale (down 14%) and
licensing (down 48%), in part
reflecting actions to build
and reinforce Burberry’s
luxury brand positioning.
Adjusted PBT in FY 2017
was down 21% underlying.
This reflected lower
wholesale revenue, including
Beauty, and a reduction in
licensing income due to the
planned expiry of Japanese
licences, partially offset
by cost savings.
Adjusted retail/wholesale
ROIC has increased by
70 basis points to 15.4%
predominantly due to growth
in reported adjusted PBT of
10%. Operating assets have
grown by 2% in the period,
predominantly as a result of
exchange rate movements.
2017
2016
2015
2014
2013
£m Underlying
growth
-2%
2,766
2,515
2,523
2,330
1,999
-1%
+11%
+17%
+8%
Retail
Wholesale
Licensing
2017
2016
2015
2014
2013
2017
2016
2015
2014
2013
£m Underlying
growth
-21%
462
421
456
461
428
-10%
+7%
+8%
+13%
%
15.4
14.7
17.9
19.6
19.0
28
Strategic Report – Burberry Group Overview KPI
Performance
Measure
Comparable sales growth§
This measures the growth in productivity
of existing stores. It is calculated as the
annual percentage increase in sales from
retail stores that have been open for more
than 12 months, adjusted for closures and
refurbishments and includes all digital revenue.
Strategic link
Product Focus, Productive Space,
E-Commerce Leadership
Adjusted retail/wholesale
operating margin#†
This measures how the business
balances operational leverage and
disciplined cost control, with thoughtful
investment for future growth, building
the long-term value of the brand.
Strategic link
Productive Space, E-Commerce Leadership,
Operational Excellence
Adjusted diluted EPS growth#‡
Growth in EPS reflects the increase in
profitability of the business and is a key
valuation metric for Burberry’s shareholders.
Strategic link
All key strategies
Comparable sales in FY
2017 were up 1%, reflecting
improved conversion and
retention partially offset by
lower traffic. Comparable
sales in Asia Pacific were
broadly unchanged year-on-
year, grew high single-digit
percentage in EMEIA and
declined a low single-digit
percentage in the Americas.
Adjusted retail/wholesale
operating margin was
15.9% with 11% growth
in retail/wholesale revenue.
Unchanged gross margin
year-on-year and operating
expenses up 10% at
reported rates.
Adjusted diluted EPS in
FY 2017 was 77.4p up 11%
at reported rates, reflecting
growth in Group profit
and lower non-controlling
interests, partially offset
by a higher tax rate.
2017
2016
2015
2014
2013
2017
2016
2015
2014
2013
2017
2016
2015
2014
2013
%
+1
-1
+9
+12
+5
%
15.9
15.4
16.3
17.5
17.8
Pence
77.4
69.9
76.9
75.4
70.0
Reported
growth
+11%
-9%
+2%
+8%
+14%
Non-financial measures
Non-financial measures have a useful role alongside financial measures to inform decision-making and to evaluate
Group performance. As announced in May 2016, against a backdrop of a challenging external environment for the luxury
sector, Burberry has accelerated its productivity and efficiency agenda, particularly looking at its ways of working. As a
result, Burberry has identified significant growth opportunities across its existing channels, products and regions. To exploit
these opportunities Burberry is focusing on five key strategies, the details of which are set out on pages 33 to 44. Burberry
is developing non-financial measures to assess its performance against its key strategies and will aim to disclose non-financial
measures in the future. For detail on Burberry’s corporate responsibility activities and its progress against 2017 environmental
targets, see pages 47 to 51.
Note:
* Underlying.
# For definition of Adjusted see page 54.
~ For a calculation of Return on Invested Capital see the Five Year Summary on page 178.
† For details of Adjusted retail/wholesale operating margin see page 56.
‡ For details of Adjusted diluted EPS growth see page 54.
§ Comparable sales growth is defined on page 54.
29
Strategic Report – Burberry Group Overview
MARKET
OVERVIEW
Macro environment
Economic
During the 2016 calendar year, the global economy grew
by 3.1%, a deceleration versus 2015 at 3.5%. The year
was marked by a slowdown of the US economy, heightened
uncertainty in the Eurozone and increased geopolitical
concerns in the Middle East and Russia. In addition
commodity prices rebounded in 2016, particularly oil,
which almost doubled in the year, leading to increased
inflation rates in the US and Europe.
Across the major economies, the US grew by 1.6% after
a slow start to the year. The recovery of oil prices and
the stabilisation of the dollar enabled the economy to
accelerate in the second half. In Asia, China’s economy
grew by 6.7%, a continued deceleration from 6.9% in 2015
and 7.3% in 2014. Increased public spending and credit
growth measures exacerbated concerns around a real
estate bubble and hastened capital outflows. Hong Kong
experienced modest GDP growth of 1.9%, a decline from
2.4% in 2015, impacted by slowing exports, a cooling
property market and slowing private consumption. The
Japanese economy returned to growth at 1.0% as exports
recovered, although private consumption and capital
expenditure remained weak. South Korea GDP growth
remained stable at 2.7%, in line with 2015 at 2.6%, which
was impacted by the MERS outbreak. The Eurozone
declined slightly to 1.7% despite strong growth rates
in Spain, Germany and Ireland. In the UK, GDP grew
by 1.8%, a deceleration from 2.2% in 2015. Across key
developing markets, Russia and Brazil exhibited early
signs of a recovery from deep recession. Finally, the
Middle East economy started to recover, supported by
increasing oil prices.
Socio-economic and environmental
The year was marked by a number of socio-economic
and environmental events. These included the results
of the UK Brexit referendum, the highly polarised US
election campaign, the worsening of the migrant crisis
in the Eurozone, the increased incidence of cyber attacks
and terrorist attacks such as those in Nice, Berlin, Paris
and London. In addition, there was the continued impact
of the El Niño weather phenomenon, which made 2016 the
warmest year on record – the third consecutive year a new
global annual temperature record has been set.
Luxury sector*
Markets
This challenging global macro-economic backdrop had a
significant impact on the performance of the luxury sector.
At constant exchange rates, sector sales growth in 2016
was flat, in line with the 1% growth experienced in 2015,
although performance improved significantly in the second
half of the year. Underlying growth at constant exchange
rates of 4% in China and 1% in Europe was partially offset
by declines in the Americas and Japan.
Mainland China** experienced a recovery after several
years of stagnation. Repatriation of Chinese consumption
commenced as price differentials with other global
markets narrowed and the Chinese government
introduced initiatives to reduce grey market activities
and limit overseas shopping. Despite the recovery in
Mainland China, overall luxury consumption by Chinese
nationals declined for the first time in recent records.
In Continental Europe, performance was negatively
impacted by declining tourist consumption due to terrorist
attacks and stricter visa rules for Chinese visitors. These
negative dynamics were offset by the recovery of local
consumption in most countries and the strong tourist flows
to the UK attracted by the devaluation of Sterling. In the
Americas, the US market continued to underperform as
the strong Dollar resulted in lower tourist spend and local
consumption suffered from the uncertainty around the
30
Strategic Report – Burberry Group Overview presidential election. Hong Kong, one of the most profitable
luxury markets in the world, continued to decline due to its
decreasing popularity as a destination for Chinese tourists.
In Japan, the appreciation of the Yen reduced Chinese
tourists’ consumption and stimulated overseas purchases
by Japanese customers. South Korea grew by 13%
at constant exchange rates driven by returning Chinese
tourism after the 2015 MERS outbreak. Finally, the Middle
East continued to decline, driven by poor consumption by
both local and tourist customers. Eastern Europe started
to recover, particularly with local consumers in Russia.
More widely, luxury customers continue to mature
becoming increasingly discerning in their shopping
experiences, expecting a high level of service, exciting
experiences and innovative and bespoke products.
Channels
Globally, the retail channel continued to outperform
wholesale and now accounts for 35% of luxury
consumption. This channel grew by 1%, driven by store
perimeter expansion which more than offset negative
like-for-like performance. Digital commerce remained the
fastest-growing channel in the sector and now accounts
for 7% of total luxury sales. Key drivers of this growth
included strong performance in the Asia region and the
sustained momentum of mobile commerce. Travel retail
continued to outperform the sector and grew by high
single-digits despite being negatively impacted by shifting
tourist flows. Finally, the wholesale channel declined by
2% in 2016, mainly driven by the continued deterioration
of US department store sales and Asian watch retailers.
Products
For the sector, Beauty was the fastest-growing product
category at 4% growth driven by Asia and the Americas.
Accessories grew by 1% with positive momentum from
shoes and leather goods, particularly at entry price
points, men’s travel, and usage occasion products such
as backpacks. The apparel category declined by 4%,
driven by poor performance from luxury brands with
a high apparel mix and partially offset by strong growth
from luxury denim and down-jackets, and the resurgence
of sports-lines and active wear. Finally, hard luxury
continued to struggle driven by weak performance
in Asia, particularly at high price points.
Outlook
Industry analysts forecast that the personal luxury
sector will grow by low to mid single-digit percentage
in the medium term at constant exchange rates, driven
by a recovery of the US market and the rebound of Chinese
global spending. Japan is expected to remain challenging,
and the Hong Kong market difficult. Over the longer term,
the luxury market should benefit from the growing Chinese
middle class and the recovery of developed market
consumers, increased concentration of wealth in global
destination cities, improving macro and socio-economic
trends, strong luxury consumer travel flows, and the
continued increasing penetration of digital commerce.
Note:
References are to calendar years, unless otherwise stated.
* Bain & Company and Fondazione Altagamma 2016
Luxury Goods Worldwide Market Report (October 2016).
** Mainland China excludes Hong Kong, Taiwan and Macau.
31
Strategic Report – Burberry Group Overview Strategic Report
Strategic Report
key strategies
Burberry’s ambition is to bring pioneering British creativity and culture
to the world by creating beautifully made products, inspiring with
its storytelling and shared experiences, delivering impeccable and
distinctive services, and continually innovating. Burberry’s key strategies
and progress made during the year, are set out on the following pages.
33
INTRODUCTION: Driving
growth and productivity
Burberry has identified significant growth opportunities
across its existing channels, products and regions that will
build over time, underpinned by efficiency opportunities.
In May 2016, against the backdrop of a challenging external
environment for the luxury sector, Burberry outlined its
plans to accelerate its productivity and efficiency agenda,
particularly its ways of working. Burberry also identified
significant future organic revenue growth opportunities that
would build over time and a programme of actions to deliver
at least £100m of annualised cost savings by FY 2019.
For Burberry, FY 2017 has marked a transition year, with
its plans for growth over time and simplification built into
five key strategies. Three of these strategies are focused
on optimising revenue growth (Product Focus, Productive
Space and E-commerce Leadership), enabled by
Operational Excellence and Inspired People, to improve
efficiency and ensure Burberry has the right capabilities
to deliver. These five key strategies are summarised
below and listed, together with their relevant objectives
and initiatives, in the table opposite.
· Product Focus: Focusing on key product categories
by establishing a strategic approach, implementing
end-to-end category management, enhancing store
assortments and simplifying the product offer.
· Productive Space: Improving end-to-end retail disciplines
to drive retail productivity, through a multi-year retail
excellence programme focusing on improving service
and customer cultivation and investing in in-store
operations. Also reviewing Burberry’s channel mix
to continue to elevate the brand.
· E-commerce Leadership: Leveraging the strong digital
capability Burberry has built to drive revenues both on
its own platform and through third-party relationships,
and to continue sector-leading innovation in this fast-
growing channel.
· Operational Excellence: Improving the efficiency
and effectiveness of core processes, realising savings
through procurement, optimising inventory management
and continuing to invest appropriately in information
and technology to support Burberry’s growth and
productivity plan.
· Inspired People: Ensuring that Burberry has highly
engaged people with the skills and capabilities needed
to deliver its ambitions, with a focus on improved
ways of working. This includes a continued commitment
to Burberry’s unique culture and values, recognising
and rewarding talent, as well as leading the industry
in responsibility.
Burberry has worked to refine and embed these key
strategies into the business, supported by a Transformation
Management Office to drive and coordinate the delivery
of these strategies, which is overseen by the Chief
Operating and Financial Officer and which provides regular
updates to the Board. In this first year, Burberry has put
the foundations in place for the revenue growth drivers,
the benefits of which are expected to build over time,
and is encouraged by early results with the following:
· new product outperforming and strength in bags
· improved mainline retail conversion and retention
· growth in digital as Burberry invests in omni-channel
customer journeys
Burberry has delivered the planned £20m of cost savings
in FY 2017. This is expected to build to c. £50m in FY 2018
and is on track to deliver the target of at least £100m
annualised in FY 2019.
The following pages provide a more detailed summary
of each of the five key strategies and progress on the
initiatives supporting each of these.
34
Strategic Report – Key Strategies Pioneering British Creativity and Culture
Key Strategies
Key Strategies
Product Focus
Product Focus
Productive Space
Productive Space
E-commerce
E-commerce
Leadership
Leadership
Operational
Operational
Excellence
Excellence
Inspired People
Inspired People
Objectives
Outperformance in
From product
breadth to
strategic categories
product focus
Globally consistent/
locally relevant
Initiatives
Initiatives
· Build a strategic
· Build a strategic
approach in core
approach in
core categories
categories
· Implement end-
· Implement end-to-
end category
to-end category
management
management
· Enhance store
· Enhanced store
assortments
assortments
and simplify the
product offer
Inspired customers
From new space to
productive space
in every channel
Leading retail
equation
Balanced business
(by channel, by
customer)
· Elevate service
· Improve service
and training
and training
· Improve customer
· Improve customer
cultivation
cultivation and
and retention
retention
· Invest in in-store
· Improve in-store
operations
operations
· Simplifying and
tailoring the
product offer
Undisputed digital
From digital prowess
to e-commerce
leadership in luxury
leadership
Leading sector
Focusing
on efficiency
efficiency
and investing
appropriately
Best place to be
Implementing new
ways of working,
while committed
to unique culture
and values
· Process
· Enhance
simplification
technology to
improve efficiency
services
management
· Procure effectively
· Develop shared
· Optimise inventory
· Re-engineer core
· Improve
· Increase the
processes
information and
technology
efficiency of spend
· Evolve the
· Evolve the
operating model
operating model
and improve ways
and improve
ways of working
of working
· Evolve the culture
· Evolve the culture
and employee
and employee
engagement
engagement
· Enhance talent
· Enhance talent
and reward
and reward
programmes
programmes
· Ensure a
· Ensure a
responsible
responsible
mindset and
mindset
and actions
actions
· Grow Burberry.com
· Grow Burberry.com
· Leverage third-
· Leverage third
party relationships
party relationships
· Deliver innovative
· Deliver innovative
omnichannel
omni-channel
journeys
journeys
35
Strategic Report – Key Strategies PRODUCT
FOCUS
From product breadth to product focus.
Great product is the foundation of Burberry’s growth
and productivity goals. Burberry has a broad product offer,
with strength in both heritage and fashion across genders
and categories. However, Burberry has generally a wider
product assortment than its peers. Simplifying the product
offer will enable the customer to discover fashion and
newness more easily. It will also provide the opportunity
to tailor the assortment more effectively for local
customer needs.
Key enablers of future growth include the following.
· Build a strategic approach to core product categories:
Developing mid to long-term strategies for Burberry’s
core product categories to simplify the offer, reduce
assortments, and to improve the visibility of fashion
and newness.
· Implement end-to-end category management:
Introducing new ways of working across all product
functions to align category performance, enhance
accountability and ensure customers remain front
of mind during the product development life cycle.
· Enhance store assortments and simplify the product
offer: Using a centrally directed buying process to ensure
the consistency and relevance of the global product offer,
while also simplifying the customer shopping experience
and reducing back-of-house complexity.
Progress during the year
Build a strategic approach to core product categories
· A comprehensive strategy is being developed to grow
each core product category taking into account target
customers, price points and product icons based
around key pillars and shapes. The aim is to respond
to demand for Burberry’s most luxurious products
while also introducing more innovation and creativity
at opening price points.
· During the year, the initial focus was on evolving
Burberry’s bag offer around a new pillar and shape
strategy. New launches included the DK88 signature
collection, the Bridle bag and the Buckle bag family,
which resulted from the commercialisation of last year’s
Patchwork bag. The new shapes have been successful
with women’s bag sales outperforming other categories
during the year.
· Burberry announced its strategic partnership with Coty
in April 2017 to accelerate the growth and development
of its Beauty business, through an exclusive licensing
agreement to take effect from October 2017. Leveraging
the strengths of each partner, Burberry will lead on
creative elements of the business while benefiting from
Coty’s industry expertise and global distribution platform.
· In the coming year, Burberry will continue to develop
and execute on its product category strategies
including building on its tradition in outerwear, heritage
in cashmere and developing small leather goods to
add innovation at the entry price offering.
Implement end-to-end category management
· Burberry is implementing new ways of working
across all product functions including merchandising,
planning, design, product development, supply chain
and marketing. The aim is to improve collaboration
and customer/product focus throughout the product-
development life cycle. Initial organisational changes
have been implemented in the central teams, the
Americas and EMEIA, with Asia to follow. This end-to-
end product focused approach will ensure that Burberry
delivers inspirational products and brand experiences
to its customers.
Enhance store assortments and simplify the product offer
· In November, Burberry successfully implemented its
move to one label across its retail network. This has
simplified the customer shopping experience as well
as reducing back-of-house complexity, with stores
merchandised by product rather than label. The one
label roll-out was supported by a comprehensive training
programme for retail staff and visual merchandising.
· Burberry reduced its product option count by 15–20%
over the year. This has simplified its product offering
while balancing stronger focus on fashion and newness
in-store.
· Burberry has also developed a new store profiling model
to support the evolved buying process. This tailors the
product offer to reflect the particular store profile. In
particular, this model classifies stores in greater detail,
using a combination of in-house and local data sources,
such as customer demographics and product purchasing
behaviours, as well as data such as climate.
36
Strategic Report – Key Strategies 37
PRODUCTIVE
SPACE
From new space to productive space.
Improve customer cultivation and retention
· Burberry extended its Customer Value Management
outreach programme and expanded its Burberry
Private Client team by more than 50%. This has enabled
the delivery of exceptional service to these important
customers and improved sales conversion, with an
average transaction value double the global average
for the Company.
· A new and enhanced digital selling tool is being
developed with a launch date planned for 2017/18.
· Customer insight is a key component of Burberry’s
Customer Value Management outreach programme.
Customer insight uses data, including information on
buying behaviours, to define customer segments and
enable Burberry to better understand its customers
and how best to target them.
Invest in in-store operations
· Burberry commenced an investment programme
to standardise and simplify Burberry’s global retail
operations. A particular focus during 2016/17 was the
development of a new point of sale system, with the
global rollout planned to continue through to 2018/19.
· Omni-channel customer preferences have been identified
and processes developed to cater to these preferences
including the rollout of store-based fulfilment, which
enables the shipment of products directly from store
to customers, starting in 2017.
· Burberry is designing and testing best practice back-
and-front-of-house store operations including trialling
store staff scheduling software.
Burberry’s business model has evolved from being a
predominantly wholesale to a predominantly retail model.
There is a significant opportunity to improve Burberry’s
end-to-end retail disciplines and to continue to evolve
the omni-channel experience.
Alongside this initial emphasis on the retail business,
Burberry is sharpening its focus on how it inspires
customers across all channels. This includes working
closely with its wholesale partners to create a stronger,
more carefully curated Burberry offer globally, to drive
greater coherence and to support the brand perception.
The initial focus for Productive Space is Burberry’s multi-
year retail excellence programme. Key areas of focus for
the retail excellence programme include the following.
· Elevate service and training: Elevating Burberry’s
global approach to service, supported by improved
sales associate training.
· Improve customer cultivation and retention: Embedding
a customer-centric mindset into all behaviours and
decisions, supported by customer insight.
· Invest in in-store operations: Improving store operations
to a single global standard, to enhance the customer
experience and streamline processes.
Progress during the year
Elevate service and training
· Burberry significantly increased its investment in globally
consistent training, including enhanced retail sales
associate conferences and field training.
· A new service model was rolled out to all retail sales
associates in 2016/17, supporting both conversion
and repeat business through a standardised and more
elevated approach to client engagement.
· Burberry also designed and implemented a
client feedback programme based on the net promoter
score methodology which measures the quality of
customer experience. Initial results from the global launch
are already being used to redefine processes and to
evolve the approach to store management.
38
Strategic Report – Key Strategies E-COMMERCE
LEADERSHIP
From digital prowess to e-commerce leadership.
Leverage third-party relationships
· Burberry continued to develop best-in-class
relationships with retailers online. This included
Burberry’s collaboration with Barneys to develop
unique products for its in-store and digital customers,
which helped to elevate the brand’s positioning.
· Burberry also continued to innovate in social commerce,
leveraging new technologies to collaborate with new
partners. This included the opportunity for consumers
to buy the Bridle bag on social media platform WeChat
after the September show. This was expanded for the
February show, with the collection made available to
purchase through social media platforms Line, Kakao
and Facebook Messenger.
Deliver innovative omni-channel journeys
· Burberry focused on creating an enhanced digital
experience around its runway shows and key purchase
moments such as Festive. This included the Facebook
Messenger experience, which enabled customers
to explore the collection in an interactive way via a
Facebook Messenger Bot for the September show,
the development of the virtual reality experience for the
February show, and the launch of new payment options.
· During the second half of the year, Burberry soft-
launched a new customer app, providing a more
personalised shopping experience by connecting
customers more effectively to Burberry stores and
associates. The app offers seamless mobile commerce
and a platform for interactive storytelling. The app
will be rolled out globally in 2017/18.
· As referenced in Productive Space, a major initiative has
been the creation of an effective single pool of inventory
to allow Burberry.com sales to be fulfilled by inventory
held in hubs and stores.
Burberry is recognised as a digital leader in the luxury
sector. With an estimated 70% of its retail sales having
involved support from digital technology at some point
in the customer journey, its ambition is for digital to
remain a clear point of differentiation with scope to be
more ambitious commercially. This includes enabling
seamless customer journeys across digital platforms
and using technology to service customers in-store, while
ensuring that these online and offline worlds are linked.
Key areas of focus include the following.
· Grow Burberry.com: Continuing to develop the
commercial success of Burberry’s digital channel
through improved customer experiences, enhanced
service propositions and new technologies.
· Leverage third-party relationships: Strategically
growing Burberry’s partnerships to extend its
digital presence, while ensuring a consistent
brand experience.
· Deliver innovative omni-channel journeys:
Ensuring that customers can browse, buy and receive
customer support seamlessly across any device
or channel, globally.
Progress during the year
Grow Burberry.com
· The key focus for 2016/17 was the development
of Burberry.com with a relaunch both on desktop
and mobile. The new site offers richer brand and
product storytelling experiences and elevated product
photography, as well as improved functionality with
simplified navigation and increased localised payment
methods including Apple Pay. Digital traffic on
Burberry.com has increased year-on-year, with
conversion improving in both desktop and
mobile channels.
· Burberry.com in China was launched both for desktop
and mobile, so that it is better aligned for local customer
behaviours and preferences, driving an increase in
direct-to-consumer sales of around 70%.
40
Strategic Report – Key Strategies OPERATIONAL
EXCELLENCE
Focusing on efficiency and investing appropriately.
Optimise inventory management
· Burberry reviewed its current inventory flow to identify
opportunities to streamline steps in the process, and
to enable an improved omni-channel customer journey
with greater product availability to customers. This will
also enable Burberry to satisfy orders more efficiently
from a virtual single pool of inventory, online delivery
information, quicker delivery times and a facilitated
returns process for customers.
Improve information and technology
· Burberry continues to develop its technology landscape
to meet the fast-changing needs of the industry and
to enable the Company to continue to drive innovation
where it matters most. Programmes under way include
the following.
– Product Lifecycle Management Functions: A new digital
tool to enable teams to better manage products from
conception through to development, manufacture and
final inspection. This tool will enable the more timely
development of products, improved compliance and
enhanced vendor and supplier collaboration.
– Digital Sales Associate Tool: The development of
a new retail staff tool to deliver enhanced customer
service across the retail network using Customer
Relationship Management software to improve
product searches, manage aftersales service and
capture customer information.
– Global broadband: A network rollout to all stores to
enable connectivity and to align the service through
a single global contract.
· The Company is preparing for further technology releases
in 2017 to future-proof its core platforms. These changes
will enable business continuity, improved security and
the provision of a single global platform fit for purpose
for the next phase of Burberry’s growth. The design
process and the rollout timeline and phasing plans
are prioritised based on business needs.
Operational Excellence is a multi-year programme and
involves re-engineering Burberry’s systems and processes
to ensure that they are fit for purpose for the Company’s
next phase of growth.
Key areas of focus include the following.
· Process simplification: Streamlining and simplifying core
business processes to ensure a single, global approach.
· Procure effectively: Standardising procurement and
unlocking savings.
· Optimise inventory management: Increasing product
availability by developing Burberry’s omni-channel
technology to enable it to satisfy orders more efficiently
from a single pool of inventory.
· Improve information and technology: Upgrading
Burberry’s technology infrastructure to reflect changes
in the Company’s scale and business model and to
support the implementation of the key strategies.
Progress during the year
Process simplification
· Burberry undertook a detailed review of its key processes
in finance, HR, IT, procurement and customer services,
including benchmarking to peers. This highlighted a
significant opportunity to simplify key business processes
to increase efficiency and effectiveness, supported by
the implementation of new technology solutions.
· In May, Burberry announced plans to establish Burberry
Business Services in Leeds. This will bring together shared
services covering finance, HR, commercial procurement,
and elements of IT and customer services. Savings will
be generated from process improvements and lower
facility costs.
Procure effectively
· Burberry is working to transform procurement into
a simplified and digitally enabled global process from
sourcing to settlement, supported by the implementation
of SAP Ariba technology. This should generate significant
operational efficiencies and reduction in costs.
· Burberry is focusing on improving the effectiveness of
its marketing planning and spend, enabled by the use
of its in-house customer data analytics and detailed
econometric modelling.
42
Strategic Report – Key Strategies INSPIRED
PEOPLE
Implementing new ways of working,
while committed to unique culture and values.
Burberry has established the Inspired People strategy
to ensure that the business has the right capabilities in
place to operate effectively to meet its strategic objectives,
and that its people continue to be motivated and inspired
to deliver outstanding results for the brand. This will be
achieved through effective engagement, changing ways of
working, reinforcing culture and behaviours, and continuing
to lead the industry in responsibility.
Key areas of focus include the following.
· Evolve operating model and improve ways of working:
Redesigning Burberry’s operating model to simplify
ways of working.
· Evolve culture and employee engagement: Building
on Burberry’s unique values and culture and continuing
to engage in the communities where Burberry operates.
· Enhance talent and reward programmes: Introducing
best-in-class talent development and management
approaches.
· Ensure a responsible mindset and actions: Focusing
on the delivery of the next phase of Burberry’s global
responsibility plans.
Progress during the year
Evolve operating model and improve ways of working
Burberry is redesigning its operating model across all
regions and functions, and has agreed a transition and
change management plan for phased implementation.
The revised model aims to deliver the following.
· A smaller and more streamlined central organisation.
· Balancing global versus local operations to ensure
that the needs of local customers are met while
increasing global consistency.
· Simplified ways of working.
The redesigned operating model will provide increased
accountability, a greater focus on a standardised global
ways of working and better collaboration between
regional and central teams.
Evolve culture and employee engagement
A critical priority is to support and nurture Burberry’s
unique culture, underpinned by strong employee
engagement and Burberry’s values of Protect, Explore
and Inspire. Burberry’s distinct culture reflects a global,
united mindset; a pioneering, creative spirit; and
a responsible approach to everything it does.
44
A global programme in the second half of the year
focused on reigniting these values across the business,
and included the following.
· Burberry established a Change Champions group,
as well as holding events and providing extensive
communications to ensure employees understand
the changes taking place within the Company and
to obtain their feedback.
· Alongside the existing global employee engagement
calendar, retail conferences were held in key markets,
sharing new strategies and ways of working.
· Exceptional employee contribution across all areas
of the business was celebrated through the annual
Burberry Icon Awards, which received more than
18,000 nominations, a record number.
· Craftspeople in the supply chain were celebrated
in the September campaign, which showcased the
artisans who make Burberry products. Employees
continued to be connected to creative brand moments.
Enhance talent and reward programmes
Burberry focused on identifying and meeting the critical
capabilities required to deliver the Company’s strategies.
It also continued to foster a culture of recognition to support
high performance and retention of talent through reward
and enhanced training and development opportunities.
Key achievements include the following.
· The Company’s first cohort of Burberry Apprentices
graduated during the year, having gained qualifications
and experience in roles across retail, internal
manufacturing and distribution in the UK.
· A review of employee performance and talent
management, resulting in a simplified approach.
A successful pilot of this new approach took place,
with the full rollout commencing in 2017/18.
· In 2016, Burberry was ranked by LinkedIn as one
of the UK’s Top 10 attractors for employment and
ranked 29th in EMEIA.
Ensure a responsible mindset and actions
Burberry has worked towards completion of its 2012–2017
responsibility strategy, while finalising ambitious plans
and goals for the next five years. See Responsibility
section on pages 47 to 51 for further details.
Strategic Report – Key Strategies Strategic Report – Key Strategies Strategic Report – Responsibility
Responsibility
Led by its core principles of Protect, Explore and Inspire, Burberry continued
to promote responsible employment practices and to drive environmental
responsibility across its operations and wider supply chain, while investing
in the communities where its employees live and work.
47
Strategic Report – Responsibility
Responsibility
Ensure responsible mindset and actions.
Burberry has worked towards completion of its 2012–2017
responsibility strategy. Key focus areas and activities over
the last year are outlined in this section and a five-year
summary report will be available at www.burberryplc.com.
While closing the old strategy, Burberry has also finalised
ambitious new goals for the next five years, building on
strong foundations, addressing key community, social
and environmental challenges and opportunities,
and leveraging Burberry’s unique assets in the most
impactful way. Key areas of focus for the new strategy
include the following.
· Fostering resilient communities.
· Creating positive change through sourcing and
production.
· Utilising key operational resources to reduce climate
change impacts.
More details on Burberry’s new responsibility strategy
will be available at www.burberryplc.com.
Promoting responsible employment practices
· The Company’s trading activities are guided by its
Responsible Business Principles, which are underpinned
by the United Nations Universal Declaration of Human
Rights, the Fundamental Conventions of the International
Labour Organisation and the Ethical Trading Initiative
Base Code. Targets to promote and build fair and
responsible employment practices are integrated into
the performance objectives of the Company’s sourcing
teams as well as at an individual level.
· Burberry’s Ethical Trading Programme consists of
announced and unannounced supply chain audits,
ongoing monitoring and engagement, as well as focused
improvement programmes. The Company continued to
support factories in its supply chain through a number
of engagement activities and new training programmes.
Where access to grievance mechanisms is a particular
challenge, confidential hotlines run by non-governmental
organisations provide over 27,000^ workers across 53^
factories with confidential support.
Number of audits and assessments
477^
2016/17
2015/16
2014/15
477^
548
541
With Burberry’s Ethical Programme evolving year-on-year,
the Company has focused on how it can make the most
meaningful, positive impacts on the lives of people
throughout its supply chain, rather than increasing the
number of audits. Auditing remains, however, an important
tool to help Burberry and its manufacturers identify areas
that are in need of improvement.
Number of training and engagement activities
234^
2016/17
2015/16
2014/15
234^
217
205
Programmes have been implemented across the supply
chain to support factories to build stronger human resource
management systems, reduce working hours, sustain and
enhance unique knowledge, skills and expertise and
provide access to confidential grievance mechanisms.
Ready to Wear, Accessories and Shoe Supply Chain^
2016/17 (second half)
2016/17 (first half)
2015/16 (second half)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Rejected
Acceptable with improvements
Satisfactory
^ Information denoted by this symbol has received limited assurance
by Ernst & Young LLP.
Results of the FY 2017 audits show an overall positive shift
in ethical trading performance by the Company’s apparel
and non-apparel partners. New manufacturers who did not
meet key requirements as outlined in Burberry’s Ethical
Trading Code of Conduct were not accepted into the
Company’s supply chain, others were found to meet key
requirements but were asked to implement
further improvements.
48
Strategic Report – Responsibility
· Burberry completed its biennial Human Rights Impact
Assessment and has set a number of mitigation actions,
which have been reviewed by Ergon, a specialist
consultancy in the field of human rights, and discussed with
Oxfam, a globally renowned aid and development charity.
· The Company also published its first statement in line
with the UK Modern Slavery Act 2015, detailing the steps
Burberry is taking to mitigate the risk of modern slavery
occurring in its supply chain and business operations.
Bespoke training was delivered to key teams and supply
chain partners globally in order to build awareness and
strengthen due diligence processes. This statement can
be found at www.burberryplc.com.
· Continuing its support for the Living Wage Foundation,
Burberry joined the steering group of the Global Living
Wage Initiative to discuss harnessing the increasing
interest to address in-work poverty across all sectors
and multiple geographies, as part of a unified, global
approach with multi-stakeholder participation.
Human Rights Statement
The Group recognises its responsibility to respect human
rights wherever it operates and conducted a Human Rights
Impact Assessment in 2015 to identify the most salient risks
in this area. This assessment was reviewed and updated in
2017. The Group believes that potential risks arise in relation
to its own workforce, its supply chain and communities,
and its customers. Burberry’s Human Rights Policy sets
out the Company’s commitments to respecting these
stakeholders’ human rights. The Policy is informed by
the International Bill of Human Rights and reflects the
UN Guiding Principles on Business and Human Rights
framework to Protect, Respect and Remedy. Responsibility
for the Policy lies with Burberry’s Chief Creative and
Chief Executive Officer.
Burberry has an established global team who work to
promote human rights and good labour practices in the
Burberry workplace as well as in the Company’s supply
chain, as identified and prioritised through Human Rights
Impact Assessments. Burberry provides grievance
mechanisms for its global employees, as well as confidential
hotlines in its supply chain where local labour laws are
weak, absent or poorly enforced. Burberry publishes
its Modern Slavery Statement in line with the UK Modern
Slavery Act. This can be found at www.burberryplc.com.
Investing in our communities
While conducting an in-depth review of its charitable giving
activities over the last year, Burberry continued to support
communities where its employees live and work through
financial grants, employee time and in-kind donations.
· Burberry continued to donate 1% of Group adjusted
profits before tax (£4.6 million in FY 2017) to charitable
causes around the world, with a significant proportion
going to the Burberry Foundation (UK registered charity
number 1154468). Other charitable investments included
supporting the establishment of a new facility for the
Defence and National Rehabilitation Centre, donating
to disaster relief efforts and nurturing emerging creative
talent through scholarships at the Royal College of
Art and BAFTA.
· The first cohort of Burberry Apprentices graduated in
September 2016, with 90% of participants completing
the programme. The Company expanded the programme
in August when a second cohort joined the business, with
new opportunities opening in the London headquarters
and at the Burberry Mill in Yorkshire.
· The Company expanded its volunteering programme,
enabling all its employees worldwide to dedicate up
to three working days a year to impactful community
projects, seeing volunteering as an opportunity to
make a difference while strengthening teams, enhancing
workplace skills and building employee engagement and
motivation. Activities included career mentoring events,
employability workshops, community revitalisation and
fundraising projects.
· In-kind donations ranged from one-off gifts of non-
trade mark fabric and materials to assist young people
on creative courses, to donations of smart business
clothing to support over 1,000 people enrolled in
employability programmes.
Driving environmental sustainability
Burberry is strongly committed to reducing environmental
impacts globally across its supply chain and internal
operations.
· Cotton, cashmere and leather are three of the Company’s
key raw materials, representing around 30% of its
greenhouse gas emissions. Burberry has focused
on improving the traceability and sourcing of these
materials, further deepening partnerships with its
supply chain and industry stakeholders. As part of its
commitment to more sustainable raw materials, Burberry
began procuring cotton through the Better Cotton
Initiative. In addition, in Peru, where the Company has
been sourcing cotton for over 30 years, a three-year
farmers engagement programme has helped to achieve
a 14% increase in yields with lower environmental
impacts such as a 69% reduction in chemical pesticide
use. Burberry seed funded and continues to support the
Sustainable Fibre Alliance to help promote sustainable
cashmere production in Mongolia. Burberry is committed
to encouraging environmental best practice at leather
tanneries and collaborating with industry stakeholders
to better understand challenges beyond tanneries.
49
Strategic Report – Responsibility
· Burberry increased its efforts to reduce energy
and water use in the supply chain, including the
implementation of a Natural Resource Defence Council
assured impact reduction programme at key mills.
To eliminate the release of chemicals that may have
an adverse environmental impact, the Company
continued to work with its partners to improve
chemical management practices in the supply chain
and support extensive research into new technology.
· Recognising that waste plays a key role in resource
depletion and climate change, Burberry is prioritising
the reduction and repurposing of waste. Examples
include recycling pre-consumer textile waste into new
yarns in Italy, repurposing damaged garment waste into
insulation and using textile waste for home furnishings
in the UK. Additionally, over 87% of construction
waste from major projects globally was recycled.
· Burberry remains committed to reducing environmental
impacts from energy consumption at its offices,
stores, manufacturing and distribution sites. 53% of
the Company’s electricity use was generated on site
or sourced through green tariffs, an increase from 37%
in FY 2016. Over the same period, Burberry distribution
centres achieved an absolute energy reduction of 11%,
while energy consumption at the Company’s London
headquarters reduced by 14%.
Progress against targets
Following an independent baseline assessment in 2012, Burberry set itself five-year targets to reduce environmental impacts
arising from materials, energy, water, chemicals and waste. Over the years, all targets have been owned and monitored by
members of the Senior Leadership Team. The Company’s five-year environmental strategy concluded in March 2017 and
achievements are outlined in the table below. Whilst some targets have not been fully achieved, key successes and learnings
from the last five years have proven invaluable in shaping the Company’s new responsibility strategy and goals for 2022,
with a focus on addressing the most material issues, evolving internal governance, developing innovative partnerships and
demonstrating real impacts on workers, communities and the environment. Further details on the new strategy will be
available at www.burberryplc.com.
Product
Burberry continues
to invest in the design
and quality of every
product and is
committed to
dramatically
reducing the impact
of its products.
2012–2017 Targets
Raw materials
Improve the environmental and social impacts of how we source:
· Cotton
· Cashmere
Reduce the environmental impact of:
· Leather
· PVC
Chemical use in manufacturing
Take steps to eliminate chemicals from use that have a negative impact on
the environment, beyond legal limits
Packaging
100% of point of sale packaging to be sustainably sourced (where alternatives
are available)
Internal manufacturing
Reduce the energy use from Burberry’s two UK manufacturing sites by 25%**
Suppliers
Work with key suppliers to assist them in reducing their energy use by up to 20%**
Mills
Work with key mills to assist them to reduce their water consumption by up to 20%**
Transport
Reduce carbon emissions from the transport of Burberry products by 10%**
Distribution centres
Reduce energy use in Burberry’s five third-party distribution centres by 10%**
50
Process
Burberry is
committed to
ensuring its future
resilience by
integrating
sustainability
decisions across
the business
and collaborating
with suppliers.
Results
Achieved ^*
Achieved *
Achieved ^*
Not
achieved
Achieved ^ *
Achieved ^
Not
achieved *
Not
achieved ^ *
Not
achieved ^ *
Not
achieved ^
Achieved *
Strategic Report – Responsibility
Property
Burberry continues
to expand its global
footprint in existing
and new markets to
enable the growth
of the business
and is committed to
minimising the impact
of this expansion.
2012–2017 Targets
Energy use reduction
Reduce Burberry controlled store and office energy usage by up to 15%**
Sustainable consumables
60% of office consumables to be sustainably sourced (where available)
Renewable energy
All Burberry controlled stores and offices to be powered either by on-site or green
tariff renewable energy (where available)
Build certifications
All new builds will be sustainable build certified LEED (silver), BREEAM (very good)
or Greenmark (silver)
Sustainable construction materials
30% of wood by spend is either recycled materials or sourced from certified
supply chains
Construction waste recycling
30% of construction waste to be recycled for global major projects
LED lighting
75% of lighting is LED or energy efficient in new concept stores
Results
Not
achieved ^*
Not
achieved
Not
achieved ^*
Achieved
Achieved
Achieved
Achieved
^ Selected information denoted by this symbol has received limited assurance by Ernst & Young LLP.
* Carried forward with increased ambition in new strategy. Other targets have been incorporated into the Company’s ways of working.
** When normalised by a relevant productivity factor.
Energy and global greenhouse gas emissions
The disclosures required by the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations
2013 are included below.
(Year to 31 March)
Emissions from:
Combustion of fuel and
operation of facilities
(Scope 1) (Kg CO2e)
Electricity, heat, steam and
cooling purchased for own use
(Scope 2)
(Kg CO2e)
Total emissions
(Scope 1 & 2) (Kg CO2e)
Electricity, heat, steam and
cooling purchased for own use
(Scope 2) (Kg CO2e) MARKET
BASED APPROACH)
Intensity measurement
(Kg CO2e per £1,000
sales revenue)
Renewable energy
produced on site (KWH)
Current
reporting
year FY 17
Comparison
year FY 16
Comparison
year FY 15
2,126,413^
2,141,106
2,336,520
37,053,321^
39,314,125
40,451,532
39,179,734^
41,455,231
42,788,052
25,466,295^
14^
16
17
1,218,096^
1,266,062
1,247,270
Note:
Burberry applies an operational control approach to defining its organisational
boundaries. Data is reported for sites where it is considered that Burberry
has the ability to influence energy management. Data is not reported for
sites where Burberry has a physical presence, but does not influence the energy
management for those sites, such as a concession within a department store.
Overall, the emissions inventory reported equates to 96% of our sq.ft (net selling
space). The Company uses the Greenhouse Gas Protocol (using a location and
market-based approach to reporting Scope 2 emissions) to estimate emissions
and applies conversion factors from Defra and IEA guidance. All material
sources of emissions are reported. Refrigerant gases and fuels consumed in
Company vehicles were deemed not material and are not reported. Burberry
has updated greenhouse gas data for FY 2015 and FY 2016 to account for
improvements in data availability and estimation methods. Further detail
is available within Burberry’s basis of reporting at www.burberryplc.com.
51
External assurance of corporate responsibility
disclosures
Burberry appointed Ernst & Young LLP to provide
limited external assurance over reported performance
against selected environmental targets, and selected
FY 2017 environmental and ethical trading performance
data. The statements and data that formed part of
the review are denoted with a ^ on pages 48, 50 and 51.
The full independent assurance statement and Burberry’s
basis of reporting are available at www.burberryplc.com.
External recognition
Burberry was recognised externally for its responsibility
performance. Key accolades included:
· Recognised as an industry leader in the ‘Textiles,
Apparel and Luxury Goods’ sector in the 2016 Dow
Jones Sustainability Indices. This is the second
consecutive year that Burberry has been included in
the Index, reflecting the Company’s strong commitment
to continuously explore more productive and sustainable
ways of working.
· Awarded ‘Gold Class’ distinction in the ‘Textiles, Apparel
and Luxury Goods’ sector in RobecoSAM’s 2017
Sustainability Yearbook.
· Achieved top score for Water in CDP’s annual assessment,
for managing water-related risks in both its own operations
and the supply chain.
Strategic Report
Strategic Report
Performance
The following pages set out the highlights of the Group’s financial performance
during the year to 31 March 2017, the Capital Allocation Framework and the
outlook for the coming financial year. The principal risks facing the Group
during the year, including the nature and extent of these risks, are also
set out in this section.
53
Strategic Report – Performance
Group Financial
Review
Total revenue
(2016: £2.5bn)
Adjusted profit before tax
(2016: £421m)
£2.8BN
£462m
Down 2% underlying, up 10% at reported FX.
Retail growth, offset by declines in wholesale
and licensing, in part reflecting actions to
elevate the brand
Down 21% underlying, up 10% at reported FX.
Lower wholesale income, particularly in the
US and Beauty, and reduced licensing income,
principally due to planned expiry of Japanese
licence was partially offset by cost savings
Profit before tax
(2016: £416m)
£395m
Reported profit before tax after
adjusting items
Year end net cash
(2016: £660m)
£809m
Adjusted diluted EPS
(2016: 69.9p)
77.4p
£465m free cash flow after £97m of share
buyback and £164m of dividends. Net cash
of £809m at 31 March 2017 up £149m
Up 11% with 25.8% effective tax rate
(2016: 24.7%) and repurchase of 6.7m
shares; Reported diluted EPS down 6%
Full year dividend per share
(2016: 37.0p)
38.9p
Up 5% in line with progressive
dividend policy
£ million
Revenue
Cost of sales
Gross margin
Operating expenses*
Adjusted operating profit
Net finance credit*
Adjusted profit before taxation
Adjusting items
Profit before taxation
Taxation
Non-controlling interest
Attributable profit
Adjusted EPS (pence)~
EPS (pence)~
Weighted average number of ordinary shares (millions)~
Year to 31 March
% change
2017
2,766.0
(832.9)
1,933.1
(1,474.4)
458.7
3.7
462.4
(67.6)
394.8
(107.1)
(0.9)
286.8
77.4
64.9
442.2
2016
reported FX
underlying
2,514.7
(752.0)
1,762.7
(1,344.9)
417.8
2.8
420.6
(5.0)
415.6
(101.0)
(5.1)
309.5
69.9
69.4
446.1
(2)
(21)
(21)
10
11
10
10
10
32
10
(5)
11
(6)
Adjusted measures exclude adjusting items. Details of adjusting items are contained in note 6 of the financial statements.
* Excludes adjusting items.
~ EPS is presented on a diluted basis
Definition of Alternative Performance Measures
Adjusted profit before tax and adjusted diluted EPS are defined in note 2 of the financial statements.
Underlying performance is presented as, in the opinion of the Directors, it provides additional understanding of the ongoing
performance of the Group. Underlying performance is calculated before adjusting items and removes the effect of changes
in exchange rates compared to the prior period. This takes into account both the impact of the movement in exchange rates
on the translation of overseas subsidiaries’ results and also on foreign currency procurement and sales through the Group’s
UK supply chain.
Comparable sales is the year-on-year change in sales from stores trading over equivalent time periods and measured at
constant foreign exchange rates. It also includes online sales.
Free cash flow is defined as net cash generated from operations, less capital expenditure plus cash inflows from disposal
of fixed assets. A reconciliation of Free Cash Flow is set out in the five year summary on page 178.
Lease-adjusted net debt is defined as five times minimum lease payments, adjusted for charges and utilisation of onerous
lease provisions, less net cash. This is considered to be a reasonable estimate of operating lease debt which is currently
off balance sheet. For details of minimum lease payments see note 5 of the Financial Statements.
54
Strategic Report – Performance
Revenue analysis
Revenue by channel
£ million
Retail
Wholesale
Licensing
Revenue
Year to 31 March
% change
2017
2,127.2
613.9
24.9
2,766.0
2016
1,837.7
634.6
42.4
2,514.7
reported FX
underlying
16
(3)
(41)
10
3
(14)
(48)
(2)
During FY 2017 Burberry continued to elevate its luxury
brand positioning.
· Continental Europe saw improvements in most markets
through the year, particularly France.
· In retail, through service and cultivation initiatives
and with the launch of our redesigned website.
· The Middle East remained difficult, experiencing negative
footfall trends.
· In wholesale, including Beauty, through tightly
controlling inventory and distribution despite challenging
market conditions.
· And in licensing, reflecting our move to direct luxury
retail operation in Japan.
Retail
77% of revenue (2016: 73%); with 209 mainline stores,
200 concessions within department stores, digital
commerce and 60 outlets.
· Retail sales up 3% underlying.
· Comparable sales up 1% (H1: flat; H2: up 3%).
· New space contributed the balance of growth.
Asia Pacific
With retail accounting for almost 90% of revenue in the
region, Asia Pacific saw broadly unchanged comparable
sales with an improved performance in the second half.
· Mainland China delivered high single-digit percentage
growth, accelerating through the year to deliver
double-digit percentage growth in the fourth quarter.
· Hong Kong improved through the period although
remained negative for the full year, impacted by lower
footfall partially offset by improved conversion.
· Korea, Burberry’s third largest market in Asia,
was impacted by both the macro environment and
Burberry’s own actions to reduce promotional activity.
EMEIA
Retail accounted for 70% of regional revenue. Comparable
sales increased by a high single-digit percentage, with
an improvement to double-digit percentage growth in
the second half.
· Both local customers and tourists contributed to
the positive trends.
· The United Kingdom, delivered an exceptional
performance.
55
Americas
With retail accounting for c. 70% of regional revenue,
comparable sales reduced by a low single-digit percentage.
· The relative strength of the US dollar drove a strong
increase in sales from US customers abroad, while
demand at home reduced (both domestic and tourist).
· Spend from US customers globally was stable.
· Strategic actions were taken to protect brand positioning
in the highly promotional US environment.
Wholesale
22% of revenue (2016: 25%); generated from sales of
apparel and accessories to department stores, multi-brand
accounts, 48 franchise stores and travel retail; as well
as Beauty to distributors.
Wholesale revenue down 14% underlying in line with
guidance, with almost half of the decline from Beauty.
Reflecting the rationalisation of distribution in key
markets to improve the brand positioning and distributor
destocking, Beauty revenue declined by about 20%
underlying (FY 2017: £171m). My Burberry and Mr. Burberry
continue to gain share in key markets as emphasis was
placed on building pillar fragrances.
Excluding Beauty, underlying wholesale revenue declined,
led by a significant decline in Americas in part reflecting
Burberry’s strategy to reposition the brand in the US.
Licensing
1% of revenue (2016: 2%); of which around half is
from Japan, with the balance mainly from global
product licences.
Licensing revenue of £25m, down 48% underlying in
line with guidance, primarily due to the planned expiry
of the Japanese Burberry licence.
Strategic Report – Performance
Operating profit analysis
Adjusted operating profit
£ million
Retail/wholesale
Licensing
Adjusted operating profit
Adjusted operating margin
Year to 31 March
% change
2017
437.0
21.7
458.7
16.6%
2016
380.9
36.9
417.8
16.6%
reported FX
underlying
15
(41)
10
(19)
(49)
(21)
Adjusted operating profit decreased by 21% underlying, in part reflecting actions taken in Beauty, wholesale and licensing.
Delivery of cost savings and tight management of spend was partially offset by investment in growth drivers.
Adjusted retail/wholesale operating profit
£ million
Revenue
Cost of sales
Gross margin
Gross margin
Operating expenses
Adjusted operating profit
Operating expenses as % of revenue
Adjusted operating margin
Adjusted retail/wholesale operating profit decreased
by 19% underlying, up 15% at reported FX, including a
£128m positive impact from exchange rate movements.
This reflected:
· A decline in wholesale profits, particularly in Beauty
and the US;
· Delivery of £20m of planned savings associated with
our cost efficiency programme;
· Ongoing tight discretionary cost management to mitigate
underlying cost inflation;
· Investment of £8m to support our growth initiatives; and
· The rebuilding of the performance related pay charge
(£37m) as guided, partially offset by lower store
impairment and onerous lease charges (£22m)
compared to the prior year.
Year to 31 March
% change
2017
2,741.1
(832.9)
1,908.2
69.6%
(1,471.2)
437.0
53.7%
15.9%
2016
2,472.3
(752.0)
1,720.3
69.6%
(1,339.4)
380.9
54.2%
15.4%
reported FX
underlying
11
11
11
10
15
(2)
(19)
Adjusted licensing operating profit
Year to 31 March
£ million
Revenue
Cost of sales
Gross margin
Gross margin
Operating expenses
Adjusted operating profit
Operating margin
2017
24.9
–
24.9
100%
(3.2)
21.7
87.1%
2016
42.4
–
42.4
100%
(5.5)
36.9
87.0%
% change
reported FX
(41)
–
(41)
(43)
(41)
Adjusted licensing profit was down 41% at reported FX,
including a £3m exchange rate benefit, primarily reflecting
the planned expiry of the Japanese Burberry licence.
Adjusting items
£ million
Beauty licence intangible charges
Costs associated with the transfer
of Beauty operations
Restructuring costs relating to cost
efficiency programme
China put option liability finance
(charge)/income
BME deferred consideration charges
Year to 31 March
2017
(26.1)
(14.5)
(20.8)
(1.0)
(5.2)
(67.6)
2016
(14.9)
–
–
9.9
–
(5.0)
56
Strategic Report – Performance
Cash flow
Cash generated from operating activities in FY 2017 was
£689m (2016: £503m). The year-on-year increase reflects
the growth in adjusted operating profit and a cash inflow
from working capital. Inventory was down 3% underlying,
below retail sales growth, reflecting tight management
in the second half.
Capital expenditure was below guidance at £104m
(2016: £138m) predominantly due to timing of projects
and is expected to return to a more normalised level in
FY 2018. Tax paid of £132m (2016: £95m) was higher than
the prior year reflecting sterling weakness and timing
of payments.
Free cash flow of £465m (2016: £274m) and net cash up
£149m (after dividends, share buyback and payments for
non-controlling interests in China and BME). Net cash at
31 March 2017 of £809m (2016: £660m) and lease-adjusted
net debt of £388m (2016: £441m).
Summary outlook
In what remains a rapidly changing environment, Burberry
will continue to take actions to elevate the brand, maintain
tight discipline on costs and efficient use of capital while
executing its strategic agenda. Burberry’s focus is on the
brand, its products and the execution of the five key
strategies to return Burberry to growth.
Disclosure
To simplify its communication, Burberry is modifying its
disclosure. With effect from FY 2018 Burberry will:
· Report four times per annum
– First and Third Quarter Trading Updates reporting
on retail
– Interim and Preliminary Results
· Publish consensus on the Burberry plc website.
Beauty licence intangible
In the first half, in addition to the planned amortisation
charge of £7.5m, a further £18.6m was recognised to write
down the remaining balance of the intangible to nil, due to
lower than previously planned Beauty revenue expectations.
Costs associated with the transfer of Beauty operations
Costs of £14.5m associated with the transfer of the Beauty
operations to Coty in October 2017. These costs arose in
FY 2017 as a result of decisions made during the period.
Restructuring costs
Restructuring costs of £20.8m were incurred, relating
to Burberry’s cost and efficiency programme, in line
with guidance.
China put option liability
The charge of £1.0m reflects the fair value movement of
the put option liability in the period up to 1 August 2016
when Burberry exercised its call option (see note 6 of the
Financial Statements).
Burberry Middle East (BME) deferred consideration
The £5.2m charge principally reflects foreign exchange
rate movements and the discount unwind on the deferred
consideration for the BME transaction (see note 6 of the
Financial Statements).
Taxation
The tax rate on adjusted profit in FY 2017 was 25.8%
(2016: 24.7%), higher than initially guided principally due
to a change in the geographic mix of our taxable profits,
in addition to a change in the transfer pricing approach
by an overseas tax authority.
Tax on adjusting items has been recognised as appropriate.
The tax charge of £107m (2016: £101m) resulted in an
effective tax rate on reported profit of 27.1% (2016: 24.3%),
higher than the effective tax rate due to certain adjusting
items which are not subject to tax (see note 6 of the
Financial Statements).
Total tax contribution
The Group makes a significant economic contribution to
the countries where it operates through taxation, either
borne by the Group or collected on behalf of and paid
to the relevant tax authorities. In FY 2017, the total taxes
borne and collected by the Group in the UK and overseas
amounted to £426.2m. In the UK, where the Group is
headquartered and has significant operations, Burberry
paid business taxes of £89.1m and collected a further
£15.9m of taxes on behalf of the UK Exchequer.
For further information see www.burberryplc.com.
57
Strategic Report – Performance
Detailed outlook
There is no change to Burberry’s expectation for FY 2018
adjusted PBT at constant exchange rates.
Retail: Burberry will focus on productivity from the current
store footprint and therefore no material contribution from
net new space is expected in FY 2018.
Beauty: Strategic partnership with Coty announced for
Beauty from October 2017.
· The impact is expected to be broadly neutral to adjusted
PBT in FY 2018 and accretive from FY 2019.
· In the second half of FY 2018, Burberry expects to
receive cash payments of £130m for the long-term
exclusive global licence and related transfer of the
Beauty business, and c. £50m for assets transferring,
principally inventory (which is subject to adjustments)
totalling c. £180m.
· Burberry currently expects c. £30m of one-off cash
costs associated with this agreement.
· From the second half of FY 2018 Beauty will transition
from a wholesale business model to licensing. This is
reflected in guidance below. Beauty wholesale revenue
FY 2017: £171m (H1: £70m, H2: £101m).
Wholesale: Burberry expects total underlying wholesale
revenue in the first half of FY 2018 to be down by a mid
single-digit percentage (H1 2017: £287m). This reflects the
potential business disruption for Beauty. Excluding Beauty,
underlying wholesale revenue in H1 2018 is expected to
be broadly unchanged year-on-year (H1 2017: £217m).
Licensing: Total underlying licensing revenue for FY 2018
is expected to be up c. 20% year-on-year.
FY 2018 adjusted PBT:
· At 28 April effective rates, the expected impact of
year-on-year exchange rate movements on reported
adjusted PBT is about £30m adverse. This is an adverse
movement of c. £20m since guidance given in April 2017.
· Burberry expects to deliver around £50m of cumulative
cost savings and to invest about £20m.
In addition, to deliver the strategic savings, c. £40m
of one-off restructuring costs are expected.
Tax rate: The tax rate on adjusted profit for FY 2018
is currently expected to improve by about 80bps to
about 25%.
Capital expenditure: Spend of about £140m is planned
in FY 2018.
Store portfolio
At 31 March 2016
Additions
Closures
At 31 March 2017
Store portfolio by region
At 31 March 2017
Asia Pacific
EMEIA
Americas
Total
Directly operated stores
Stores
Concessions
Outlets
215
13
(19)
209
214
7
(21)
200
58
4
(2)
60
Directly operated stores
Stores
Concessions
Outlets
62
73
74
209
135
57
8
200
16
23
21
60
Total
487
24
(42)
469
Total
213
153
103
469
Franchise
stores
62
–
(14)
48
Franchise
stores
7
41
–
48
Exchange rates
Effective rates for FY 2018 as at 28 April 2017: Euro 1.19, US Dollar 1.29, Chinese Yuan 8.89, Hong Kong Dollar 10.02,
Korean Won 1,458.
58
Strategic Report – Performance
Capital Allocation
Framework
Driving shareholder value.
Burberry’s new Capital Allocation Framework is used to prioritise the use of cash generated by the Group. The framework
addresses the investment needs of the business, regular dividend payments and additional returns to shareholders.
The framework also seeks to maintain an appropriate capital structure for the business and a strong balance sheet with
solid investment grade metrics.
The diagram below summarises the key priorities.
Reinvest for
organic growth
· Store portfolio
– New space and
renovation
· IT
– Infrastructure and
digital
· Supply chain
Progressive
dividend policy
Strategic investments
· Committed to maintaining
or growing the dividend in
pence terms year-on-year
· Investment in structural
changes to business
activities
· Deliver regular returns to
shareholders
· Typically these
investments tend to
be infrequent, but can
be significant, such as
the acquisition of China
non-controlling interest
Return excess to
shareholders
· Review future cash
generation, reflecting
Burberry’s growth,
productivity and
investment plans, taking
into consideration the
external environment
Maintain strong balance sheet with solid investment grade credit metrics as indicated by capital structure metrics
· Review the principal risks of the Group and the relevant financial parameters, both historical and projected, including
· These risks are considered by the Board when assessing the viability of the Group, as set out on page 61.
net cash, lease-adjusted net debt and measures covering balance sheet strength and fixed charge cover.
Capital structure metrics
Net cash
Lease-adjusted net debt
FY 2017
£809m
(£388m)
FY 2016
£660m
(£441m)
Burberry has applied its capital allocation framework during the year ended 31 March 2017, as follows.
· Reinvested £104m into the business as capital expenditure.
· Increased its full year dividend by 5% to 38.9p.
· Invested £69m in the strategic acquisition of non-controlling interests in China and the Middle East.
· From July 2016 to April 2017 £100m of an announced £150m was returned to shareholders via a share buyback
programme. In addition, a further share buyback of £300m has been announced for completion in FY 2018,
in addition to £50m already announced. This is inclusive of the distribution of the Coty upfront sum.
59
Strategic Report – Performance
PRINCIPAL
RISKs
Effective management of risk is essential to the execution of the
Group’s strategies, the achievement of sustainable shareholder value,
the protection of the brand and ensuring good governance.
The Board is responsible for the Group’s risk management
and internal controls system and reviewing its effectiveness.
The system is designed to identify and manage, rather than
eliminate, the risk of failure to achieve the Group’s strategic
objectives and to provide reasonable but not absolute
assurance against material misstatement or loss. More
information on the Group’s internal control and risk
management systems can be found in the Corporate
Governance Report on pages 70 to 86.
· information provided for the purposes of deciding
whether to approve those significant matters which
have been reserved for the Board;
· Group risk assessments facilitated by the Group
Risk function and the reports of the internal and
external auditors; and
· risk appetite guidelines relating to the Group’s
principal risks.
The Board has overall responsibility for determining the
nature and extent of the principal risks it is willing to take
in achieving its strategic objectives (its risk appetite), and
for ensuring that risks are managed effectively. The Board
has delegated to the Audit Committee the 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 Risk function facilitates a risk
assessment process in each key business area and global
support function to review the significant risks facing Group
operations and the controls and actions in place to mitigate
these. The detailed assessments are then consolidated to
provide input into the overall Group risk assessment.
The Board and the executive management team use
a combination of different and complementary skills to
assess the risks facing the business. In determining its
risk appetite the Board considers a variety of information
when reviewing the Group operations and in approving key
matters reserved for its decision. This information includes:
· updates provided by senior management on key strategic
and operational matters;
· discussion and approval by the Board of the Group’s
three-year strategic plan, budget and viability statement
(see page 61);
The risks set out in the table on the following pages
represent the principal risks and uncertainties which
may adversely impact the performance of the Group
and the execution of its key strategies. The Group’s
key strategies are set out on pages 33 to 44.
Within the table is a summary of how each risk is defined,
its context, potential impact, mitigating activities and the
Group’s assessment of the change in risk during 2016/17.
This assessment is based on the external environment in
which the Group operates, its business operations and the
impact of the Group’s internal controls on the severity of the
risk in the period. The Group’s risk exposure is continually
reviewed by senior management and is therefore subject
to change as a result of internal and external factors,
future events or otherwise. It is not possible for the Group
to implement controls to respond to all the risks it may
face and the steps the Group has taken to address
certain risks (including those listed) may not manage
these risks effectively.
The principal risks are not listed in order of significance
and each of the risks should be considered independently.
If more than one of the events contemplated by the
risks set out occurs, it is possible that the combined
overall impact of such events may be compounded.
The Group Risk function examines these risks for
correlation impacts. Other factors could also adversely
affect Group performance and so the risks set out
should not be considered to be a complete set of all
potential risks and uncertainties the Group may face.
60
Strategic Report – Performance
The stress testing consisted of estimating the impact of
revenue sensitivities on the profitability and cash generation
in the Group’s strategic plan, together with reverse stress
testing to identify the theoretical revenue sensitivity that
the Group could absorb, without impacting its viability.
The sensitivities took account of the likely mitigating
actions available to the Directors through adjustments
to the operating plan in the normal course of business,
together with resulting impacts on returns to shareholders.
The period considered for the assessment was three
years to March 2020. This period was considered
appropriate by the Directors on the basis of the following.
· It is the period for which the Group’s strategic plan
was prepared.
· It is sufficient to encompass the completion of the almost
all currently approved capital expenditure projects.
· As the Group has no contracted income, and as most
current projects will be completed in the three-year
period, any projections beyond March 2020 will only
vary as a result of estimates of sales growth and cost
growth assumptions.
In assessing the viability of the Group, the Directors
have also taken into account the Group’s current liquidity
and available facilities (set out in note 21 of the Financial
Statements) and financial risk management objectives
and hedging activities (set out in note 25).
On the basis of this assessment, the Directors have
a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they
fall due over the period to March 2020.
In making this statement, the Directors have made
the key assumption that there is no material long-term
impairment to the Burberry brand.
The key changes in the principal risks during the
year include the following.
· Following the outcome of the UK referendum to leave
the EU and the invoking of Article 50, uncertainties
remain about the impact of Brexit on the Group’s
operations and financial performance. The Group has
considered the possible consequences that Brexit could
have upon the business and has concluded that it does
not raise any new principal risks. However, it does have
the potential to impact a number of the Group’s existing
risks at an individual risk level including: outlook for the
luxury sector remains uncertain, volatility of exchange
rates, loss of key management personnel and regulatory
requirements. The Group has established a Brexit
Steering Committee to monitor developments arising
from Brexit, headed by the Chief People and Corporate
Affairs Officer, who will provide regular updates on this
to the Board.
· The previous risk relating to the failure to realign
the organisational resource capability to deliver the
productivity and efficiency agenda announced last
May, has been reclassified as one relating more
generally to the loss of key management personnel
or the inability to attract and retain key employees.
This shift reflects that the implementation of the
Group’s growth and productivity and efficiency
programme is well under way.
Longer-term viability statement
During the year, the Directors have carried out a robust
assessment of the principal risks of the Group, set out
on pages 62 to 65. The Directors have also identified
those risks which they consider could potentially impact
the viability of the Group.
The Directors have assessed the potential impact of
these risks materialising and the impact on the ability
of the Group to continue in operation and to meet its
obligations. This assessment consisted of an analysis
of the potential impact of the net risks on the Group’s
viability and, where appropriate, stress testing.
The Group’s annual corporate planning process consists of
the preparation of a three-year strategic plan, reforecasting
of the current year business performance during the year
and preparation of a more detailed budget for the following
year. The Directors have reviewed the plans, forecasts and
budget including assumptions regarding the Group’s
products and markets, expenditure commitments and
expected cash flows.
61
Strategic Report – Performance
Risk
Business impact
Mitigation
A major breach in cyber
systems or information
security could adversely
impact the Group’s
business operations and/
or result in a major data
loss adversely impacting
the Group’s reputation.
The Group’s customer and employee data,
Burberry.com business, digital strategy and
operations mean that it is critical that the
Group’s technology is robust, its systems are
secure and data protected. Sensitive data
faces the threat of misappropriation and
a breach of cyber-security on key business
systems could also affect business operations.
Change in level of risk
No material change
Strategic link
All key strategies
The outlook for the luxury
sector remains uncertain.
Changes and events in the external market
or environment could impact the Group’s
performance and the delivery of its strategies.
These changes or events could include:
(i) a sustained economic slowdown, which
adversely impacts the Group’s customers,
suppliers and operations; (ii) a change in
consumer behaviour or other events, which
adversely impact consumer demand
particularly in relation to key consumer groups
who make a significant contribution to Group
revenues; and (iii) increasing global economic
uncertainty including matters such as Brexit
which could have an impact on economic
growth and adversely impact the Group or give
rise to additional costs relating to movements
of inventory within the supply chain.
Change in level of risk
No material change
Strategic link
Productive Space, E-Commerce Leadership
Inability of the
organisation to
successfully deliver
the growth and
productivity and
efficiency programme
without compromising
business as usual.
The growth and productivity and efficiency
programme is being implemented to optimise
future organic revenue growth opportunities
and to deliver productivity and efficiencies,
particularly through ways of working.
The failure to effectively manage this
programme could adversely impact the
delivery of the Group’s strategies, the
anticipated productivity and efficiency
improvements, and its operations and return
on investments. The Group’s systems of
internal control will need to be maintained.
Change in level of risk
Decreased risk
Strategic link
All key strategies
Information systems and cyber-security continued to receive
substantial Audit Committee focus during the year to ensure
that the Group’s response to this developing risk is appropriate.
Investment in the ongoing cyber-security programme continued
and a four-year security strategy was reviewed and approved
by the Audit Committee. A new Information and IT security
team was put in place.
Ongoing activities to detect and investigate threats and
incidents including with the support of key technology
partners and suppliers.
Evaluation and testing of cyber-security using specialist
third parties and of the crisis management and wider
business continuity plans.
With the outlook for demand in the luxury sector remaining
uncertain and underlying cost pressures persisting for the
sector, in May 2016 the Group outlined its productivity
and efficiency agenda and its plans to optimise future organic
revenue growth opportunities.
The global reach of the Group helps to mitigate local economic
and geopolitical risks.
The Group focuses on engaging consumers through the Brand
and realising its opportunities among key consumer groups
and geographic markets.
The Group’s financial reporting and review processes are
designed to highlight any change in ongoing sales performance
to enable action planning to address underperformance.
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.
The Group would seek to mitigate any adverse cost impacts
arising as a result of Brexit, through optimisation of operations
within the supply chain.
The Senior Leadership Team is accountable for the conduct of
this programme and the delivery of the outcomes in accordance
with the plan approved by the Board.
A Transformation Management Office (‘TMO’) has been
established to drive and coordinate delivery and to monitor risks
of each of the major programmes underway.
Progress of the delivery of the programme is subject to regular
review by the Board. The Board also approves the Group’s
strategies, its three-year plan and annual budget.
62
Strategic Report – Performance
Risk
Business impact
Mitigation
Loss of key management
or the inability to
attract and retain
key employees.
Insufficient capability and capacity in senior
management and insufficient employees
with the right skills may limit the Group’s
ability to execute the Group’s strategies
and change programme.
The period of change may result in a loss of
key individuals or the inability to recruit and
retain individuals with the relevant talent and
experience, which could disrupt the operation
of the business and adversely impact the
Group’s ability to deliver its strategies.
Brexit may have an adverse impact on
the Group’s UK workforce which includes
EU nationals, including within senior
management.
Change in level of risk
Amended risk
Strategic link
All key strategies
The Inspired People strategy has been established to oversee
the Group’s organisational capability requirements, culture
and engagement, equality and wellbeing, talent development,
training and reward and recognition.
The Board and Audit Committee regularly review key talent
and resource risks.
There is a programme of clear and open engagement with
employees to promote an environment of trust and honesty.
Competitive incentive arrangements currently exist, with
specific initiatives in place designed to retain key individuals.
Recruitment is ongoing and talent review and succession
planning programmes are in place and are regularly reviewed
and updated.
The Group would seek to mitigate any adverse impacts on its
UK workforce arising from Brexit. The Group’s Brexit Steering
Committee will keep this under review.
Sustained breaches of
the Group’s intellectual
property rights and
unauthorised sale of
Burberry products.
Trade marks 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 unauthorised sale of Burberry
products and distribution of counterfeit
products, damages the Burberry brand
image and profits.
The Group’s global Brand Protection team is responsible for
the Group’s brand protection efforts globally, including in the
digital environment. Where infringements are identified these are
addressed through a mixture of criminal and civil legal action and
negotiated settlement. IP rights are driven largely by national laws
which afford varying degrees of protection and enforcement
priorities depending on the country.
Change in level of risk
No material change
Strategic link
Product Focus, Productive Space, E-Commerce
Leadership
Chinese consumer
spending patterns
significantly change
adversely impacting
the Group’s revenues.
A significant proportion of the Group’s
sales are to Chinese consumers globally.
Consequently, any change to Chinese
consumer tastes or the economic, regulatory,
social and/or political environment in China
could adversely impact this consumer group’s
disposable income, confidence and travel,
which could impact the Group’s revenue
and profits.
Change in level of risk
No material change
Strategic link
Product Focus, Productive Space, E-Commerce
Leadership, Operational Excellence
Volatility in foreign
exchange rates could
have a significant
impact on the Group’s
reported results.
The Group operates on a global basis and
earns revenues, incurs costs and makes
investments in a number of currencies.
The Group’s financial results are reported in
Sterling. The majority of reported revenues
are earned in non-Sterling currencies, with
a significant proportion of costs in Sterling.
Therefore, changes in exchange rates which
are driven by a number of factors, such as
global economic trends, Brexit or other
developments, can impact the Group’s
revenues, margins, profits and cash flows.
Change in level of risk
No material change
Strategic link
All key strategies
63
The global reach of the Group helps to mitigate reliance on
particular consumers. In addition, the Group continues to
focus on engaging with the Chinese luxury consumer, both
in China and while travelling abroad.
The Group seeks to hedge anticipated foreign currency
transactional cash flows using financial instruments. These are
mainly in the Group’s centralised supply chain and wholesale
and Beauty businesses. The Group does not hedge intra-group
foreign currency transactions at present. The Group monitors the
desirability of hedging the net assets of non-Sterling subsidiaries
when translated into Sterling for reporting purposes, but the
Group has not entered into any material transactions for this
purpose in the current or previous year.
Strategic Report – Performance
Risk
Business impact
Mitigation
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,
with 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.
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 key distribution hubs helps to mitigate this risk.
A Group incident management framework is in place that
addresses the reporting and management of major incidents,
and is tested each year using third-party specialists. Tailored
plans have been produced for a number of high-impact
events. These plans are regularly reviewed and updated.
Change in level of risk
Decreased risk
Strategic link
All key strategies
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 Group monitors and seeks to continuously 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 corporate and regional level, supported
by third-party specialists where required, are responsible
for ensuring employees are aware of regulations relevant
to their roles.
Assurance processes are in place to monitor compliance in
a number of key risk areas, with results being reported to the
management Risk Committee and Board Audit Committee.
The Group’s Brexit Steering Committee will keep under
review any regulatory requirements arising from Brexit.
Change in level of risk
No material change
Strategic link
All key strategies
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 impact
on revenue and profits.
A number of initiatives are in place, led by the Corporate
Responsibility function. These include the continuing
activities set out in the Responsibility section on pages
47 to 51.
Change in level of risk
No material change
Strategic link
All key strategies
Over-reliance
on key vendors.
The Group relies on a number of vendors
in key product categories. Failure of these
businesses to deliver products or services
would have a significant impact on
business operations.
The Group continues to evolve its supply chain organisational
design to develop its manufacturing base to reduce
dependence on key vendors. The Group is extending its
business continuity planning framework to key vendors in
specific business operations to minimise the impact of an
incident affecting those vendors.
Change in level of risk
No material change
Strategic link
Product Focus, Productive Space, E-Commerce
Leadership
64
Strategic Report – Performance
Risk
Business impact
Mitigation
The Group’s IT
systems and operational
infrastructure are critical
to its operation and
the delivery of products,
services and market
communications to
its consumers.
Change in level of risk
No material change
Strategic link
All key strategies
A failure in these systems could have a
significant impact on the Group’s operations
and reputation.
The Group also relies on a small number of
vendors of specialist digital and IT services,
thereby concentrating the impact of this risk.
The Group’s IT systems and infrastructure continue to receive
substantial Audit Committee focus.
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.
These recovery plans are tested on a regular basis.
The Group has continued to strengthen its internal Digital
and IT teams and actively manages dependency on external
specialist services.
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.
Change in level of risk
No material change
Typical potential risks faced in these markets
include: seizure of assets or staff, business
associate practices that are inconsistent
with the Group’s ethical standards and the
UK regulatory environment, and increased
operational costs due to country-specific
processes driven by the operating or
regulatory environment.
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 ongoing developments.
Where appropriate, the Group seeks to work with franchisees
or partners who compensate for its relative lack of experience
in a number of these markets.
Strategic link
Productive Space, E-Commerce Leadership,
Operational Excellence
65
Board and
Governance
68 Board of Directors
87 Directors’ Remuneration Report
70 Corporate Governance Report
112 Directors’ Report
Board and Governance – Board of Directors
Board of Directors
Sir John Peace (68)†
Chairman
Sir John Peace became Chairman of the Board in June 2002 and is also Chairman of the Nomination
Committee. Previously he was Chairman of Standard Chartered PLC from 2009 to 2016, Chairman
of Experian plc from 2006 to 2014, and Group Chief Executive of GUS plc from 2000 to 2006.
Sir John is Lord-Lieutenant of Nottinghamshire and was knighted in 2011 for services to business
and the voluntary sector.
Christopher Bailey (46)
Chief Creative and Chief Executive Officer
Christopher Bailey became Chief Creative and Chief Executive Officer in May 2014, having previously
served as Chief Creative Officer since 2009. Christopher joined as Design Director in May 2001.
Prior to working at Burberry, Christopher was the Senior Designer of Womenswear at Gucci in
Milan from 1996 to 2001. From 1994 to 1996 he was the Womenswear Designer at Donna Karan.
Christopher will transition into his new role of President and Chief Creative Officer in July 2017.
Julie Brown (55)
Chief Operating and Financial Officer
Julie Brown became Chief Operating and Financial Officer on 18 January 2017. Julie was Chief Financial
Officer of Smith & Nephew from 2013 to 2017. Prior to this Julie was with ICI and AstraZeneca plc from
1987, where she held the positions of Interim Group CFO, Vice President Group Finance, VP Corporate
Strategy and Regional Vice President Latin America. She is also a non-executive director and Audit
Committee Chair of Roche Holding Ltd.
Philip Bowman (64)†‡
Senior Independent Director
Philip Bowman was appointed as a non-executive director in June 2002 and is the Senior Independent
Director. Philip is Chairman of Majid Al Futtaim Properties LLC and a non-executive director of
Ferrovial S.A. Philip was Chief Executive of Smiths Group plc from 2007 to 2015, and previously held
the positions of Chief Executive at Scottish Power plc and Chief Executive at Allied Domecq plc. 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.
Fabiola Arredondo (50)†‡
Non-executive director
Fabiola Arredondo was appointed as a non-executive director in March 2015 and is Chair of the
Remuneration Committee. Fabiola is currently the Managing Partner of Siempre Holdings, a private
investment firm based in Connecticut, US. She is also a non-executive director of the Campbell Soup
Company, NPR, Inc. (National Public Radio), and a former Board trustee and a current member of the
National Council of the World Wildlife Fund. Prior to Siempre Holdings, Fabiola held senior operating
roles at Yahoo! Inc, the BBC and Bertelsmann AG. She has also previously served as a non-executive
director of Experian plc, Rodale Inc., Saks Incorporated, Intelsat Inc., BOC Group plc, Bankinter S.A.,
and Sesame Workshop.
68
Board and Governance – Board of Directors
Ian Carter (55)†‡
Non-executive director
Ian Carter was appointed as a non-executive director in April 2007. He is President of Hilton Worldwide
Global Development and Chairman of Del Frisco’s Restaurant Group, Inc. Previously, Ian was CEO of
Hilton International Company and Executive Vice President of Hilton Hotels Corporation and 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.
Jeremy Darroch (54)*†
Non-executive director
Jeremy Darroch was appointed as a non-executive director in February 2014 and is Chairman of the
Audit Committee. He is Chief Executive Officer of Sky plc, a position he has held since 2007, having
joined the company as Chief Financial Officer in 2004. Prior to Sky, Jeremy was Group Finance Director
of DSG International plc (formerly Dixons Group plc) and spent 12 years at Procter & Gamble in a variety
of roles in the UK and Europe. Jeremy also previously served as a non-executive director and Chairman
of the Audit Committee of Marks and Spencer Group plc.
Stephanie George (60)†‡
Non-executive director
Stephanie George was appointed as a non-executive director in March 2006. She is an adviser to
Penske Media Corporation and was recently Vice Chairman of Fairchild Fashion Media Inc (parent
of Women’s Wear Daily). Stephanie also sits on the Board of Lincoln Center. Previously, Stephanie
was Executive Vice President and Chief Marketing Officer at Time Inc. and spent 12 years at
Fairchild Publications.
Matthew Key (54)*†
Non-executive director
Matthew Key was appointed as a non-executive director in September 2013. Matthew is a non-executive
director of Orbit Showtime Network, a leading multi-platform pay TV network in the Middle East and
North Africa, and he recently stepped down from his role on the European Advisory Board of Samsung
Group. Previously, Matthew was Chairman and Chief Executive Officer of Telefónica Digital, the global
innovation arm of Telefónica. He also previously served as Chairman and CEO of Telefónica Europe plc
(formerly O2 plc), Chief Executive Officer and Chief Financial Officer of O2 UK, and Chief Financial
Officer for Vodafone UK. Prior to this, he held various financial positions at Kingfisher plc, Coca-Cola
& Schweppes Beverages Limited and Grand Metropolitan Plc. Matthew is also Chairman of the Dallaglio
Foundation, which is a charity focused on disengaged youth.
Dame Carolyn McCall (55)*†
Non-executive director
Dame Carolyn McCall was appointed as a non-executive director in September 2014. Carolyn
is Chief Executive of easyJet plc, a position she has held since July 2010. Prior to easyJet, she held
a number of roles at Guardian Media Group plc including Chief Executive from 2006 to 2010. She
has also previously served as a non-executive director of Lloyds TSB, Tesco PLC and New Look plc.
Carolyn was awarded the OBE for services to women in business in June 2008 and a Damehood for
services to the aviation industry in January 2016.
Committee membership key
* Audit Committee
† Nomination Committee
‡ Remuneration Committee
Carol Fairweather (56)
Chief Financial Officer
Carol Fairweather became Chief Financial Officer in July 2013, having joined Burberry in June 2006.
Carol stepped down from the Board on 18 January 2017.
John Smith (59)
Chief Operating Officer
John Smith became Chief Operating Officer in March 2013 having previously been a non-executive
director from December 2009. John stepped down from the Board on 31 March 2017.
69
Board and Governance – Corporate Governance Report
Corporate
Governance report
Dear Shareholder,
This has been an important year of change for Burberry
with the implementation of the programme announced
in May 2016, to accelerate our productivity and efficiency
agenda, and the change of executive management
during the year.
As a Board we have spent a significant amount of time
during the year monitoring progress of the implementation
of this programme and the impacts on the organisation
arising from changes in ways of working. In particular, the
Board considered the leadership roles required to maximise
Burberry’s ability to successfully implement these plans. It
was identified that there was a need for a new chief executive
with strong luxury retail experience to lead on the commercial,
operational and financial elements of the business, who could
partner closely with Christopher Bailey, who would continue
his leadership of the brand and design elements of the
business as President and Chief Creative Officer. These
joint leadership roles would share responsibility for strategy
and would report jointly to the Chairman.
As Carol Fairweather had signalled her intention to step
down as Chief Financial Officer and John Smith as Chief
Operating Officer, focus was also on the succession of
these roles. To align with the transformation programme,
the aim was to seek an individual with a strong financial and
commercial background who could combine these roles.
The Board unanimously supported the appointment of
Marco Gobbetti as Chief Executive Officer who will join
the Board on 5 July 2017, and Julie Brown who joined
the Board as Chief Operating and Financial Officer on
18 January 2017. Marco has more than 20 years’ experience
in the luxury industry and has a proven track record for
growing and developing brands through his strong retail
and customer-focused strategies. He joined Burberry in
January as Executive Chairman, Asia Pacific and Middle
East enabling him to familiarise himself with this very
important region for the Company and we look forward to
him joining the Board in July. Julie has an outstanding track
record in the commercial and financial aspects of a global
business as well as business transformation and has
already made a strong impact since joining in January.
I would like to express my gratitude to both Carol and John
for their dedication and service to Burberry over the years
and their professionalism and support in facilitating an
orderly succession process.
particularly in the context of significant management
change. The composition of the Board has evolved
significantly over the past few years with the appointment
of four new non-executive directors and one longer-serving
director stepping down. Further changes are planned
over the coming year.
Following a previous review of the Board Committees,
changes were implemented during the year. This included
the appointment of Jeremy Darroch as Chair of the
Audit Committee and Fabiola Arredondo as Chair of
the Remuneration Committee, as well as changes to
the composition of those Committees.
As Chairman I am responsible for leading and ensuring
an effective Board. I am pleased to advise that the
Board has operated very effectively during the year. In
particular, directors have contributed important insights
and constructive challenge in support of the important
changes taking place in the organisation and executive
management. Our annual Board effectiveness review
confirmed that the Board is comprised of high quality
non-executive directors with the right mix of skills,
experience and the right focus. I would like to thank the
Board for its hard work and support during the year.
It is also important to have an open and ongoing dialogue
with our shareholders and other stakeholders, particularly
during times of change. During the year, a combination of
myself, individual non-executive and executive directors
and other members of senior management participated
in around 166 meetings with investors, including with the
Group’s 25 largest investors.
Our new Remuneration Policy will be presented to
shareholders for their vote at our upcoming AGM, and
so our Remuneration Committee Chair Fabiola Arredondo
has been meeting with our shareholders and consulting
with them on the proposed Policy. You can read more
about the Policy in the Directors’ Remuneration Report
on pages 87 to 111.
I commend this report to all of our shareholders as it details
the work of the Board and its Committees during the year
along with the assessment of its performance. During the
coming year the Board will continue to focus on supporting
the change programme and the leadership team as they
settle into their new roles.
Board succession and composition will continue to remain
a priority for the coming year as the Board continues to
execute on its succession plan. The aim is to continue to
refresh the Board while ensuring stability and continuity,
Sir John Peace
Chairman
70
Board and Governance – Corporate Governance Report
Governance
The Board is collectively responsible for promoting Burberry’s
long-term success, for setting its strategic aims and ensuring a
framework of prudent and effective controls.
This report sets out the Board’s approach and work during
the financial year 2016/17 and, together with the Directors’
Remuneration Report on pages 87 to 111, includes details
of how the Company has applied and complied with the
principles and provisions of the UK Corporate Governance
Code issued in September 2014 (the ‘Code’). The directors
consider that the Company has complied with the
provisions of the Code throughout the year.
Our Board
The Board currently consists of ten members – the
Chairman, the Chief Creative and Chief Executive Officer,
the Chief Operating and Financial Officer and seven
independent non-executive directors. A list of directors
and their biographies is set out on pages 68 and 69.
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 overall effectiveness and governance. He
also ensures the effective communication between the
Board, management and with shareholders and the
Group’s wider stakeholders.
The Chairman works collaboratively with the Chief Creative
and Chief Executive Officer, Christopher Bailey, in setting
the Board agenda and ensuring that 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 to shareholders for the
Company’s performance and he makes himself available
to meet with the Company’s main institutional shareholders.
The major commitments of the Chairman are detailed in
his biography on page 68.
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,
an independent perspective and constructive challenge
and monitor the performance and delivery of the strategy
within the risk parameters set by the Board.
The Chief Creative and Chief Executive Officer,
Christopher Bailey, 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 Creative and Chief Executive
Officer is assisted by members of his Senior Leadership
Team who meet regularly.
On Marco Gobbetti taking up his role as Chief Executive
Officer on 5 July 2017, Christopher Bailey will transition to
the role of President and Chief Creative Officer at that time,
creating a shared leadership framework, with both Marco
and Christopher reporting directly to the Chairman. Marco
will be responsible for all commercial, operational and
financial elements of the business, with Christopher
responsible for all elements of brand and design, and
shared responsibility for people and strategy.
The Company Secretary, Catherine Sukmonowski, acts
as Secretary to the Board and all the Board’s Committees
and is responsible for supporting the Chairman in the
delivery of the corporate governance agenda.
71
Board and Governance – Corporate Governance Report
Role of the Board
It is the responsibility of the Board to support management
in its strategic aims to enable the Company to continue to
perform successfully and sustainably for our shareholders and
wider stakeholders.
The Board is ultimately responsible for promoting the
long-term success of the Group. The Board leads and
provides direction for management by setting strategy and
overseeing its implementation by management. The Board
is also responsible for oversight of the Group’s systems
of governance, internal control and risk management.
Specific key decisions and matters have been reserved
for approval by the Board. These include decisions on the
Group’s strategy, the annual budget and operating plans,
major capital expenditure and transactions, financial
results, the dividend and other capital returns, the approval
of the Group’s risk appetite and other governance issues.
The matters reserved for the Board’s decision are available
on the Company’s website at www.burberryplc.com.
Role of the Board Committees
The Board is supported in its activities by a number
of committees including the following principal
committees: Audit Committee; Nomination Committee;
and Remuneration Committee. The terms of reference
of each of the principal committees can be viewed on
the Company’s website at www.burberryplc.com.
The Committees can engage third-party consultants
and independent professional advisers and can call
upon other resources of the Group to assist them in
discharging their respective responsibilities.
In addition to the relevant committee members and the
Company Secretary, external advisers and, on occasion,
other directors and members of the senior management
team, attend committee meetings, but only at the invitation
of the Chair of the relevant Committee.
Set out on pages 81 to 86 are reports from the Audit and
Nomination Committees. The report of the Remuneration
Committee is set out on pages 87 to 111.
Board
Nomination
Committee
Remuneration
Committee
Audit
Committee
Chief Creative and
Chief Executive
Officer
Risk
Committee
Senior
Leadership Team
Global Health and
Safety Committee
Global Ethics
Committee
72
Board effectiveness
The Board has operated very effectively during the year,
particularly to support the important changes taking place
in the organisation.
Highlights of Board activities during 2016/17
During the financial year the Board held six scheduled
meetings, including an in-depth two-day session on
strategy, and an additional meeting to discuss the
productivity and efficiency programme and ways of
working review, which was announced by the Group in
May 2016. In connection with this programme the Board
spent a significant amount of time during the year on
matters relating to the implementation of the programme,
as well as on key strategic decisions such as the strategic
partnership for the Group’s Beauty business. A significant
amount of time was also spent, including outside of
scheduled meetings, to consider the appointment of the
new Chief Executive Officer, and Chief Operating and
Financial Officer.
The Board and Committee agendas were shaped to
ensure that discussion was focused on the Group’s key
strategies and monitoring activities, as well as reviews
of significant issues arising during the year. The Group’s
ongoing financial and strategic performance is reviewed
at every meeting and the Chief Creative and Chief Executive
Officer and the Chief Operating and Financial Officer
comment on current trading, the market, products,
key brand moments and Group culture.
In addition, to allow for opportunities for the Board
to engage with senior management to discuss key
elements of the business, individual Board members
are offered meetings with senior management and a
number of Board dinners were held during the year.
The table below gives the highlights of how the Board
and its Committees spent their time during the FY 2017
financial year (but it is not an exhaustive list of topics
covered). Further information on the Group’s strategic
focus during the year is set out in the key strategies
section starting on page 33. The more detailed work
of the Committees is set out in this report.
Strategy and
Business Focus
CC and CEO’s regular updates on current trading, the business and operations.
Annual strategy session (two days).
Consideration of progress of the Group’s productivity and efficiency programme and ways of working review
announced May 2016.
Discussed and approved the strategic partnership with Coty for the Group's Beauty business.
Received briefings on key areas of the business, the external economic environment and the luxury sector.
Consideration of the Group’s capital structure, balance sheet strategy and returns to shareholders.
Year end review of the business/sector outlook and consideration of the 2017/18 budget in the context of the three-year plan.
Oversight and Risk Review of the Interim and Preliminary results announcements, 2016/17 Annual Report and Accounts.
Review of risk assessments, internal controls framework, business controls and consideration of risk appetite.
Consideration of the strategic risks and impact on the three-year plan.
Consideration of the Group’s viability statement and the viability assessment and stress testing underpinning the statement.
Review of audit plan for the year, reappointment of auditors and non-audit fees.
Review of the simplification of the Group’s operating processes including the upgrades of the Group’s IT systems.
Review of IT general controls and cyber-security plans and activities.
Consideration of various treasury matters and amendments to the Treasury Policy.
Consideration of Group tax matters including the Group’s approach to tax risk.
Governance and
Engagement
Approved the appointment of the new Chief Executive Officer and the Chief Operating and Financial Officer.
Received reports from Board Committees.
Consideration of the UK Corporate Governance Code and other regulatory requirements for the Annual Report.
Preparation for, and review of, the Notice of AGM.
Discussed regular updates from Investor Relations on share price, performance metrics, register activity,
and investor and analyst sentiment.
Engaged with investors throughout the year and responded to retail shareholder questions at the AGM.
Considered progress in relation to management succession, the Board succession plan, Committee roles
and composition.
Assessed the outcome of the Board/Committee effectiveness review.
Consideration of director indemnification and Director’s and Officer’s insurance renewal.
Consideration of director conflicts of interest.
People, culture
CC and CEO’s regular updates on key brand moments and culture.
and values
Consideration of updates on progress with the Inspired People strategy.
Consideration of regular updates from the management Ethics Committee.
Consideration of the Group’s charitable activities, including the Burberry Foundation.
73
Board and Governance – Corporate Governance Report Evaluating our performance in 2016/17
The Board undertakes a formal review of its performance
and that of its Committees each financial year, and is
required to conduct an external evaluation once every three
years. This year’s review of the Board’s and Committees’
effectiveness was facilitated internally by the Company
Secretary. The Board’s next external evaluation is due to
take place during FY 2018.
This has been an important year of change for the Group
with the productivity and efficiency programme and ways
of working review announced in May 2016 and the change
of executive management during the year. Against this
backdrop the Chairman held one-to-one meetings with
each of the directors to facilitate a wide-ranging discussion
and, in particular, to ascertain directors’ reflections
on events over the past year and views on the future
composition and operation of the Board/Committees,
including what areas of future priority the focus should
be. The Chairman also discussed directors’ roles and
performance (see ‘Directors’ performance’ on page 75).
The Chairman reported to the Board on the key themes
and recommended actions arising from this review.
The overall view from the feedback was that the Board
had operated very effectively during the year, particularly
to support the important changes taking place in the
organisation including executive management. The Board
was comprised of high quality non-executive directors with
the right mix of skills and experience, and the right focus.
During the coming year the Board should ensure that it
continues to focus on important strategic matters and
continues to track the Group’s progress with its key
strategies and its productivity and efficiency programme.
Progress with the Board’s succession plan should
continue to be a priority.
Below is a summary of the key themes and
recommendations/actions identified from the 2016/17
review and progress against the actions arising from
last year’s review.
Key themes
2016/17 review
2015/16 review
Views
Actions
Progress against prior year actions
Board
composition
and ongoing
NED support
The Board was comprised of high quality
non-executive directors, with the right
skills and experience and the right focus.
Continuing the Board succession
plan was a priority. The pace of change
should continue to be balanced by
the need to ensure stability given
the significant management and
organisational changes.
The Board succession plan would
continue to be a priority with the aim
of appointing additional non-executive
directors in the coming year, to enable
longer-serving members to step down.
Previous action: Specific areas for further
‘deep dives’ into the business and
competitive landscape were identified.
The in-depth two day session on strategy
had focused on specific areas of the
business, the luxury sector and the
Group’s peers. In addition, deep dives
were given on the Group’s key strategies
as part of the Board’s consideration and
monitoring of progress with the Group’s
productivity and efficiency programme.
Previous action: The Board should
continue to focus on its succession plan.
The Nomination Committee had actively
engaged in progressing the Board’s
succession plan, meeting a number of
potential candidates during the year.
Board/
Committee
focus
The Board should ensure that it continues
to focus on important strategic matters
and continues to track the Group’s
progress with its key strategies and its
productivity and efficiency programme.
Board/
Committee
effectiveness
The Board/Committees work very well,
with the right focus and good meeting
dynamics. It is important that the Board
is regularly updated on the progress of
key items/actions.
These specific areas of Board focus
would be incorporated into the Board
agendas during the coming year.
Previous action: Future Board focus would
continue to be on ensuring that its strategic
focus reflected luxury sector dynamics.
See above: Board composition and
ongoing NED support, progress against
prior year actions.
The format for regular updates to the
Board would be reviewed including
how these are woven into future
Board agendas.
Previous action: The approach to Board
meeting agendas, papers and timings
would be reviewed to ensure that the
directors’ time together was maximised.
A review of the Board and Audit Committee
agenda formats took place during the year
which included input from the Group’s
advisers and a review of other FTSE 100
practice. As a result, the agenda formats
were revised to prioritise the discussion
on key items and to generally improve the
overall effectiveness and efficiency of
the meetings.
Following a review, the Board implemented
changes to the composition of its
Committees and rotated the Audit and
Remuneration Committee Chairs.
74
Board and Governance – Corporate Governance Report Directors’ performance
The Chairman held discussions with each of the directors
to discuss their individual performance and to raise any
top-of-mind issues they may have including in relation
to any matters of Board/Committee effectiveness.
This assessment is used as the basis for recommending
the re-election of directors by shareholders.
Chairman’s performance
The non-executive directors reviewed the Chairman’s
performance. The feedback was that the Chairman had
done an excellent job in leading the Board during this
time of significant change for the Company and his
leadership provided important stability in the context
of executive management changes.
The table below gives details of directors’ attendance at Board and Committee meetings during the year ended 31 March 2017.
Board1
Audit
Nomination Remuneration2
Sir John Peace
Christopher Bailey3
Julie Brown4
Fabiola Arredondo6
Philip Bowman5, 6
Ian Carter6
Jeremy Darroch6
Stephanie George6
Matthew Key6
Dame Carolyn McCall6
John Smith
Carol Fairweather4
7/7
6/7
2/2
7/7
5/7
7/7
7/7
7/7
6/7
7/7
7/7
5/5
–
–
–
2/2
1/2
2/2
3/3
2/2
3/3
3/3
–
–
3/3
–
–
3/3
3/3
3/3
3/3
3/3
3/3
3/3
–
–
–
–
–
5/5
4/5
5/5
2/4
4/5
3/4
3/4
–
–
1 Board meetings included six scheduled meetings and one additional meeting to consider the productivity and efficiency programme announced in May 2016.
Matthew Key and Philip Bowman were unable to attend the additional meeting due to prior commitments.
2 Remuneration Committee meetings included three regular scheduled meetings and two additional meetings, to discuss 2015/16 target setting on the measures
under the Group’s Executive Share Plan. Philip Bowman, Matthew Key and Dame Carolyn McCall were unable to attend one of the additional meetings, and
Jeremy Darroch was unable to attend both of the additional meetings, due to prior commitments.
3 Christopher Bailey was unable to attend one Board meeting due to illness.
4 Julie Brown was appointed to the Board as Chief Operating and Financial Officer on 18 January 2017. Carol Fairweather stepped down as Chief Financial Officer
on that date. John Smith stepped down as Chief Operating Officer on that date but continued on as an executive director until 31 March 2017.
5 Philip Bowman was unable to attend one Board and Audit Committee meeting scheduled the same day, due to a prior commitment, and the additional
unscheduled Board meeting referred to in note 1 above.
6 On 1 February 2017, Jeremy Darroch, Dame Carolyn McCall and Matthew Key stepped down as members of the Remuneration Committee, and Fabiola
Arredondo, Philip Bowman, Ian Carter and Stephanie George stepped down as members of the Audit Committee. See pages 82 and 109 for further information
on these Committee changes.
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 financial year the Board held six scheduled
meetings including an in-depth two-day session on
strategy, and one additional meeting to discuss the
productivity and efficiency programme and ways of working
review which was announced by the Group in May 2016.
The Remuneration Committee held three scheduled
meetings and two additional meetings. These additional
meetings were to consider 2015/16 target setting for the
measures under the Group’s Executive Share Plan which
had been postponed to enable alignment with the
programme, and to deal with matters relating to the
executive management changes.
Outside of formal meetings, the non-executive directors
spent significant additional time during the year on matters
relating to the implementation of the Group’s productivity
and efficiency programme and to management succession.
In addition, individual Board members spent time visiting
the Group’s business in its key regions and various
operating facilities in the UK. The Board considers that
it met sufficiently often to enable the directors to discharge
their duties effectively.
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 pages 68 and 69.
Board and Committee composition and succession
In the context of the Board’s consideration of the Group’s
areas of future growth and its productivity and efficiency
programme, the non-executive directors spent a
considerable amount of time considering the executive
leadership roles required to maximise Burberry’s
ability to successfully implement these plans, with the
announcements during the year of the appointments of
the new Chief Executive Officer, and Chief Operating and
Financial Officer and the transition of Christopher Bailey
to President and Chief Creative Officer. Please see the
Report from the Nomination Committee on pages 85 to 86.
75
Board and Governance – Corporate Governance Report
In relation to its non-executive directors, the Board
continued to focus on building on its relevant skills and
competencies for the future under its succession plan.
The aim is to continue to refresh the Board while ensuring
stability and continuity particularly in the context of
significant management change. The composition of the
Board has evolved significantly over the past few years
with the appointment of four new non-executive directors,
with one longer-serving non-executive director stepping
down. The Board plans to continue to execute against its
succession plan and it is anticipated that there will be
further changes to the Board in the coming year.
The current non-executive directors are drawn from
a wide range of industries and backgrounds, including
mobile, digital, technology, media, retail, financial services,
consumer travel, hotels and hospitality, marketing,
accountancy and general management expertise. They
have extensive experience of complex organisations with
global reach, including experience of the Group’s key
markets of Europe, the Americas and Asia, reflecting
the Group’s strategy. Their varied yet relevant experience
brings a diversity of perspective and useful insight to Board
discussions and important support to the management
team. The biographical details of the current directors
can be found on pages 68 and 69.
As part of its succession planning the Board also keeps
under review the composition of its Committees and the
tenure of the Committee Chairs to ensure that these
roles are refreshed from time to time. Following a review
last year, the Board implemented key changes to its
Committees during the year. This included the appointment
of Jeremy Darroch as Chair of the Audit Committee
and Fabiola Arredondo as Chair of the Remuneration
Committee. It also included a variation of Committee
membership, evolving away from the past practice of all
non-executive directors sitting on all Committees. This
change was to enable a fresh perspective and reflects
the increased time commitment and focus required from
Committee members due to the expansion of the Group
over the past few years, and the increasing complexity
of the remit of the Committees in terms of regulatory and
other requirements.
To ensure that the appropriate linkage remains, regular
Committee updates are provided to the Board. In addition,
all non-executive directors continue to receive papers
relating to all Committee meetings and are invited to
attend Committee meetings whenever they wish.
Diversity – split of male/female Board members:
Male
Female
Board succession planning is focused on ensuring the right
mix of skills and experience for the Board. All new Board
appointments are based on merit, keeping in mind the
Board composition principles. These principles are to:
· maintain current core competencies;
· add new competencies which reflect the evolution
of the Group’s business;
· ensure compatibility with Burberry’s culture and
values; and
· promote diversity, including in terms of gender.
Please see the Report from the Nomination Committee
on pages 85 and 86 for more information on the
appointment process.
The Board believes in the importance of diverse Board
membership, including in relation to gender. The Board
is supportive of the Lord Davies Report and the Hampton-
Alexander review target for women to represent 33%
of boards by 2020. Currently, four out of our ten Board
members are female (including our Chief Operating
and Financial Officer), comprising 40% of our Board
membership. The Board will continue to monitor diversity
and take such steps as it considers appropriate to maintain
Burberry’s position as a meritocratic and diverse business.
The Board believes that it is critical that women are able
to succeed at all levels of the organisation. Currently, of
a total workforce of approximately 10,000, approximately
70% (7,000) is female and approximately 39% of senior
management is female.
More broadly, diversity is at the heart of Group culture
which is characterised by a meritocratic and collaborative
ethos. At our London headquarters, 58 different
nationalities are represented.
The Company continues to focus on evolving its strategies
for recruiting and developing key talent within the business
in a way which promotes the Group’s cultural values and
diverse and meritocratic environment. See the Inspired
People section on page 44.
76
Board and Governance – Corporate Governance Report Board tenure
0 – 5 years
10 years or above
The balance of tenure of service of the directors is set out
in the Board tenure diagram. At the time of the 2017 Annual
General Meeting, Sir John Peace and Philip Bowman will
have served on the Board for 15 years, Stephanie George
will have been on the Board for 11 years and Ian Carter
will have served for ten years. The performance of Philip
Bowman, Stephanie George and Ian Carter has been
subject to a rigorous review, including with regard to their
independence. Their in-depth knowledge of the Group
combined with the consistency they provide through their
continued service, remains invaluable to ensure a smooth
transition of the Board and its Committees. Each of these
individuals continues to demonstrate the attributes of an
independent non-executive director, including contributing
to constructive challenge and debate at meetings, and
there was no evidence that their tenure has impacted
on their independence.
The Board is satisfied that all of its non-executive directors
bring robust independent oversight and continue to remain
independent.
Information flow and professional development
The Chairman works closely with the Company Secretary
in the planning of the agendas and schedule of Board and
Committee meetings, and in ensuring that information is
made available to Board members on a timely basis and is
of a quality appropriate to enable the Board to effectively
discharge its duties.
As set out in the table ‘Highlights of Board activities during
2016/17’ on page 73, the Board is kept up to date on legal,
regulatory, compliance and governance matters through
advice and regular papers from the Company Secretary
and other advisers.
The Company Secretary assists the Chairman in designing
and facilitating an induction programme for new directors
and their ongoing training. Each newly appointed director
receives a formal and tailored induction programme to
enable them to function effectively as quickly as possible,
while building a deep understanding of the business and
the Group’s markets. Each induction typically consists of
meetings with both executive and non-executive directors,
briefings from senior managers across the Group on
key business areas and operations, the luxury market,
strategy, the corporate functions, and the Burberry
brand and culture. In addition, non-executive directors
are provided with opportunities to visit key stores, markets
and facilities. This includes visits to the Group’s various
operating facilities in the UK. The Chairman considers the
training needs of individual directors on an ongoing basis.
The Board has 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 2016, all continuing
directors offered themselves for re-election. Each director
was re-elected and no director received less than 91% in
favour of the votes cast. At the Annual General Meeting
in 2017, all of the directors will again retire and all will
offer themselves for re-election or, in the case of the newly
appointed directors, for election. As Marco Gobbetti will
be joining the Board on 5 July 2017 he will offer himself
for election at the Annual General Meeting.
The Board believes that each of the directors standing
for re-election or election are effective and, accordingly,
the Board recommends that shareholders approve the
resolutions to be proposed at the 2017 Annual General
Meeting relating to the re-election or election of
the directors.
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 Company and the Group.
Under the Group’s Articles of Association, the Board has
the authority to approve 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, no circumstances existed which
would necessitate that any prior authorisation be revoked
or amended, and the authorisation process continued to
operate effectively.
77
Board and Governance – Corporate Governance Report Engagement with shareholders
The Board recognises the importance of regular open
and constructive dialogue with shareholders and other
stakeholders, not just ahead of the Annual General Meeting,
but throughout the year.
The Investor Relations team participated in around
450 investor meetings and events during the year. A
combination of the Chairman, the Senior Independent
Director, Chair of the Remuneration Committee, other
individual non-executive directors, executive directors
and other members of senior management participated in
around 170 of these meetings. This engagement included
presentations to institutional shareholders and analysts
following the release of the Group’s Interim and Full Year
results (which are available on the Group’s website at
www.burberryplc.com), as well as meetings with the
Group’s 25 largest investors. Topics discussed included
(but were not limited to) the executive management
changes, luxury sector growth dynamics, the Group’s
performance and strategy, productivity and efficiency
agenda, the Directors’ Remuneration Policy and the
strategic partnership for the Group’s Beauty business.
The Group’s Investor Relations and Company Secretariat
departments act as the centre for ongoing communication
with shareholders, investors and analysts. The Board
receives regular updates on the views of the Group’s major
shareholders and stakeholders from this engagement or
direct contacts.
The Group also conducts regular independent investor
audits of its major investors through Makinson Cowell, a
capital markets advisory firm, to gauge investor perception.
The investor audit findings are discussed with the Board.
Evaluation of internal controls
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 principal risks
it is willing to accept in achieving the Group’s strategic
objectives (the Board’s risk appetite); and
· challenging management’s implementation of 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 and risk management arrangements. Ongoing
review of these controls is provided through internal
governance processes and the work of the Group
functions is overseen by executive management,
particularly the work of Group Risk and Internal Audit
and the management Risk Committee. Further assurance
is provided by the reviews conducted by the external
auditor. Regular reports on these activities are provided
to the Audit Committee as reflected in the standing items
on the Audit Committee agenda, with further objective
reporting provided by the external auditors.
The Board, through the Audit Committee, has conducted
a robust assessment of the Group’s principal risks and the
Group’s internal control framework and has considered the
effectiveness of the system of internal controls in operation
across the Group for the year covered by the Annual Report
and Accounts and up to the date of its approval by the
Board. This covered the material controls including
financial, operational and compliance controls and risk
management arrangements. 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.
The process followed by the Board, through the Audit
Committee, in reviewing regularly the system of internal
controls and risk management arrangements accords with
the Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting issued by the
Financial Reporting Council (‘FRC’). It also accords with
the provisions of the UK Corporate Governance Code.
Control environment
The Group’s business model is based primarily on a central
design, supply chain and distribution operation to supply
products to global markets via retail (including digital) and
wholesale channels. This is reflected in the internal control
framework which includes centralised direction, resource
allocation, oversight and risk management of the key
activities of marketing, inventory management, brand and
technology development. The Group has also established
procedures for the delegation of authorities to ensure
that approval for matters that are considered significant
is provided at an appropriate level, either because of
their value or their materiality to the Group. In addition,
the Group has policies and procedures in place that are
designed to support risk management across the Group.
These include policies relating to treasury, the conduct
of employees and third parties with which the Group
conducts business including prohibiting bribery and
corruption. These authorities, policies and procedures
are kept under regular review.
78
Board and Governance – Corporate Governance Report The Group operates a ‘three lines of defence’ model
which helps to achieve effective risk management and
internal control across the organisation. This comprises
the following.
· The first line of defence: management owns and
manages risk and is also responsible for implementing
corrective actions to address process and control
deficiencies.
· The second line of defence: to help ensure the first
line is properly designed, established and operating
appropriately, management has also established various
risk management and compliance functions to help
build and/or monitor the first line of defence. These
include, but are not limited to, functions such as Group
Risk, Financial Governance, Health and Safety, Asset
and Profit Protection and Business Continuity.
· The third line of defence: Internal Audit provides the
Audit Committee and management with independent and
objective assurance on the effectiveness of governance,
risk management and internal controls including the
manner in which the first and second lines of defence
achieve risk management and control objectives.
Risk management
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. The plan and the principal
risks for delivering the strategy also form part of the
Board’s annual review of Group strategy. The plan, and the
assessment of the impact of the principal risks on the plan,
forms the basis of the Board’s assessment of the viability of
the Group as required by the Code. The executive directors
also meet with senior management on a regular basis to
discuss performance, operational and budget issues to
identify any emerging risks to achieving the budget and
strategic plan.
The Group Risk and Security Officer, who reports to the
Chief Operating and Financial Officer, is responsible for
ensuring that the Board’s requirements relating to risk
management frameworks are met. This includes the design
and facilitation of the risk assessment process, the risk
appetite framework and providing oversight of key business
change processes. As part of the Board’s consideration
of the principal risks facing the Group, the Group Risk
and Security Officer facilitates a risk assessment process
in each key business area and global support function to
review the principal risks facing its operations and any
actions in place to further 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 which
is discussed and agreed by management at the Risk
Committee prior to review by the Board.
The management Risk Committee meets at least three
times per year and reports any key findings to the Audit
Committee. The Risk Committee evaluates risk through
reports made to it by Group Risk, Internal Audit and other
assurance teams and management committees. The
Committee benefits from cross-functional attendance
encompassing senior management of key areas such
as IT, finance, legal, brand protection, corporate
responsibility, human resources, supply chain, asset
and profit protection, information security and health
and safety. The Risk Committee is chaired by the Chief
Operating and Financial Officer and its members include
the Chief People and Corporate Affairs Officer, the General
Counsel, the Company Secretary, the Group Risk and
Security Officer, the Vice President of Internal Audit and
other members of senior management. Key findings of
the Risk Committee are reported to the Audit Committee.
Further details on the Group’s risk management approach
and its management and mitigation of each principal risk
together with the Group’s viability statement, is set out
in the Principal Risks section on pages 60 to 65.
79
Board and Governance – Corporate Governance Report Internal audit
All Internal Audit activity is conducted by the Internal Audit
team under the leadership of the Vice President of Internal
Audit, who reports to the Chief Operating and Financial
Officer but has an independent reporting line to the
Chairman of the Audit Committee. Internal Audit adopts
a risk-based approach to developing the annual audit plan
which involves undertaking a ‘mapping’ exercise between
the principal risks, the potential impact on the achievement
of the Group’s strategic objectives if those risks were to
materialise and the extent to which other sources of
assurance exist and can be relied upon to mitigate the
principal risks. The output of this, together with a number of
other factors, helps to identify areas of focus for the annual
audit plan. Internal Audit stays abreast of any changes to
the Group’s risk profile on an ongoing basis and will reflect
this through changes to the audit plan as necessary during
the year. Any proposed changes to the plan are discussed
with the Chief Operating and Financial Officer and reported
to the Audit Committee.
Ongoing visibility of the internal control environment is
provided through Internal Audit reports to management
and the Audit Committee. These reports are graded to
reflect an overall assessment of the control environment
under review, the significance of any control weaknesses
identified, and also include any remedial actions which have
been identified and agreed with management. Reports are
also provided on the status of any open actions.
It is noted that from FY 2017/18, to bring enhanced focus
on risk and on assurance over the execution of the Group’s
productivity and efficiency agenda, the structure of the
Internal Audit and Risk Management functions were
realigned under the leadership of a newly appointed
Senior Vice President – Risk Management and Audit.
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.
The Group has comprehensive planning, budgeting,
forecasting and monthly reporting processes in place.
A summary of the Group’s 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; 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 regions and
London headquarters.
The reporting process is supported by transactional and
consolidation finance systems. Reviews of controls 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. These matters
are also discussed with the external auditor.
Fair, balanced and understandable
The Annual Report and Accounts taken as a whole, is
required to be fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Group’s position and performance, business
model and strategy. 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 118. The
report of the Auditors on page 119 includes a statement
by the auditors concerning their reporting responsibilities.
80
Board and Governance – Corporate Governance Report Report of the Audit Committee
Dear Shareholder,
I am pleased to present the 2016/17 report of the Audit
Committee which describes how the Committee has
carried out its responsibilities during the year.
The role of the Audit Committee is to monitor the integrity of
financial information and to provide assurance to the Board
that the Group’s internal controls and risk management
systems are appropriate and regularly reviewed, together
with overseeing the work of the external auditors, approving
their remuneration and recommending their appointment.
In addition to the disclosure requirements relating to audit
committees under the Code, the Committee’s Report sets
out the areas of significant and particular focus for the
Committee over the course of the year.
During the year, the Committee continued to focus on
the usual work of the Committee as set out in the table on
page 82. Some of the more in-depth areas of focus for the
Committee during the year included the following matters.
· Monitoring the Group’s progress with its productivity
and efficiency programme and in particular, in relation
to any risks arising from significant organisational change
including in relation to the Group’s systems of controls
and mitigation of risk and other possible impacts on the
business. This will continue to be an area of regular focus
of the Committee in the coming year.
· With heightened global technology and information
security risks becoming an increasingly significant issue
for companies, the Committee continued to spend a
significant amount of time on the Group’s progress with
its information security improvement programme. With
risks in this area continuing to evolve, the aim is to ensure
that the Group continues to appropriately prioritise its
focus and resources towards this critical area of risk.
· The Committee considered the Group’s viability
statement (as set out on page 61) and the assurance
work conducted by management which underpins the
statement. It was considered that three years continued
to remain an appropriate timeframe on which to base an
assessment of the long-term viability of the Group on the
basis that it aligns with the regular business planning
period. The Committee also reviewed the outcome
of the stress testing performed by management and
recommended that the directors confirm that they have
a reasonable expectation that the Group would be able
to continue in operation and meet its liabilities as they
fall due over the three-year period of assessment.
The Committee also considered the significant matters
set out in the table on page 83. Where these significant
matters related to the financial statements for the year,
the Committee requested papers from management setting
out its approach, the key estimates and judgements applied
and management’s recommendation. The Committee
reviewed and challenged these papers, together with the
findings of the external auditors, in order to conclude on the
appropriateness of the treatment in the financial statements.
All the members of the Committee are independent non-
executive directors. Following a review of the composition
of the Board’s Committees as mentioned earlier in this
Corporate Governance Report, Philip Bowman, Fabiola
Arredondo, Ian Carter and Stephanie George stepped
down from the Committee on 1 February 2017, with
Philip Bowman having previously stepped down as Audit
Committee Chairman on 1 August 2016. I would like to
thank them for their invaluable work on the Committee
and in particular, Philip, for his contribution as Chairman
over a number of years.
The Audit Committee confirms that during 2016/17
the Company has complied with the mandatory audit
processes and audit committee responsibilities provisions
of the Competition and Markets Authority Statutory
Audit Services Order 2014, as outlined in this Report
which describes the work of the Audit Committee in
discharging its responsibilities.
The Committee has a constructive and open relationship
with management and the auditors and I thank them on
behalf of the Committee for their assistance during the year.
Jeremy Darroch
Chairman, Audit Committee
81
Board and Governance – Corporate Governance Report
Audit Committee membership
The following directors served as members of the
Committee during the year ending 31 March 2017:
Members
Appointment date
Jeremy Darroch (Chairman)
Philip Bowman1
Fabiola Arredondo1
Ian Carter1
Stephanie George1
Matthew Key
Dame Carolyn McCall
5 February 2014
21 June 2002
10 March 2015
18 May 2007
19 May 2006
26 September 2013
1 September 2014
1 Philip Bowman, Fabiola Arredondo, Ian Carter and Stephanie George
stepped down from the Committee on 1 February 2017.
The Audit Committee met three times during the year.
The attendance record of Committee members is recorded
in the table on page 75. In addition to the scheduled
meetings the Chairman of the Committee meets separately
with representatives of the auditor, the Chief Operating and
Financial Officer, the Vice President – Financial Controller
and the Vice President – Internal Audit on a regular basis,
including prior to each meeting. In addition, he meets with
other members of management on an ad hoc basis as
required to fulfil his duties.
Regular attendees at Committee meetings include: the
Chairman of the Board, the Chief Operating and Financial
Officer, the Chief People and Corporate Affairs Officer,
the Company Secretary, the Group Risk and Security
Officer, the Vice President – Internal Audit, the Senior
Vice President – Group Finance, the Vice President – Group
Financial Controller, the Senior Vice President – Group
Tax, the General Counsel and the representatives of the
external auditors.
The Board is satisfied that Jeremy Darroch, 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/or
international businesses. Details of their experience can
be found in their biographies on pages 68 and 69.
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 www.burberryplc.com. The
Committee reviews its terms of reference annually. In light
of its key responsibilities, the Committee considered the
following items of usual business during the financial year
as set out in the table below.
Key Committee roles
and responsibilities
Financial Reports
The integrity of the Group’s financial
statements and formal announcements
of the Group’s performance.
Risks and Internal Controls
The Group’s internal financial,
operational and compliance controls
and risk identification and management
systems. Review of Group policies for
identifying and assessing risks and
arrangements for employees to raise
concerns (in confidence) about
possible improprieties.
Internal Audit
Review of the annual internal audit
programme and the consideration
of findings of any internal investigations
and management’s response.
Review of effectiveness of the
internal audit function.
External Auditors
Recommending the appointment
of external auditors, approving their
remuneration and overseeing their
work. Policies on the engagement
of the external auditors for the supply
of non-audit services.
Usual business conducted during 2016/17
· Review of the Annual Report and Accounts, annual financial statements, Preliminary announcement,
and Interim announcement. On behalf of the Board the consideration of whether the processes and
procedures in place ensure that the Annual Report and Accounts, taken as a whole, are fair, balanced
and understandable and provides the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
year end audit.
and risk management.
· Assessment of the Group’s viability and the appropriateness of the going concern basis for reporting.
· Consideration of the report of the external auditors on the financial statements for the year, and on the
· Ensuring compliance with relevant regulations for financial reporting and the Code.
· Review of the Group’s statement in the Corporate Governance Report on internal controls
· Review of financial and operational control frameworks.
· Review of IT and cyber-security control frameworks.
· Review of business risk assessments.
· Treasury Policy review and compliance.
· Review of the Group's tax strategy.
· Risk Committee and Ethics Committee updates including Anti-Bribery and Corruption
· Whistleblowing reports.
· Consideration of the result of internal audits and management responses to the findings.
· Approval of the internal audit plan for 2017/18.
Policy compliance.
· Review and approval of the proposed audit fee and terms of engagement for the Group’s external
· Review and approval of the audit plan for the year presented by the Group’s auditors. Consideration
auditors, PricewaterhouseCoopers LLP (‘PwC’), for the 2016/17 financial year.
of the key areas of risk and the audit approach applied to these areas, the proposed areas of coverage
of the audit, changes of scope and areas of risk in the current year plan and the resource plan.
· Review of all non-audit services provided by the Group’s auditors during the period and the fees
relating to the services provided.
82
Board and Governance – Corporate Governance Report Significant matters
The significant matters considered by the Committee during the year are set out below.
Significant matters for the
year ended 31 March 2017
Acquisition of non-controlling interests
in the Group’s businesses in China and
the Middle East.
Impairment assessment of
intangible assets.
Impairment assessment of property,
plant and equipment and onerous
lease provisions.
How the Audit Committee addressed these matters
During the year the Group exercised its call option to acquire the non-controlling interest in its
business in China. The Group also acquired the non-controlling interest in its business in the
Middle East. The Committee reviewed management’s proposals on how these transactions should
be accounted for, including the derecognition of the put option liability, the treatment of deferred
consideration arising from the acquisition of the Middle East non-controlling interest and the disclosure
of these transactions in the financial statements. Accounting for these acquisitions is set out in note
29 of the Financial Statements.
The Committee considered management’s assessment of the recoverability of the intangible asset
relating to the termination of the fragrance and Beauty relationship with Interparfums SA, using the latest
projected sales and margins for the business. The reasonableness of these projections was considered,
taking into account the current performance of the business. As a result of a reduction in projected sales
since the last review, the asset was fully impaired in the period. The Committee considered the proposed
disclosure relating to this impairment. Further details of the intangible asset are provided in note 12 of the
Financial Statements.
The Committee considered management’s assessment of the recoverability of the carrying value
of retail assets held in property, plant and equipment, and, where applicable, the potential need for
provisions relating to onerous lease contracts. The Committee considered the approach applied by
management to review for potential indicators of impairment and the assumptions applied in this
review. Where impairments were identified, the Committee considered the reasons for the impairment
and management’s quantification of the impairment. The Committee requested management carry
out a review across the property portfolio to identify any areas of risk in relation to potential future
impairments. This review did not result in any change to the approach to the measurement of
impairments within the current period. Further details of the impairment assessment are provided
in note 13 of the Financial Statements.
The recoverability of the cost of
inventory and the resulting amount
of provisioning required.
The Committee considered the Group’s current provisioning policy, the historical loss rates incurred on
inventory held at the balance sheet date and the nature and condition of current inventory. At the request
of the Committee, management carried out a Group-wide review of the application of the policy and
presented the findings to the Committee. The Committee concluded the carrying value of the inventory
was appropriate. Movements in inventory provisioning are set out in note 16 of the Financial Statements.
Accounting for the licence and transfer
of the Beauty operation.
Income and deferred taxes.
Fair, balanced and understandable
reporting.
Other matters.
On 3 April 2017, the Group entered into an agreement to licence its Beauty trade marks and transfer
its Beauty operation to Coty. The Committee considered management’s assessment of how this
transaction would be accounted for, including significant judgements regarding the appropriate
treatment of receipts from Coty, the estimation of net realisable value of inventory being transferred
to Coty and the timing of recognition of the transaction.
The Senior Vice President – Group Tax, who reports to the Committee at each meeting, presented a
detailed update of the Group’s tax strategy, developments relating to discussions with tax authorities
and the status of ongoing tax audits. The Committee reviewed and challenged the appropriateness
of assumptions and judgements applied in order to estimate the amount of assets and liabilities to be
recognised in relation to uncertain income tax and deferred tax positions. The Committee concluded
that the assets and liabilities recognised and disclosures contained in the Financial Statements for the
period were appropriate. Details of movements in tax balances are set out in notes 9 and 14 of the
Financial Statements and further disclosure of tax contingent liabilities is given in note 30.
The Committee considered the Annual Report and Interim Report, on behalf of the Board, to ensure
that they were fair, balanced and understandable, in accordance with requirements of the UK Corporate
Governance Code. As part of this review, the Committee reviewed the report from the Strategic Report
Drafting Team, highlighting key considerations. The Committee considered comments arising from the
review of accounts by the executive directors. The Committee also considered the use of alternative
performance measures by the Group, including the appropriateness of their current use and their
disclosure in the financial statements and Strategic Report. The Committee concluded that their
current use was fair, balanced and understandable.
At the May and November meetings, the Committee also considered management’s papers on the
following subjects:
· assessment of the carrying value of goodwill;
· accounting for contracts to buy back own shares; and
· consideration of the potential impact of supplier rebates, which concluded that amounts received
from supplier rebates did not have a material impact on the Group results.
83
Board and Governance – Corporate Governance Report External auditors
The Committee oversees the work undertaken by
PricewaterhouseCoopers LLP (‘PwC’). 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, reappointment
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 2016/17 financial year. Details of the fees paid to
the external auditors during the financial year can be
found in note 7 in the Financial Statements.
PwC have remained in place as auditors since prior to the
IPO of the Company in 2002. They were reappointed with
a new lead audit partner following a formal tender process
undertaken by the Group for the 2010/11 financial year.
As the external auditors are required to rotate the audit
engagement partner every five years, a new engagement
partner Paul Cragg commenced his appointment
from the 2015/16 financial year. As a result of the UK’s
implementation of the EU’s mandatory firm rotation
requirements, the Company is required to replace PwC
with another firm of auditors no later than for the financial
year commencing 1 April 2020, and considers the most
practical and business-driven approach to be to conduct
a competitive tender no later than 2019.
During the year, the Committee approved the reappointment,
remuneration and terms of engagement of PwC as the
Group’s external auditor. The Committee recommended
to the Board that it proposes to shareholders that PwC
be reappointed 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 external auditors is an essential part of the audit
framework and the assurance that it provides. The
Committee has adopted a policy which sets out a
framework for determining whether it is appropriate
to engage the Group’s auditors for non-audit services.
The standard applies for Burberry from 1 April 2017,
i.e. for the financial year ending 31 March 2018. The
overall objective being to ensure that the provision
of non-audit services does not impair the external
auditors independence or objectivity. This will include,
but will not be limited to, assessing:
· any threats to independence and objectivity resulting
from the provision of such services;
· any safeguards in place to eliminate or reduce these
threats to a level where they would not compromise
the auditor’s independence and objectivity;
· the nature of the non-audit services; and
· whether the skills and experience of the audit firm make
it the most suitable supplier of the non-audit service.
The provision of non-audit services by the external
auditor will also be restricted if they exceed the cap
on the level of permitted non-audit service fees which
can be billed. The cap on non-audit service fees is set
at 70% of the average audit fees for the preceeding
three years. The cap is calculated at two levels:
· Group calculation – all fees billed by the external auditor
globally i.e. to any Burberry entity by any network firm
of the auditor. This is compared to the audit fees billed
to the Burberry Group; and
· UK calculation – all fees billed by the UK firm of the
external auditor to any Burberry entity globally. This
is compared to the audit fees billed by the UK audit
firm for the audits of those entities.
Burberry has chosen to early adopt some of the
requirements. Burberry exercised judgement in its
adherence to the list of prohibited non-audit services
for FY 2016/17.
Burberry has already been adhering in principle to
the 'Group calculation' fee cap since 2014 and formally
adopted the Group calculation fee cap restrictions from
H2, FY2016/17. Accordingly, irrespective of the nature of
the work to be performed, Burberry’s external auditors
cannot undertake non-audit work which would result in
this threshold being breached.
The UK fee cap restriction will be applied for the audit
for the year ending 31 March 2021, at which point it
will be based on the average of audit fees for the
years ending 31 March 2018, 2019 and 2020.
On 17 June 2016 the Financial Reporting Council
('FRC') issued the final version of the Ethical Standards
for Auditors which is the means by which the FRC is
implementing the new restrictions on external auditors
when supplying non-audit services to organisations such
as Burberry which, as a UK entity with securities traded
on an EU-regulated exchange, is considered a public
interest company (PIE).
The auditors may provide non-audit services up to the
70% threshold that do not prejudice their independence,
subject to prior approval as set out in the policy. The
Senior Vice President, Risk Management and Audit, and
the External Auditor will jointly monitor the level of non-
audit services paid and approved throughout the year
to ensure that the expected non-audit spend for each
year will not exceed the 70% threshold.
84
Board and Governance – Corporate Governance Report Proposed fees above £100,000 must be approved by the
Chairman of the Audit Committee, and 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.
The Committee recommended these appointments to the
Board and following unanimous Board approval, they were
announced on 11 July 2016. Julie joined the Board on 18
January 2017 and Marco will join the Board on 5 July 2017.
Carol stepped down from the Board on 18 January 2017
and John on 31 March 2017.
The Committee continues to work diligently on assisting
the Board on building on its relevant skills and competencies
for the future under the Board Succession Plan. (See Board
and Committee composition and succession and Diversity –
split of male/female Board members on page 76). The
composition of the Board has evolved significantly over
the past few years with the appointment of four new
non-executive directors, and with one longer-serving
non-executive director stepping down. It is anticipated
that there will be further non-executive director changes
to the Board in the coming year.
Following a review, the Committee Chairs were refreshed
during the year with the appointment on 1 August 2016
of Jeremy Darroch as the Chair of the Audit Committee
and Fabiola Arredondo as Chair of the Remuneration
Committee. The review also resulted in changes to the
composition of those Committees effective 1 February 2017
(see Board and Committee composition and succession
on page 76).
Board succession and composition will continue to remain
a priority for the coming year.
Sir John Peace
Chairman, Nomination Committee
Nomination Committee membership
The following directors served as members of the
Committee during the year ended 31 March 2017:
Members
Appointment date
Sir John Peace (Chairman)
Fabiola Arredondo
Philip Bowman
Ian Carter
Jeremy Darroch
Stephanie George
Matthew Key
Dame Carolyn McCall
21 June 2002
10 March 2015
21 June 2002
18 May 2007
5 February 2014
23 March 2007
26 September 2013
1 September 2014
During the year, the Group spent £541k on non-audit
services provided by PwC (being 27% of the average
of Group audit fees received over the last three
years). Further details can be found in note 7 of the
Financial Statements.
Report of the Nomination Committee
Dear Shareholder,
This has been a busy year for the Committee. Following a
business review that targeted future growth opportunities,
in May 2016 the Group announced a productivity and
efficiency programme including changes to ways of
working. As part of this, with the full participation of all
the non-executive directors, the Committee spent time
considering the leadership roles required to maximise
Burberry’s ability to successfully implement these plans.
It was identified that there was a need for a new chief
executive with strong luxury retail experience to lead on
the commercial, operational and financial elements of the
business, who could partner with Christopher Bailey,
who would continue his leadership of the brand and
design elements of the business as President and Chief
Creative Officer. These joint leadership roles would share
responsibility for strategy and would report jointly to the
Chairman. As Carol Fairweather had signalled her intention
to step down as Chief Financial Officer and John Smith
as Chief Operating Officer, the Committee also focused
on the succession of these roles. To align with the change
programme, the aim was to seek an individual with a strong
financial and commercial background who could combine
these roles.
The Committee engaged Egon Zehnder who specialises
in the recruitment of high-calibre directors and to ensure
that the process could be truly global. Egon Zehnder has
no other connection with the Group. A search was initiated
against an agreed profile and regular reports provided to
the Committee as the process progressed. This yielded
a pool of candidates which was reduced to a shortlist of
potential candidates. Shortlisted candidates were assessed
and were met by key Board members first and then with
the non-executive directors. This culminated in one-to-one
discussions with me and each of the non-executive
directors to seek their views on the candidates. I am
very pleased that the Committee considered that the
right candidate for the position of Chief Executive Officer
was Marco Gobbetti, and for the combined role of
Chief Operating and Financial Officer was Julie Brown.
85
Board and Governance – Corporate Governance Report 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
www.burberryplc.com. The Committee reviews its
terms of reference annually.
The key areas of responsibility include the following.
· To review the balance and composition of the Board and
its Committees, ensuring that they remain appropriate.
· To be responsible for overseeing the Board’s succession
planning requirements in light of the Group’s strategy
and the Group’s position on diversity and inclusion. This
includes the identification and assessment of potential
Board candidates and making recommendations to the
Board for its approval.
· To keep under review the leadership needs of, and
succession planning for, the Group in relation to both
its executive directors and other senior executives.
Activities during the year
The Committee met three times during the year under
review. The table on page 75 gives details of directors’
attendance at these meetings.
Other regular attendees at Committee meetings include the
Chief Creative and Chief Executive Officer, the Chief People
and Corporate Affairs Officer and the Company Secretary.
Annual General Meeting and annual re-election
of directors
As required by the UK Corporate Governance Code, the
Notice of the 2016 Annual General Meeting was sent to
shareholders at least 20 working days before the meeting.
A poll vote was taken on each of the resolutions put before
shareholders. All directors serving at the time of the 2016
Annual General Meeting attended, and the Chairman of
the Board and the Chairs of each of the Committees were
available to answer shareholders’ questions.
Voting at the upcoming 2017 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 www.burberryplc.com as soon as possible after
the meeting.
The biographical details of the current directors can be
found on pages 68 and 69 of this Annual Report. The
Chairman confirms that, following the evaluation conducted
during the year and the review of individual director roles
and performance led by the Chairman, the performance
of each of the directors standing for election continues to
be effective and demonstrates commitment to their roles,
including commitment of time for Board and Committee
meetings and any other duties. Accordingly, the Board
recommends that shareholders approve the resolutions
to be proposed at the 2017 Annual General Meeting
relating to the re-election or election of the directors.
The terms and conditions of appointment of the directors,
including the expected time commitment, are available
for inspection at the Company’s registered office.
Other governance disclosures
Tax strategy
The Group is committed to complying with global tax
regulations in a responsible manner with due regard to
governments and shareholders, and to engage in open
and constructive relationships with tax authorities in the
territories in which it operates. The Group’s tax planning
is consistent with this responsible approach, and it will not
enter into arrangements for the purpose of achieving a tax
advantage. The Group tax strategy is implemented through
the Group’s tax policy which directs and aligns the activities
of the various functions within the Group in order to achieve
the strategy’s objectives.
Tax governance framework
The Chief Operating and Financial Officer is responsible
for the Group’s tax policy which is implemented with
the assistance of the Finance Leadership team. This
is reviewed on an ongoing basis as part of the regular
financial planning cycle. In addition, the Group’s tax
status is reported regularly to the Group Risk and
Audit Committees. The Audit Committee is responsible
for monitoring all significant tax matters including the
Group’s tax policy. Audit Committee meetings are attended
by a number of Group officers and employees including
the Chief Operating and Financial Officer, the Senior
Vice President – Group Tax, the Company Secretary,
the General Counsel, and the Chief People and
Corporate Affairs Officer, who oversees all corporate
responsibility matters.
It is the intention that all directors, including the Chairs
of the Audit, Remuneration and Nomination Committees,
will attend the 2017 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
Directors’ Report on page 113.
All directors have, since the 2011 Annual General Meeting,
offered themselves for annual re-election in accordance
with the UK Corporate Governance Code. At the 2017
Annual General Meeting, all of the directors will again
retire and all will offer themselves for re-election or, in
the case of any newly appointed directors, for election.
86
Board and Governance – Corporate Governance Report Board and Governance – Directors’ Remuneration Report
Directors’
Remuneration Report
Dear Shareholder,
I am pleased to introduce the Directors’ Remuneration Report which has been approved by both the Remuneration
Committee (the ‘Committee’) and the Board for the year ended 31 March 2017.
Thank you to Ian Carter for his leadership over the last four years, and thank you for entrusting me with the opportunity
to lead the Committee. Looking forward, I would like to reflect the Remuneration Committee’s commitment to setting
measured executive remuneration that motivates talent, supports the execution of the Company strategy, drives
performance, and most importantly, is aligned with the delivery of long-term shareholder value.
During the year the Board reviewed the composition of all its Committees. Given the increasing complexity and time
commitment required of serving members, we reduced the Remuneration Committee to four non-executive directors:
Philip Bowman, Stephanie George, Ian Carter and I. We are grateful to Jeremy Darroch, Matthew Key and Dame Carolyn
McCall for their respective prior contributions.
As you are aware, 2016/17 was a year of senior leadership Board level change at Burberry. This past January, Julie Brown
joined as Chief Operating and Financial Officer and Marco Gobbetti joined as Executive Chairman, Asia Pacific and Middle
East. On 5 July 2017 Marco will join the Board as Chief Executive Officer. Christopher Bailey will transition from his role of
Chief Creative and Chief Executive Officer to become President and Chief Creative Officer. Julie and Marco bring experience
that is invaluable to the delivery of our strategy and the long-term growth of the business. Likewise, Christopher’s ongoing
strategic contribution and creative talent will continue to advance the Burberry product and brand. Details of Marco,
Julie and Christopher’s remuneration are set out on page 106.
After ten years at Burberry, Carol Fairweather stepped down as Chief Financial Officer in January and left the Company
on 31 March 2017; John Smith resigned to pursue new interests and stepped down from his role as Chief Operating Officer
in January and from the Board on 31 March 2017. He will leave the business on 12 June 2017. Both Carol and John have
effectively supported Julie’s transition into the business, and I would like to thank them for their commitment to the
Company. Details of payments to Carol and John are set out on pages 108 and 109.
2017 Remuneration Policy
In setting the 2017 remuneration policy (the ‘Policy’), the Committee prioritised the reduction of the overall maximum
potential quantum and established clear measures to align the long-term interests of executives with those of shareholders.
Given the recent Executive Director level changes, the Committee decided that it was prudent to maintain the existing
operational performance measures for the annual bonus and the Executive Share Plan (the ‘ESP’). However, we have
added flexibility to the ESP by widening the ranges for the potential weightings of the measures that comprise it. Once
the senior team is fully integrated and has the opportunity to further develop Burberry’s strategy, it may be necessary
to make additional changes to the Policy in 2018. Should this occur, we will consult with shareholders, and potentially
put the Policy to another vote at the 2018 AGM.
For the 2017 Policy, the Committee is recommending the following key changes:
Reduction in pay policy maxima for executive directors
· Reduction in the annual bonus policy maximum from 225% to 200% of salary
· Reduction in both ‘normal’ and ‘exceptional’ maximum level of award under the ESP from 400% to 325% and from
600% to 375% of salary respectively
· Reduction in the level of vesting for threshold performance under the ESP from 25% to 15% of awards
· Reduction in the maximum annual salary increase from 15% to 10%, with the expectation that annual increases will not
normally exceed the average increase for the employee population
· Reduction of the maximum relocation benefits that may be paid to current executive directors from £250,000 to £200,000
· Reduction of pension contribution from 30% to 20% of salary for new external executive director appointments
· Removal of the ability to award ‘sign on’ bonus or share awards (other than buy-outs) on recruitment
87
Board and Governance – Directors’ Remuneration Report
Alignment with shareholders
We have increased our shareholding guidelines to further align the interests of executives with shareholders. The guideline
for Christopher Bailey will remain at 500,000 shares as this is considered a significant holding (circa eight times salary as
at the 31 March 2017 closing price of £17.24). We have increased the guideline for the other executive directors from two
times to three times base salary. We will continue to require retention of 50% of shares from the vesting of awards, and
an investment of 50% of annual bonus paid (net of tax) until individual executives meet the guidelines. The Committee has
also indicated to executive directors that, other than in exceptional circumstances, progress should be made towards the
guidelines, even in years when incentives have not vested.
Formalising best practice into the Policy
For executive directors, clawback provisions apply to the annual bonus award. ESP awards granted to executive directors
are subject to a holding period of five years from the date of award. Both clawback and malus provisions will now apply to
the ESP award. The holding period and clawback best practice features will be included in the formal Policy going forward.
Remuneration for 2017/18
The details of the Committee’s intended approach to the operation of remuneration policy during the 2017/18 year are set
out in section 4. Please note the following:
· There are no increases to base salaries for executive directors.
· There are no changes to the levels of annual bonus award for executive directors of up to 200% of salary at maximum.
The annual bonus will continue to be 100% based on adjusted PBT.
· There are no changes to the levels of the ESP award for the executive directors: 325% of salary for Christopher Bailey
and Marco Gobbetti and 300% of salary for Julie Brown. We have retained 2016 operational performance measures for
the ESP that focus on revenue, profitability and the efficient use of capital, with the same weightings as in 2016/17. Targets
have been carefully calibrated to ensure that they are stretching and aligned with strategy, latest performance objectives
and long-term value creation for our shareholders.
Remuneration for 2016/17
As set out in the Strategic Report on pages 9 to 65, 2016/17 was a challenging year for the luxury sector overall. In addition
to the macro environment, the Committee recognised that 2016/17 was a year of significant leadership transition for the
Company, and that it was critical to retain key talent and keep the business moving forward during this period. In this business
context, the Company delivered revenue of £2,766m and Adjusted profit of £462m, and the incentive outcomes are as follows:
· Annual bonus: Adjusted PBT achieved was just below the bonus target resulting in a bonus payment of 46% of maximum.
Notwithstanding the strong strategic progress made during the year, Christopher Bailey decided that he did not wish to be
considered for any bonus in respect of 2016/17 in light of the underlying financial performance of the business for the
year. The Committee welcomed and agreed with his decision.
· The long-term incentive awards based on Adjusted PBT and granted in 2014 – Co-Investment Plan (‘CIP’) awards and
50% of Restricted Share Plan (‘RSP’) awards – will not vest as Adjusted PBT declined over the three-year period ending
in 2016/17. The remaining 50% of 2014 RSP awards based on total shareholder return (‘TSR’) relative to our peers will
vest at 38.5% of maximum as we outperformed the median of our TSR comparator group. More detail is provided on
pages 99 and 100.
· The Committee has reviewed performance for the year against the criteria on Christopher’s 2014 exceptional share
award and has determined that achievement for 2016/17 was 50% of maximum. This gives an overall vesting outcome
of 61.7% of maximum for tranche 1 of this award based on annual assessment of performance over three years (2014/15:
85%, 2015/16: 50% and 2016/17: 50%). The Committee believes this level of vesting appropriately reflects the progress
of the business in executing our strategy and Christopher’s contribution to this over the period. This award will vest in
July 2017 and section 2.6 of this report provides further detail.
· As set out in the Remuneration Report last year, Christopher deferred the vesting date of the first tranche of his 2013
exceptional award, made prior to joining the Board, from July 2016 to July 2017. Both the first and second tranches of
this award will therefore vest in July 2017, as set out in section 2.7.
88
Board and Governance – Directors’ Remuneration Report
The 2017 Remuneration Policy and the 2016/17 Annual Report on Remuneration will be put to the vote at the AGM
on 13 July 2017. On behalf of the Remuneration Committee, thank you to our shareholders for your feedback on the
development of the Policy. I look forward to on-going discussions on executive remuneration and appreciate your
engagement, consideration and support at the AGM.
Fabiola R. Arredondo
Chair, Remuneration Committee
Summary contents
The Directors’ Remuneration Report is set out in the following sections:
1. Directors’ Remuneration Policy
Annual Report on Remuneration
2. Directors’ remuneration in 2016/17
3. Outstanding share interests
4. Directors’ remuneration in 2017/18
5. Further information on remuneration for new executive directors
6. Further information on remuneration for Carol Fairweather
7. Further information on remuneration for John Smith
8. Remuneration Committee in 2016/17
9. Eight-year performance graph and Chief Executive Officer remuneration
1. Directors’ remuneration policy
Burberry’s directors’ remuneration policy as set out in this report will be put to shareholders for approval at the 2017 Annual
General Meeting (‘AGM’) to be held on 13 July 2017. It is the Committee’s intention that the remuneration policy will apply
to payments made from the date of the 2017 AGM. We have made the changes outlined in the introductory letter to reduce
the policy maximum level of pay for executive directors, to reflect best practice, to align with shareholder expectations and
to ensure that the policy has the necessary flexibility to support the business as the strategy evolves. Additionally, changes
have also been made to increase clarity or to simplify.
The Committee believes that Burberry’s remuneration should be strongly linked to business performance
and strategic direction taking into account the global markets in which it operates and from which it recruits talent.
The 2017 Remuneration Policy is based on the following principles:
Linked to the performance and strategy of the business: the overall remuneration framework should provide a balance
between key short-term and long-term business objectives. Variable pay for executive directors includes (1) an annual cash
bonus based on short-term indicators of the financial performance of Burberry and (2) long-term share-based incentives
again linked to the financial performance and key performance indicators of Burberry. More detail on the Company’s key
performance indicators linked to executive remuneration and their strategic alignment is set out on pages 28 and 29.
Shareholder value and alignment: remuneration should provide close alignment with long-term value creation for shareholders
through the selection of appropriate performance measures and targets, should be tied to the future success of the Company,
and should emphasise variable pay and deliver a significant proportion of remuneration in shares, some of which are
expected to be retained in accordance with the shareholding guidelines.
Competitive in the global talent market: total remuneration should be sufficient to attract, motivate and retain exceptional
talent. The Committee takes into account Burberry’s main global competitors for talent and comparable UK companies
when considering the total remuneration for executive directors. The Committee recognises that, for each executive,
the relative importance of these reference groups may be different depending on the skills and experience required
to undertake the specific role. Benefits are based on competitive market practice for each executive depending on
individual circumstances.
89
Board and Governance – Directors’ Remuneration Report
1.1 Directors’ remuneration policy effective from 13 July 2017
Purpose
Executive directors
Base salary
To recognise the
responsibilities,
experience and
ability of our talent in
a competitive global
environment, keeping
our people focused
on, and passionate
about, the brand.
Annual bonus
To reward executive
directors for achieving
annual financial targets
linked to the strategic
plan agreed by
the Board.
Maximum annual opportunity
and link to performance
Operation
The maximum annual increase (per individual
executive director) is 10% of base salary;
however, annual increases will not normally
exceed the average increase for the broader
employee population.
Salary levels and any increases for executive directors are set within
the same framework and ranges as those for all other employees,
taking into account individual performance and overall contribution
to the business during the year, cost to the Company, the external
economic climate and positioning against peers.
The Committee considers the impact of any base salary increase
on the total remuneration package.
The Committee recognises that strong financial performance is key
to delivering superior shareholder returns and that annual profitability
is a key measure of this.
Targets are set each year by reference to budget, the strategic plan,
long-term financial goals, latest projections for the relevant year
and broker earnings estimates for Burberry and its competitors.
Targets will be disclosed retrospectively following completion of
the relevant financial year.
Executives are required to invest 50% of any net bonus earned
until executive shareholding guidelines are met.
Clawback provision: During the period of three years from date
of payment (whether in cash or shares), the Company may seek to
recover any bonus from individual directors in whole or in part in the
event of a material misstatement in the Company’s audited financial
statements or if the bonus outcome has been incorrectly calculated.
Use of judgement: The Committee may determine that it is
appropriate to adjust the bonus outcome if, for example, outcomes
are not considered to be reflective of underlying performance or
where targets are no longer appropriate. It is anticipated that any
adjustment would be infrequent and in exceptional circumstances
only and within the limits of the policy. Details of any application
of judgement would be disclosed at the time in the relevant
remuneration report.
Maximum awards are:
· 200% of salary
· 100% linked to adjusted profit performance
Performance measure:
Percentage of maximum bonus payable at
each level of performance:
· 25% at threshold
· 50% at target
· 100% at maximum
90
Board and Governance – Directors’ Remuneration Report
Maximum annual opportunity
and link to performance
Operation
Purpose
Burberry Executive
Share Plan (‘ESP’)
To focus executives
on, and reward them for,
sustainable long-term
performance and
successful execution
of the Company’s
long-term strategy.
To help maintain the
stability of the top
executive team, and align
executives’ interests with
those of shareholders.
Maximum awards are:
· 325% of salary (in normal circumstances)
· 375% of salary (in exceptional
circumstances, to be determined
at the Committee’s discretion)
Performance measures for executive directors
to be measured over three financial years:
· 20% to 40% on growth in revenue
· 40% to 60% on growth in adjusted profit
· 20% to 30% on a measure to incentivise
the efficient use of capital
For each of the measures the vesting profile
shall be as follows:
· No more than 15% vesting for threshold
· 100% vesting for maximum performance
performance
Vesting: 50% after three years, remaining
50% after four years.
Holding period: while executive directors
are employed by Burberry, normally no ESP
shares may be sold, except to cover any tax
liabilities arising out of the award, until five
years from the date of grant.
All-employee
share plans
To encourage employee
share ownership
at all levels.
Sharesave: maximum savings amount
of £6,000 per annum, with which shares
can be purchased with a 20% discount.
Share Incentive Plan and International
Freeshare Plan: awards with a value of
up to £500 per annum.
Pensions
To offer market-
competitive benefits.
Maximum company contribution: 30% of salary
per annum for the current executive directors.
For any new external executive director
appointments, the maximum Company
contribution will be no more than 20% of
salary per annum.
91
Targets for the measures will be calibrated ahead of each annual
grant by reference to the latest strategic plan, long-term financial
goals, latest three-year projections and broker earnings estimates
for Burberry and its competitors. The threshold targets will be
calibrated to be of median difficulty, and the maximum targets
will be of upper quartile difficulty as determined by the Committee.
Targets will be disclosed ahead of each annual grant and for
completed cycles, detail on the performance achieved against
the targets will be disclosed.
Burberry’s strategy currently aims to deliver both profit and
revenue growth and therefore to align with strategy, a measure
based on revenue growth is included as a transparent and
quantifiable indicator of performance. Growth in adjusted profit
has been chosen as the Committee believes strong growth in
adjusted profit is key to delivering superior shareholder returns.
The efficient use of capital measure is intended to incentivise
management to combine superior growth in profit and revenue
with attractive returns on future investment but not to act as a
disincentive to invest.
A cash payment equivalent to the value of dividends which would
have been received during the vesting period will be paid only in
respect of shares that vest.
The awards are structured as nil-cost options or conditional rights
to receive free shares on vesting.
Discretion: The Committee retains the discretion to grant
awards of up to 375% of salary in exceptional circumstances.
The Committee may vary the weighting applied to each measure
within the ranges shown.
Use of judgement: The Committee will have the ability to adjust
the calculated level of vesting by reference to the quality of earnings
and effective execution of strategy to ensure the growth delivered
is long-term sustainable growth and within the limits of the policy
only. Details of any adjustments would be disclosed in the relevant
remuneration report.
Malus provision: Unvested shares or awards may be forfeited
in whole or in part in the event of a material misstatement in the
Company’s audited financial statements.
Clawback provision: During the period of three years from date
of vest, the Company may seek to recover any vested shares or
awards from individual directors in whole or in part (or cash of
equivalent value) in the event of a material misstatement in the
Company’s audited financial statements or if the outturn has
been incorrectly calculated.
Burberry operates two all-employee share plans:
The Sharesave Scheme offers eligible employees (including
executive directors) 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, normally at the end of the savings
contract, at up to a 20% discount to the market price at the date
of invitation.
Awards of shares or a cash equivalent (where the use of shares
is not possible) are made annually to all eligible employees under
the UK Share Incentive Plan and International Freeshare Plans.
Discretion: The Committee reserves the right to increase the
maxima to the extent that the change is made on the same basis
for all employees participating in the plan.
Executive directors participate in defined contribution arrangements.
Participants may elect to receive some or all of their entitlement as
a cash allowance.
Board and Governance – Directors’ Remuneration Report
Purpose
Maximum annual opportunity
and link to performance
Operation
Other benefits
and allowances
To promote the well
being of employees,
allowing them to focus
on the business.
Executive directors receive a cash allowance
and non-cash benefits. The aggregate
maximum value of benefits would not normally
exceed £100,000 per individual per annum
(other than in circumstances deemed to
be exceptional by the Committee).
The Committee may agree that the Company
will pay additional allowances linked to relocation
or international assignment. For the purposes
of providing a maximum, this will not exceed
£200,000 in any year for any one existing director.
Christopher Bailey is entitled to a cash
allowance of £440,000 per annum, as agreed in
his previous role, prior to his appointment as an
executive director. He is also entitled to receive
the non-cash benefits, as noted to the right;
the value of these is not normally expected
to exceed £20,000 per annum.
Benefit levels are reviewed on an annual basis and, while the
Committee does not intend to increase the level of provision above
the maximum value, the cost to the Company of providing benefits
can vary due to a number of factors outside the Company’s control.
Benefits for executive directors may include, but are not limited to:
· private medical insurance
· life assurance
· long-term disability insurance
· car allowance
· clothing allowance
· employee discount
Reasonably incurred expenses will be reimbursed.
The Company may meet any tax liabilities that may arise
on expenses.
Discretion: The Committee retains the discretion to provide
other benefits to the executive directors as deemed necessary.
Discretion to honour all prior commitments
The Committee reserves the right to make any payments (including exercising any discretion it has relating to such payments) where the
terms were agreed before this policy came into effect or prior to an individual being appointed a director of the Company. For these purposes
entitlements arising under the Company’s current remuneration policy (as approved by shareholders at the 2014 AGM) will be incorporated
into this policy, and ‘payments’ includes the Committee satisfying awards of variable remuneration, and an entitlement under an award over
shares (or cash of equivalent value) arising at the time the award is granted.
Notes on share awards:
– Adjustment of share awards: The number of shares subject to an award (and the option price, where relevant) can be adjusted on a rights issue, special dividend,
de-merger or variation of capital or similar transaction. Subject to the plan rules, share awards can be satisfied by a cash payment equal to the value of shares
the participant would otherwise have received.
– In respect of our share plans, this table presents a summary of the key and relevant information for the Plan Rules. It is the Committee’s intention that these
plans will operate in accordance with the Plan Rules as approved by shareholders (where applicable).
A summary of the changes between the Policy set out above for the executive directors and the Company current Policy (as approved at the 2014 AGM) is set out
on pages 87 and 88 within the Committee Chair’s letter.
92
Board and Governance – Directors’ Remuneration Report
Purpose
Maximum annual opportunity
Operation
Non-executive directors
Chairman – fees
To attract and retain a
high-calibre chairman
by offering a market-
competitive fee.
Non-executive
directors (NEDs) – fees
To attract and retain
high-calibre non-
executive directors
by offering market-
competitive fees.
Maximum increase: 10% of fee
(per annum over period since last review date).
Maximum increase for each type of fee
(per individual director): 10% of fee
(per annum over period since last review date).
The Chairman is paid a single fee for all responsibilities.
The fee level is reviewed at least every three years by
the Committee, with reference to UK market levels in
companies of a similar size, the time commitment and
personal contribution.
The fee is paid in cash.
The NEDs are paid a basic fee. The Chairs of the Audit and
Remuneration Committees and the Senior Independent
Director are paid an additional fee to reflect their extra
responsibilities.
Fee levels are reviewed at least every three years by the
Board, with reference to UK market levels in companies
of a similar size.
Fees are paid in cash.
Chairman and NEDs
– other benefits
To enable the Chairman
and NEDs to undertake
their roles.
Non-executive directors receive a £2,000 attendance
allowance per meeting for attendance at Board meetings
outside of their country of residence (except the
Chairman) and, as brand ambassadors, discount on
Burberry products.
Attendance allowances are paid in cash.
Reasonably incurred expenses will be reimbursed.
The Chairman is eligible to receive healthcare cover
and has access to a car and driver.
Other benefits may be provided where appropriate.
Benefit levels are reviewed on an annual basis and the
value can vary year-on-year. Any additional benefits will
be set at a level appropriate to the role and individual.
The Company may meet any tax liabilities that may
arise on expenses or benefits.
Maximum additional fee: £20,000
NEDs – additional fees
To allow flexibility to
provide additional fees
if required.
The Company has the discretion to pay an additional fee to
a NED should the Company require significant additional
time commitment in exceptional circumstances.
The Company currently has no intention to use this discretion.
The Policy above includes the addition of healthcare cover and a car and driver for the Chairman, which are considered appropriate benefits for this role.
1.2. Policy on recruitment and promotion arrangements
Except as described below, the Committee will pay new directors in accordance with the approved remuneration policy.
The ongoing annual remuneration arrangements for new executive directors will therefore comprise base salary, annual
bonus, ESP award, pension, benefits and all-employee share plans. In addition, the recruitment policy below permits the
Committee to take the following actions, if appropriate, in the best interests of the Company and therefore shareholders.
· For an internal appointment, any commitment made in respect of the prior role will be allowed to pay out according to its terms.
· For external and internal appointments, the Committee may agree that the Company will pay certain reasonable
allowances linked to relocation (and the limit in the policy table for existing directors will not apply in this case) as
appropriate and will meet reasonable expenses/reimburse an executive against additional costs on appointment.
In addition, the Committee may agree that the Company will pay certain reasonable allowances linked to repatriation
on termination of employment.
· For external appointments, the Committee may offer additional cash and/or share-based elements to take account of
remuneration relinquished when leaving a former employer. As far as possible and appropriate, such payments would
reflect the nature, time horizons and performance requirements attaching to the relinquished remuneration.
· If necessary, the Committee may enter into a service contract with a longer initial notice period to secure the appointment
of an executive from an environment where longer notice periods are market practice. The notice period would be
reduced to 12 months or less on a rolling basis after the initial longer period has finished.
· For internal appointments the terms and conditions of the individual employment prior to the appointment will remain
in force unless the Committee otherwise decides and the individual agrees.
93
Board and Governance – Directors’ Remuneration Report
1.3. Supplementary information
Remuneration policy in the rest of the Company
The remuneration arrangements for executive directors outlined in section 1.1. above are consistent with those for the
other senior executives, although quantum and award opportunities vary by executive level.
In making its decisions on executive remuneration, the Committee considers the reward framework for all employees
worldwide, ensuring that the principles applied are consistent with the executive remuneration policy. Merit increases
awarded to executives are determined within the broader context of employee remuneration. All our employees are
eligible for an annual bonus based on performance and the principle of shareholder alignment is reflected throughout
the organisation through our all-employee share plans, which are (where legally possible) extended to all eligible
Burberry employees globally.
Burberry is also a partner of the Living Wage Foundation and accredited as a UK Living Wage employer.
Indicative total remuneration levels
A substantial portion of executive director remuneration is dependent on Company performance. The charts below illustrate
indicative levels of total remuneration which would be received by each executive director under the remuneration policy set
out above on pages 90 to 92 for the first complete financial year in which the policy will apply (from 1 April 2017) at each of:
(1) maximum, (2) target and (3) below threshold performance scenarios.
Executive director total remuneration at different levels of performance
47%
£7.6m
38%
£4.8m
49%
£7.3m
41%
£4.4m
29%
23%
£1.9m
30%
25%
£1.5m
Christopher Bailey
Maximum
24%
Target
39%
Below threshold
100%
Marco Gobbetti
Maximum
21%
Target
34%
Below threshold
100%
Julie Brown
Maximum
21%
Target
35%
32%
47%
£4.4m
26%
39%
£2.7m
Below threshold
100%
£0m
£0.9m
£2m
£4m
£6m
£8m
Fixed
Short-term variable
Long-term variable
Notes:
– "Maximum" remuneration includes fixed pay plus maximum annual bonus (100% of opportunity which is 200% of salary for all executive directors)
and 100% vesting of ESP award (325% of salary for Christopher Bailey and Marco Gobbetti and 300% of salary for Julie Brown).
– "Target" remuneration includes fixed pay plus target annual bonus (50% of maximum) and 50% vesting of ESP award.
– "Below threshold" remuneration includes fixed pay only (salary, pension and cash allowances).
– No share price growth or dividend payments have been applied to share awards included in these indicative total remuneration figures.
– Salaries are assumed to be at the levels that will apply from 1 July 2017.
– Christopher Bailey’s exceptional share awards have been excluded as they do not form part of the 2017 forward-looking general policy.
– Marco Gobbetti and Julie Brown’s buy-out bonuses and share awards have been excluded as they do not form part of their on-going annual remuneration.
94
Board and Governance – Directors’ Remuneration Report
Policy on service agreements and termination provisions
Executive directors
The Company’s general policy on executive directors’ service agreements is that they operate on a rolling basis with no
specific end date and include a 12-month or less notice period both to and from the Company. The table below sets out
information on service agreements for the current executive directors. Christopher Bailey has a service agreement put in
place prior to implementation of this policy and includes at least a six-month notice period to the Company.
Christopher Bailey
Julie Brown
Date of current
service agreement
30 April 2014
11 July 2016
Date employment
commenced
7 May 2001
18 January 2017
Notice period to
the Company
Notice period from
the Company
6 months
12 months
12 months
12 months
Standard terms on termination
Salary, benefits and allowances: Executive directors continue to receive salary, benefits and allowances during their
notice period. Pursuant to the terms of Business Protection Agreements (which set out restrictive covenants and terms
relating to the non-solicitation of employees) in place with the executive directors (except Christopher Bailey), payments
equal to salary for the duration of certain restrictive covenants may be made if the employer chooses to enforce them to
protect Burberry’s continuing business.
Annual bonus paid in cash: An executive considered to be a ‘good leaver’ (for example leaving the Company on retirement,
redundancy, ill health, as a result of death in service or in other circumstances determined by the Committee) may remain
eligible for a pro-rated payment of the annual bonus subject to achievement of bonus targets. An executive director who has
left employment for a reason such as joining a competitor company during the performance period or before the payment is
due, or who has given or been given notice, will not be eligible to receive an annual bonus. The Committee retains discretion
to vary the approach and the payment of annual bonus to leavers, as outlined below.
ESP awards: For an executive considered to be a ‘good leaver’ (including leaving the Company on retirement, redundancy,
ill health, as a result of death in service or in other circumstances determined by the Committee), outstanding awards will be
pro-rated for time and vest subject to performance on the original vesting date. For an executive director whose employment
is terminated for any other reason (such as leaving to join a competitor company) during the performance period, ESP
awards will lapse in full. The Committee retains discretion to vary the approach and the extent to which awards vest for
leavers, as outlined below.
Other: Reasonable disbursements (for example, legal or professional fees, relocation/repatriation costs) may be paid.
Any other employee share plan entitlements (such as under the Sharesave Scheme, UK Share Incentive Plan or the
International Freeshare Plan) will be dealt with in accordance with the rules of the relevant plan and the Committee
may exercise the discretions provided under those plans.
Discretion: In the Committee’s experience, directors leave for a wide variety of reasons and individual circumstances,
which do not all fall within the ‘good leaver’ categories outlined above. The Committee therefore retains discretion to
approve payments to individuals based on individual circumstances and performance while in office or employment.
In applying any such discretion, the Committee will make any decisions by considering the best interests of shareholders
and those of the remaining employees including executive directors. Where awards are subject to performance conditions,
these would be tested at the end of the relevant period(s) and any award which is allowed to vest would be pro-rated for
time in office or employment.
Christopher Bailey
The Company has agreed specific arrangements with Christopher Bailey in relation to termination of his employment
in substitution for the first two sections of the standard terms described in the previous section (‘Salary, benefits and
allowances’ and ‘Annual bonus paid in cash’). These specific arrangements are described below.
The Company may terminate Christopher Bailey’s service agreement without cause by giving 12 months’ written notice.
The Company may terminate the service agreement immediately, in its sole discretion, by written notice and electing to
pay to Christopher Bailey either (1) a lump sum representing his salary in lieu of the unexpired notice period within 14 days
of termination or (2) in monthly instalments of 1/12 of his annual salary and 1/12 of his annual allowance of £440,000 in
lieu of the unexpired notice period or until Christopher Bailey commences any new employment or engagement if earlier.
Christopher Bailey must use his reasonable endeavours to seek alternative employment during the balance of his unexpired
notice period. The Company will also pay Christopher Bailey a bonus for the year in which employment terminated subject
to achievement of the performance targets and other requirements of the bonus arrangements for that year, pro-rated to
actual service in the bonus year. The bonus would be paid on the usual bonus payment date.
95
Board and Governance – Directors’ Remuneration Report
Christopher Bailey may terminate his service agreement at any time for ‘Good Reason’, provided he has requested that the
Company remedy the relevant breach within 14 days of notification and the Company has failed to do so. ‘Good Reason’
means the Company is guilty of serious and continued non-observance or breach of the terms of the service agreement
or of any applicable substantial laws which are detrimental to Christopher Bailey. On termination for ‘Good Reason’
Christopher Bailey is entitled to a lump sum payment representing his salary in lieu of notice. The Company will also
pay Christopher Bailey a bonus for the year in which employment terminated subject to achievement of the performance
targets and other requirements of the bonus arrangements for that year, pro-rated to actual service in the bonus year.
The bonus would be paid on the usual bonus payment date.
The Company may terminate the service agreement on health grounds by giving Christopher Bailey not less than six months’
notice once Christopher Bailey’s entitlement to Company sick pay has been exhausted or he has been incapacitated for more
than 26 weeks (whether or not continuous) in any period of 52 weeks. The Company may, in its sole discretion, terminate the
employment by making a payment of 130% of his salary, and pay the allowance in lieu of notice within 14 days of termination.
The Company will also pay Christopher Bailey a bonus for the year in which employment terminated subject to achievement
of the performance targets and other requirements of the bonus arrangements for that year, pro-rated to actual service in
that year. The bonus would be paid on the usual bonus payment date.
If Christopher Bailey dies during his employment with the Company, the Company will pay his estate his salary to the
termination date and a bonus calculated as for an ill health termination described above.
Upon termination of the service agreement, Christopher Bailey’s entitlements (if any) under the relevant share plans in
which he participates will be determined in accordance with the rules of those plans, as described above.
Corporate events
Upon a change in control of the Company, outstanding ESP awards will, unless the Committee determines otherwise, be
pro-rated for time and vest subject to performance at the point of change in control. Alternatively, they can be exchanged
for equivalent awards over shares in the acquiring company. The Committee can also allow full or partial vesting on a
de-merger, special dividend, distribution in specie or if the participant is relocated in circumstances which would give rise
to unfavourable tax treatment. Malus, clawback and holding period requirements will cease to apply following a change
of control.
Any other employee share plan entitlements (such as under the Sharesave Scheme, UK Share Incentive Plan or the
International Freeshare Plan) will be dealt with in accordance with the rules of the relevant plan and the Committee may
exercise the discretions provided under those plans.
Non-executive directors
The non-executive directors serve under Letters of Appointment with the Company. Non-executive directors may continue
to serve subject to the annual re-election by shareholders at each AGM of the Company, subject to six months’ notice by
either party. There are no provisions for compensation for loss of office in the Letters of Appointment.
1.4. Development of directors’ remuneration policy
In developing and reviewing the directors’ remuneration policy, the Committee is mindful of the views of shareholders
and is sensitive of the relativities of arrangements for executive directors to those for employees more generally.
The Committee proactively seeks feedback from shareholders when considering any significant changes to remuneration
for executive directors. The Committee also listens to and takes into consideration investor views more generally throughout
the year. For example, the Company consulted with its largest shareholders in the autumn of 2016 regarding 2016 ESP
awards (in particular the performance measure targets that apply) and refined the proposals based on the feedback
received and consulted in the spring of 2017 on the 2017 remuneration policy.
Employees are free to communicate their views internally on any topic including the remuneration policy for directors
by using the Burberry internal social media platform or using the employee confidential helpline. In addition, many of
Burberry’s employees are shareholders, through the Sharesave and Free Share plans, and they, like other shareholders,
are able to express their views on directors’ remuneration at each general meeting. During 2017 Burberry will launch its
all-employee engagement survey. Views of our employees generally and on their remuneration will be taken into account
when building future plans. However, given the scale, geographic spread and the diversity of roles of Burberry’s employees,
the Committee does not proactively consult with employees specifically on the remuneration policy for directors.
96
Board and Governance – Directors’ Remuneration Report
2. Directors’ remuneration in 2016/17 (Annual Report on Remuneration)
The information set out in this section has been subject to external audit where indicated.
2.1. Single figure of total remuneration outcomes for 2016/17 (audited)
The table below sets out the single figure of total remuneration received or receivable by the directors in respect of the
2016/17 financial year. The single figures of total remuneration are also included for the prior (2015/16) financial year.
Salary/
fees
£’000
Benefits/
allowances
£’000
Pension
£’000
Bonus
£’000
CIP1
£’000
RSP2
£’000
2014
Exceptional
award3
£’000
LTI
total
£’000
1,100
1,100
469
464
330
330
143
13
43
–
–
–
–
–
–
240
1,392
1,632
–
–
–
–
–
–
Prior
company
bonus
buyout4
£’000
Prior
company
shares
buyout4
£’000
TOTAL
£’000
–
–
–
–
3,531
1,894
Total
£’000
3,531
1,894
199
550
3,985
4,734
Executive directors
Christopher Bailey
Year to 31 March 2017
Year to 31 March 2016
Julie Brown4
Year to 31 March 2017
Non-executive directors
Sir John Peace
Year to 31 March 2017
Year to 31 March 2016
Fabiola Arredondo
Year to 31 March 2017
Year to 31 March 2016
Philip Bowman
Year to 31 March 2017
Year to 31 March 2016
Ian Carter
Year to 31 March 2017
Year to 31 March 2016
Jeremy Darroch
Year to 31 March 2017
Year to 31 March 2016
Stephanie George
Year to 31 March 2017
Year to 31 March 2016
Matthew Key
Year to 31 March 2017
Year to 31 March 2016
Dame Carolyn McCall
Year to 31 March 2017
Year to 31 March 2016
Former executive directors
John Smith5
Year to 31 March 2017
Year to 31 March 2016
Carol Fairweather6
Year to 31 March 2017
Year to 31 March 2016
400
400
103
80
112
135
92
115
103
80
80
80
80
80
80
80
592
592
399
500
Former non-executive directors
David Tyler7
Year to 31 March 2016
60
3
4
144
86
36
14
134
81
–
–
106
103
3
5
3
3
44
43
27
33
–
403
404
247
166
148
149
226
196
103
80
186
183
83
85
83
83
178
178
120
150
408
-
275
–
–
–
–
–
129
–
153
–
–
–
–
–
129
1,351
–
813
153
–
974
683
60
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
403
404
247
166
148
149
226
196
103
80
186
183
83
85
83
83
1,351
813
974
683
60
3
4
Notes:
1 The PBT performance condition attached to the 2014 CIP awards was not met and so none of these awards will vest.
2
The amounts shown for 2014 RSP awards vesting for Christopher Bailey, John Smith and Carol Fairweather shown (for year to 31 March 2017) are based
on a share price of £16.721 (average share price over the three months to 31 March 2017) as these awards have not yet vested.
The amount shown as ‘2014 Exceptional award’ for Christopher Bailey relates to vesting of the first tranche of his 2014 exceptional share award, for which
77,084 of a maximum 125,000 shares will vest on 31 July 2017. As this award has not yet vested the value is based on a share price of £16.721 (the average
share price over the three months to 31 March 2017) and includes an estimated payment of £103,523 in lieu of dividends.
Remuneration for Julie Brown relates to the period 18 January 2017 to 31 March 2017. As compensation for the incentives she forfeited on leaving her previous
employer, Julie Brown received a cash bonus of £550,000 (included in ‘Prior company bonus buyout’) and was granted nil-cost options over 240,000 shares
(included in ‘Prior company shares buyout’) at a grant price of £16.6033 (the average share price over the 3 days prior to grant) used to calculate the value of
the grant shown above. Further detail on these buyout awards is included on page 108. Julie Brown serves as a non-executive director of Roche Holdings and
it was agreed that fees earned in connection with this appointment can be retained by her. For the period 18 January to 31 March 2017, Julie’s pro-rata fees for
this appointment were £47,990. As set out in section 3.3, Julie will use 50% of her net of tax bonus buy-out award to buy Burberry shares.
5 2016/17 remuneration for John Smith relates to the period 1 April 2016 to 31 March 2017, when he stepped down from the Board.
6 2016/17 remuneration for Carol Fairweather relates to the period 1 April 2016 to 18 January 2017, when she stepped down from the Board.
7 Fees for David Tyler for the 2015/16 year relate to the period 1 April 2015 to 31 December 2015, when he stepped down from the Board.
97
Board and Governance – Directors’ Remuneration Report
The table below details the benefits/allowances received by the directors during the 2016/17 year:
2016/17 benefits/
allowances
(£’000)
Executive directors
Christopher Bailey
Julie Brown
Former executive directors
John Smith
Carol Fairweather
Non-executive
directors
Sir John Peace
Fabiola Arredondo1
Philip Bowman1
Ian Carter1
Jeremy Darroch
Stephanie George1
Matthew Key
Dame Carolyn McCall
Cash
allowance
Car
allowance
Clothing
allowance
Private
medical
insurance
Life
assurance
Long-term
disability
insurance
Expenses2
Tax on
expenses
Total
£’000
440
–
–
–
–
10
6
12
–
10
–
–
–
3
17
8
–
3
15
12
18
4
3
3
6
1
6
2
5
2
3
2
469
13
44
27
3
144
36
134
–
106
3
3
2
80
17
67
–
58
2
2
1
54
13
55
–
38
1
1
Notes:
1
2
Cash allowances for Fabiola Arredondo, Philip Bowman, Ian Carter and Stephanie George are attendance allowances of £2,000 for each meeting attended
outside of their country of residence.
The reimbursement of certain expenses incurred by non-executive directors in the performance of their duties is deemed by HM Revenue & Customs to
be subject to UK Income Tax. The tables above include figures for ‘Benefits/allowances’, including costs in respect of air travel and other incidental costs
incurred in attending regular Board and Committee meetings. Any tax liabilities arising on the reimbursement of these costs will be settled by the Company.
Amounts disclosed have been estimated and have been ‘grossed up’ at a tax rate of 45%. Note that expenses for Fabiola Arredondo, Ian Carter and Stephanie
George include travel expenses from the USA.
2.2. Salary and pension for 2016/17 (audited)
Christopher Bailey did not receive any increase to his salary for the 2016/17 year and his salary continues to be £1,100,000.
Julie Brown’s salary from the date of appointment was £700,000. Carol Fairweather’s salary was £500,000 for the full year
(£399,000 of this was for the period during which she served as a director, as shown in the table on page 97) and John
Smith’s salary was £592,000.
Each executive director receives an annual pension contribution or allowance equal to 30% of base salary. No director has
a prospective entitlement to receive a defined benefit pension.
98
Board and Governance – Directors’ Remuneration Report
2.3. Annual bonus outcomes 2016/17 (audited)
The maximum annual bonus opportunity for 2016/17 was 200% of salary for the Chief Creative and Chief Executive
Officer and 150% of salary for other directors. Annual bonuses were based on Adjusted PBT (which includes adjustments
for fragrance and beauty licence intangible asset charges, costs associated with the transfer of the Beauty operations,
restructuring costs, China put option liability finance charge, and BME deferred consideration charges as set out in the
Group Financial Review on pages 56 and 57). As set out in letters from the Chief Creative and Chief Executive Officer and
the Chairman, 2016/17 continued to be a challenging year for the luxury sector and for the Company. Against this uncertain
background, and reflecting the plans for accelerating our productivity and efficiency agenda, the Committee set a realistically
stretching target for Adjusted PBT of £334m for the 2016/17 annual bonus, with threshold level of performance at £320m
and maximum at £366m (all at 2015/16 exchange rates). Whilst the 2016/17 Adjusted PBT outcome of £332m (at 2015/16
exchange rates; £462m at reported rates) is above threshold, Christopher Bailey decided that he did not wish to be
considered for any bonus in respect of 2016/17 in light of the underlying financial performance of the business for the
year. The Committee considered his decision and deemed it to be appropriate. His bonus payment for 2016/17 will therefore
be nil. The Committee also determined that Carol Fairweather and John Smith would receive their bonuses as previously
agreed. Julie Brown was not eligible to receive a bonus for her period of service during the year.
The table below sets out the targets and actual performance for 2016/17. As a result of the restructure of the leadership
team, Carol will be treated as a good leaver for the 2016/17 annual bonus. As John remained in employment and committed
to business performance for the full 2016/17 financial year, the Committee determined that he would receive an annual
bonus based on the Adjusted PBT performance outcome.
Annual bonus for 2016/17
Christopher Bailey
Carol Fairweather
John Smith
Maximum bonus
opportunity
(% of salary)
2016/17
Adjusted PBT
target (£m)
Level of 2016/17
Adjusted PBT
achieved* (£m)
2016/17
bonus payment
(% of maximum)
2016/17
bonus payment
(% of salary)
2016/17
bonus payment
(£’000)
200% Threshold: 320
150%
Target: 334
150% Maximum: 366
332
46%
0%
69%
69%
£0
£275
£408
*
The bonus outcome is calculated using the average exchange rates of the 2015/16 financial year. The level of Adjusted PBT achieved for bonus purposes
is therefore lower than the reported 2016/17 Adjusted PBT (at £462m) to reflect constant exchange rates.
2.4. Co-Investment Plan outcomes for 2016/17 (audited)
In June 2014, Christopher Bailey, Carol Fairweather and John Smith were granted Co-Investment Plan (‘CIP’) matching
awards as detailed in the table below. As for the annual bonus, Carol is a good leaver, in-line with the rules of the plan,
and John is eligible to receive any awards vesting before his leave date on 12 June 2017.
Vesting of 2014 CIP awards was subject to performance from 1 April 2014 to 31 March 2017, as follows:
- 25% of awards vest if growth in Adjusted PBT is 5% per annum over three years
- 100% vest if Adjusted PBT growth is equal to or exceeds 10% per annum over three years
The vesting outcome based on three-year Adjusted PBT growth is calculated using constant exchange rates. On this basis,
Adjusted PBT declined over the three-year period to 31 March 2017, which is below the threshold growth required of 5% p.a.
and none of the awards will vest, as set out in the table below.
CIP outcomes for 2016/17
Christopher Bailey
Carol Fairweather
John Smith
2014
CIP award
(no. of
matching shares)
2014
CIP Adjusted
PBT growth
targets over
three years (p.a.)
Level of
Adjusted PBT
growth achieved
over three years#
147,491
Threshold: 5% Decline in PBT
30,545 Maximum: 10%
43,367
2016/17
CIP vesting
(% of maximum)
2016/17
CIP vesting
(£’000)
0%
0%
0%
£0
£0
£0
#
The CIP outcome is calculated using the average exchange rates of the year on which the targets were based, as set out in the performance condition to awards
(at the start of the performance period).
99
Board and Governance – Directors’ Remuneration Report
2.5. Restricted Share Plan outcomes for 2016/17 (audited)
In June 2014, Christopher Bailey, Carol Fairweather and John Smith were awarded Restricted Share Plan (‘RSP’) awards
as detailed in the table below. As for the CIP, Carol is a good leaver, in-line with the rules of the plan, and John is eligible to
receive any awards vesting before his leave date. Vesting of 2014 RSP awards was subject to performance from 1 April 2014
to 31 March 2017, as detailed below. On this basis, Adjusted PBT declined over the three-year period to 31 March 2017,
which is below the threshold growth required of 5% p.a. and none of the PBT element (50%) of these awards will vest. The
remaining 50% of 2014 RSP awards based on TSR relative to our peers will vest at 38.5%, as detailed in the following table.
RSP outcomes for 2016/17
Christopher Bailey
2014
RSP award
(no. of
shares)
74,610
Performance
measure
Growth in
Adjusted PBT
over three years
(50%)
Level of
performance
achieved over
three years#
Vesting
schedule
2016/17
RSP vesting
(% of maximum)
2016/17
RSP vesting
(£’000)
25% for 5% p.a.
Decline in PBT
19.25%
£240
100% for 15%
p.a. or above
Carol Fairweather
50,870
19.25%
£153
TSR vs. sector
peers over three
years (50%)
25% for median
100% for upper
quartile or above
TSR outcome* of
above median,
resulting in
vesting of 38.5%
of the TSR
element
John Smith
40,154
19.25%
£129
#
*
The RSP outcome is calculated using the average exchange rates of the year on which the targets were based, as set out in the performance condition to awards
(at the start of the performance period).
The vesting outcome based on TSR is calculated by Willis Towers Watson. The TSR peer group for the 2014 awards comprised: Coach, Compagnie Financière
Richemont, Estée Lauder, Fossil, Geox, Hermès International, Hugo Boss, Inditex, Kate Spade, Kering, Luxottica Group, LVMH Moët Hennessy Louis Vuitton,
Nike, Nordstrom, Polo Ralph Lauren, Swatch, Tiffany & Co, and Tod’s.
2.6. Christopher Bailey’s 2014 exceptional performance-based award – first tranche outcome (audited)
As reported in previous years, Christopher Bailey was granted an exceptional performance-based award of 500,000 shares
in June 2014, on his appointment to Chief Creative and Chief Executive Officer. Vesting of the award is phased over five
years, subject to the extent that the performance criteria set out below have been met, measured from the date of grant
to the relevant vesting date:
· the strategic development of the business measured against the strategic plan approved by the Board from time to time;
· the Company’s financial performance, in assessing which, the Remuneration Committee will have reference to the profit
before tax condition applied to awards made in 2014 under the Burberry Group CIP. This performance condition requires
growth in Adjusted PBT over three years of between 5% at threshold and 10% p.a. at maximum;
· the personal contribution made by Christopher Bailey;
· the shareholder value delivered in the context of the evolution of the luxury goods markets in which Burberry operated
over the period between the date of grant and the relevant vesting date; and
· any other performance factors which are appropriate in assessing the extent of vesting having regard to the interests
of shareholders.
The first tranche (up to 125,000 shares) is due to vest on 31 July 2017. The remaining shares are due to vest as follows:
up to 125,000 shares on 31 July 2018 and up to 250,000 shares on 31 July 2019.
The Committee assesses progress towards achieving the objectives each financial year, and prior to each vesting date
determines the extent to which the objectives were achieved over the three, four or five-year performance period,
having regard to the level of performance achieved in each relevant financial year.
100
Board and Governance – Directors’ Remuneration Report
At the end of 2016/17 the Committee again reviewed performance against the key performance criteria as set out below.
Strategic development
In May 2016 Burberry outlined its plans to accelerate its productivity and efficiency agenda, including a programme of
action to deliver significant cost savings. These plans were built into the five key strategies. During the year the strategies
have been embedded into the business and significant progress has been made against all of the objectives. Pages 33 to
46 of the strategic report cover in detail what has been achieved during 2016/17 and the early results of this multi-year
programme give us real confidence for the future.
Financial performance
Adjusted PBT of £462m (down 21% underlying) was generated in 2016/17. This performance was in part impacted by
actions to elevate the brand, including the rationalisation of distribution in several major markets (including Beauty) and
also the benefits of the strategic cost saving programme. This is below the level of the CIP performance condition threshold
of 5% growth.
Additionally, revenue of £2.8bn (down 2% underlying) was delivered with retail outperforming at up 3% overall, negatively
impacted by a substantial decline in US wholesale as actions were undertaken to reposition the brand and also by the
planned licence expiry in Japan.
Personal contribution
Christopher has continued to drive the business through this transitional period, whilst evolving the key strategies. He has
ensured the senior executive team continued to be focussed on both the delivery of the key strategies and the management
of the business in a challenging economic climate. Christopher has also overseen significant change across the senior team
and has embedded new executives and retained existing talent.
Shareholder value
The share price has increased by 16% since Christopher’s appointment to Chief Creative and Chief Executive Officer on
1 May 2014 to 31 March 2017 and dividends for 2016/17 are 38.9p per share. This is an increase of 5% on 2015/16.
Overall Total Shareholder Return (‘TSR’) for Burberry for the three years to 31 March 2017 is 31.9% (as confirmed by Willis
Towers Watson), which compares to an average TSR of 23.8% for our core luxury peers* and 24.3% for the FTSE 100.
* Boss, Coach, Ferragamo, Hermes, Kering, LVMH, Prada, Ralph Lauren, Richemont, Swatch, Tiffany, Tod’s.
The Committee considered Christopher’s performance across all of the performance criteria and recognised Christopher’s
personal contribution to the delivery of the five key strategies. Balancing this against the overall financial performance of
the Company which is below the CIP target, the Committee considered that a 50% performance achievement for 2016/17
was appropriate.
The outcomes for each year to date are as follows (as a % of maximum): 2014/15: 85%; 2015/16: 50%; 2016/17: 50%. This level
of achievement in the final year of the first tranche therefore results in an overall vesting outcome of 61.7% and so 77,084 shares
of a potential 125,000 shares will vest on 31 July 2017.
101
Board and Governance – Directors’ Remuneration Report
2.7. Christopher Bailey’s 2013 exceptional award – vesting of first and second tranches
Before he was appointed to the Board, Christopher Bailey was granted an exceptional share award of 1,000,000 shares.
As set out in the 2015/16 remuneration report, Christopher deferred the vesting of the first tranche of his award from July
2016 to July 2017. The Committee have reviewed the appropriateness of any vesting in 2017 and it has been agreed that
both the first and second tranches of shares, totalling 600,000 shares, will vest in July 2017.
Note: These shares do not appear in the 2016/17 single figure of total remuneration table on page 97 as they were awarded to Christopher prior to his appointment
to the Board and are not subject to performance.
2.8. Change in the Chief Creative and Chief Executive Officer’s remuneration relative to all employees
The table below sets out the year-on-year change (2016/17 vs. 2015/16) in Christopher Bailey’s base salary, benefits and
bonus received and in the salary, benefits and annual bonus received for a comparator group of UK-based employees
is also shown.
Chief Creative and Chief Executive Officer
Year-on-year change (%)
Employees*
Year-on-year change (%)
Salary
0%
2.0%
Benefits
0%
0%
Bonus
0%
+100%
*
The comparator group includes all employees in corporate roles based in the UK. This group has been chosen as these employees most closely reflect the
economic environment in which the Chief Creative and Chief Executive Officer operates. For the comparator group of employees, the salary and bonus year-
on-year changes include the annual salary review but exclude any additional changes made in the year, for example on promotion. In 2016/17, the bonus outturn
based on Adjusted PBT performance was 46% of maximum, compared to 0% of maximum in 2015/16. The 0% increase for benefits for the comparator group of
employees reflects no change to benefits policies or levels during the year. It does not reflect any changes to the level of benefits an individual may have received
as a result of a change in role, for example on promotion. A meaningful year-on-year change for benefits and bonus for all Group employees cannot be provided
due to the variation in structure of these pay elements across roles and regions.
2.9. Relative importance of spend on pay for 2016/17
The table below sets out the total payroll costs for all employees over 2016/17 compared to total dividends payable for
the year.
Relative importance of spend on pay
Dividends paid during the year (total)
Amounts paid to buy back shares during the year
Payroll costs for all employees*
Average number of full-time equivalent employees
£m
% change
£m
% change
£m
% change
% change
2016/17
164.4
4.2%
97.2
+100%
494.4
15.6%
9,828
-3.5%
2015/16
157.7
nil
427.5
10,181
*
Employee costs for the year ended 31 March 2016 have been re-presented to include employee costs recognised within cost of sales.
102
Board and Governance – Directors’ Remuneration Report
3. Outstanding share interests
The information set out in this section has been subject to external audit where indicated.
3.1. Conditional share awards granted in 2016/17 (audited)
The table below summarises the long-term conditional share awards granted to directors during 2016/17.
As set out in our Directors’ Remuneration Report 2015/16, the Company delayed the grant of the 2016 ESP awards
while the initiatives to deliver productivity and efficiency improvements (announced in May 2016) were first being
implemented. This was to ensure that the ESP performance targets were properly aligned with Burberry’s updated
strategic goals. The targets set recognised that 2016/17 year was a transitional year for the Company and senior team
and addressed the business need to retain and motivate talent during this critical period. Although lower in absolute
terms than those set in prior years, the Committee is satisfied that the targets set for the 2016 ESP awards are stretching,
requiring a demanding level of performance, and are closely linked to our performance goals and aligned with long-term
value creation for shareholders.
Summary of conditional share awards granted in 2016/17
Type of award
ESP share
awards1
Performance
measure
Growth in
Revenue
over three years4
(25%)
Vesting
schedule
25% for
1.0% p.a.
Performance
period end
31/3/2018
Director
Christopher
Bailey
Basis of
award
Number of
shares awarded
Face value
at grant2
325% of salary
215,318
£3,575,000
100% for 5.5%
p.a. or above
Julie Brown
300% of salary
126,480
£2,100,000
Carol
Fairweather3
250% of salary
75,286
£1,250,000
Growth in
Adjusted PBT
over three years
(50%)
Adjusted Retail/
Wholesale Return
on Invested
Capital (25%)
25% for
1.0% p.a.
100% for 6.0%
p.a. or above
25% for
13.9%
100% for 15.2%
or above
1
2
3
4
The ESP shares were granted on 30 January 2017 and will vest 50% after three years and 50% after four years from grant date, subject to the performance
conditions outlined above.
The face value of each award has been calculated using the three-day average price prior to the date of grant (£16.6033). As receipt of these is conditional on
performance, the actual value of these awards may be nil. Vesting outcomes will be disclosed in the 2019/20 remuneration report.
Carol Fairweather received an ESP award in line with Policy to recognise her significant contribution to the business during the year. She is a good leaver and
any vesting based on performance will be pro-rated for Carol’s service during the performance period.
On 3 April 2017, it was announced that Burberry had entered into an agreement with Coty Inc under which they acquire the exclusive long-term global license
rights for Burberry Beauty luxury fragrances, cosmetics and skincare. For the purpose of assessing Revenue growth performance for the ESP awards already
granted, as well as awards to be granted in 2017, revenue for the ‘base year’ has been re-calculated on the assumption that this agreement had applied in that
year to ensure revenue growth is being calculated on a like-for-like basis with the way targets have been set.
3.2. Further information on conditional share awards granted in 2016/17 (audited)
Growth in Adjusted PBT and revenue
The vesting outcomes based on each of three-year revenue and three-year Adjusted PBT growth are calculated using
revenue and Adjusted PBT as disclosed in the annual accounts, subject to any adjustments (down or up) made by the
Committee to reflect constant exchange rates and any other items deemed to be outside of management’s control.
Adjusted retail/wholesale Return on Invested Capital (‘ROIC’)
Adjusted retail/wholesale ROIC measures the efficient use of capital to ensure that returns on future investment are
attractive. Group ROIC includes the contribution from the high-return licensing business. Given the licensing business
is not capital intensive, ROIC will continue to be measured on Burberry’s retail/wholesale business only.
Retail/wholesale ROIC, for the purposes of the ESP performance measure, is calculated as the retail/wholesale post-tax
adjusted operating profit divided by the average retail/wholesale operating assets, measured over the three year period,
on a reported currency basis. A calculation of adjusted retail/wholesale ROIC is included in the five-year summary on
page 178.
103
Board and Governance – Directors’ Remuneration Report
3.3. Total interests in shares (audited)
The table below summarises the total interests of the directors in ordinary shares of Burberry Group plc as at 31 March
2017. There have been no changes in the period up to and including 17 May 2017. These include beneficial and conditional
interests and the interests of their connected persons in shares.
Director
Christopher Bailey
Julie Brown
Sir John Peace
Fabiola Arredondo
Philip Bowman
Ian Carter
Jeremy Darroch
Stephanie George
Matthew Key
Dame Carolyn McCall
Former directors
John Smith5
Carol Fairweather 6
Type of award Date of grant
Conditional
(with
performance)
Conditional
(continued
employment)
Unconditional
but
unexercised
Number
of shares
owned
Total
RSP1
CIP2
ESP3
ESP3
NCO4
NCO4
SAYE
SAYE
12-Jun-14
12-Jun-14
22-Jul-15
30-Jan-17
14-Jun-13
12-Jun-14
20-Jun-13
18-Jul-15
SIP
20-Aug-04
Total
ESP3
NCO
NCO
Total
30-Jan-17
30-Jan-17
30-Jan-17
RSP1
CIP2
ESP3
SAYE
Total
RSP1
CIP2
ESP3
ESP3
SAYE
Total
12-Jun-14
12-Jun-14
22-Jul-15
20-Jun-14
12-Jun-14
12-Jun-14
22-Jul-15
30-Jan-17
18-Jul-15
74,610
147,491
241,581
215,318
–
–
–
–
–
–
–
800,000
200,000
500,000
–
–
–
1,179,000
126,480
–
–
126,480
–
–
–
–
–
–
–
–
40,154
43,367
92,867
–
176,388
50,870
30,545
78,435
75,286
–
235,136
–
1,229
1,099
–
–
–
–
800
802,328
200,800
557,615
2,739,743
–
215,000
25,000
240,000
–
–
–
–
–
–
–
–
–
–
–
740
740
–
–
–
–
659
659
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
195,738
7,500
75,000
36,860
1,000
41,600
2,420
2,542
366,480
195,738
7,500
75,000
36,860
1,000
41,600
2,420
2,542
36,972
214,100
33,982
269,777
1
2
3
4
5
6
RSP awards are awarded as nil-cost options and are subject to the performance conditions as outlined on page 100, and vest 50% after three years,
25% after four years and 25% after five years from date of grant.
CIP awards are awarded as nil-cost options and are subject to the performance conditions as outlined on page 99, and vest 100% after three years
from date of grant.
ESP awards are awarded as nil-cost options. The awards granted in 2017 are subject to the performance conditions as outlined on page 103. The awards
granted in 2015 are subject to the following performance conditions: 25% on 3-year revenue growth of between 3% and 11% p.a., 50% on 3-year growth
in Adjusted PBT of between 3% and 11% p.a., 25% on 3-year average ROIC of between 15.3% and 17.8%.
ESP awards vest 50% after three years and 50% after four years from date of grant.
‘NCO’ denotes a Nil-Cost Option award. Further details of the 2013 and 2014 NCO awards are provided on pages 100 to 102.
John Smith exercised the following awards during the year: 737 shares under Sharesave Scheme (granted 20 June 2013). The market value of Burberry
shares on the date of release (7 March 2017) was 1765p.
Carol Fairweather exercised the following awards during the year: 737 shares under Sharesave Scheme (granted 20 June 2013). The market value of
Burberry shares on the date of release (24 January 2017) was 1647p.
104
Board and Governance – Directors’ Remuneration Report
Shareholding guidelines
To further align the senior executive team with the interests of shareholders, we have increased the minimum shareholding
requirement for executive directors, other than Christopher Bailey whose guideline is already significant, as set out in the
introductory letter. The guidelines are now set at the following levels:
· 500,000 shares for Christopher Bailey
· three times base salary for other executive directors
· one times base salary for other senior executives
· the Chairman and non-executive directors are expected to hold shares with a market value of £6,000 for each year
of their appointment.
There is no specific timeline in which shareholding guidelines must be achieved, however there is an expectation for
executives to make annual progress towards their guideline, regardless of any annual bonus paid or shares vesting.
Only shares that are owned outright count towards the shareholding requirement. The shareholding guidelines are
applicable whilst executive directors and senior executives are employed by Burberry.
As at 31 March 2017, Christopher Bailey owned 557,615 shares with a value of c. 8.5 times salary based on the share
price at 31 March 2017 and has therefore achieved his shareholding guideline. As at 31 March 2017, having only joined
the Company in January 2017, Julie Brown did not own any Burberry shares, however, Julie will invest 50% of her post
tax bonus buy-out award in Burberry shares.
John Smith owned shares based on the share price at 31 March 2017 with a value of £637,397 (108% of his salary). John
Smith became an executive director during 2013 and has made progress each year towards his executive shareholding
requirement of two times salary. John will be leaving the Company in the summer of 2017.
Carol Fairweather left the Company on 31 March 2017. In view of her pending departure, the Committee agreed that she
would be allowed to sell a portion of her shareholding in September 2016 for financial planning purposes. Based on the
share price at 31 March 2017, Carol Fairweather owned shares worth 117% of her salary.
As at 31 March 2017, all of the non-executive directors had fulfilled the requirement to hold shares with a market value
of £6,000 for each year of their appointment.
This information on the achievement of shareholding guidelines has been audited.
105
Board and Governance – Directors’ Remuneration Report
4. Directors’ remuneration in 2017/18
The table below summarises how the remuneration policy will be implemented for executive directors in the year 2017/18.
Marco Gobbetti will join the Board and take up his role as Chief Executive Officer on 5 July 2017. The remuneration detailed
below is for this Board role and will take effect from this appointment date.
2017/18 annual salaries will be £1,100,000 for Marco Gobbetti and £700,000 for Julie Brown, as detailed in July 2016 when
we first announced their appointments. Christopher Bailey was not awarded any increase to his salary for the 2017/18
year and as such his salary continues to be £1,100,000. Maximum bonus and ESP award levels are unchanged from
previous years.
4.1. Summary of key remuneration aspects in 2017/18 for executive directors
Element
Base salary
Performance measure(s)
–
Annual bonus
Annual Adjusted PBT
The Board considers the forward-looking Adjusted PBT bonus
targets to be commercially sensitive as they are linked to the
Company’s financial and strategic plans. Targets will therefore be
disclosed retrospectively
ESP share awards
3-year growth in Group revenue (25%)
3-year growth in Adjusted PBT (50%)
Adjusted retail/wholesale ROIC (25%)
The performance targets are detailed in section 4.2.
Director
Maximum level
Christopher Bailey
Julie Brown
Marco Gobbetti
Christopher Bailey
Julie Brown
Marco Gobbetti
Christopher Bailey
Julie Brown
Marco Gobbetti
£1,100,000
(0% increase)
£700,000
£1,100,000
200% of salary
200% of salary
200% of salary
325% of salary
300% of salary
325% of salary
4.2. Further information on ESP performance measures
Whilst the ESP design has been agreed, the remuneration policy allows a degree of flexibility around a number of the
ESP design elements. This flexibility allows the Committee to determine the most appropriate approach to the following
parameters ahead of each annual award:
· the weighting of each performance measure (within the specified ranges)
· the definition (and calculation approach) of each performance measure
· the threshold and maximum performance targets for each performance measure.
The Committee is pleased to set out these parameters for the 2017 ESP awards below.
ESP performance measure
Definition
Group Revenue
Group Adjusted Profit Before Tax
3-year growth, calculated on
a constant currency basis
3-year growth, calculated on
a constant currency basis
Adjusted retail/wholesale ROIC
3-year average
Weighting
(% of award)
25%
50%
25%
Performance level
(% of maximum vesting)
Threshold
(15%)
1.0% p.a.
Maximum
(100%)
5.5% p.a.
2.0% p.a.
10.0% p.a.
16.2%
18.2%
The weightings and measures shall remain unchanged from 2015/16. The performance measures will be calculated on the
same basis as for 2016/17 awards (as set out on page 103 of this report). The targets for all three performance measures
have been carefully calibrated in light of a number of factors, including the latest Burberry strategic plan, our long-term financial
goals, latest three-year projections and broker earnings estimates for Burberry and its competitors. The Committee has set
these targets and believes they are stretching, extremely so at the maximum performance level, and will ensure management
is incentivised to continue to deliver superior returns to shareholders.
106
Board and Governance – Directors’ Remuneration Report
On 3 April 2017, it was announced that Burberry had entered into an agreement with Coty Inc under which they acquire the
exclusive long-term global license rights for Burberry Beauty luxury fragrances, cosmetics and skincare. For the purpose of
assessing revenue growth performance for the ESP award to be granted in 2017, as well as awards already granted in 2015 and
2016, revenue for the ‘base year’ has been re-calculated on the assumption that this agreement had applied in that year
to ensure revenue growth is being calculated on a like-for-like basis with the way targets have been set.
Subject to performance, ESP awards will vest 50% after three years and 50% after four years (from the date of grant). As
set out in the Policy, the Committee also applies an additional holding period on ESP awards granted to executive directors
to increase long-term alignment with shareholders. While executives are employed by Burberry, no ESP shares may normally
be sold except to cover any tax liabilities arising out of the award until five years from the date of grant.
4.4. Summary of Chairman and Non-Executive Director fees for 2017/18
The table below sets out the fee structure for the Chairman and NEDs for 2017/18.
Summary of Chairman and NED fees for 2016/17
Chairman1
Non-executive director
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
Attendance allowance2
Fee level
£’000
400
80
20
35
35
2
1
2
3
The Chairman is not eligible for committee chairmanship fees or attendance allowances.
NEDs receive an attendance allowance for each meeting attended outside of their country of residence.
Expenses incurred in the normal course of business are reimbursed and, as these are considered by HMRC to be taxable benefits, the tax due on these will also
be met by the Company.
5. Further information on remuneration for new executive directors
5.1. Remuneration for Chief Executive Officer
Marco Gobbetti’s 2017/18 remuneration for his role as Chief Executive Officer (from 5 July 2017) is detailed below.
· Salary of £1,100,000 reflecting the experience in the luxury retail sector that will be invaluable to the delivery of our
strategy and our ability to deliver long-term sustainable growth
· An annual cash allowance of £80,000 (covering travel, car and clothing), a pension allowance of 30% of salary and
other non-cash benefits in accordance with the remuneration policy
· An annual performance-based bonus of up to 200% of salary
· Eligible to participate in the performance-based ESP and a 2017 award will be granted as detailed on page 106.
As previously announced, Marco was granted a 2016 award of 325% of salary
Buyout awards
In order to secure Marco Gobbetti’s appointment and to allow him to join Burberry at the earliest opportunity, the Committee
agreed to buyout awards forfeited on leaving his previous employer. Upon appointment to the Chief Executive Officer
role he will be granted nil-cost options with a total value at grant of €4.91m. In determining the value of these awards, the
Committee considered historical levels of vesting and performance achieved at that time against the targets at Marco’s
previous employer and discounted the value of outstanding awards to reflect this. The Committee considers the awards to
be granted to be of broadly equivalent value to the awards forfeited. The grant value of these awards will be included in the
2017/18 single figure of remuneration table. The nil-cost options will have no performance conditions and will only vest on
the dates detailed below, which reflect the original vesting timeline of Marco’s forfeited awards policy, subject
to Marco’s continued employment.
· Restricted award with value at grant of €4,000,000 – vest 100% in November 2017
· Restricted award with value at grant of €910,000 – vest 33% in July 2017, 33% in October 2018, 17% in October 2019
and 17% in October 2020
107
Board and Governance – Directors’ Remuneration Report
5.2. Remuneration for Chief Operating and Financial Officer
Julie Brown’s remuneration for her role as Chief Operating and Chief Financial Officer for 2016/17 is detailed below:
· Salary of £700,000, reflecting responsibility for both the Chief Operating Officer and Chief Financial Officer roles
· An annual cash allowance of £30,000 (covering car and clothing), a pension allowance of 30% of salary and other
non-cash benefits in accordance with the remuneration policy
· An annual performance-based bonus of up to 200% of salary
· Eligibility to participate in the performance-based ESP and a 2017 award will be granted as detailed on page 106.
As previously announced, Julie was granted a 2016 award of 300% of salary.
Buy-out awards
To secure Julie Brown’s appointment and to allow her to join Burberry at the earliest opportunity, the Committee agreed to
buyout the non-cash and cash incentives forfeited on leaving her previous employer. The grant value of the nil-cost options
over 240,000 shares is included in the single figure table under ‘Share awards buyout’. In determining the value of these
awards, the Committee considered historical levels of vesting and performance achieved at that time against the targets
at Julie’s previous employer and discounted the value of outstanding awards to reflect this. The Committee considers the
awards granted to be of broadly equivalent value to the awards forfeited. This amount was converted into
a number of shares at the time Julie’s appointment was agreed based on the share prices of Burberry and Julie’s previous
employer at that time. The nil-cost options have no performance conditions and will only vest on the dates detailed below,
which reflect the original vesting timeline of Julie’s forfeited awards, subject to Julie’s continued employment.
· 215,000 shares – vest 40% on 22 July 2017, 30% on 22 July 2018 and 30% on 22 July 2019
· 25,000 shares – vest 33% on 27 March 2018, 33% on 27 March 2019 and 34% on 27 March 2020
As compensation for her 2016 annual bonus forfeited from her previous employer, Julie also received a cash payment
of £550,000. The amount was set by reference to both financial and personal performance at Julie’s previous employer at
the time of offer at a level equivalent to the target cash bonus opportunity, the performance expectation at Julie’s previous
employer at that time. This payment was made in April 2017, in line with Julie’s joining arrangements, and is also included in
the single figure of remuneration table on page 97 under ‘Prior company bonus buyout’. Julie will be investing 50% of this
bonus, post tax and NI, in Burberry shares.
6. Further information on remuneration of Carol Fairweather (audited)
The single figure of remuneration table (on page 97) details the remuneration Carol Fairweather received for the period of
2016/17 that she served as an executive director. Carol continued to receive her salary, allowances, pension and contractual
non-cash benefits up to 31 March 2017. A payment in lieu of notice equal to 12 months’ salary, allowances and benefits
(including pension allowance) of £675,000 was paid as a lump sum to Carol in April 2017.
As already set out Carol will be treated as a good leaver and as such will receive an annual bonus for 2016/17 of £345,000
for the full year, of which £275,000 is for the period to 18 January 2017 (when she stepped down from the Board) as shown
on the table on page 99. Carol’s outstanding share awards will also vest on a pro rata basis. As detailed in section 2.4, the
performance condition attached to 2014 CIP awards was not met and so Carol’s 2014 CIP award will lapse. Also as detailed
in section 2.5, 2014 RSP awards will vest at 19.25% of maximum and so 9,792 shares of a total 50,870 shares will vest on
12 June 2017. Carol’s outstanding awards under the ESP will vest at the normal vesting dates, subject to the achievement
of the relevant performance conditions and time pro-rating. Subject to performance outcomes, Carol will be able to
exercise her options and receive a maximum of 26,156 shares from July 2018, a maximum of 26,157 shares from July 2019,
a maximum of 12,547 shares from January 2020 and a maximum of 12,548 from January 2021, less any shares sold to cover
tax. In respect of the ESP shares that vest, Carol will also receive a cash payment equivalent to the dividends which would
have been received on the shares during the vesting period. Carol exercised her options under the 2015 Sharesave scheme
on 24 January 2017, as detailed in section 3.
The Committee agreed to make a payment of £5,000 in respect of legal services provided to Carol.
Finally, the Committee determined that until 31 March 2018 (or later, if the Committee so determines), Carol will continue
to receive private medical insurance and employee discount, each at a level consistent with those provided to her during
the 2016/17 year and other Burberry executive directors.
Carol will not receive any further payments.
108
Board and Governance – Directors’ Remuneration Report
7. Further information on remuneration of John Smith (audited)
The single figure of remuneration table (on page 97) details the remuneration John Smith received during 2016/17. John
stepped down from the Board on 31 March 2017 and will continue to receive his salary, allowances, pension and contractual
non-cash benefits up to his leaving date of 12 June 2017.
John remained an executive director for the full 2016/17 financial year and, to recognise his contribution to the performance
of the business for that year, the Committee determined that he would receive an annual bonus, based on Adjusted PBT
performance for the 2016/17 year, as shown in the table on page 99.
Under the rules of the CIP and RSP, John remains entitled to receive any awards that vest prior to his leaving date. As
detailed in section 2.4, the performance condition attached to 2014 CIP awards was not met and so John’s 2014 CIP award
will lapse. Also as detailed in section 2.5, 2014 RSP awards will vest at 19.25% of maximum and so 7,729 shares of a total
40,154 shares will vest on 12 June 2017. The three-year performance period was completed on 31 March 2017, prior to
John’s departure and he remained an executive director for the duration of the period. John’s outstanding awards under
the 2015 and 2016 ESP awards will lapse in full upon his departure from Burberry, in accordance with the rules of each plan.
John will not receive any other payments.
8. Remuneration Committee in 2016/17
Committee membership
The composition of the Committee was reviewed during the year and the Committee was reduced to four members from
1 February 2017. The following directors served as members of the Committee during the financial year ending 31 March 2017:
Fabiola Arredondo (Chair from 1 August 2016)
Ian Carter (Chair until 31 July 2016)
Philip Bowman
Stephanie George
Jeremy Darroch (until 1 February 2017)
Matthew Key (until 1 February 2017)
Dame Carolyn McCall (until 1 February 2017)
Advisers to the Committee during 2016/17
At the invitation of the Committee, except where their own remuneration was being discussed, the following people attended
meetings and provided advice to the Committee: Sir John Peace (Chairman), Christopher Bailey (Chief Creative and Chief
Executive Officer), Julie Brown (Chief Operating and Financial Officer), Carol Fairweather (former Chief Financial Officer),
John Smith (former Chief Operating Officer), Leanne Wood (Chief People and Corporate Affairs Officer), Louise Baker
(Senior Vice President – Reward and Recognition), Anne-Soline Thorndike (former Senior Vice President – Reward and
Recognition), Nigel Jones (Vice President – Group Financial Controller) and Catherine Sukmonowski (Company Secretary).
During the 2016/17 financial year, the Committee received external advice from Willis Towers Watson, as detailed in the
table below. Willis Towers Watson has been the appointed independent adviser to the Committee since 2011 and was
selected at that time following a formal tender process. Willis Towers Watson is a member of the Remuneration Consultants’
Group (‘RCG’), 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
and, as such, the Committee is satisfied that its advice is objective and independent.
Linklaters LLP provided advice to the Committee in relation to compliance with legislation, namely the regulations governing
the disclosure of directors’ remuneration in the Directors’ Remuneration Report.
Deloitte LLP also provided the Committee with advice in connection with executive remuneration as set out below. Deloitte
is also a signatory of the RCG Code of Conduct.
109
Board and Governance – Directors’ Remuneration Report
External advisers and fees
Advisers
Willis Towers Watson
(‘WTW’)
Services provided
to the Committee
Other services provided
to the Company
Appointed by the Committee
to provide 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
WTW is that any additional consulting services provided
by WTW 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 Chair of the
Committee prior to commencement.
Fees for Committee
assistance
£184,311
Fees charged on a time
and expense basis
WTW provides market benchmarking information to
management in relation to a small number of roles which
fall below the remit of Committee review.
Fees charged on a time
and expense basis
Deloitte LLP
Appointed by the Committee to
provide advice around the
remuneration policy for 2017
During the year Deloitte has also provided other
consulting services (such as technology implementation
support), tax compliance and advisory and transfer
pricing services.
£18,000
Fees charged on a time
and expense basis
The Committee is satisfied that the WTW and Deloitte engagement partners and teams which provide remuneration
advice to the Committee do not have connections with Burberry that may impair their independence. The Committee
reviewed the potential for conflicts of interest and judged that there were appropriate safeguards against such conflicts.
Remuneration report voting results
The table below shows the results of the remuneration-related shareholder vote from the 2016 AGM and the last Directors’
Remuneration Policy vote which took place at the 2014 AGM. As mentioned earlier in this report, the Committee listens to
and takes into consideration investor views throughout the year, and was extremely pleased to receive majority support
for the advisory vote on the 2015/16 Directors’ Remuneration Report.
As detailed in the introductory letter from the Committee, the Company has consulted with its largest shareholders during
the year regarding 2016 ESP awards (in particular the performance measure targets) and the 2017 remuneration policy.
AGM voting results
Vote
2016 AGM:
To approve the Directors’
Remuneration Report for the year
ended 31 March 2016 (advisory)
2014 AGM:
To approve the Directors’
Remuneration Policy
Votes for
285,617,407
(89.19%)
271,305,305
(83.92%)
Votes against
Votes withheld
Any issues raised and
Company response
34,601,363
(10.81%)
51,981,069
(16.08%)
9,242,280
Not applicable
11,037,131
Not applicable
110
Board and Governance – Directors’ Remuneration Report
9. Eight-year performance graph and Chief Executive Officer remuneration
The following graph shows the TSR for Burberry Group plc compared to the companies in the FTSE 100 index assuming
£100 was invested on 31 March 2009. 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. Data is presented
on a spot basis and sourced from DataStream.
Eight-year TSR performance graph and Chief Executive Officer remuneration
Value of £100 invested on 31 March 2009
FTSE 100
Burberry
£
800
700
600
500
400
300
200
100
0
£731
(631% increase)
£250
(150% increase)
2009
2010
2011
2012
2013
2014
2015
2016
2017
The table below shows the total remuneration earned by the incumbent Chief Executive Officer over the same eight-year
period, along with the percentage of maximum opportunity earned in relation to each type of incentive. The total amounts
are based on the same methodology as used for the table on page 97 (Single figure of total remuneration for 2016/17).
Angela Ahrendts (AA, CEO to 30 April 2014), Christopher Bailey (CB, CC and CEO from 1 May 2014)
Total remuneration (£’000)
Bonus (% of maximum)
CIP (% of maximum)
RSP (% of maximum)
EPP* (% of maximum)
Exceptional award** (% of maximum)
2009/10
(AA)
2010/11
(AA)
2011/12
(AA)
2012/13
(AA)
2013/14
(AA)
2014/15
(AA)
2014/15
(CB)
2015/16
(CB)
2016/17
(CB)
7,362
100%
100%
42.5%
15%
–
16,003
100%
100%
9,574
100%
–
10,901
75%
100%
8,007
70%
100%
–
100%
50%
–
–
–
–
–
–
–
–
–
157
–
–
–
–
–
7,508
81%
75%
–
–
–
1,894
3,531
0%
0%
0%
–
–
0%
0%
19.3%
–
61.7%
*
The ‘EPP’ was the Burberry Exceptional Performance Share Plan, a one-off long-term incentive plan under which performance-based awards were granted
in 2007 only. Details of this plan can be found in the relevant historical directors’ remuneration reports.
** The ‘Exceptional award’ for Christopher Bailey relates to vesting of the first tranche of his 2014 exceptional share award, for which 77,084 of a maximum
125,000 shares will vest on 31 July 2017.
Approval
This report has been approved by the Board and signed on its behalf by:
Fabiola R. Arredondo
Chair, Remuneration Committee
17 May 2017
111
Board and Governance – Directors’ Report
DIRECTORS’
REPORT
The directors present their Annual Report and the audited
consolidated financial statements of the Company for the
year to 31 March 2017.
The Independent Auditors’ Report starting on page 119 sets
out the information contained in the Annual Report which
has been audited by them.
Strategic Report
Burberry Group plc is required by the Companies Act
2006 to prepare a Strategic Report that includes a fair
review of the Company’s business, the development and
the performance of the Company’s business during the
year, the position of the Company at the end of the financial
year to 31 March 2017 and a description of the principal
risks and uncertainties faced by the Company. The
following are incorporated by reference and shall be
deemed to form part of this Directors’ Report:
· the Strategic Report on pages 9 to 65;
· the Board and Governance Report (which includes
the Board, the Corporate Governance Report and the
Directors’ Remuneration Report) on pages 68 to 111; and
· the energy and global greenhouse gas emissions
disclosure on page 51.
Other governance disclosures
Revenue and profit
Revenue from the continuing business during the period
amounted to £2,766.0m (2016: £2,514.7m). The profit for
the year attributable to equity holders of the Company
was £286.8m (2016: £309.5m)
Going concern
The going concern statements for the Group and
Company are set out on pages 130 and 185 of the
financial statements and are incorporated by reference
and shall be deemed to be part of this report.
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 reappoint PricewaterhouseCoopers LLP as
auditors to the Company will be proposed at the forthcoming
Annual General Meeting. Note 7 of the Financial Statements
states the auditors’ fees both for audit and non-audit work.
112
Disclosures requires under Listing Rule 9.8.4
The information required by Listing Rule 9.8.4, where
applicable, is included in this Directors’ Report.
Political donations
The Company made no political donations during the year in
line with its policy (2016: £nil). 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.
Financial instruments
The Group’s financial risk management objectives and
policies are set out within note 25 of the Financial
Statements. Note 25 also details the Group’s exposure
to foreign exchange, share price, interest, credit, capital
and liquidity risks. This note is incorporated by reference
and deemed to form part of this report.
Annual General Meeting
The Annual General Meeting of the Company will be held at
the InterContinental Hotel, One Hamilton Place, Park Lane,
London W1J 7QY on Thursday, 13 July 2017. The Notice of
this year’s Annual General Meeting will be available to view
on the Company’s website at www.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 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.
Directors
The names and biographical details of the directors as
at the date of this report are set out on pages 68 and 69
and are incorporated by reference into this report.
At the 2017 Annual General Meeting, all of the current
directors will offer themselves for election or re-election.
The Notice of this year’s Annual General Meeting sets out
why the Board believes the directors should be elected or
re-elected. Details of the directors’ service agreements
and letters of appointment are given in the Directors’
Remuneration Report on pages 87 to 111.
Board and Governance – Directors’ Report
Directors’ insurance and indemnities
The Company maintains directors’ and officers’ liability
insurance which gives cover for legal actions brought
against its directors and officers. 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 2017 and through to the date of this report.
Directors’ share interests
The interests of the directors holding office at 31 March
2017 in the shares of the Company are shown within the
Directors’ Remuneration Report on page 105. There were
no changes to the beneficial interests of the directors
between the period 31 March 2017 and 17 May 2017.
Dividends
The directors recommend that a final dividend of 28.4p
per ordinary share (2016: 26.8p) in respect of the year to
31 March 2017 be paid on 4 August 2017 to those persons
on the Register of Members as at 7 July 2017.
An interim dividend of 10.5p per ordinary share was
paid to shareholders on 27 January 2017 (2016: 10.2p).
This will make a total dividend of 38.9p per ordinary
share in respect of the financial year to 31 March 2017.
The aggregate dividends paid and recommended in respect
of the year to 31 March 2017 total £169.4m (2016: £163.7m).
Substantial shareholdings
As at 31 March 2017, 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:
Number of
ordinary shares
% of total
voting rights
BlackRock, Inc.
Lindsell Train Limited
FMR LLC
Schroders plc
Ameriprise Financial, Inc.
JP Morgan Chase & Co
The Capital Group Companies, Inc
Massachusetts Financial
Services Company
GBL Energy Sarl
25,036,087
21,928,267
21,867,513
21,666,352
21,664,800
21,578,580
20,783,178
20,073,645
13,183,000
5.70
5.00
4.98
4.99
4.97
4.99
4.67
4.61
3.00
As at 17 May 2017, 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 22 to the financial statements.
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 22 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
2017, the Company had 438,439,160 ordinary shares in
issue. The Company held 6,733,905 shares in treasury.
In order to retain maximum flexibility, the Company
proposes to renew the authority granted by ordinary
shareholders at the Annual General Meeting in 2016,
to repurchase up to just under 10% of its issued share
capital. From July 2016 to April 2017, the Company
completed £100 of a £150m announced share buyback.
A further share buyback of £300m will be completed
in FY 2018, in addition to the £50m already announced.
Further details are provided in the Notice of this year’s
Annual General Meeting which is available on the
Company’s website at www.burberryplc.com.
At the Annual General Meeting in 2016, shareholders
approved resolutions to allot shares up to an aggregate
nominal value of £73,430 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.
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 or 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
26. 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 by the trusts
in the year to 31 March 2017 were in aggregate £1.7m
(2016: £1.2m).
113
Board and Governance – Directors’ Report
With regard to the appointment and replacement
of directors, the Company follows the UK Corporate
Governance Code 2014 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.
Significant contracts – change of control
Revolving credit facility
Pursuant to the Companies Act 2006, the directors
disclose that in the event of a change of control, the
Company’s borrowings under the Group’s £300m revolving
credit facility (dated 25 November 2014) could become
repayable. Details of the service agreements of the
executive directors are set out on page 95 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.
Licence agreement
On 3 April 2017, Burberry entered into an exclusive licence
agreement with Coty pursuant to which Coty will develop,
manufacture, market, distribute and sell Burberry Beauty
products. The agreement is anticipated to take effect from
October 2017 from which time ongoing royalty payments
will be payable to Burberry. The agreement provides that
Burberry will receive cash payments of £130m in the
second half of FY 2017/18 for the long-term exclusive
global licence and related transfer of the Beauty business.
Burberry will also receive c. £50m for assets transferring
(which is subject to inventory adjustments). Pursuant to the
Companies Act 2006, the directors disclose that a change
of control of Burberry will, in limited circumstances, result
in Coty having a right of termination of the licence
agreement.
Employee involvement
Employee communication
The Group believes that employee communication is
an important tool to enhance the Company culture and
connectivity and to motivate and retain its employees.
A global communications programme, incorporating
various physical and digital channels, enables all
employees to connect and collaborate closely. These
channels are used to efficiently communicate the
Company’s key strategies, financial performance
and other matters of interest and importance.
‘Burberry World’ is the key digital intranet channel
used by the Company to communicate to its employees.
However, other methods and channels are also used,
including face-to-face briefings, open discussion forums
with senior management, email and instant messaging.
Burberry ‘Chat Live’ global video broadcasts are hosted
by the Chief Creative and Chief Executive Officer and senior
management and provide real-time updates to highlight the
Group’s performance and its ongoing strategic initiatives
and projects. The Company also uses videos and digital
web pages to communicate key initiatives, events and
other brand messages, to enhance internal communication,
employee connectivity and the Burberry culture.
Employee share ownership
The Group encourages share ownership at 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
87 to 111.
The Group again intends to grant free share awards
or equivalent cash-based awards to all eligible
employees during 2017/18. The Group also intends,
where possible, to invite eligible employees to take
part in the Sharesave Scheme.
Further information regarding the Group’s approach to
employee involvement and communications is provided
in Inspired People on page 44.
Employment policies
Diversity and inclusion
The Group takes a very inclusive approach to diversity.
As a global business, Burberry values 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.
114
Board and Governance – Directors’ Report
Further information regarding the Group’s employment
policies are provided on the Group’s website at
www.burberryplc.com.
Health and safety
The Group has a health and safety policy approved by the
Board. Governance of the health and safety strategy is
maintained through a Global Health and Safety Committee
which is chaired by the Chief People and Corporate Affairs
Officer. Health and safety is also considered at the Group
Risk Committee and Audit Committee. Each region has
local committees which assist with the implementation of
the health and safety strategy. Strategic direction on health
and safety matters is provided by the Senior Manager,
Global Health and Safety and is supported by a global
team. The Global Health and Safety team aims to visit
each location worldwide approximately every three years
to provide advice, assistance and support. In addition,
occupational health and safety compliance is formally
audited in stores every three to five years, dependent
on profile, and annually in our Regent Street flagship,
our corporate offices and our internal manufacturing
and distribution sites.
The Strategic Report (from pages 9 to 65) and Directors’
Report (from pages 112 to 115) have been approved by
the Board on 17 May 2017.
By order of the Board
Catherine Sukmonowski
Company Secretary
17 May 2017
Burberry Group plc
Registered Office:
Horseferry House
Horseferry Road
London
SW1P 2AW
Registered in England and Wales
Registered number: 03458224
115
Financial
Statements
118 Statement of Directors’ Responsibilities
129 Analysis of Net Cash
119
Independent Auditor’s Report to the
Members of Burberry Group plc
125 Group Income Statement
126 Group Statement of Comprehensive Income
130 Notes to the Financial Statements
177 Five Year Summary
179
Independent Auditor’s Report to
the Members of Burberry Group plc
127 Group Balance Sheet
182 Company Balance Sheet
128 Group Statement of Changes in Equity
183
Company Statement of Changes in Equity
129 Group Statement of Cash Flows
184
Notes to the Company Financial Statements
117
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Annual Report, which includes the Strategic Report; the Directors’ Report;
the Directors’ Remuneration Report; and the financial statements in accordance with applicable laws 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, and the parent Company financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’ 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 accounting policies and then apply them consistently;
· state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements
and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements,
subject to any material departures disclosed and explained in the Group and parent Company financial statements
respectively;
· make judgements and accounting estimates that are reasonable and prudent; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group
and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and
Company 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.
The directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and the Company’s position and performance, business model
and strategy.
Each of the directors, whose names and functions are listed on pages 68 to 69 confirm that, to the best of their knowledge:
· the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’,
and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;
give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
· the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union,
· the Strategic Report includes a fair review of the development and performance of the business and the position of the
Group and the Company, together with a description of the principal risks and uncertainties that it faces.
These statements were approved by the Board on 17 May 2017 and signed on its behalf by:
Sir John Peace
Chairman
Julie Brown
Chief Operating and Chief Financial Officer
118
118
year then ended;
European Union; and
Statement of Directors’ Responsibilities
Independent Auditors’ Report to the Members of Burberry Group plc
Report on the Group financial statements
Our opinion
In our opinion, Burberry Group plc’s Group financial statements (the “financial statements”):
· give a true and fair view of the state of the Group’s affairs as at 31 March 2017 and of its profit and cash flows for the
· have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the
· have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
The directors are responsible for preparing the Annual Report, which includes the Strategic Report; the Directors’ Report;
the Directors’ Remuneration Report; and the financial statements in accordance with applicable laws 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, and the parent Company financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’ 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 accounting policies and then apply them consistently;
· state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements
and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements,
subject to any material departures disclosed and explained in the Group and parent Company financial statements
respectively;
· make judgements and accounting estimates that are reasonable and prudent; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group
and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and
Company 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.
The directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and the Company’s position and performance, business model
and strategy.
Each of the directors, whose names and functions are listed on pages 68 to 69 confirm that, to the best of their knowledge:
· the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’,
and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;
· the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
· the Strategic Report includes a fair review of the development and performance of the business and the position of the
Group and the Company, together with a description of the principal risks and uncertainties that it faces.
These statements were approved by the Board on 17 May 2017 and signed on its behalf by:
Sir John Peace
Chairman
Julie Brown
Chief Operating and Chief Financial Officer
What we have audited
The financial statements, included within the Annual Report, comprise:
· the Group Balance Sheet as at 31 March 2017;
· the Group Income Statement and Statement of Comprehensive Income for the year then ended;
· the Group Statement of Changes in Equity for the year then ended;
· the Group Statement of Cash Flows for the year then ended;
· the Analysis of Net Cash as at 31 March 2017; and
· the Notes to the Financial Statements, which include a summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial
statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted
by the European Union, and applicable law.
Our audit approach
Context
Burberry Group plc is a British global luxury goods manufacturer, retailer and wholesaler listed on the London Stock Exchange.
The Group operates globally across over 30 countries. The context for our audit has been set against the Group’s structure and
strategy as well as the more challenging trading conditions. This was particularly relevant for the work performed on inventory
provisioning, impairment of property, plant and equipment and onerous lease provisions.
The area of focus where work was primarily performed by component teams was the assessment of inventory provisioning.
The judgements in respect of the completeness and valuation of provisions for tax exposures, impairment of fragrance and
beauty licence intangible asset, impairment of property, plant and equipment and onerous lease provisions and presentation
of non-GAAP measures are primarily taken at a Group level.
Overview
Materiality Overall Group materiality: £19 million which represents approximately 5% of profit before taxation (2016: £20 million).
Audit
Scope
• Of the Group’s 80 reporting units we identified six reporting units which, in our view, require a full scope audit of their financial
information, either due to their size or their risk characteristics.
• These reporting units are located in the UK, China, Hong Kong and Korea and two are located in the US. We used local teams
in these countries to perform those full scope audits relating to the relevant reporting units.
• The Group audit team visited reporting units in the UK, US, China and Hong Kong during the course of the year in order to attend
local management meetings. Throughout the year, the Group audit team held regular meetings with all reporting units at all stages
of the audit to direct and supervise the work of these local teams and to ensure that we had a full and comprehensive
understanding of the results of their work – particularly insofar as it related to the identified areas of focus. They also reviewed the
working papers for financially significant reporting units.
• The six components where we performed full scope audits represented 75% (2016: 76%) of Group revenue and 79% (2016: 89%)
of profit before taxation.
Areas of
Focus
• Inventory provisioning.
• Impairment of property, plant and equipment and onerous lease provisions.
• Completeness and valuation of provisions for tax exposures.
• Impairment of fragrance and beauty licence intangible asset.
• Presentation of results and non-GAAP measures.
118
119
119
Independent Auditors’ Report to the Members of Burberry Group plc
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits
we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of
bias by the directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort,
are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific
areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our
procedures should be read in this context. This is not a complete list of all risks identified by our audit.
Area of focus
Inventory provisioning
The Group manufactures and sells luxury goods and is subject
to changing consumer demands and fashion trends, increasing
the level of judgement involved in estimating inventory provisions
(inventory as at 31 March 2017: £505.3m; refer to note 16 to
the financial statements). Judgement is required to assess the
appropriate level of provisioning for items which may be ultimately
destroyed or sold below cost as a result of a reduction in consumer
demand particularly in light of the current challenging trading
conditions and the one label strategy. Such judgements include
management’s expectations for future sales and inventory
liquidation plans.
Impairment of property, plant and equipment and onerous
lease provisions
The Group has a material operational asset base which may be
vulnerable to impairment in the event of trading performance being
below expectations.
The value-in-use models used to determine the amount of any
impairment charge are based on assumptions including revenue
forecasts, gross and operating margins, which are store specific,
and discount rates, which are country specific (refer to note 13 to the
financial statements). Such stores may be located in both emerging
markets, which are typically more volatile than developed markets,
as well as more established economies such as the US, where the
Group is working towards consolidating its position within the market.
How our audit addressed the area of focus
For both finished goods and raw materials, we critically assessed the
basis for the inventory provisions, the consistency of provisioning in line
with policy and the rationale for the recording of specific provisions in
the context of management’s key strategies.
In doing so we tested the provision calculations and determined that
they appropriately took into account the ageing profile of inventory,
the process for identifying specific problem inventory and historical
loss rates.
As a result, we satisfied ourselves that both finished goods and
raw materials inventory provisions have been prepared in line with
policy and are supportable on the basis of historical trends as well
as management’s expectations for future sales and inventory
management plans.
We tested management’s assessment of indicators for both
impairment and onerous lease provisions taking into consideration
the challenging trading conditions in some territories, and are
satisfied that they appropriately took into account internal and
external impairment indicators, including the trading performance
of each store.
We tested the value-in-use models for assets where an impairment
trigger or potential requirement for an onerous lease provision
has been identified, including challenging management forecasts
and other assumptions including discount rates and long term
growth rates, and found that these assumptions were reasonable.
The same judgements are used in determining whether an onerous
lease provision is required and in calculating the appropriate amount
of the provision. In addition, judgement is required in assessing
whether there are any alternative uses for stores which may affect
the amount of onerous lease provision required.
In particular we focused on the forecasts for sales growth and are
satisfied that they reflect reasonable expectations for each store,
taking into account the maturity of each store, the market in which
it is located and management’s specific plans for improving
store performance.
Management’s assessment resulted in the recognition of a
net impairment charge for the year ended 31 March 2017 of
£23.0m (2016: £45.3m), including £15.3m (2016: £24.2m) for
store impairments and £7.7m (2016: £21.1m) for onerous leases.
We focused on this area because of the inherent judgement
involved in determining key assumptions such as future sales
growth, profit margins and discount rates, and the magnitude
of the assets under consideration and the lease obligations.
Given the judgement inherent in the impairment and onerous
lease provision calculations, particularly relating to revenue
growth assumptions, management has disclosed a sensitivity
analysis in the financial statements (refer to note 13 to the financial
statements). Having re-performed the sensitivity calculations and
considered whether any other sensitivities might be more appropriate,
we are satisfied that the financial statements adequately disclose the
potential risk of future impairment if the performance of the stores
with indicators of impairment do not meet management’s expectations.
120
120
Independent Auditors’ Report to the Members of Burberry Group plc
Independent Auditors’ Report to the Members of Burberry Group plc
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits
we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of
bias by the directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort,
are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific
areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our
procedures should be read in this context. This is not a complete list of all risks identified by our audit.
Area of focus
Inventory provisioning
How our audit addressed the area of focus
The Group manufactures and sells luxury goods and is subject
For both finished goods and raw materials, we critically assessed the
to changing consumer demands and fashion trends, increasing
basis for the inventory provisions, the consistency of provisioning in line
the level of judgement involved in estimating inventory provisions
with policy and the rationale for the recording of specific provisions in
(inventory as at 31 March 2017: £505.3m; refer to note 16 to
the context of management’s key strategies.
the financial statements). Judgement is required to assess the
In doing so we tested the provision calculations and determined that
appropriate level of provisioning for items which may be ultimately
they appropriately took into account the ageing profile of inventory,
destroyed or sold below cost as a result of a reduction in consumer
the process for identifying specific problem inventory and historical
demand particularly in light of the current challenging trading
loss rates.
conditions and the one label strategy. Such judgements include
management’s expectations for future sales and inventory
liquidation plans.
Impairment of property, plant and equipment and onerous
lease provisions
As a result, we satisfied ourselves that both finished goods and
raw materials inventory provisions have been prepared in line with
policy and are supportable on the basis of historical trends as well
as management’s expectations for future sales and inventory
management plans.
The Group has a material operational asset base which may be
We tested management’s assessment of indicators for both
vulnerable to impairment in the event of trading performance being
impairment and onerous lease provisions taking into consideration
below expectations.
The value-in-use models used to determine the amount of any
impairment charge are based on assumptions including revenue
the challenging trading conditions in some territories, and are
satisfied that they appropriately took into account internal and
external impairment indicators, including the trading performance
forecasts, gross and operating margins, which are store specific,
of each store.
and discount rates, which are country specific (refer to note 13 to the
We tested the value-in-use models for assets where an impairment
financial statements). Such stores may be located in both emerging
trigger or potential requirement for an onerous lease provision
markets, which are typically more volatile than developed markets,
has been identified, including challenging management forecasts
as well as more established economies such as the US, where the
and other assumptions including discount rates and long term
Group is working towards consolidating its position within the market.
growth rates, and found that these assumptions were reasonable.
The same judgements are used in determining whether an onerous
In particular we focused on the forecasts for sales growth and are
lease provision is required and in calculating the appropriate amount
satisfied that they reflect reasonable expectations for each store,
of the provision. In addition, judgement is required in assessing
taking into account the maturity of each store, the market in which
whether there are any alternative uses for stores which may affect
it is located and management’s specific plans for improving
the amount of onerous lease provision required.
store performance.
Management’s assessment resulted in the recognition of a
Given the judgement inherent in the impairment and onerous
net impairment charge for the year ended 31 March 2017 of
lease provision calculations, particularly relating to revenue
£23.0m (2016: £45.3m), including £15.3m (2016: £24.2m) for
growth assumptions, management has disclosed a sensitivity
store impairments and £7.7m (2016: £21.1m) for onerous leases.
analysis in the financial statements (refer to note 13 to the financial
We focused on this area because of the inherent judgement
involved in determining key assumptions such as future sales
growth, profit margins and discount rates, and the magnitude
of the assets under consideration and the lease obligations.
statements). Having re-performed the sensitivity calculations and
considered whether any other sensitivities might be more appropriate,
we are satisfied that the financial statements adequately disclose the
potential risk of future impairment if the performance of the stores
with indicators of impairment do not meet management’s expectations.
Completeness and valuation of provisions for tax exposures
The directors are required to apply significant judgement when
determining whether, and how much, to provide in respect of tax
assessments leading to uncertain tax positions in a number of
jurisdictions (refer to notes 9, 14 and 30 to the financial statements).
Given the inherent uncertainty over the outcome of pending tax
assessments, significant judgement is applied by the directors
in estimating the final outcome of such tax assessments.
We focused on this area due to the inherent complexity and
judgement in estimating the amount of provision required, which
is increased by the number of jurisdictions in which the Group
operates. As noted in note 30 to the financial statements, the
Group is subject to tax audits and claims in a number of jurisdictions.
Impairment of fragrance and beauty licence intangible asset
In the year ended 31 March 2013, the Group reacquired the licence
to sell fragrance and beauty products, resulting in the recognition of
a fragrance and beauty licence intangible of £70.9m, which was
being amortised on a straight-line basis over the period 1 April 2013
to 31 December 2017. The licence was fully impaired during the
period, resulting in a charge of £18.6m.
We have focused on this area due to the size of the fragrance and
beauty licence intangible and the inherent judgement involved in
forming a valuation of the intangible, and the fact that future sales
and profit forecasts for this part of the business were considered
to no longer support the recoverability of the asset during the period.
Presentation of results and non-GAAP measures
The presentation of results continues to be a focus area for
regulators, particularly the use of adjusted and underlying measures
to explain business performance, and the classification of items as
adjusting, especially where they recur each year. There is a risk that
the use of such measures means that the overall presentation of
results is not fair, balanced and understandable.
In the year ended 31 March 2017 the Group has identified five
adjusting items, being the charge relating to the fragrance and beauty
licence intangible asset, restructuring costs, revaluation of deferred
consideration liability, costs relating to the transfer of the Beauty
operations and the put option liability finance charge (refer to note 6
to the financial statements).
Through discussions with management, we understood the
Group’s process for identifying uncertain tax positions and the
related accounting policy for provisioning against tax exposures.
Based on this, we assessed the extent to which provisions are
supported by underlying circumstances and determined that
they are being made on a consistent basis to previous years.
We assessed the appropriateness of provisions recorded in
the financial statements, or the rationale for not recording a
provision, by using our specialist tax knowledge, reading the
latest correspondence between the Group and the various tax
authorities and advisors, and by obtaining written responses
from the Group's external advisors on the material tax exposures.
These procedures assisted in our corroboration of management’s
position in respect of significant tax exposures, and with our
assessment that the disclosures and provisions recorded in the
financial statements, including whether any provisions sufficiently
addressed probable penalties and interest, were appropriate and
reflected the latest developments.
We challenged management’s assessment of fragrance and beauty
performance by comparing actual results to forecasts. Having
compared the Group’s future plans and forecasts for these products
to actual results and market conditions, we are satisfied that it is
appropriate to impair the fragrance and beauty licence intangible.
We also considered the related disclosures and are satisfied that the
financial statements adequately disclose the impairment.
We considered management’s recognition of adjusting items and the
related presentation and accompanying disclosures and are satisfied
that the selection of adjusting items is consistent with prior years, in
line with management’s accounting policies and adequately explained
in the financial statements.
We noted no instances of inappropriate or inconsistent presentation
of results and non-GAAP measures. Specifically, we are satisfied that
non-GAAP measures are adequately explained and reconciled to
GAAP measures.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographical structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
The Group operates across three regions and is structured across two segments, being retail/wholesale and licensing.
The financial statements are a consolidation of 80 reporting units, comprising the Group’s operating businesses and holding
companies across the two segments.
Based on our risk and materiality assessments, we determined which entities were required to report full-scope audit opinions
to us having considered the relative significance of each entity to the Group, locations with significant inherent risks and the
overall coverage obtained over each material line item in the consolidated financial statements. We identified six reporting units
which, in our view, required an audit of their complete financial information, either due to their size or their risk characteristics.
These reporting units accounted for 75% (2016: 76%) of Group revenue and 79% (2016: 89%) of Group profit before taxation.
Of these, three reporting units have been determined to be financially significant based on their contribution to Group revenue
or profit before taxation. This, together with additional procedures performed at the Group level relating primarily to the
consolidation, taxation, litigation, impairment and earnings per share, gave us the evidence we needed for our opinion on the
financial statements as a whole.
120
121
121
Independent Auditors’ Report to the Members of Burberry Group plc
In addition to the audits performed on full-scope components, we gathered other audit evidence across the rest of the Group
through testing of the Group’s global monitoring controls, Group-level analytical procedures and testing at the London and
Hong Kong Shared Service Centres.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the
reporting units by us, as the Group engagement team, or component auditors within PwC UK and from other PwC network
firms operating under our instruction. Where the work was performed by component auditors, we determined the level
of involvement we needed to have in the audit work at those reporting units to be able to conclude whether sufficient
appropriate audit evidence had been obtained as a basis for our opinion on the financial statements as a whole. We sent
detailed instructions to all in scope component audit teams, which included communication of the areas of focus above and
other required communications. Our Group engagement team’s involvement also included various site visits and component
auditor working paper reviews across each of the Group’s three regions, together with conference calls with the component
audit teams and participation in all in scope component audit clearance meetings.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect
of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
£19 million (2016: £20 million).
How we determined it
5% of profit before taxation.
Rationale for benchmark applied
Burberry is a profit orientated entity and hence profit before taxation has been selected as the benchmark.
Component materiality
For each component in our audit scope, we allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components was between £3.5 million and
£16.0 million. Certain components were audited to a local statutory audit materiality that was also
less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1 million
(2016: £1 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 130, in relation to going concern.
We have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation
to the directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the
financial statements. We have nothing material to add or to draw attention to.
As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in
preparing the financial statements. The going concern basis presumes that the Group has adequate resources to remain in
operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed.
As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because
not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s ability to
continue as a going concern.
Other required reporting
Consistency of other information
Companies Act 2006 opinion
In our opinion, based on the work undertaken in the course of the audit:
are prepared is consistent with the financial statements; and
· the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
· the Strategic Report and Director’s Report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the Group and its environment obtained in the course of the audit,
we are required to report if we have identified any material misstatements in the Strategic Report and the Director’s Report.
We have nothing to report in this respect.
122
122
Independent Auditors’ Report to the Members of Burberry Group plc
Independent Auditors’ Report to the Members of Burberry Group plc
In addition to the audits performed on full-scope components, we gathered other audit evidence across the rest of the Group
through testing of the Group’s global monitoring controls, Group-level analytical procedures and testing at the London and
Hong Kong Shared Service Centres.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the
reporting units by us, as the Group engagement team, or component auditors within PwC UK and from other PwC network
firms operating under our instruction. Where the work was performed by component auditors, we determined the level
of involvement we needed to have in the audit work at those reporting units to be able to conclude whether sufficient
appropriate audit evidence had been obtained as a basis for our opinion on the financial statements as a whole. We sent
detailed instructions to all in scope component audit teams, which included communication of the areas of focus above and
other required communications. Our Group engagement team’s involvement also included various site visits and component
auditor working paper reviews across each of the Group’s three regions, together with conference calls with the component
audit teams and participation in all in scope component audit clearance meetings.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect
of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
£19 million (2016: £20 million).
How we determined it
5% of profit before taxation.
Rationale for benchmark applied
Burberry is a profit orientated entity and hence profit before taxation has been selected as the benchmark.
Component materiality
For each component in our audit scope, we allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components was between £3.5 million and
£16.0 million. Certain components were audited to a local statutory audit materiality that was also
less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1 million
(2016: £1 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 130, in relation to going concern.
We have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation
to the directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the
financial statements. We have nothing material to add or to draw attention to.
As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in
preparing the financial statements. The going concern basis presumes that the Group has adequate resources to remain in
operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed.
As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because
not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s ability to
continue as a going concern.
Other required reporting
Consistency of other information
Companies Act 2006 opinion
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
· the Strategic Report and Director’s Report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the Group and its environment obtained in the course of the audit,
we are required to report if we have identified any material misstatements in the Strategic Report and the Director’s Report.
We have nothing to report in this respect.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
Information in the Annual Report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
• otherwise misleading.
The statement given by the directors on page 118, in accordance with provision C.1.1 of the UK Corporate Governance
Code (the “Code”), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and
provides the information necessary for members to assess the Group’s position and performance, business model and
strategy is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit.
We have no
exceptions to report.
We have no
exceptions to report.
The section of the Annual Report on page 83, as required by provision C.3.8 of the Code, describing the work of the
Audit Committee does not appropriately address matters communicated by us to the Audit Committee.
We have no
exceptions to report.
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency
or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to
in relation to:
The directors’ confirmation on page 61 of the Annual Report, in accordance with provision C.2.1 of the Code, that they
have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity.
We have nothing
material to add or
to draw attention to.
The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
The directors’ explanation on page 61 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how
they have assessed the prospects of the Group, over what period they have done so and why they consider that period
to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing
material to add or
to draw attention to.
We have nothing
material to add or
to draw attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of
the principal risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review
was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process
supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and
considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit.
We have nothing to report having performed our review.
Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information
and explanations we require for our audit. We have no exceptions to report arising from this responsibility.
Directors’ remuneration
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. We have no exceptions to report arising from this responsibility.
Corporate Governance Statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further
provisions of the Code. We have nothing to report having performed our review.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 118, the directors are responsible for
the preparation of the 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 financial statements in accordance with applicable law and ISAs
(UK & 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 parent 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.
122
123
123
Independent Auditors’ Report to the Members of Burberry Group plc
What an audit of financial statements involves
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:
and adequately disclosed;
· whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied
· the reasonableness of significant accounting estimates made by the directors; and
· the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with
the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report
and Directors’ Report, we consider whether those reports include the disclosures required by applicable legal requirements.
Other matter
We have reported separately on the company financial statements of Burberry Group plc for the year ended
31 March 2017 and on the information in the Directors’ Remuneration Report that is described as having been audited.
Paul Cragg
Senior Statutory Auditor,
for and on behalf of PricewaterhouseCoopers LLP,
Chartered Accountants and Statutory Auditors,
London, 17 May 2017
124
124
Independent Auditors’ Report to the Members of Burberry Group plc
Group Income Statement
What an audit of financial statements involves
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.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with
the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report
and Directors’ Report, we consider whether those reports include the disclosures required by applicable legal requirements.
Other matter
We have reported separately on the company financial statements of Burberry Group plc for the year ended
31 March 2017 and on the information in the Directors’ Remuneration Report that is described as having been audited.
Paul Cragg
Senior Statutory Auditor,
for and on behalf of PricewaterhouseCoopers LLP,
Chartered Accountants and Statutory Auditors,
London, 17 May 2017
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Financing
Finance income
Finance expense
Other financing (charge)/income
Net finance income
Profit before taxation
Taxation
Profit for the year
Attributable to:
Owners of the Company
Non-controlling interest
Profit for the year
Earnings per share
Basic
Diluted
Reconciliation of adjusted profit before taxation:
Profit before taxation
Adjusting items:
Adjusting operating items
Adjusting financing items
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)
Year to
31 March
2017
£m
2,766.0
(832.9)
1,933.1
(1,538.8)
394.3
Year to
31 March
2016
£m
2,514.7
(752.0)
1,762.7
(1,359.8)
402.9
5.5
(1.8)
(3.2)
0.5
394.8
(107.1)
287.7
286.8
0.9
287.7
65.3p
64.9p
£m
394.8
64.4
3.2
462.4
77.9p
77.4p
10.5p
28.4p
5.1
(2.3)
9.9
12.7
415.6
(101.0)
314.6
309.5
5.1
314.6
70.0p
69.4p
£m
415.6
14.9
(9.9)
420.6
70.5p
69.9p
10.2p
26.8p
Note
3
4
8
5
9
10
10
6
6
10
10
11
11
124
125
125
Group Statement of Comprehensive Income
Profit for the year
Other comprehensive income1:
Cash flow hedges
Net investment hedges
Foreign currency translation differences
Tax on other comprehensive income:
Cash flow hedges
Net investment hedges
Foreign currency translation differences
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interest
Note
22
9
9
9
Year to
31 March
2017
£m
287.7
Year to
31 March
2016
£m
314.6
4.7
(2.3)
103.1
(1.0)
0.5
(5.4)
99.6
387.3
384.6
2.7
387.3
10.8
(0.8)
20.4
(2.2)
0.6
(1.9)
26.9
341.5
335.5
6.0
341.5
1 All items included in other comprehensive income may subsequently be reclassified to profit and loss in a future period.
126
126
Group Statement of Comprehensive Income
Group Balance Sheet
Profit for the year
Other comprehensive income1:
Cash flow hedges
Net investment hedges
Foreign currency translation differences
Tax on other comprehensive income:
Cash flow hedges
Net investment hedges
Foreign currency translation differences
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interest
1 All items included in other comprehensive income may subsequently be reclassified to profit and loss in a future period.
Note
22
9
9
9
Year to
31 March
Year to
31 March
2016
£m
314.6
2017
£m
287.7
4.7
(2.3)
103.1
(1.0)
0.5
(5.4)
99.6
387.3
384.6
2.7
387.3
10.8
(0.8)
20.4
(2.2)
0.6
(1.9)
26.9
341.5
335.5
6.0
341.5
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
Total assets
LIABILITIES
Non-current liabilities
Trade and other payables
Deferred tax 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 owners of the Company
Ordinary share capital
Share premium account
Capital reserve
Hedging reserve
Foreign currency translation reserve
Retained earnings
Equity attributable to owners of the Company
Non-controlling interest in equity
Total equity
As at
31 March
2017
£m
As at
31 March
2016
£m
Note
12
13
14
15
17
16
15
17
18
19
14
20
21
17
19
20
22
22
22
22
170.1
399.6
2.6
125.0
76.4
1.1
774.8
505.3
275.6
5.0
9.2
843.5
1,638.6
2,413.4
(101.9)
(0.4)
(0.9)
(47.3)
(150.5)
(34.3)
(3.5)
(459.1)
(18.1)
(50.1)
(565.1)
(715.6)
1,697.8
0.2
211.4
41.1
10.0
260.8
1,169.0
1,692.5
5.3
1,697.8
189.6
426.2
2.4
134.4
66.5
0.3
819.4
486.7
285.4
8.0
3.0
711.8
1,494.9
2,314.3
(114.7)
(0.6)
(0.7)
(38.4)
(154.4)
(51.5)
(2.3)
(387.2)
(17.6)
(80.4)
(539.0)
(693.4)
1,620.9
0.2
209.8
41.1
8.1
164.9
1,140.9
1,565.0
55.9
1,620.9
The consolidated financial statements of Burberry Group plc (registered number 03458224) on pages 125 to 176 were
approved by the Board on 17 May 2017 and signed on its behalf by:
Sir John Peace
Chairman
Julie Brown
Chief Operating and Chief Financial Officer
126
127
127
Group Statement of Changes in Equity
Note
22
22
Balance as at 31 March 2015
Profit for the year
Other comprehensive income:
Cash flow hedges
Net investment hedge
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive income for the year
Disposal of subsidiaries
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 options
Purchase of own shares by ESOP trusts
Dividends paid in the year
Balance as at 31 March 2016
Profit for the year
Other comprehensive income:
Cash flow hedges
Net investment hedge
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive income for the year
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 options
Purchase of own shares
Share buy-back
Held by ESOP trusts
Expiry of put option over non-controlling interest
Acquisition of additional interest in subsidiary
Dividends paid in the year
29
29
Attributable to owners
of the Company
Ordinary
share
capital
£m
0.2
–
Share
premium
account
£m
207.6
–
Other
reserves
£m
192.3
–
Retained
earnings
£m
1,000.8
309.5
Total
£m
1,400.9
309.5
Non-
controlling
interest
£m
Total
equity
£m
50.6 1,451.5
314.6
5.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.2
–
–
10.8
(0.8)
19.5
(3.5)
26.0
(6.2)
2.0
–
–
–
–
–
–
–
–
–
–
309.5
6.2
(2.0)
(0.3)
(0.2)
(4.5)
–
(10.9)
(157.7)
10.8
(0.8)
19.5
(3.5)
335.5
–
–
(0.3)
(0.2)
(4.5)
2.2
(10.9)
(157.7)
–
–
0.9
–
6.0
–
–
10.8
(0.8)
20.4
(3.5)
341.5
–
–
–
–
–
–
–
(0.7)
(0.3)
(0.2)
(4.5)
2.2
(10.9)
(158.4)
0.2
–
209.8
–
214.1
–
1,140.9
286.8
1,565.0
286.8
55.9 1,620.9
287.7
0.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.6
–
–
–
–
–
4.7
(2.3)
101.3
(5.9)
97.8
–
–
–
–
286.8
–
–
–
–
–
–
–
–
–
13.1
(0.4)
0.9
–
(100.5)
(13.3)
51.0
(45.1)
(164.4)
4.7
(2.3)
101.3
(5.9)
384.6
13.1
(0.4)
0.9
1.6
(100.5)
(13.3)
51.0
(45.1)
(164.4)
–
–
1.8
–
2.7
–
–
–
–
4.7
(2.3)
103.1
(5.9)
387.3
13.1
(0.4)
0.9
1.6
–
–
–
(53.2)
(0.1)
(100.5)
(13.3)
51.0
(98.3)
(164.5)
Balance as at 31 March 2017
0.2
211.4
311.9
1,169.0
1,692.5
5.3 1,697.8
128
128
Group Statement of Changes in Equity
Group Statement of Cash Flows
Attributable to owners
of the Company
Ordinary
Share
share
premium
Other
capital
account
reserves
Retained
earnings
Note
£m
£m
£m
Non-
controlling
interest
£m
Total
£m
Total
equity
£m
207.6
192.3
1,000.8
1,400.9
50.6 1,451.5
–
309.5
309.5
5.1
314.6
£m
0.2
22
22
309.5
335.5
6.0
341.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.2
1.6
10.8
(0.8)
19.5
(3.5)
26.0
(6.2)
2.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.2
(2.0)
(0.3)
(0.2)
(4.5)
–
10.8
(0.8)
19.5
(3.5)
–
–
(0.3)
(0.2)
(4.5)
2.2
13.1
(0.4)
0.9
–
13.1
(0.4)
0.9
1.6
(100.5)
(100.5)
(13.3)
51.0
(45.1)
(13.3)
51.0
(45.1)
(10.9)
(10.9)
(157.7)
(157.7)
(0.7)
(158.4)
0.2
209.8
214.1
1,140.9
1,565.0
55.9 1,620.9
286.8
286.8
0.9
287.7
4.7
(2.3)
101.3
(5.9)
97.8
–
–
–
–
4.7
(2.3)
101.3
(5.9)
1.8
103.1
4.7
(2.3)
(5.9)
286.8
384.6
2.7
387.3
0.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10.8
(0.8)
20.4
(3.5)
–
–
(0.3)
(0.2)
(4.5)
2.2
(10.9)
13.1
(0.4)
0.9
1.6
(100.5)
(13.3)
51.0
(98.3)
Balance as at 31 March 2015
Profit for the year
Other comprehensive income:
Cash flow hedges
Net investment hedge
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive income for the year
Disposal of subsidiaries
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 options
Purchase of own shares by ESOP trusts
Dividends paid in the year
Balance as at 31 March 2016
Profit for the year
Other comprehensive income:
Cash flow hedges
Net investment hedge
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive income for the year
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 options
Purchase of own shares
Share buy-back
Held by ESOP trusts
Dividends paid in the year
Balance as at 31 March 2017
Expiry of put option over non-controlling interest
Acquisition of additional interest in subsidiary
29
29
0.2
211.4
311.9
1,169.0
1,692.5
5.3 1,697.8
(164.4)
(164.4)
(0.1)
(164.5)
(53.2)
Cash flows from operating activities
Operating profit
Depreciation
Amortisation
Net impairment of intangible assets
Net impairment of property, plant and equipment
Loss on disposal of property, plant and equipment and intangible assets
Loss on derivative instruments
Charge/(credit) in respect of employee share incentive schemes
Payment from settlement of equity swap contracts
Decrease/(increase) in inventories
Decrease/(increase) in receivables
Increase in payables and provisions
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
Proceeds from sale of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Dividends paid in the year
Dividends paid to non-controlling interest
Payment to acquire additional interest in subsidiary from non-controlling interest
Issue of ordinary share capital
Purchase of own shares through share buy-back
Purchase of own shares by ESOP trusts
Net cash outflow from financing activities
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
Net cash
Note
12
13
11
29
22
Year to
31 March
2017
£m
Year to
31 March
2016
£m
394.3
121.3
30.2
33.0
15.9
3.5
5.6
13.1
–
8.4
19.7
43.6
688.6
5.2
(1.5)
(131.6)
560.7
(71.3)
(32.8)
8.5
(95.6)
(164.4)
(0.1)
(68.8)
1.6
(97.2)
(13.3)
(342.2)
122.9
26.0
660.3
809.2
402.9
111.9
35.2
–
26.5
1.2
3.1
(0.3)
(1.6)
(49.3)
(31.7)
5.1
503.0
4.8
(1.7)
(94.8)
411.3
(107.3)
(30.7)
0.5
(137.5)
(157.7)
(0.7)
–
2.2
–
(10.9)
(167.1)
106.7
1.4
552.2
660.3
As at
31 March
2017
£m
843.5
(34.3)
809.2
As at
31 March
2016
£m
711.8
(51.5)
660.3
Note
18
21
128
129
129
Notes to the Financial Statements
1. Basis of preparation
Burberry Group plc and its subsidiaries (the Group) is a global luxury goods manufacturer, retailer and wholesaler. The Group
also licences third parties to manufacture and distribute products using the ‘Burberry’ trade marks. All of the companies which
comprise the Group are controlled by Burberry Group plc (the Company) directly or indirectly.
The consolidated financial statements of the Group have been prepared in accordance with the European Union 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 certain financial assets and financial
liabilities at fair value through profit or loss.
Taking into account reasonable possible changes in trading performance, and after making enquiries, the directors consider it
appropriate to continue to adopt the going concern basis in preparing the financial statements for the year ended 31 March 2017.
There have been no new standards, amendments or interpretations issued and made effective for the financial period
commencing 1 April 2016 that have had a material impact on the financial statements of the Group.
As at 31 March 2017, 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 addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 replaces the guidance
in IAS 39 Financial instruments: Recognition and measurement that relates to the classification and measurement of financial instruments.
The new standard:
1. retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets:
amortised cost; fair value through OCI; and fair value through P&L;
2. introduces a forward-looking impairment model based on expected credit losses on financial instruments; and
3. updates hedge accounting requirements, to more closely align the accounting with the risk management activities.
The standard is effective for annual periods beginning on or after 1 January 2018. The most significant impact of adopting this standard
is expected to be as a result of the changes to the hedge accounting requirements, whereby cash flow hedges will need to be presented on the
balance sheet as part of the carrying value of inventories rather than in equity. The adoption of this element of IFRS 9 is an accounting policy
choice but will become a requirement when IFRS 9 Macro Hedging is endorsed by the European Union. The full impact of adopting this new
standard is still being assessed and will be quantified closer to the date of adoption.
IFRS 15 Revenue from contracts with customers
This standard deals with revenue recognition and replaces both IAS 18 Revenue and IAS 11 Construction contracts, providing a single revenue
standard to be applied across all industries. Under the new standard, revenue is recognised when a customer obtains control of a good or
service. IFRS 15 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows
arising from an entity’s contracts with customers. The standard is effective for annual periods beginning on or after 1 January 2018. Adopting
this new standard may result in a delay in the timing of the recognition of a portion of the Group’s revenue however it is not anticipated that
this will have a material impact on the overall Group result. There will also be additional disclosure requirements.
IFRS 16 Leases
This standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.
It replaces IAS 17 Leases and IFRIC 4 Determining whether an arrangement contains a lease. The most significant changes are in relation
to lessee accounting. Under the new standard, the concept of assessing a lease contract as either operating or financing is replaced by a
single lessee accounting model. Under this new model, substantially all lease contracts will result in a lessee acquiring a right-to-use asset and
obtaining financing. The lessee will be required to recognise a corresponding asset and liability. The asset will be depreciated over the term of
the lease and the interest on the financing liability will be charged over the same period. The standard is effective for annual periods beginning
on or after 1 January 2019, however it is not currently endorsed by the European Union. Adopting this new standard will result in a fundamental
change to the Group’s Balance Sheet, with right-to-use assets and accompanying financing liabilities for the Group’s retail stores, warehouses
and offices being recognised for the first time. The Income Statement will also be impacted, with rent expense relating to operating leases being
replaced by a depreciation charge arising from the right-to-use assets and interest charges arising from lease financing. The full impact of these
changes is currently being assessed as part of an on-going IFRS 16 implementation project and will be quantified closer to the date of adoption.
Refer to note 23 for details of the Group’s future minimum lease commitments at 31 March 2017.
Basis of consolidation
The Group’s annual financial statements comprise those of Burberry Group plc (the Company) and its subsidiaries, presented
as a single economic entity. The results of the subsidiaries are prepared for the same reporting year as the Company, using
consistent accounting policies across the Group.
130
130
Notes to the Financial Statements
Notes to the Financial Statements
1. Basis of preparation
Burberry Group plc and its subsidiaries (the Group) is a global luxury goods manufacturer, retailer and wholesaler. The Group
also licences third parties to manufacture and distribute products using the ‘Burberry’ trade marks. All of the companies which
comprise the Group are controlled by Burberry Group plc (the Company) directly or indirectly.
The consolidated financial statements of the Group have been prepared in accordance with the European Union 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 certain financial assets and financial
liabilities at fair value through profit or loss.
Taking into account reasonable possible changes in trading performance, and after making enquiries, the directors consider it
appropriate to continue to adopt the going concern basis in preparing the financial statements for the year ended 31 March 2017.
There have been no new standards, amendments or interpretations issued and made effective for the financial period
commencing 1 April 2016 that have had a material impact on the financial statements of the Group.
As at 31 March 2017, 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
The new standard:
This standard addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 replaces the guidance
in IAS 39 Financial instruments: Recognition and measurement that relates to the classification and measurement of financial instruments.
1. retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets:
amortised cost; fair value through OCI; and fair value through P&L;
2. introduces a forward-looking impairment model based on expected credit losses on financial instruments; and
3. updates hedge accounting requirements, to more closely align the accounting with the risk management activities.
The standard is effective for annual periods beginning on or after 1 January 2018. The most significant impact of adopting this standard
is expected to be as a result of the changes to the hedge accounting requirements, whereby cash flow hedges will need to be presented on the
balance sheet as part of the carrying value of inventories rather than in equity. The adoption of this element of IFRS 9 is an accounting policy
choice but will become a requirement when IFRS 9 Macro Hedging is endorsed by the European Union. The full impact of adopting this new
standard is still being assessed and will be quantified closer to the date of adoption.
IFRS 15 Revenue from contracts with customers
This standard deals with revenue recognition and replaces both IAS 18 Revenue and IAS 11 Construction contracts, providing a single revenue
standard to be applied across all industries. Under the new standard, revenue is recognised when a customer obtains control of a good or
service. IFRS 15 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows
arising from an entity’s contracts with customers. The standard is effective for annual periods beginning on or after 1 January 2018. Adopting
this new standard may result in a delay in the timing of the recognition of a portion of the Group’s revenue however it is not anticipated that
this will have a material impact on the overall Group result. There will also be additional disclosure requirements.
IFRS 16 Leases
This standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.
It replaces IAS 17 Leases and IFRIC 4 Determining whether an arrangement contains a lease. The most significant changes are in relation
to lessee accounting. Under the new standard, the concept of assessing a lease contract as either operating or financing is replaced by a
single lessee accounting model. Under this new model, substantially all lease contracts will result in a lessee acquiring a right-to-use asset and
obtaining financing. The lessee will be required to recognise a corresponding asset and liability. The asset will be depreciated over the term of
the lease and the interest on the financing liability will be charged over the same period. The standard is effective for annual periods beginning
on or after 1 January 2019, however it is not currently endorsed by the European Union. Adopting this new standard will result in a fundamental
change to the Group’s Balance Sheet, with right-to-use assets and accompanying financing liabilities for the Group’s retail stores, warehouses
and offices being recognised for the first time. The Income Statement will also be impacted, with rent expense relating to operating leases being
replaced by a depreciation charge arising from the right-to-use assets and interest charges arising from lease financing. The full impact of these
changes is currently being assessed as part of an on-going IFRS 16 implementation project and will be quantified closer to the date of adoption.
Refer to note 23 for details of the Group’s future minimum lease commitments at 31 March 2017.
Basis of consolidation
The Group’s annual financial statements comprise those of Burberry Group plc (the Company) and its subsidiaries, presented
as a single economic entity. The results of the subsidiaries are prepared for the same reporting year as the Company, using
consistent accounting policies across the Group.
1. Basis of preparation (continued)
Basis of consolidation (continued)
Subsidiaries are all entities (including special purpose entities) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power over the 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 acquisitions of additional interests in subsidiaries 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 of interests in subsidiaries to non-controlling
interests are also recorded in equity.
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 judgements
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,
and where judgements applied have a material impact on the presentation of the Group financial statements, are discussed
below. Further details of the Group’s accounting policies in relation to these areas are provided in note 2:
Impairment of property, plant and equipment and onerous lease provisions
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 in the period. Where the recoverable amount of the cash generating unit is negative, the need for an onerous lease
provision in relation to the committed future minimum lease payments is considered. Refer to note 13 for further details of
property, plant and equipment and impairment reviews carried out in the period. Refer to note 20 for further details of onerous
lease provisions.
Impairment of the fragrance and beauty licence intangible asset
The fragrance and beauty licence intangible asset is reviewed for impairment if events or changes in circumstances indicate
that the carrying amount may not be fully recoverable. Where a review for impairment is carried out, the recoverable amount of
the intangible asset is determined from a value-in-use calculation of the anticipated incremental income earned by the Group as
a result of selling Beauty products through retail and wholesale channels rather than under licence. The value-in-use calculation
is prepared on the basis of management’s assumptions and estimates of the future trading performance of the Beauty product
division. Refer to note 12 for further details of the fragrance and beauty licence intangible asset.
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 inventory provisions, management considers the nature and condition of the inventory, as well as
applying assumptions around anticipated saleability of finished goods and future usage of raw materials. Refer to note
16 for further details of the carrying value of inventory.
130
131
131
Notes to the Financial Statements
1. Basis of preparation (continued)
Key sources of estimation and judgement (continued)
Income and deferred taxes
The Group is subject to income taxes in numerous jurisdictions. Given the complexities of transfer pricing and other tax
legislation, 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. These are measured
using either the Group’s single best estimate of a likely outcome or a weighted average approach where appropriate. 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. The Group does
not currently anticipate a significant risk of material change to the outcomes referred to above over the next financial year.
Refer to notes 9, 14 and 30 for further details of income and deferred tax charges and balances and contingent liabilities.
Deferred consideration on the acquisition of the non-controlling interest in Burberry Middle East LLC
On 22 April 2016, the Group entered into an agreement to transfer the economic right to the non-controlling interest in
Burberry Middle East LLC to the Group in consideration for fixed and contingent payments to be made to the minority
shareholder. Management has applied judgement in assessing the nature of the payments associated with this transaction
in order to determine the appropriate accounting treatment. Refer to note 29 for further details of this transaction.
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.
Retail sales, returns and allowances are reflected at the dates of transactions with customers. 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. 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.
b) Segment reporting
As required by IFRS 8 Operating segments, the segmental information presented in the financial statements is 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.
The Group has centralised activities for designing, making and sourcing, which ensure a global product offering is sold
through retail and wholesale channels worldwide. Resource allocation and performance is assessed across the whole of
the retail/wholesale channel globally. Hence the retail/wholesale channel has been determined to be an operating segment.
Licensed products are manufactured and sold by third-party licensees. As a result, this channel is assessed discretely
by the Chief Operating Decision Maker and has been determined to be an operating segment.
The Group presents an analysis of its revenue by channel, by product division and by geographical destination.
132
132
Notes to the Financial Statements
Notes to the Financial Statements
1. Basis of preparation (continued)
Key sources of estimation and judgement (continued)
Income and deferred taxes
The Group is subject to income taxes in numerous jurisdictions. Given the complexities of transfer pricing and other tax
legislation, 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. These are measured
using either the Group’s single best estimate of a likely outcome or a weighted average approach where appropriate. 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. The Group does
not currently anticipate a significant risk of material change to the outcomes referred to above over the next financial year.
Refer to notes 9, 14 and 30 for further details of income and deferred tax charges and balances and contingent liabilities.
Deferred consideration on the acquisition of the non-controlling interest in Burberry Middle East LLC
On 22 April 2016, the Group entered into an agreement to transfer the economic right to the non-controlling interest in
Burberry Middle East LLC to the Group in consideration for fixed and contingent payments to be made to the minority
shareholder. Management has applied judgement in assessing the nature of the payments associated with this transaction
in order to determine the appropriate accounting treatment. Refer to note 29 for further details of this transaction.
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.
Retail sales, returns and allowances are reflected at the dates of transactions with customers. 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. 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.
b) Segment reporting
As required by IFRS 8 Operating segments, the segmental information presented in the financial statements is 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.
The Group has centralised activities for designing, making and sourcing, which ensure a global product offering is sold
through retail and wholesale channels worldwide. Resource allocation and performance is assessed across the whole of
the retail/wholesale channel globally. Hence the retail/wholesale channel has been determined to be an operating segment.
Licensed products are manufactured and sold by third-party licensees. As a result, this channel is assessed discretely
by the Chief Operating Decision Maker and has been determined to be an operating segment.
The Group presents an analysis of its revenue by channel, by product division and by geographical destination.
2. Accounting policies (continued)
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. Non-controlling interests in subsidiaries are identified separately from the Group’s equity, and are
initially measured either at fair value or at a value equal to the non-controlling interests’ share of the identifiable net assets
acquired. The choice of the basis of measurement is an accounting policy choice for each individual business combination.
The excess of the cost of acquisition together with the value of any non-controlling interest over the fair value 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 Group operates a number of equity-settled share-based compensation schemes, under which services are received
from employees (including executive directors) as consideration for equity instruments of the Company. The cost of the
share-based incentives is measured with reference to the fair value of the equity instruments awarded at the date of
grant. Appropriate option pricing models, including Black-Scholes and Monte Carlo, are used to determine the fair value
of the awards made. The fair value takes into account the impact of any market performance conditions, but the impact of
non-market performance conditions is not considered in determining the fair value on the date of grant. 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.
In some circumstances, employees may provide services in advance of the grant date. The grant date fair value is estimated
for the purposes of recognising the expense during the period between the service commencement period and the grant 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.
When options are exercised, they are settled either via issue of new shares in the Company, or through shares held in an
Employee Share Option Plan (ESOP) trust, depending on the terms and conditions of the relevant scheme. The proceeds
received from the exercises, net of any directly attributable transaction costs, are credited to share capital and share
premium accounts.
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 transferred to the lessee by the lessor are classified as finance leases. Leases which are not
finance leases are classified as operating leases.
Gross rental expenditure/income in respect of operating leases is recognised on a straight-line basis over the term 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/deferred
income. Lease incentives, typically rent-free periods and capital contributions, are held on the Balance Sheet in deferred
income and non-financial accruals and recognised over the term of the lease.
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.
132
133
133
Notes to the Financial Statements
2. Accounting policies (continued)
g) Pension costs
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 as they fall due and comprises the amount of contributions to the schemes.
h) Intangible assets
Goodwill
Goodwill is the excess of the cost of acquisition together with the value of any non-controlling interest, over the fair value
of identifiable net assets acquired. Goodwill on acquisition is recorded as an intangible 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 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, licences and other intangible assets
The cost of securing and renewing trade marks and licences, 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 or licence. The useful 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 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 on a straight-line basis over their estimated useful lives, which may be up to seven years.
i) Property, plant and equipment
Property, plant and equipment, with the exception of assets in the course of construction, is stated at cost or deemed cost,
based on historical revalued amounts prior to the adoption of IFRS, 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:
Type of asset
Land
Freehold buildings
Leaseholds
Plant and machinery
Short life leasehold improvements
Retail fixtures and fittings
Office fixtures and fittings
Computer equipment
Assets in the course of construction
Category of property, plant and equipment
Freehold land and buildings
Freehold land and buildings
Leasehold improvements
Fixtures, fittings and equipment
Fixtures, fittings and equipment
Fixtures, fittings and equipment
Fixtures, fittings and equipment
Fixtures, fittings and equipment
Assets in the course of construction
Useful life
Not depreciated
Up to 50 years
Over the unexpired term of the lease
Up to 10 years
Up to 10 years
Up to 5 years
Up to 5 years
Up to 7 years
Not depreciated
Profit/loss on disposal of property, plant and equipment and intangible assets
Profits and losses on the disposal of property, plant and equipment and intangible assets 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.
134
134
Notes to the Financial Statements
Notes to the Financial Statements
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 as they fall due and comprises the amount of contributions to the schemes.
2. Accounting policies (continued)
g) Pension costs
h) Intangible assets
Goodwill
Goodwill is the excess of the cost of acquisition together with the value of any non-controlling interest, over the fair value
of identifiable net assets acquired. Goodwill on acquisition is recorded as an intangible 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 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, licences and other intangible assets
The cost of securing and renewing trade marks and licences, 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 or licence. The useful 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 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 on a straight-line basis over their estimated useful lives, which may be up to seven years.
i) Property, plant and equipment
Property, plant and equipment, with the exception of assets in the course of construction, is stated at cost or deemed cost,
based on historical revalued amounts prior to the adoption of IFRS, 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
Type of asset
Land
Freehold buildings
Leaseholds
Plant and machinery
Short life leasehold improvements
Retail fixtures and fittings
Office fixtures and fittings
Computer equipment
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:
Category of property, plant and equipment
Freehold land and buildings
Freehold land and buildings
Leasehold improvements
Fixtures, fittings and equipment
Fixtures, fittings and equipment
Fixtures, fittings and equipment
Fixtures, fittings and equipment
Fixtures, fittings and equipment
Over the unexpired term of the lease
Useful life
Not depreciated
Up to 50 years
Up to 10 years
Up to 10 years
Up to 5 years
Up to 5 years
Up to 7 years
Not depreciated
Assets in the course of construction
Assets in the course of construction
Profit/loss on disposal of property, plant and equipment and intangible assets
Profits and losses on the disposal of property, plant and equipment and intangible assets 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.
2. Accounting policies (continued)
j) Impairment of non-financial assets
Assets that have an indefinite useful 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 value may not be recoverable. An impairment loss is recognised for the amount by which the carrying value
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). Non-financial assets, other than goodwill, for which an impairment has
been previously recognised are reviewed for possible reversal of impairment at each reporting date.
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 12 months is considered to be highly probable.
Assets classified as held for sale cease to be depreciated and they are stated at the lower of carrying amount and fair value
less cost to sell.
m) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost consists of all costs of purchase, costs of conversion,
design costs and other costs incurred in bringing the inventories to their present location and condition. For inventories relating
to the Beauty product division, including raw materials and finished goods, cost is measured using a weighted average method.
For all other product divisions, the cost of inventories is determined using a first-in, first-out (FIFO) method, taking account of
the fashion seasons for which the inventory was offered. 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 utilisation and saleability.
n) Taxation
Tax expense represents the sum of the tax currently payable and deferred tax charge.
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 at the balance sheet date.
Deferred income tax is recognised, using the liabilities method, 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 at 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.
134
135
135
Notes to the Financial Statements
2. Accounting policies (continued)
n) Taxation (continued)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when deferred income tax assets and liabilities relate to income taxes levied by the same
taxation authority on either the same taxable entities or different taxable entities where there is an intention to settle the
balances on a net basis.
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 specific
to the future obligation.
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 in 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 owners of the Company 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 owners of the Company.
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 rate method
except for derivatives which are held at fair value and which are classified as held for trading, except where they qualify for
hedge accounting. The fair value of the Group’s financial assets and liabilities held at amortised cost mostly approximate
their carrying amount due to the short maturity of these instruments. Where the fair value of any financial asset or liability
held at amortised cost is materially different to the book value, the fair value is disclosed.
136
136
Notes to the Financial Statements
Notes to the Financial Statements
2. Accounting policies (continued)
n) Taxation (continued)
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when deferred income tax assets and liabilities relate to income taxes levied by the same
taxation authority on either the same taxable entities or different taxable entities where there is an intention to settle the
balances on a net basis.
o) Provisions
to the future obligation.
Property obligations
value-in-use.
Restructuring costs
p) Share capital
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 specific
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 in excess to the Group’s requirements and not fully recovered through sub-leasing, or through
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.
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 owners of the Company 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 owners of the Company.
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 rate method
except for derivatives which are held at fair value and which are classified as held for trading, except where they qualify for
hedge accounting. The fair value of the Group’s financial assets and liabilities held at amortised cost mostly approximate
their carrying amount due to the short maturity of these instruments. Where the fair value of any financial asset or liability
held at amortised cost is materially different to the book value, the fair value is disclosed.
2. Accounting policies (continued)
q) Financial instruments (continued)
The Group classifies its instruments in the following categories:
Financial instrument category
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Borrowings
Deferred consideration
Forward foreign exchange contracts1
Equity swap contracts
Note
18
15
19
21
19
17
17
Classification
Loans and receivables
Loans and receivables
Other financial liabilities
Other financial liabilities
Other financial liabilities
Derivative instrument
Derivative instrument
Measurement
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Fair value through profit and loss
Fair value through profit and loss
Fair value through profit and loss
1 Cash flow hedge and net investment hedge accounting is applied to the extent it is achievable.
2 The fair value measurement hierarchy is only applicable for financial instruments measured at fair value.
Fair value
measurement
hierarchy2
N/A
N/A
N/A
N/A
2 / 3
2
2
The measurements for financial instruments carried at fair value are categorised into different levels in the fair value
hierarchy based on the inputs to the valuation technique used. The different levels are defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the
measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly.
Level 3: includes unobservable inputs for the asset or liability.
Observable inputs are those which are developed using market data, such as publicly available information about actual
events or transactions. The Group has an established framework with respect to measurement of fair values, including
Level 3 fair values. The Group regularly reviews any significant inputs which are not derived from observable market data
and considers, where available, relevant third-party information, to support the conclusion that such valuations meet the
requirements of IFRS. The classification level in the fair value hierarchy is also considered periodically. Significant valuation
issues are reported to the Audit Committee.
The fair value of forward foreign exchange contracts and equity swap contracts is based on a comparison of the contractual
and market rates and, in the case of forward foreign exchange contracts, after discounting using the appropriate yield
curve as at the balance sheet date. All Level 2 fair value measurements are calculated using inputs which are based on
observable market data.
The fair value of the fixed payment component of deferred consideration is considered to be a Level 2 measurement and
is derived using a present value calculation of the remaining fixed payments, discounted using an appropriate risk-free rate.
The fair value of the contingent payment component of deferred consideration is considered to be a Level 3 measurement
and is derived using a present value calculation, incorporating observable and non-observable inputs. This valuation
technique has been adopted as it most closely mirrors the contractual arrangement.
The Group’s primary categories of financial instruments are listed below:
Cash and cash equivalents
On the Balance Sheet, cash and cash equivalents comprise cash and short-term deposits with a maturity date of three
months or less, held with banks and liquidity funds. In the Statement of Cash Flows, cash and cash equivalents also
include bank overdrafts, which are recorded under current liabilities on the Balance Sheet.
136
137
137
Notes to the Financial Statements
2. Accounting policies (continued)
q) Financial instruments (continued)
Trade and other receivables
Trade and other receivables are included in current assets, except for maturities greater than 12 months after the balance
sheet date. Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest rate 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 movement in 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 12 months after the balance sheet date.
Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.
Borrowings (including overdrafts)
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 rate method. Borrowings are classified
as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
Deferred consideration
Deferred consideration is initially recognised at the present value of the expected future payments. It is subsequently
remeasured at fair value at each reporting period with the change in fair value relating to changes in expected future payments
recorded in the Income Statement as an operating expense or income. Changes in fair value relating to unwinding of
discounting to present value are recorded as a financing expense.
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. The Group also may designate forward
foreign exchange contracts or foreign currency borrowings as 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); (2) hedges of highly probable forecast transactions (cash flow
hedges); (3) hedges of net investment of the assets of overseas subsidiaries (net investment hedges); or (4) 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.
138
138
Notes to the Financial Statements
Notes to the Financial Statements
2. Accounting policies (continued)
q) Financial instruments (continued)
Trade and other receivables
Trade and other receivables are included in current assets, except for maturities greater than 12 months after the balance
sheet date. Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest rate 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 movement in 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 12 months after the balance sheet date.
Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.
Borrowings (including overdrafts)
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 rate method. Borrowings are classified
as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
Deferred consideration
Deferred consideration is initially recognised at the present value of the expected future payments. It is subsequently
remeasured at fair value at each reporting period with the change in fair value relating to changes in expected future payments
recorded in the Income Statement as an operating expense or income. Changes in fair value relating to unwinding of
discounting to present value are recorded as a financing expense.
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. The Group also may designate forward
foreign exchange contracts or foreign currency borrowings as 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); (2) hedges of highly probable forecast transactions (cash flow
hedges); (3) hedges of net investment of the assets of overseas subsidiaries (net investment hedges); or (4) classified as held
for trading.
2. Accounting policies (continued)
q) Financial instruments (continued)
Derivative instruments (continued)
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 through 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 ‘net exchange gain/(loss) on derivatives held for trading’. 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 derivative instruments or foreign currency borrowings,
the gains or losses on the effective portion of the change in fair value of derivatives that are designated and qualify as a hedge
of a net investment, or the gains or losses on the retranslation of the borrowings are recognised in other comprehensive
income and are reclassified to the Income Statement when the foreign operation that is hedged is disposed of.
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 exchange rate prevailing at the date of the transaction. 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 (closing rate). 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 closing 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.
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 principal exchange rates used were as follows:
Euro
US Dollar
Chinese Yuan Renminbi
Hong Kong Dollar
Korean Won
Average rate
Closing rate
Year to
31 March
2017
1.19
1.30
8.73
10.11
1,487
Year to
31 March
2016
1.36
1.50
9.57
11.67
1,740
As at
31 March
2017
1.17
1.25
8.62
9.74
1,402
As at
31 March
2016
1.26
1.44
9.29
11.16
1,640
The average exchange rate achieved by the Group on its Yen royalty income, taking into account its use of Yen forward
foreign exchange contracts executed on a monthly basis approximately 12 months in advance of royalty receipts, was
Yen 159.3: £1 in the year to 31 March 2017 (2016: Yen 177.1: £1).
138
139
139
Notes to the Financial Statements
2. Accounting policies (continued)
s) Adjusted profit before taxation
In order to provide additional consideration of the underlying performance of the Group’s ongoing business, the Group’s
results include a presentation of Adjusted profit before taxation (‘adjusted PBT’). Adjusted PBT is defined as profit before
taxation and before adjusting items. Adjusting items are those items which, in the opinion of the directors, should be excluded
in order to provide a consistent and comparable view of the performance of the Group’s ongoing business. Generally this will
include those items that are largely one-off and material in nature as well as income or expenses relating to acquisitions or
disposals of businesses or other transactions of a similar nature, including the impact of changes in fair value of expected
future payments or receipts relating to these transactions. Adjusting items are identified and presented on a consistent basis
each year and a reconciliation of adjusted PBT to profit before tax is included in the financial statements. Adjusting items and
their related tax impacts are added back to/deducted from profit attributable to owners of the Company to arrive at adjusted
earnings per share. Refer to note 6 for further details of adjusting items.
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 the Group’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 USA.
Licensing revenues are generated through the receipt of royalties from global licensees of eyewear, timepieces and
European childrenswear, and from licences relating to the use of non-Burberry trade marks in Japan.
The Board assesses channel performance based on a measure of adjusted operating profit. This measurement basis excludes
the effects of adjusting 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
Retail
Wholesale
Licensing
Total segment revenue
Inter-segment revenue1
Revenue from external customers
Depreciation and amortisation2
Net impairment of intangible assets3
Net impairment of property, plant and equipment
Other non-cash items:
Year to
31 March
2017
£m
2,127.2
613.9
–
2,741.1
–
2,741.1
144.0
7.1
15.9
Year to
31 March
2016
£m
1,837.7
634.6
–
2,472.3
–
2,472.3
132.2
–
26.5
Share-based payments
13.1
(0.3)
Year to
31 March
2017
£m
–
–
27.1
27.1
(2.2)
24.9
Year to
31 March
2016
£m
–
–
44.7
44.7
(2.3)
42.4
Year to
31 March
2017
£m
2,127.2
613.9
27.1
2,768.2
(2.2)
2,766.0
Year to
31 March
2016
£m
1,837.7
634.6
44.7
2,517.0
(2.3)
2,514.7
–
–
–
–
–
–
–
–
144.0
7.1
15.9
132.2
–
26.5
13.1
(0.3)
458.7
(67.6)
5.5
(1.8)
394.8
417.8
(5.0)
5.1
(2.3)
415.6
Adjusted operating profit
Adjusting items4
Finance income
Finance expense
Profit before taxation
437.0
380.9
21.7
36.9
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 Amortisation of £7.5m (2016: £14.9m) relating to the fragrance and beauty licence intangible asset is presented as an adjusting item and excluded from the
segmental analysis.
3
Impairment of £18.6m (2016: £nil) relating to the fragrance and beauty licence intangible asset and impairment of £7.3m (2016: £nil) of software assets specifically
relating to the transfer of the Beauty operations are presented as adjusting items and excluded from the segmental analysis.
4 Refer to note 6 for details of adjusting items.
140
140
Notes to the Financial Statements
Notes to the Financial Statements
2. Accounting policies (continued)
s) Adjusted profit before taxation
In order to provide additional consideration of the underlying performance of the Group’s ongoing business, the Group’s
results include a presentation of Adjusted profit before taxation (‘adjusted PBT’). Adjusted PBT is defined as profit before
taxation and before adjusting items. Adjusting items are those items which, in the opinion of the directors, should be excluded
in order to provide a consistent and comparable view of the performance of the Group’s ongoing business. Generally this will
include those items that are largely one-off and material in nature as well as income or expenses relating to acquisitions or
disposals of businesses or other transactions of a similar nature, including the impact of changes in fair value of expected
future payments or receipts relating to these transactions. Adjusting items are identified and presented on a consistent basis
each year and a reconciliation of adjusted PBT to profit before tax is included in the financial statements. Adjusting items and
their related tax impacts are added back to/deducted from profit attributable to owners of the Company to arrive at adjusted
earnings per share. Refer to note 6 for further details of adjusting items.
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 the Group’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 USA.
Licensing revenues are generated through the receipt of royalties from global licensees of eyewear, timepieces and
European childrenswear, and from licences relating to the use of non-Burberry trade marks in Japan.
The Board assesses channel performance based on a measure of adjusted operating profit. This measurement basis excludes
the effects of adjusting 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
Year to
31 March
Year to
31 March
Year to
31 March
Year to
31 March
2016
£m
Year to
31 March
2017
£m
Year to
31 March
2016
£m
Retail
Wholesale
Licensing
Total segment revenue
Inter-segment revenue1
Depreciation and amortisation2
Net impairment of intangible assets3
Net impairment of property, plant and equipment
Other non-cash items:
Share-based payments
2,741.1
2,472.3
2017
£m
2,127.2
613.9
–
–
144.0
7.1
15.9
2016
£m
1,837.7
634.6
–
–
132.2
–
26.5
2017
£m
–
–
27.1
27.1
(2.2)
24.9
–
–
–
–
–
–
44.7
44.7
(2.3)
42.4
–
–
–
–
Revenue from external customers
2,741.1
2,472.3
Adjusted operating profit
437.0
380.9
21.7
36.9
13.1
(0.3)
13.1
(0.3)
2,127.2
1,837.7
613.9
27.1
634.6
44.7
2,768.2
2,517.0
(2.2)
(2.3)
2,766.0
2,514.7
144.0
7.1
15.9
458.7
(67.6)
5.5
(1.8)
394.8
132.2
–
26.5
417.8
(5.0)
5.1
(2.3)
415.6
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 Amortisation of £7.5m (2016: £14.9m) relating to the fragrance and beauty licence intangible asset is presented as an adjusting item and excluded from the
3
Impairment of £18.6m (2016: £nil) relating to the fragrance and beauty licence intangible asset and impairment of £7.3m (2016: £nil) of software assets specifically
relating to the transfer of the Beauty operations are presented as adjusting items and excluded from the segmental analysis.
4 Refer to note 6 for details of adjusting items.
Adjusting items4
Finance income
Finance expense
Profit before taxation
segmental analysis.
3. Segmental analysis (continued)
Segmental asset analysis
Additions to non-current assets
Total segment assets
Goodwill
Cash and cash equivalents
Taxation
Assets relating to discontinued Spanish operations
Total assets per Balance Sheet
Additional revenue analysis
Revenue by product division
Accessories
Womens
Mens
Childrens/Other
Beauty
Retail/Wholesale
Licensing
Total
Revenue by destination
Asia Pacific
EMEIA1
Americas
Retail/Wholesale
Licensing
Total
Retail/Wholesale
Licensing
Total
Year to
31 March
2017
£m
112.1
Year to
31 March
2016
£m
146.2
Year to
31 March
2017
£m
–
Year to
31 March
2016
£m
–
Year to
31 March
2017
£m
112.1
Year to
31 March
2016
£m
146.2
1,332.5
1,365.5
3.6
3.5
1,336.1
99.6
843.5
134.2
–
2,413.4
Year to
31 March
2017
£m
1,033.2
791.9
623.5
108.1
184.4
2,741.1
24.9
2,766.0
Year to
31 March
2017
£m
1,069.0
991.2
680.9
2,741.1
24.9
2,766.0
1,369.0
88.8
711.8
137.4
7.3
2,314.3
Year to
31 March
2016
£m
901.7
729.0
548.4
90.7
202.5
2,472.3
42.4
2,514.7
Year to
31 March
2016
£m
932.9
878.5
660.9
2,472.3
42.4
2,514.7
1 EMEIA comprises Europe, Middle East, India and Africa.
Entity-wide disclosures
Revenue derived from external customers in the UK totalled £300.9m for the year to 31 March 2017 (2016: £250.2m).
Revenue derived from external customers in foreign countries totalled £2,465.1m for the year to 31 March 2017 (2016: £2,264.5m).
This amount includes £576.6m of external revenues derived from customers in the USA (2016: £562.1m) and £413.7m of
external revenues derived from customers in China (2016: £350.9m).
The total of non-current assets other than financial instruments and deferred tax assets located in the UK is £147.6m
(2016: £194.6m). The remaining £456.2m of non-current assets are located in other countries (2016: £452.6m), with
£159.6m located in the USA (2016: £153.1m), £76.7m located in China (2016: £82.0m), and £72.4m located in Korea
(2016: £58.9m).
140
141
141
Notes to the Financial Statements
4. Net operating expenses
Selling and distribution costs
Administrative expenses
Adjusting operating items
Net operating expenses
5. Profit before taxation
Adjusted profit before taxation is stated after charging/(crediting):
Depreciation of property, plant and equipment
Within cost of sales
Within selling and distribution costs
Within administrative expenses
Amortisation of intangible assets
Within selling and distribution costs
Within administrative expenses1
Loss on disposal of property, plant and equipment and intangible assets
Net impairment of intangible assets2
Net impairment of property, plant and equipment
Employee costs3,4
Operating lease rentals
Minimum lease payments5
Contingent rents
Net exchange gain on revaluation of monetary assets and liabilities
Net exchange loss on derivatives held for trading for the year
Trade receivables net impairment charge
Adjusting items
Adjusting operating items
Charge relating to the fragrance and beauty licence intangible asset
Restructuring costs
Revaluation of deferred consideration liability
Costs relating to the transfer of the Beauty operations
Total adjusting operating items
Adjusting financing items
Put option liability finance charge/(income)
Finance charge on deferred consideration liability
Total adjusting financing items
Note
Year to
31 March
2017
£m
913.5
560.9
6
64.4
1,538.8
Year to
31 March
2016
£m
816.7
528.2
14.9
1,359.8
Year to
31 March
2017
£m
Year to
31 March
2016
£m
Note
1.6
107.4
12.3
1.0
21.7
3.5
7.1
15.9
484.7
239.0
108.6
(12.2)
0.2
2.4
26.1
20.8
3.0
14.5
64.4
1.0
2.2
3.2
1.4
98.7
11.8
1.8
18.5
1.2
–
26.5
427.5
235.3
86.1
(1.6)
5.8
3.1
14.9
–
–
–
14.9
(9.9)
–
(9.9)
12
13
26
6
6
6
6
6
6
1 Amortisation of intangible assets within administrative expenses has been presented excluding amortisation of £7.5m (2016: £14.9m) relating to the fragrance and
beauty licence intangible, which has been presented as adjusting (refer to note 6).
2 Net impairment of intangible assets for the year ended 31 March 2017 is presented excluding an impairment of £18.6m relating to the fragrance and beauty licence
intangible and an impairment of £7.3m of software assets specifically relating to the transfer of the Beauty operations, which have been presented as adjusting
(refer to note 6).
3 Employee costs for the year ended 31 March 2017 are presented excluding £9.7m of costs arising as a result of the cost-efficiency programme, which are presented
as adjusting (refer to note 6).
4 Employee costs for the year ended 31 March 2016 have been re-presented to include employee-related costs recognised within cost of sales.
5 Minimum lease payments include charges for onerous lease provisions during the year ended 31 March 2017 of £7.9m (2016: £20.1m) and does not include payments
of £8.3m (2016: £5.0m) where existing onerous lease provisions have been utilised.
142
142
Notes to the Financial Statements
Notes to the Financial Statements
4. Net operating expenses
Selling and distribution costs
Administrative expenses
Adjusting operating items
Net operating expenses
5. Profit before taxation
Adjusted profit before taxation is stated after charging/(crediting):
Depreciation of property, plant and equipment
Within cost of sales
Within selling and distribution costs
Within administrative expenses
Amortisation of intangible assets
Within selling and distribution costs
Within administrative expenses1
Employee costs3,4
Operating lease rentals
Minimum lease payments5
Contingent rents
Loss on disposal of property, plant and equipment and intangible assets
Net impairment of intangible assets2
Net impairment of property, plant and equipment
Net exchange gain on revaluation of monetary assets and liabilities
Net exchange loss on derivatives held for trading for the year
Trade receivables net impairment charge
Adjusting items
Adjusting operating items
Restructuring costs
Charge relating to the fragrance and beauty licence intangible asset
Revaluation of deferred consideration liability
Costs relating to the transfer of the Beauty operations
Total adjusting operating items
Adjusting financing items
Put option liability finance charge/(income)
Finance charge on deferred consideration liability
Total adjusting financing items
Year to
31 March
2017
£m
913.5
560.9
64.4
1,538.8
Year to
31 March
2016
£m
816.7
528.2
14.9
1,359.8
Year to
31 March
2017
£m
Year to
31 March
2016
£m
1.6
107.4
12.3
1.0
21.7
3.5
7.1
15.9
484.7
239.0
108.6
(12.2)
0.2
2.4
26.1
20.8
3.0
14.5
64.4
1.0
2.2
3.2
1.4
98.7
11.8
1.8
18.5
1.2
–
26.5
427.5
235.3
86.1
(1.6)
5.8
3.1
14.9
–
–
–
14.9
(9.9)
–
(9.9)
Note
6
Note
12
13
26
6
6
6
6
6
6
1 Amortisation of intangible assets within administrative expenses has been presented excluding amortisation of £7.5m (2016: £14.9m) relating to the fragrance and
beauty licence intangible, which has been presented as adjusting (refer to note 6).
2 Net impairment of intangible assets for the year ended 31 March 2017 is presented excluding an impairment of £18.6m relating to the fragrance and beauty licence
intangible and an impairment of £7.3m of software assets specifically relating to the transfer of the Beauty operations, which have been presented as adjusting
(refer to note 6).
as adjusting (refer to note 6).
3 Employee costs for the year ended 31 March 2017 are presented excluding £9.7m of costs arising as a result of the cost-efficiency programme, which are presented
4 Employee costs for the year ended 31 March 2016 have been re-presented to include employee-related costs recognised within cost of sales.
5 Minimum lease payments include charges for onerous lease provisions during the year ended 31 March 2017 of £7.9m (2016: £20.1m) and does not include payments
of £8.3m (2016: £5.0m) where existing onerous lease provisions have been utilised.
6. Adjusting items
Charge relating to the fragrance and beauty licence intangible asset
During the year ended 31 March 2013, an intangible asset of £70.9m was recognised on the Balance Sheet, relating to the present
value of the anticipated incremental income to be earned by the Group as a result of selling Beauty products through retail and
wholesale channels rather than under licence, following the termination of the existing licence relationship with Interparfums SA.
This asset was being amortised on a straight-line basis over the period 1 April 2013 to 31 December 2017.
During the six months ended 30 September 2016, amortisation expense of £7.5m was recognised in relation to the fragrance
and beauty licence intangible. At 30 September 2016, management carried out an impairment assessment of the carrying value
of this asset based on a value-in-use calculation using latest estimates for cost and revenue projections. As a result of a reduction
in projected revenue over the remaining life to 31 December 2017, compared to previous estimates, management concluded
that the book value of the asset was not supported by its value-in-use. An impairment charge of £18.6m was recognised
at 30 September 2016, to write the remaining balance of the intangible asset down to nil.
The total charge in relation to the fragrance and beauty licence intangible for the year ended 31 March 2017 is £26.1m
(2016: £14.9m). This has been presented as an adjusting item, which is consistent with the treatment of the cost recognised
on termination of the licence relationship in the year ended 31 March 2013. A related tax credit of £5.1m (2016: £2.8m) has
also been recognised in the current period.
Restructuring costs
Restructuring costs of £20.8m were incurred in the current period, arising as a result of the Group’s cost-efficiency programme
announced in May 2016. These costs are presented as an adjusting item as they are considered material and one-off in nature,
being part of a restructuring programme running from May 2016 to March 2019, with restructuring costs being incurred in
the first two years. The most significant elements of the restructuring costs relate to redundancies and consultancy costs
supporting organisational design and development of strategic growth and productivity initiatives, with the remainder
relating to legal advice and project assurance. £16.7m of this cost was settled in the period with the balance being accrued
at 31 March 2017. A related tax credit of £4.2m has also been recognised in the current period.
Items relating to the deferred consideration liability
On 22 April 2016, the Group entered into an agreement to transfer the economic right to the non-controlling interest in Burberry
Middle East LLC to the Group in consideration of contingent payments to be made to the minority shareholder relating to an
agreed percentage of the future revenue of Burberry Middle East LLC and its subsidiaries, Burberry Al Kuwait General Trading
Textiles and Accessories Company WLL and Burberry Qatar WLL, over the period 2016 to 2023, together with fixed payments
of AED 120.0m (£22.6m), relating to profits of Burberry Middle East LLC up to 31 March 2016, to be paid over the period 2016 to
2019. A liability for the present value of the fixed and contingent deferred consideration of AED 236.0m (£44.6m) was recognised
at this point. Refer to note 19 for further details of the deferred consideration liability.
A charge of £3.0m in relation to the revaluation of this balance has been recognised in operating expenses for the year ended
31 March 2017. A financing charge of £2.2m in relation to the unwinding of the discount on the non-current portion of the
deferred consideration liability has also been recognised for the year ended 31 March 2017. These movements are unrealised.
No tax has been recognised on either of these items, as the future payments are not considered to be deductible for tax
purposes. These items are presented as adjusting items in accordance with the Group accounting policy, as they arise
from changes in the value of the liability for expected future payments relating to the purchase of a non-controlling interest
in the Group.
Put option liability finance charge/income
The financing charge of £1.0m for the year ended 31 March 2017 (2016: income of £9.9m) relates to fair value movements
including the unwinding of the discount on the put option liability over the non-controlling interest in Burberry (Shanghai)
Trading Co., Ltd. No tax has been recognised on this item, as the value of the option on exercise is not considered to be
deductible for tax purposes. This item has been presented as an adjusting item in accordance with the Group accounting
policy as it arises from changes in the value of the liability for expected future payments relating to the purchase of a
non-controlling interest in the Group. Refer to note 19 for further details of the carrying value of the put option liability.
142
143
143
Notes to the Financial Statements
6. Adjusting items (continued)
Costs relating to the transfer of the Beauty operations
On 3 April 2017 Burberry entered into an agreement with Coty Geneva SARL Versoix (Coty) to grant Coty a licence for its
fragrance and beauty products and to transfer Burberry’s Beauty operations to Coty. This agreement is expected to complete
in October 2017. The licence agreement and the business transfer will be accounted for in the financial statements for the year
ending 31 March 2018. Further details of the agreement to transfer the beauty operations business are set out in note 31.
Costs of £14.5m arising in relation to the transaction have been incurred and recognised in the current period. These costs
related to the write-off of software assets specifically relating to the Beauty operations of £7.3m (refer to note 12); a provision
for the termination of a distributor agreement; and other ancillary charges incurred. None of these costs were paid in the period.
These costs are presented as an adjusting item in accordance with the Group accounting policy as they arose in relation to
the transfer of a business. A related tax credit of £2.9m has also been recognised in the period.
7. Auditor remuneration
Fees incurred during the year in relation to audit and non-audit services are analysed below.
Audit services in respect of the financial statements of the Company and consolidation
Audit services in respect of the financial statements of subsidiary companies
Audit-related assurance services
Services relating to taxation advisory services
Other non-audit-related services
Total
8. Financing
Bank interest income
Other finance income
Finance income
Interest expense on bank loans and overdrafts
Bank charges
Other finance expense
Finance expense
Put option liability finance (charge)/income
Finance charge on deferred consideration liability
Other financing (charge)/income
Net finance income
Year to
31 March
2017
£m
0.4
1.8
0.1
0.2
0.2
2.7
Year to
31 March
2017
£m
5.0
0.5
5.5
(1.0)
(0.7)
(0.1)
(1.8)
(1.0)
(2.2)
(3.2)
0.5
Year to
31 March
2016
£m
0.4
1.8
0.1
0.2
0.1
2.6
Year to
31 March
2016
£m
4.6
0.5
5.1
(1.5)
(0.7)
(0.1)
(2.3)
9.9
–
9.9
12.7
Note
6
6
144
144
Notes to the Financial Statements
Notes to the Financial Statements
6. Adjusting items (continued)
Costs relating to the transfer of the Beauty operations
On 3 April 2017 Burberry entered into an agreement with Coty Geneva SARL Versoix (Coty) to grant Coty a licence for its
fragrance and beauty products and to transfer Burberry’s Beauty operations to Coty. This agreement is expected to complete
in October 2017. The licence agreement and the business transfer will be accounted for in the financial statements for the year
ending 31 March 2018. Further details of the agreement to transfer the beauty operations business are set out in note 31.
Costs of £14.5m arising in relation to the transaction have been incurred and recognised in the current period. These costs
related to the write-off of software assets specifically relating to the Beauty operations of £7.3m (refer to note 12); a provision
for the termination of a distributor agreement; and other ancillary charges incurred. None of these costs were paid in the period.
These costs are presented as an adjusting item in accordance with the Group accounting policy as they arose in relation to
the transfer of a business. A related tax credit of £2.9m has also been recognised in the period.
7. Auditor remuneration
Fees incurred during the year in relation to audit and non-audit services are analysed below.
Audit services in respect of the financial statements of the Company and consolidation
Audit services in respect of the financial statements of subsidiary companies
Audit-related assurance services
Services relating to taxation advisory services
Other non-audit-related services
Total
8. Financing
Bank interest income
Other finance income
Finance income
Bank charges
Other finance expense
Finance expense
Interest expense on bank loans and overdrafts
Put option liability finance (charge)/income
Finance charge on deferred consideration liability
Other financing (charge)/income
Net finance income
Year to
31 March
2017
£m
Year to
31 March
2016
Note
Year to
31 March
2017
£m
Year to
31 March
2016
0.4
1.8
0.1
0.2
0.2
2.7
5.0
0.5
5.5
(1.0)
(0.7)
(0.1)
(1.8)
(1.0)
(2.2)
(3.2)
0.5
£m
0.4
1.8
0.1
0.2
0.1
2.6
£m
4.6
0.5
5.1
(1.5)
(0.7)
(0.1)
(2.3)
9.9
–
9.9
12.7
6
6
9. 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 2017 at 20% (2016: 20%)
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
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 on exchange differences on loans (foreign currency translation reserve)
Current tax charge on cash flow hedges deferred in equity (hedging reserve)
Current tax credit on net investment hedges deferred in equity (hedging 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 charge on cash flow hedges deferred in equity (hedging reserve)
Deferred tax (credit)/charge on cash flow hedges transferred to income (hedging reserve)
Deferred tax charge/(credit) on net investment hedges deferred in equity (hedging reserve)
Deferred tax credit on net investment hedges transferred to income (hedging reserve)
Total deferred tax recognised in other comprehensive income
Recognised in equity
Deferred tax (credit)/charge on share options (retained earnings)
Total deferred tax recognised directly in equity
Year to
31 March
2017
£m
Year to
31 March
2016
£m
48.2
(0.8)
(3.3)
44.1
45.3
(6.3)
83.1
(0.2)
0.8
(0.4)
0.2
19.7
(0.2)
4.3
24.0
107.1
52.8
(0.8)
(3.1)
48.9
49.1
(2.0)
96.0
9.9
1.3
(0.7)
10.5
(13.1)
–
7.6
5.0
101.0
Year to
31 March
2017
£m
Year to
31 March
2016
£m
5.4
1.9
(0.6)
6.7
(0.4)
(0.4)
–
(0.9)
0.1
–
(0.8)
(0.5)
(0.5)
1.9
–
–
1.9
(2.0)
(2.0)
1.5
0.7
(0.1)
(0.5)
1.6
6.5
6.5
144
145
145
Notes to the Financial Statements
9. Taxation (continued)
The tax rate applicable on profit varied from the standard rate of corporation tax in the UK due to the following factors:
Profit before taxation
Tax at 20% (2016: 20%) on profit before taxation
Rate adjustments relating to overseas profits
Permanent differences
Tax on dividends not creditable
Current year tax losses not recognised
Prior year tax losses recognised in the year
Prior year tax losses no longer 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
Adjusting items
Total taxation charge
Year to
31 March
2017
£m
394.8
Year to
31 March
2016
£m
415.6
79.0
14.1
5.7
6.1
5.5
–
1.8
(5.7)
0.6
107.1
83.1
3.4
5.5
1.6
4.7
(0.4)
–
1.8
1.3
101.0
Year to
31 March
2017
£m
119.3
(12.2)
107.1
Year to
31 March
2016
£m
103.8
(2.8)
101.0
10. Earnings per share
The calculation of basic earnings per share is based on profit or loss attributable to owners 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 adjusting items1
Effect of adjusting items1 (after taxation)
Attributable profit for the year
1 Refer to note 6 for details of adjusting items.
Year to
31 March
2017
£m
342.2
(55.4)
286.8
Year to
31 March
2016
£m
311.7
(2.2)
309.5
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 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. Refer to note 26 for additional information on the terms and conditions of the employee share
incentive schemes.
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
Year to
31 March
2017
Millions
439.1
3.1
442.2
Year to
31 March
2016
Millions
441.9
4.2
446.1
146
146
Profit before taxation
Tax at 20% (2016: 20%) on profit before taxation
Rate adjustments relating to overseas profits
Permanent differences
Tax on dividends not creditable
Current year tax losses not recognised
Prior year tax losses recognised in the year
Prior year tax losses no longer 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
Adjusting items
Total taxation charge
10. Earnings per share
Attributable profit for the year before adjusting items1
Effect of adjusting items1 (after taxation)
Attributable profit for the year
1 Refer to note 6 for details of adjusting items.
The calculation of basic earnings per share is based on profit or loss attributable to owners 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.
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 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. Refer to note 26 for additional information on the terms and conditions of the employee share
incentive schemes.
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
Year to
31 March
2017
£m
394.8
Year to
31 March
2016
£m
415.6
79.0
14.1
5.7
6.1
5.5
–
1.8
(5.7)
0.6
2017
£m
119.3
(12.2)
107.1
83.1
3.4
5.5
1.6
4.7
(0.4)
–
1.8
1.3
2016
£m
103.8
(2.8)
101.0
107.1
101.0
Year to
31 March
Year to
31 March
Year to
31 March
Year to
31 March
2017
£m
342.2
(55.4)
286.8
2016
£m
311.7
(2.2)
309.5
Year to
31 March
2017
Millions
439.1
3.1
442.2
Year to
31 March
2016
Millions
441.9
4.2
446.1
Notes to the Financial Statements
Notes to the Financial Statements
9. Taxation (continued)
The tax rate applicable on profit varied from the standard rate of corporation tax in the UK due to the following factors:
11. Dividends paid to owners of the Company
Prior year final dividend paid 26.8p per share (2016: 25.5p)
Interim dividend paid 10.5p per share (2016: 10.2p)
Total
Year to
31 March
2017
£m
118.6
45.8
164.4
Year to
31 March
2016
£m
112.5
45.2
157.7
A final dividend in respect of the year to 31 March 2017 of 28.4p (2016: 26.8p) per share, amounting to £123.6m, 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
4 August 2017 to shareholders on the register at the close of business on 7 July 2017.
12. Intangible assets
Cost
As at 31 March 2015
Effect of foreign exchange rate changes
Additions
Disposals
Reclassifications from assets in the course
of construction
As at 31 March 2016
Effect of foreign exchange rate changes
Additions
Disposals
Reclassifications from assets in the course
of construction
Trade marks,
licences and
other intangible
assets
£m
87.0
0.5
0.6
(0.2)
–
87.9
0.6
0.3
–
–
Goodwill
£m
88.8
–
–
–
–
88.8
10.8
–
–
–
As at 31 March 2017
99.6
88.8
Accumulated amortisation and impairment
As at 31 March 2015
Effect of foreign exchange rate changes
Charge for the year
Disposals
As at 31 March 2016
Effect of foreign exchange rate changes
Charge for the year
Disposals
Net impairment charge on assets
As at 31 March 2017
Net book value
As at 31 March 2017
As at 31 March 2016
–
–
–
–
–
–
–
–
–
–
99.6
88.8
37.1
0.3
16.0
(0.2)
53.2
0.4
8.4
–
18.6
80.6
8.2
34.7
Computer
Software1
£m
121.0
0.2
9.0
(7.3)
10.8
133.7
3.7
14.9
(7.5)
20.1
164.9
78.4
0.3
19.2
(7.3)
90.6
2.7
21.8
(6.6)
14.4
122.9
42.0
43.1
Intangible
assets in the
course of
construction
£m
12.2
–
21.6
–
(10.8)
23.0
–
18.9
(1.5)
(20.1)
20.3
–
–
–
–
–
–
–
–
–
–
20.3
23.0
Total
£m
309.0
0.7
31.2
(7.5)
–
333.4
15.1
34.1
(9.0)
–
373.6
115.5
0.6
35.2
(7.5)
143.8
3.1
30.2
(6.6)
33.0
203.5
170.1
189.6
1 During the year ended 31 March 2017, software assets of £14.4m were impaired, of which £7.3m related to the transfer of the Beauty operations and is included
in adjusting items (see note 6).
Fragrance and beauty licence intangible asset
During the year ended 31 March 2013, an intangible asset of £70.9m was recognised on the Balance Sheet, relating to the
present value of the anticipated incremental income to be earned by the Group as a result of selling Beauty products through
retail and wholesale channels rather than under licence following the termination of the existing licence relationship with
Interparfums SA. This asset is presented within the intangible asset category ‘trade mark, licences and other intangible
assets’, and was being amortised on a straight-line basis over the period 1 April 2013 to 31 December 2017. The carrying
value of this asset was £26.1m at 31 March 2016. At 30 September 2016 an impairment charge of £18.6m was recorded
to write the carrying value of this intangible asset down to nil. Refer to note 6 for further details.
146
147
147
Notes to the Financial Statements
12. Intangible assets (continued)
Impairment testing of goodwill
The carrying value of the goodwill allocated to the cash generating units is as follows:
China1
Korea
Other
Total
As at
31 March
2017
£m
48.9
29.4
21.3
99.6
As at
31 March
2016
£m
45.4
25.1
18.3
88.8
1 The goodwill reported for China does not include any goodwill attributable to the non-controlling interest.
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
at a value equal to 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 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 have been prepared using management’s approved financial plans for the three years ending
31 March 2020. These plans contain management’s best view of the expected performance for the year ending 31 March 2018
and the expected growth rates for the two years ending 31 March 2019 and 31 March 2020. The plans are based on the
performance achieved in the current year and management’s knowledge of the market environment and future business plans.
A terminal value has been included in the value-in-use calculation based on the cash flows for the year ending 31 March 2020
incorporating the assumption that there is no growth beyond 31 March 2020.
For the material goodwill balances of China and Korea, a sensitivity analysis has been performed on the value-in-use
calculations by assuming no growth beyond the year ending 31 March 2018. This sensitivity analysis indicated significant
headroom between the recoverable amount under this scenario and the carrying value of goodwill and therefore management
considered no further detailed sensitivity analysis was required.
The pre-tax discount rates for China and Korea were 16.7% and 14.0% respectively (2016: 16.1%; 13.6%).
The other goodwill balance of £21.3m (2016: £18.3m) consists of amounts relating to eight cash generating units, none of
which have goodwill balances exceeding £10m as at 31 March 2017.
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.
148
148
Notes to the Financial Statements
Notes to the Financial Statements
12. Intangible assets (continued)
Impairment testing of goodwill
The carrying value of the goodwill allocated to the cash generating units is as follows:
As at
31 March
As at
31 March
2017
£m
48.9
29.4
21.3
99.6
2016
£m
45.4
25.1
18.3
88.8
China1
Korea
Other
Total
1 The goodwill reported for China does not include any goodwill attributable to the non-controlling interest.
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
at a value equal to 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 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 have been prepared using management’s approved financial plans for the three years ending
31 March 2020. These plans contain management’s best view of the expected performance for the year ending 31 March 2018
and the expected growth rates for the two years ending 31 March 2019 and 31 March 2020. The plans are based on the
performance achieved in the current year and management’s knowledge of the market environment and future business plans.
A terminal value has been included in the value-in-use calculation based on the cash flows for the year ending 31 March 2020
incorporating the assumption that there is no growth beyond 31 March 2020.
For the material goodwill balances of China and Korea, a sensitivity analysis has been performed on the value-in-use
calculations by assuming no growth beyond the year ending 31 March 2018. This sensitivity analysis indicated significant
headroom between the recoverable amount under this scenario and the carrying value of goodwill and therefore management
considered no further detailed sensitivity analysis was required.
The pre-tax discount rates for China and Korea were 16.7% and 14.0% respectively (2016: 16.1%; 13.6%).
The other goodwill balance of £21.3m (2016: £18.3m) consists of amounts relating to eight cash generating units, none of
which have goodwill balances exceeding £10m as at 31 March 2017.
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.
13. Property, plant and equipment
Cost
As at 31 March 2015
Effect of foreign exchange rate changes
Additions
Disposals
Reclassification from assets in the course
of construction
As at 31 March 2016
Effect of foreign exchange rate changes
Additions
Disposals
Reclassification from assets in the course
of construction
As at 31 March 2017
Accumulated depreciation and impairment
As at 31 March 2015
Effect of foreign exchange rate changes
Charge for the year
Disposals
Net impairment charge on assets
As at 31 March 2016
Effect of foreign exchange rate changes
Charge for the year
Disposals
Net impairment charge on assets
As at 31 March 2017
Net book value
As at 31 March 2017
As at 31 March 2016
Freehold land
and buildings
£m
137.5
6.2
15.3
–
Leasehold
improvements
£m
361.5
11.7
49.5
(12.6)
Fixtures,
fittings and
equipment1
£m
443.5
15.3
41.7
(26.7)
Assets in the
course of
construction
£m
27.8
(0.5)
8.5
(0.5)
–
159.0
18.4
0.4
(29.2)
–
148.6
48.2
2.8
3.3
–
2.3
56.6
6.7
4.3
(21.3)
0.6
46.9
101.7
102.4
8.2
418.3
47.5
37.4
(32.4)
4.0
474.8
181.3
4.9
45.9
(12.4)
13.7
233.4
28.5
52.3
(32.0)
8.1
290.3
184.5
184.9
17.7
491.5
43.7
27.0
(28.5)
4.7
538.4
304.3
10.7
62.7
(26.2)
10.5
362.0
33.2
64.7
(27.6)
7.2
439.5
98.9
129.5
(25.9)
9.4
1.0
13.2
(0.4)
(8.7)
14.5
–
–
–
–
–
–
–
–
–
–
–
14.5
9.4
Total
£m
970.3
32.7
115.0
(39.8)
–
1,078.2
110.6
78.0
(90.5)
–
1,176.3
533.8
18.4
111.9
(38.6)
26.5
652.0
68.4
121.3
(80.9)
15.9
776.7
399.6
426.2
1
Included in fixtures, fittings and equipment are finance lease assets with a net book value of £1.3m (2016: £1.7m).
During the year to 31 March 2017, a net impairment charge of £23.0m (2016: £45.3m) was recorded as a result of the annual
review of impairment of retail store assets. A charge of £15.3m (2016: £24.2m) was recognised against property, plant and
equipment, and £7.7m (2016: £21.1m) was charged in relation to onerous lease provisions. Refer to note 20 for further details
of onerous lease provisions.
Where indicators of impairment were identified, the impairment review compared the value-in-use of the cash generating units
to the carrying values at 31 March 2017. The pre-tax cash flow projections were based on financial plans of expected revenues
and costs for each retail cash generating unit, as approved by management, and extrapolated beyond the budget year to the
lease exit dates using growth rates and inflation rates appropriate to each store’s location. The pre-tax discount rates used
in these calculations were between 11.4% and 21.6% (2016: between 11.4% and 19.7%), based on the Group’s weighted
average cost of capital adjusted for country-specific tax rates and risks. Where the value-in-use was less than the carrying
value of the cash generating unit, an impairment of property, plant and equipment was recorded. Where the value-in-use
was negative, onerous lease provisions were assessed in relation to the future contracted minimum lease payments. Potential
alternative uses for property, such as subletting of leasehold or sale of freehold, were considered in estimating both the value
for impairment charges and onerous lease provisions.
148
149
149
Notes to the Financial Statements
13. Property, plant and equipment (continued)
Management has considered the potential impact of changes in assumptions on the total recorded as a result of the review for
impairment of retail store assets and consideration of onerous lease provisions. The most significant estimate is the future level
of revenues achieved by the retail stores. It is estimated that, for the stores subject to an impairment or onerous lease provision
in the year, a 5% decrease/increase in revenue assumptions for the year ending 31 March 2018, with no change to subsequent
forecast revenue growth rate assumptions, would result in an £8m increase/£9m decrease in the charge in the year ended
31 March 2017.
The impairment charge recorded in property, plant and equipment relates to 33 retail cash generating units (2016: 32 retail
cash generating units) for which the total recoverable amount at the balance sheet date is £22.0m (2016: £18.2m). Impairment
charges of £0.6m (2016: £2.3m) arose relating to other assets in the year.
14. 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
Charged to the Income Statement
Credited/(charged) to other comprehensive income
Credited/(charged) to equity
As at 31 March
As at
31 March
2017
£m
125.0
(0.4)
124.6
Year to
31 March
2017
£m
133.8
13.5
(24.0)
0.8
0.5
124.6
As at
31 March
2016
£m
134.4
(0.6)
133.8
Year to
31 March
2016
£m
144.1
2.8
(5.0)
(1.6)
(6.5)
133.8
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:
Deferred tax liabilities
As at 31 March 2015
Effect of foreign exchange rate changes
Charged/(credited) to the Income Statement
Credited to other comprehensive income
As at 31 March 2016
Effect of foreign exchange rate changes
Charged/(credited) to the Income Statement
As at 31 March 2017
Unrealised
inventory profit
and other
inventory
provisions
£m
(1.1)
–
Capital
allowances
£m
2.2
0.2
Derivative
instruments
£m
1.5
–
0.4
–
2.8
0.3
0.6
3.7
0.2
–
(0.9)
(0.1)
(0.1)
(1.1)
–
(0.4)
1.1
–
–
1.1
Other
£m
1.6
–
(0.6)
–
1.0
0.3
4.3
5.6
Total
£m
4.2
0.2
–
(0.4)
4.0
0.5
4.8
9.3
150
150
Notes to the Financial Statements
Notes to the Financial Statements
14. Deferred taxation (continued)
Deferred tax assets
As at 31 March 2015
Effect of foreign exchange rate changes
Credited/(charged) to the Income Statement
Charged to other comprehensive income
Charged to equity
As at 31 March 2016
Effect of foreign exchange rate changes
Credited/(charged) to the Income Statement
Credited to other comprehensive income
Credited to equity
As at 31 March 2017
Unrealised
inventory profit
and other
inventory
provisions
£m
40.3
1.8
Capital
allowances
£m
7.5
(0.4)
4.4
–
–
11.5
(0.5)
3.2
–
–
14.2
4.8
–
–
46.9
7.5
(4.4)
–
–
50.0
Share
schemes
£m
21.8
–
Derivative
instruments
£m
1.3
–
Unused
tax losses
£m
5.8
0.7
(6.0)
–
(6.5)
9.3
–
(1.4)
–
0.5
8.4
–
(2.0)
–
(0.7)
–
–
0.8
–
0.1
0.4
–
–
6.9
0.6
(2.1)
–
–
5.4
Other1
£m
71.6
0.9
(8.6)
–
–
63.9
6.4
(14.5)
–
–
55.8
Total
£m
148.3
3.0
(5.0)
(2.0)
(6.5)
137.8
14.0
(19.2)
0.8
0.5
133.9
1 Deferred tax balances within the ‘Other’ category in the analysis above include temporary differences arising on property provisions of £9.1m (2016: £8.5m), accrued
intercompany expenses of £20.2m (2016: £23.0m) and other provisions and accruals of £26.5m (2016: £32.4m).
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 £79.8m (2016: £62.3m) in respect
of losses and temporary timing differences amounting to £272.2m (2016: £215.1m) that can be set off against future taxable
income. There is a time limit for the recovery of £37.0m of these potential assets (2016: £24.8m) which ranges from two to ten
years (2016: three to ten years).
Included within other temporary differences above is a deferred tax liability of £5.0m (2016: £1.2m) 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 aggregate amount of temporary differences in
respect of unremitted earnings is £300m (2016: £270m).
13. Property, plant and equipment (continued)
Management has considered the potential impact of changes in assumptions on the total recorded as a result of the review for
impairment of retail store assets and consideration of onerous lease provisions. The most significant estimate is the future level
of revenues achieved by the retail stores. It is estimated that, for the stores subject to an impairment or onerous lease provision
in the year, a 5% decrease/increase in revenue assumptions for the year ending 31 March 2018, with no change to subsequent
forecast revenue growth rate assumptions, would result in an £8m increase/£9m decrease in the charge in the year ended
31 March 2017.
The impairment charge recorded in property, plant and equipment relates to 33 retail cash generating units (2016: 32 retail
cash generating units) for which the total recoverable amount at the balance sheet date is £22.0m (2016: £18.2m). Impairment
charges of £0.6m (2016: £2.3m) arose relating to other assets in the year.
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
14. Deferred taxation
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
Charged to the Income Statement
Credited/(charged) to other comprehensive income
Credited/(charged) to equity
As at 31 March
within the same tax jurisdiction, is as follows:
Deferred tax liabilities
As at 31 March 2015
Effect of foreign exchange rate changes
Charged/(credited) to the Income Statement
Credited to other comprehensive income
As at 31 March 2016
Effect of foreign exchange rate changes
Charged/(credited) to the Income Statement
As at 31 March 2017
As at
As at
31 March
31 March
Year to
31 March
Year to
31 March
2017
£m
125.0
(0.4)
124.6
2017
£m
133.8
13.5
(24.0)
0.8
0.5
2016
£m
134.4
(0.6)
133.8
2016
£m
144.1
2.8
(5.0)
(1.6)
(6.5)
124.6
133.8
Capital
allowances
Derivative
instruments
Other
Total
Unrealised
inventory profit
and other
inventory
provisions
£m
(1.1)
0.2
–
–
(0.9)
(0.1)
(0.1)
(1.1)
£m
2.2
0.2
0.4
–
2.8
0.3
0.6
3.7
£m
1.5
(0.4)
1.1
–
–
–
–
1.1
£m
1.6
–
(0.6)
–
1.0
0.3
4.3
5.6
£m
4.2
0.2
–
4.0
0.5
4.8
9.3
(0.4)
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances
150
151
151
Notes to the Financial Statements
15. Trade and other receivables
Non-current
Deposits and other financial receivables
Other non-financial receivables
Prepayments
Total non-current trade and other receivables
Current
Trade receivables
Provision for doubtful debts
Net trade receivables
Other financial receivables
Other non-financial receivables
Prepayments
Accrued income
Total current trade and other receivables
Total trade and other receivables
As at
31 March
2017
£m
As at
31 March
2016
£m
44.9
3.7
27.8
76.4
201.3
(9.5)
191.8
22.3
20.4
38.1
3.0
275.6
352.0
37.5
2.8
26.2
66.5
205.1
(7.2)
197.9
20.9
27.5
35.4
3.7
285.4
351.9
Included in total trade and other receivables are non-financial assets of £90.0m (2016: £91.9m).
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 2017, trade receivables of £17.2m (2016: £18.2m) were impaired.
The amount of the provision against these receivables was £9.5m as at 31 March 2017 (2016: £7.2m). It was assessed that
a portion of the receivables is expected to be recovered. The ageing of the impaired trade receivables is as follows:
Current
Less than 1 month overdue
1 to 3 months overdue
Over 3 months overdue
As at
31 March
2017
£m
–
7.0
2.3
7.9
17.2
As at
31 March
2016
£m
3.7
11.5
1.5
1.5
18.2
152
152
Notes to the Financial Statements
Notes to the Financial Statements
15. Trade and other receivables
Non-current
Deposits and other financial receivables
Other non-financial receivables
Total non-current trade and other receivables
Prepayments
Current
Trade receivables
Provision for doubtful debts
Net trade receivables
Other financial receivables
Other non-financial receivables
Prepayments
Accrued income
Total current trade and other receivables
Total trade and other receivables
Current
Less than 1 month overdue
1 to 3 months overdue
Over 3 months overdue
Included in total trade and other receivables are non-financial assets of £90.0m (2016: £91.9m).
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 2017, trade receivables of £17.2m (2016: £18.2m) were impaired.
The amount of the provision against these receivables was £9.5m as at 31 March 2017 (2016: £7.2m). It was assessed that
a portion of the receivables is expected to be recovered. The ageing of the impaired trade receivables is as follows:
As at
31 March
As at
31 March
As at
31 March
2017
£m
As at
31 March
2016
£m
44.9
3.7
27.8
76.4
201.3
(9.5)
191.8
22.3
20.4
38.1
3.0
275.6
352.0
2017
£m
–
7.0
2.3
7.9
17.2
37.5
2.8
26.2
66.5
205.1
(7.2)
197.9
20.9
27.5
35.4
3.7
285.4
351.9
2016
£m
3.7
11.5
1.5
1.5
18.2
15. Trade and other receivables (continued)
As at 31 March 2017, trade receivables of £20.9m (2016: £9.3m) were overdue but not impaired. The ageing of these overdue
receivables is as follows:
Less than 1 month overdue
1 to 3 months overdue
Over 3 months overdue
Movement in the provision for doubtful debts is as follows:
As at 1 April
Effect of foreign exchange rate changes
Increase in provision for doubtful debts
Receivables written off during the year as uncollectable
As at 31 March
As at
31 March
2017
£m
8.4
12.1
0.4
20.9
Year to
31 March
2017
£m
7.2
0.2
2.4
(0.3)
9.5
As at
31 March
2016
£m
4.3
4.1
0.9
9.3
Year to
31 March
2016
£m
4.6
–
3.1
(0.5)
7.2
As at 31 March 2017 there were £1.6m impaired receivables within other receivables (2016: £1.5m).
The carrying amounts of the Group’s non-derivative financial assets excluding cash and cash equivalents by customer
geographical location are:
Asia Pacific
EMEIA
Americas
16. Inventories
Raw materials
Work in progress
Finished goods
Total inventories
As at
31 March
2017
£m
120.4
78.1
63.5
262.0
As at
31 March
2017
£m
32.7
1.8
470.8
505.3
As at
31 March
2016
£m
99.3
89.1
71.6
260.0
As at
31 March
2016
£m
38.3
1.3
447.1
486.7
The cost of inventories recognised as an expense and included in cost of sales amounted to £795.9m (2016: £723.3m).
The net movement in inventory provisions included in cost of sales for the year ended 31 March 2017 was a cost of £21.1m
(2016: £24.9m).
The cost of finished goods physically destroyed in the year was £26.9m (2016: £18.8m).
152
153
153
Notes to the Financial Statements
17. Derivative financial instruments
Master netting arrangements
The Group’s forward foreign exchange contracts and equity swap contracts are entered into under International Swaps and
Derivatives Association (ISDA) master netting arrangements. In general, under such agreements the amounts owed by each
counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated into a single
amount that is payable by one party to the other. In certain circumstances, such as when a default occurs, all outstanding
transactions under the agreement are terminated, the termination value is assessed and only a single net amount is payable
in settlement of all transactions. The ISDA agreements do not meet the criteria for offsetting in the Balance Sheet as the
Group’s right to offset is enforceable only on the occurrence of future events such as default. The Group’s Balance Sheet
would not be materially different if it had offset its forward foreign exchange contracts and equity swap contracts subject
to these ISDA agreements.
Derivative financial assets
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – hedge of net investment
Forward foreign exchange contracts – held for trading1
Equity swap contracts – held for trading
Total position
Comprising:
Total non-current position
Total current position
Derivative financial liabilities
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – hedge of net investment
Forward foreign exchange contracts – held for trading1
Equity swap contracts – held for trading
Total position
All derivative financial liabilities are current.
As at
31 March
2017
£m
3.2
0.5
0.3
2.1
6.1
1.1
5.0
As at
31 March
2017
£m
(0.6)
(0.4)
(2.5)
–
(3.5)
As at
31 March
2016
£m
7.8
–
–
0.5
8.3
0.3
8.0
As at
31 March
2016
£m
(1.3)
(0.8)
(0.1)
(0.1)
(2.3)
Net derivative financial instruments
The notional principal amounts of the outstanding forward foreign exchange and equity swap contracts at year end are:
Cash flow hedges
Hedge of net investment
Held for trading1
Equity swap contracts
As at
31 March
2017
£m
129.1
74.7
122.6
5.9
As at
31 March
2016
£m
107.4
17.4
61.4
5.9
1 Forward foreign exchange contracts classified as held for trading are used for cash management purposes. At 31 March 2017 all such contracts had maturities of no
greater than three months from the balance sheet date.
154
154
Notes to the Financial Statements
Notes to the Financial Statements
17. Derivative financial instruments
Master netting arrangements
The Group’s forward foreign exchange contracts and equity swap contracts are entered into under International Swaps and
Derivatives Association (ISDA) master netting arrangements. In general, under such agreements the amounts owed by each
counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated into a single
amount that is payable by one party to the other. In certain circumstances, such as when a default occurs, all outstanding
transactions under the agreement are terminated, the termination value is assessed and only a single net amount is payable
in settlement of all transactions. The ISDA agreements do not meet the criteria for offsetting in the Balance Sheet as the
Group’s right to offset is enforceable only on the occurrence of future events such as default. The Group’s Balance Sheet
would not be materially different if it had offset its forward foreign exchange contracts and equity swap contracts subject
to these ISDA agreements.
Derivative financial assets
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – hedge of net investment
Forward foreign exchange contracts – held for trading1
Equity swap contracts – held for trading
Total position
Comprising:
Total non-current position
Total current position
Derivative financial liabilities
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – hedge of net investment
Forward foreign exchange contracts – held for trading1
Equity swap contracts – held for trading
Total position
All derivative financial liabilities are current.
Net derivative financial instruments
Cash flow hedges
Hedge of net investment
Held for trading1
Equity swap contracts
The notional principal amounts of the outstanding forward foreign exchange and equity swap contracts at year end are:
1 Forward foreign exchange contracts classified as held for trading are used for cash management purposes. At 31 March 2017 all such contracts had maturities of no
greater than three months from the balance sheet date.
As at
31 March
2017
£m
As at
31 March
2016
£m
7.8
3.2
0.5
0.3
2.1
6.1
1.1
5.0
(0.6)
(0.4)
(2.5)
–
(3.5)
–
–
0.5
8.3
0.3
8.0
(1.3)
(0.8)
(0.1)
(0.1)
(2.3)
As at
31 March
2017
£m
As at
31 March
2016
£m
As at
31 March
As at
31 March
2017
£m
129.1
74.7
122.6
5.9
2016
£m
107.4
17.4
61.4
5.9
17. Derivative financial instruments (continued)
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. They are usually not closed out prior to the
contractual maturity. The foreign currency cash flows shown are based on spot rates at the balance sheet date.
As at 31 March 2017
Forward exchange contracts used for hedging:
Outflow
Inflow
As at 31 March 2016
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
(204.1)
206.1
2.0
(124.2)
130.2
6.0
(120.4)
123.2
2.8
(45.7)
50.4
4.7
(83.7)
82.9
(0.8)
(78.5)
79.8
1.3
2.7
5.7
The contractual maturity profile of non-current financial liabilities is shown in note 25. For further details of cash flow hedging
and net investment hedging refer to note 25 – Market risk.
18. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Total
19. Trade and other payables
Non-current
Put option liability over non-controlling interest
Other payables
Deferred income and non-financial accruals
Deferred consideration
Total non-current trade and other payables
Current
Trade payables
Other taxes and social security costs
Other payables1
Accruals
Deferred income and non-financial accruals
Deferred consideration
Total current trade and other payables
Total trade and other payables
As at
31 March
2017
£m
268.7
574.8
843.5
As at
31 March
2017
£m
–
2.5
75.6
23.8
101.9
172.3
58.7
8.2
186.9
22.1
10.9
459.1
561.0
As at
31 March
2016
£m
282.1
429.7
711.8
As at
31 March
2016
£m
45.8
3.0
65.9
–
114.7
167.2
58.3
3.9
132.4
25.4
–
387.2
501.9
1
Includes £3.3m (2016: £nil) relating to the cost of shares not yet purchased under an agreement entered in to by the Company to purchase its own shares, together
with anticipated stamp duty arising. Refer to note 22 for further details.
Included in total trade and other payables are non-financial liabilities of £156.5m (2016: £149.6m).
154
155
155
Notes to the Financial Statements
19. Trade and other payables (continued)
Put option liability over non-controlling interest
Following the acquisition of the Burberry retail and distribution business in China, Sparkle Roll Holdings Limited, a non-Group
company, retained a 15% economic interest in the Group’s business in China. Put and call options were granted over this
interest stake which were exercisable after 1 September 2015 in the case of the call option, and after 1 September 2020 in the
case of the put option. The net present value of the put option liability was recognised as a non-current financial liability under
IAS 39. On 1 August 2016, the Group exercised the call option relating to the economic interest. As a result, the put option
expired at this date.
The value of the put option liability is £nil at 31 March 2017 (2016: £45.8m). The movement in the liability for the period includes
an increase of £1.0m relating to unrealised fair value movements, as described in note 6, together with an increase due to the
translation of the put option liability to the Group’s presentational currency, combined with the derecognition of £51.0m on its
expiry. Refer to note 29 for further details.
Deferred consideration
Following the purchase of the economic right to the non-controlling interest in Burberry Middle East LLC on 22 April 2016,
the Group has recognised a liability in relation to the deferred consideration for this transaction. Refer to note 29 for further
details of this transaction. The deferred consideration consists of fixed payments to be paid over the period 2016 to 2019,
and contingent payments calculated as an agreed percentage of the future revenue of Burberry Middle East LLC and its
subsidiaries, over the period 2016 to 2023.
The fair value of the deferred consideration relating to the fixed payments has been derived via a present value calculation of the
remaining fixed payments of AED 38.1m (£8.3m) discounted at an appropriate risk-free rate applicable to Burberry Middle East LLC.
The fair value of the deferred consideration relating to the contingent payments has been estimated using a present value
calculation, incorporating observable and non-observable inputs. The inputs applied in arriving at the value of this component
of the deferred consideration are an estimate of the future revenue of Burberry Middle East LLC and its subsidiaries from
the current period to 2023 and an appropriate risk-adjusted discount rate for Burberry Middle East LLC.
The carrying value of the deferred consideration relating to contingent payments is dependent on assumptions applied
in determining these inputs, and is subject to change in the event that there is a change in any of these assumptions.
The valuation is updated at every reporting period or more often if a significant change to any input is observed.
A 10% increase/decrease in the estimate of future revenues of Burberry Middle East LLC and its subsidiaries would
result in a £2.3m increase/decrease in the carrying value of the deferred consideration relating to contingent payments at
31 March 2017 and a corresponding £2.3m decrease/increase in the profit before taxation for the year ended 31 March 2017.
156
156
Notes to the Financial Statements
Notes to the Financial Statements
19. Trade and other payables (continued)
Put option liability over non-controlling interest
Following the acquisition of the Burberry retail and distribution business in China, Sparkle Roll Holdings Limited, a non-Group
company, retained a 15% economic interest in the Group’s business in China. Put and call options were granted over this
interest stake which were exercisable after 1 September 2015 in the case of the call option, and after 1 September 2020 in the
case of the put option. The net present value of the put option liability was recognised as a non-current financial liability under
IAS 39. On 1 August 2016, the Group exercised the call option relating to the economic interest. As a result, the put option
expired at this date.
The value of the put option liability is £nil at 31 March 2017 (2016: £45.8m). The movement in the liability for the period includes
an increase of £1.0m relating to unrealised fair value movements, as described in note 6, together with an increase due to the
translation of the put option liability to the Group’s presentational currency, combined with the derecognition of £51.0m on its
expiry. Refer to note 29 for further details.
Deferred consideration
Following the purchase of the economic right to the non-controlling interest in Burberry Middle East LLC on 22 April 2016,
the Group has recognised a liability in relation to the deferred consideration for this transaction. Refer to note 29 for further
details of this transaction. The deferred consideration consists of fixed payments to be paid over the period 2016 to 2019,
and contingent payments calculated as an agreed percentage of the future revenue of Burberry Middle East LLC and its
subsidiaries, over the period 2016 to 2023.
The fair value of the deferred consideration relating to the fixed payments has been derived via a present value calculation of the
remaining fixed payments of AED 38.1m (£8.3m) discounted at an appropriate risk-free rate applicable to Burberry Middle East LLC.
The fair value of the deferred consideration relating to the contingent payments has been estimated using a present value
calculation, incorporating observable and non-observable inputs. The inputs applied in arriving at the value of this component
of the deferred consideration are an estimate of the future revenue of Burberry Middle East LLC and its subsidiaries from
the current period to 2023 and an appropriate risk-adjusted discount rate for Burberry Middle East LLC.
The carrying value of the deferred consideration relating to contingent payments is dependent on assumptions applied
in determining these inputs, and is subject to change in the event that there is a change in any of these assumptions.
The valuation is updated at every reporting period or more often if a significant change to any input is observed.
A 10% increase/decrease in the estimate of future revenues of Burberry Middle East LLC and its subsidiaries would
result in a £2.3m increase/decrease in the carrying value of the deferred consideration relating to contingent payments at
31 March 2017 and a corresponding £2.3m decrease/increase in the profit before taxation for the year ended 31 March 2017.
20. Provisions for other liabilities and charges
Balance as at 31 March 2015
Effect of foreign exchange rate changes
Created during the year
Discount unwind
Utilised during the year
Released during the year
Balance as at 31 March 2016
Effect of foreign exchange rate changes
Created during the year
Discount unwind
Utilised during the year
Released during the year
Balance as at 31 March 2017
Property
obligations
£m
29.4
1.0
30.8
0.1
(5.8)
(3.7)
51.8
6.2
18.8
0.1
(11.1)
(8.1)
57.7
Restructuring
costs
£m
0.8
–
–
–
(0.1)
(0.7)
–
–
–
–
–
–
–
Other
costs
£m
2.3
0.1
2.2
–
(0.2)
(0.2)
4.2
0.1
6.9
–
(1.0)
(2.5)
7.7
Total
£m
32.5
1.1
33.0
0.1
(6.1)
(4.6)
56.0
6.3
25.7
0.1
(12.1)
(10.6)
65.4
Within property obligations are amounts of £30.3m (2016: £27.0m) relating to onerous lease obligations. See note 13 for details
relating to impairment of assets and onerous lease provisions for retail cash generating units.
The net charge in the year for onerous lease obligations is £7.9m (2016: £20.1m). This includes amounts of £7.7m (2016: £21.1m)
relating to retail stores (refer to note 13) and a charge of £0.2m (2016: credit of £1.0m) relating to other properties.
Analysis of total provisions:
Non-current
Current
Total
As at
31 March
2017
£m
47.3
18.1
65.4
As at
31 March
2016
£m
38.4
17.6
56.0
The non-current provisions relate to provisions for onerous leases and property reinstatement costs which are expected
to be utilised within 19 years (2016: 20 years).
21. Bank overdrafts and borrowings
Included within bank overdrafts is £31.3m (2016: £44.9m) representing balances on cash pooling arrangements in the Group.
The Group has a number of committed and uncommitted arrangements agreed with third-parties. At 31 March 2017, the Group
held bank overdrafts of £3.0m (2016: £6.6m) excluding balances on cash pooling arrangements.
On 25 November 2014, the Group entered into a £300m multi-currency revolving credit facility with a syndicate of banks.
At 31 March 2017, there were £nil outstanding drawings (2016: £nil). During the year the Group exercised an option to extend
the maturity of the facility to November 2021, after receiving consent from all members of the syndicate. The Group is in
compliance with the financial and other covenants within this facility and has been in compliance throughout the financial year.
The fair value of borrowings and overdrafts approximate the carrying amount because of the short maturity of these instruments.
156
157
157
Notes to the Financial Statements
22. Share capital and reserves
Allotted, called up and fully paid share capital
Ordinary shares of 0.05p (2016: 0.05p) each
As at 31 March 2015
Allotted on exercise of options during the year
As at 31 March 2016
Allotted on exercise of options during the year
As at 31 March 2017
Number
444,744,067
293,187
445,037,254
135,811
445,173,065
£m
0.2
–
0.2
–
0.2
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 ended 31 March 2017, the Company entered into an agreement to purchase
£100m of its own shares back as part of a share buy-back programme. Own shares purchased by the Company, as part of a
share buy-back programme, are classified as treasury shares and their cost offset against retained earnings. When treasury
shares are cancelled, a transfer is made from retained earnings to capital redemption reserve, equivalent to the nominal value
of the shares purchased and subsequently cancelled. The cost of shares purchased by ESOP trusts are offset against retained
earnings, as the amounts paid reduce the profits available for distribution by the Company.
As at 31 March 2017 the amount held as treasury shares by the Company and offset against retained earnings is £97.2m (2016: £nil)
including stamp duty of £0.5m (2016: £nil). As at 31 March 2017 the Company held 6.7m treasury shares (2016: nil), with a market
value of £116.1m (2016: £nil). £3.3m (2016: £nil), relating to the cost of shares not yet purchased under the current share buy-back
agreement, has been charged to retained earnings in the period, with the payment obligation recognised in other payables (note 19).
As at 31 March 2017 the amount of own shares held by ESOP trusts and offset against retained earnings is £44.7m
(2016: £39.9m). As at 31 March 2017, the ESOP trusts held 3.5m shares (2016: 3.1m) in the Company, with a market value
of £59.6m (2016: £42.7m). In the year to 31 March 2017 the ESOP trusts have waived their entitlement to dividends of
£1.7m (2016: £1.2m).
During the year profits of £nil (2016: £2.0m) have been transferred to capital reserves due to statutory requirements of
subsidiaries. In the year ended 31 March 2016, £6.2m was transferred from capital reserves to retained earnings due
to the disposal and merger of subsidiaries. No such activity took place in the current year. The capital reserve consists
of non-distributable reserves and the capital redemption reserve arising on the purchase of own shares.
Other reserves in the Statement of Changes in Equity consists of the capital reserve, the foreign currency translation reserve,
and the hedging reserves. The hedging reserves consist of the cash flow hedge reserve and the net investment hedge reserve.
Balance as at 31 March 2015
Other comprehensive income:
Cash flow hedges – gains deferred in equity
Cash flow hedges – losses transferred to income
Net investment hedges – losses deferred in equity
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive income/(expense) for the year
Disposal of subsidiaries
Transfer between reserves
Balance as at 31 March 2016
Other comprehensive income:
Cash flow hedges – gains deferred in equity
Cash flow hedges – gains transferred to income
Net investment hedges – losses deferred in equity
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive income for the year
Balance as at 31 March 2017
Hedging reserves
Capital
reserve
£m
45.3
Cash flow
hedges
£m
(4.4)
Net
investment
hedge
£m
4.1
Foreign
currency
translation
reserve
£m
147.3
–
–
–
–
–
–
(6.2)
2.0
41.1
–
–
–
–
–
–
41.1
7.3
3.5
–
–
(2.2)
8.6
–
–
4.2
8.7
(4.0)
–
–
(1.0)
3.7
7.9
–
–
(0.8)
–
0.6
(0.2)
–
–
3.9
–
–
(2.3)
–
0.5
(1.8)
2.1
158
158
Total
£m
192.3
7.3
3.5
(0.8)
19.5
(3.5)
26.0
(6.2)
2.0
–
–
–
19.5
(1.9)
17.6
–
–
164.9
214.1
–
–
–
101.3
(5.4)
95.9
260.8
8.7
(4.0)
(2.3)
101.3
(5.9)
97.8
311.9
Notes to the Financial Statements
Notes to the Financial Statements
22. Share capital and reserves
Allotted, called up and fully paid share capital
Ordinary shares of 0.05p (2016: 0.05p) each
Allotted on exercise of options during the year
Allotted on exercise of options during the year
As at 31 March 2015
As at 31 March 2016
As at 31 March 2017
Number
444,744,067
293,187
445,037,254
135,811
445,173,065
£m
0.2
0.2
–
–
0.2
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 ended 31 March 2017, the Company entered into an agreement to purchase
£100m of its own shares back as part of a share buy-back programme. Own shares purchased by the Company, as part of a
share buy-back programme, are classified as treasury shares and their cost offset against retained earnings. When treasury
shares are cancelled, a transfer is made from retained earnings to capital redemption reserve, equivalent to the nominal value
of the shares purchased and subsequently cancelled. The cost of shares purchased by ESOP trusts are offset against retained
earnings, as the amounts paid reduce the profits available for distribution by the Company.
As at 31 March 2017 the amount held as treasury shares by the Company and offset against retained earnings is £97.2m (2016: £nil)
including stamp duty of £0.5m (2016: £nil). As at 31 March 2017 the Company held 6.7m treasury shares (2016: nil), with a market
value of £116.1m (2016: £nil). £3.3m (2016: £nil), relating to the cost of shares not yet purchased under the current share buy-back
agreement, has been charged to retained earnings in the period, with the payment obligation recognised in other payables (note 19).
As at 31 March 2017 the amount of own shares held by ESOP trusts and offset against retained earnings is £44.7m
(2016: £39.9m). As at 31 March 2017, the ESOP trusts held 3.5m shares (2016: 3.1m) in the Company, with a market value
of £59.6m (2016: £42.7m). In the year to 31 March 2017 the ESOP trusts have waived their entitlement to dividends of
£1.7m (2016: £1.2m).
During the year profits of £nil (2016: £2.0m) have been transferred to capital reserves due to statutory requirements of
subsidiaries. In the year ended 31 March 2016, £6.2m was transferred from capital reserves to retained earnings due
to the disposal and merger of subsidiaries. No such activity took place in the current year. The capital reserve consists
of non-distributable reserves and the capital redemption reserve arising on the purchase of own shares.
Other reserves in the Statement of Changes in Equity consists of the capital reserve, the foreign currency translation reserve,
and the hedging reserves. The hedging reserves consist of the cash flow hedge reserve and the net investment hedge reserve.
Balance as at 31 March 2015
Other comprehensive income:
Cash flow hedges – gains deferred in equity
Cash flow hedges – losses transferred to income
Net investment hedges – losses deferred in equity
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive income/(expense) for the year
Disposal of subsidiaries
Transfer between reserves
Balance as at 31 March 2016
Other comprehensive income:
Cash flow hedges – gains deferred in equity
Cash flow hedges – gains transferred to income
Net investment hedges – losses deferred in equity
Foreign currency translation differences
Tax on other comprehensive income
Total comprehensive income for the year
Balance as at 31 March 2017
Hedging reserves
Capital
reserve
Cash flow
investment
translation
hedges
hedge
reserve
Foreign
currency
£m
147.3
Total
£m
192.3
£m
45.3
(6.2)
2.0
41.1
–
–
–
–
–
–
–
–
–
–
–
–
£m
(4.4)
7.3
3.5
(2.2)
8.6
–
–
–
–
8.7
(4.0)
–
–
(1.0)
3.7
7.9
Net
£m
4.1
(0.8)
0.6
(0.2)
–
–
–
–
–
–
–
–
(2.3)
0.5
(1.8)
2.1
4.2
3.9
164.9
214.1
101.3
101.3
(5.4)
95.9
41.1
260.8
311.9
19.5
(1.9)
17.6
–
–
–
–
–
–
–
–
7.3
3.5
(0.8)
19.5
(3.5)
26.0
(6.2)
2.0
8.7
(4.0)
(2.3)
(5.9)
97.8
23. 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 1 year
Between 2 and 5 years
After 5 years
Total
As at
31 March
2017
£m
221.9
524.0
163.6
909.5
As at
31 March
2016
£m
206.2
461.3
188.9
856.4
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 excluding any contingent payments.
Under certain revenue-based 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 1 year
Between 2 and 5 years
After 5 years
Total
24. Capital commitments
Capital commitments contracted but not provided for:
Property, plant and equipment
Intangible assets
Total
Leases
Subleases
As at
31 March
2017
£m
As at
31 March
2016
£m
As at
31 March
2017
£m
As at
31 March
2016
£m
0.8
1.5
–
2.3
0.7
2.1
–
2.8
2.4
1.6
0.1
4.1
As at
31 March
2017
£m
13.2
3.2
16.4
2.3
3.4
–
5.7
As at
31 March
2016
£m
15.2
1.6
16.8
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.
158
159
159
Notes to the Financial Statements
25. Financial risk management
The Group’s principal financial instruments comprise derivatives, cash and short-term deposits, external borrowings
(including overdrafts), trade and other 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 the Group treasury department (Group Treasury) based on forecast business requirements
to reduce financial risk and to ensure sufficient liquidity is available to meet foreseeable needs and to invest in cash and cash
equivalents safely and profitably. Group Treasury does not operate as a profit centre and transacts only in relation to the
underlying business requirements. The policies of Group Treasury 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 17). These transactions are recorded as cash flow hedges. The Group’s foreign currency
transactions arise principally from purchases and sales of inventory.
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. Currently, the
Group does not hedge intercompany foreign currency transactions.
The Group monitors the desirability of hedging the net assets of overseas subsidiaries when translated into Sterling for
reporting purposes. The Group uses forward foreign exchange contracts to hedge net assets of overseas subsidiaries, relating
to surplus cash whose remittance is foreseeable. The outstanding net investment hedges as at 31 March 2017 had a principal
value of KRW 28.5bn (£20.3m) and CNY 471m (£54.6m), (2016: KRW 42.7bn (£26.0m) and CNY nil).
At 31 March 2017, the Group has performed a sensitivity analysis to determine the effect of Sterling strengthening/weakening
by 20% (2016: 20%) against other currencies with all other variables held constant. The effect on translating foreign currency
denominated net cash, trade, intercompany and other financial receivables and payables and financial instruments at fair
value through profit or loss would have been to decrease/increase operating profit for the year by £18.2m (2016: decrease/
increase £16.5m). The effect on translating forward foreign exchange contracts designated as cash flow hedges would have
been to decrease/increase equity by £7.6m (2016: decrease/increase £11.5m) on a post-tax basis.
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 other amounts to be received
or paid in cash. Amounts exclude intercompany balances which eliminate on consolidation. Foreign exchange differences on
retranslation of these assets and liabilities are recognised in ‘Net operating expenses’ with the exception of the put option liability
over the non-controlling interest which is recognised in ‘Other financing income and charges’.
Sterling
US Dollar
Euro
Chinese Yuan Renminbi1
Other currencies
Total
As at 31 March 2017
Monetary
liabilities
£m
(0.6)
(14.3)
(32.7)
–
(3.9)
(51.5)
Monetary
assets
£m
1.5
37.0
33.7
8.4
3.6
84.2
As at 31 March 2016
Monetary
liabilities
£m
(0.6)
(11.0)
(36.4)
(47.5)
(2.6)
(98.1)
Monetary
assets
£m
0.2
41.4
44.5
0.4
5.2
91.7
Net
£m
0.9
22.7
1.0
8.4
(0.3)
32.7
Net
£m
(0.4)
30.4
8.1
(47.1)
2.6
(6.4)
1 The balance at 31 March 2016 includes the put option liability over the non-controlling interest (refer to note 19). The value of this liability was £nil at 31 March 2017.
160
160
Notes to the Financial Statements
Notes to the Financial Statements
25. Financial risk management
The Group’s principal financial instruments comprise derivatives, cash and short-term deposits, external borrowings
(including overdrafts), trade and other 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 the Group treasury department (Group Treasury) based on forecast business requirements
to reduce financial risk and to ensure sufficient liquidity is available to meet foreseeable needs and to invest in cash and cash
equivalents safely and profitably. Group Treasury does not operate as a profit centre and transacts only in relation to the
underlying business requirements. The policies of Group Treasury 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 17). These transactions are recorded as cash flow hedges. The Group’s foreign currency
transactions arise principally from purchases and sales of inventory.
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. Currently, the
Group does not hedge intercompany foreign currency transactions.
The Group monitors the desirability of hedging the net assets of overseas subsidiaries when translated into Sterling for
reporting purposes. The Group uses forward foreign exchange contracts to hedge net assets of overseas subsidiaries, relating
to surplus cash whose remittance is foreseeable. The outstanding net investment hedges as at 31 March 2017 had a principal
value of KRW 28.5bn (£20.3m) and CNY 471m (£54.6m), (2016: KRW 42.7bn (£26.0m) and CNY nil).
At 31 March 2017, the Group has performed a sensitivity analysis to determine the effect of Sterling strengthening/weakening
by 20% (2016: 20%) against other currencies with all other variables held constant. The effect on translating foreign currency
denominated net cash, trade, intercompany and other financial receivables and payables and financial instruments at fair
value through profit or loss would have been to decrease/increase operating profit for the year by £18.2m (2016: decrease/
increase £16.5m). The effect on translating forward foreign exchange contracts designated as cash flow hedges would have
been to decrease/increase equity by £7.6m (2016: decrease/increase £11.5m) on a post-tax basis.
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 other amounts to be received
or paid in cash. Amounts exclude intercompany balances which eliminate on consolidation. Foreign exchange differences on
retranslation of these assets and liabilities are recognised in ‘Net operating expenses’ with the exception of the put option liability
over the non-controlling interest which is recognised in ‘Other financing income and charges’.
Sterling
US Dollar
Euro
Chinese Yuan Renminbi1
Other currencies
Total
As at 31 March 2017
As at 31 March 2016
Monetary
assets
Monetary
liabilities
Monetary
assets
Monetary
liabilities
£m
1.5
37.0
33.7
8.4
3.6
84.2
£m
(0.6)
(14.3)
(32.7)
–
(3.9)
(51.5)
Net
£m
0.9
22.7
1.0
8.4
(0.3)
32.7
£m
0.2
41.4
44.5
0.4
5.2
91.7
£m
(0.6)
(11.0)
(36.4)
(47.5)
(2.6)
(98.1)
Net
£m
(0.4)
30.4
8.1
(47.1)
2.6
(6.4)
1 The balance at 31 March 2016 includes the put option liability over the non-controlling interest (refer to note 19). The value of this liability was £nil at 31 March 2017.
25. Financial risk management (continued)
Market risk (continued)
Share price risk
The Group is exposed to employer’s national insurance liability due to the implementation of various employee share
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. The net impact of an increase/decrease in the share price of 50.0p would have resulted
in an increase/decrease in profit after tax of £nil (2016: £nil).
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 (including overdrafts).
The floating rate financial liabilities at 31 March 2017 are £34.3m (2016: £51.5m). This includes cash pool overdraft balances
of £31.3m (2016: £44.9m) which are offset by cash balances for the purpose of interest calculations. At 31 March 2017 the
remaining borrowings were £3.0m (2016: £6.6m) and any change in interest rates would not significantly impact profit.
The floating rate financial assets as at 31 March 2017 comprise short-term deposits of £574.8m (2016: £429.7m), interest
bearing current accounts of £34.2m (2016: £41.7m) and cash pool asset balances of £32.9m (2016: £45.4m). At 31 March 2017,
if interest rates on floating rate financial assets had been 100 basis points higher/lower (2016: 100 basis points), excluding the
impact on cash pool asset balances and with all other variables held constant, post-tax profit for the year would have been
£3.9m (2016: £3.6m) higher/lower, as a result of higher/lower interest income.
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 7% of the total balance due (2016: 10%). 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 15.
During the year ended 31 March 2013 the Group entered into a retail leasing arrangement in the Republic of Korea. As part
of this arrangement, a KRW 27bn (£19.3m) 15 year interest-free loan was provided to the landlord. The Group holds a registered
mortgage over the leased property for the equivalent value of the loan which acts as collateral. At 31 March 2017 the discounted
fair value of the loan is £14.8m (2016: £13.9m). The book value of the loan, recorded at amortised cost, is £13.3m (2016: £11.0m).
Other than this arrangement, the Group does not hold any other collateral as security. The maximum exposure to credit risk at
the reporting date with respect to trade and other receivables is approximated by the carrying amount on the Balance Sheet.
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’ other than where required for operational purposes. A total of £13.4m (2016: £49.1m) was held with institutions with a
rating below ‘A’ at 31 March 2017, of which £nil (2016: £38.6m) was held in a UK government majority owned institution.
These amounts are monitored on a weekly basis and regularly reported to the Board.
The Group has deposited CHF 0.3m (2016: CHF 0.3m), AED 0.3m (2016: AED 0.3m) and GBP nil (2016: GBP 0.3m) which
is held as collateral at a number of European banks.
160
161
161
Notes to the Financial Statements
25. 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 21.
All short-term trade and other payables, 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, excluding
derivatives used for hedging, is as follows:
In more than 1 year, but not more than 2 years
In more than 2 years, but not more than 3 years
In more than 3 years, but not more than 4 years
In more than 4 years, but not more than 5 years
In more than 5 years
Total financial liabilities
As at
31 March
2017
£m
13.0
8.7
9.5
8.2
19.6
59.0
As at
31 March
2016
£m
10.0
5.0
4.8
83.7
16.7
120.2
Other non-current financial liabilities relate to other payables, onerous lease provisions and the put option liability over
non-controlling interests.
Capital risk
The Board reviews the Group’s capital allocation policy annually. Our capital allocation framework defines our priorities for uses of
cash, underpinned by our principle to maintain a strong balance sheet with solid investment grade credit metrics. The framework
has four priorities:
· re-investment in the business to drive organic growth;
· maintaining a progressive dividend policy;
· continuing to pursue selective strategic investment; and
· to the extent that there is surplus capital to these needs, provide additional returns to shareholders.
At 31 March 2017, the Group had net cash of £809.2m (2016: £660.3m) and total equity excluding non-controlling interests of
£1,692.5m (2016: £1,565.0m). The Group has access to a facility of £300m which was undrawn at 31 March 2017. For further
details refer to note 21.
In May 2016, having considered the future cash generation, growth, productivity and investment plans, taking into consideration
the current challenging external environment and relevant financial parameters, the Group decided to commence a share buyback
programme of up to £150m. During the year ended 31 March 2017, the Company entered into an agreement to purchase £100m
of its own shares back as part of the share buy-back programme. At 31 March 2017 the Company had purchased £97.2m of its
own shares including stamp duty. For further details refer to note 22.
162
162
Notes to the Financial Statements
Notes to the Financial Statements
25. 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 21.
All short-term trade and other payables, 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, excluding
derivatives used for hedging, is as follows:
As at
31 March
As at
31 March
2017
£m
13.0
8.7
9.5
8.2
19.6
59.0
2016
£m
10.0
5.0
4.8
83.7
16.7
120.2
Other non-current financial liabilities relate to other payables, onerous lease provisions and the put option liability over
The Board reviews the Group’s capital allocation policy annually. Our capital allocation framework defines our priorities for uses of
cash, underpinned by our principle to maintain a strong balance sheet with solid investment grade credit metrics. The framework
In more than 1 year, but not more than 2 years
In more than 2 years, but not more than 3 years
In more than 3 years, but not more than 4 years
In more than 4 years, but not more than 5 years
In more than 5 years
Total financial liabilities
non-controlling interests.
Capital risk
has four priorities:
· re-investment in the business to drive organic growth;
· maintaining a progressive dividend policy;
· continuing to pursue selective strategic investment; and
· to the extent that there is surplus capital to these needs, provide additional returns to shareholders.
At 31 March 2017, the Group had net cash of £809.2m (2016: £660.3m) and total equity excluding non-controlling interests of
£1,692.5m (2016: £1,565.0m). The Group has access to a facility of £300m which was undrawn at 31 March 2017. For further
details refer to note 21.
In May 2016, having considered the future cash generation, growth, productivity and investment plans, taking into consideration
the current challenging external environment and relevant financial parameters, the Group decided to commence a share buyback
programme of up to £150m. During the year ended 31 March 2017, the Company entered into an agreement to purchase £100m
of its own shares back as part of the share buy-back programme. At 31 March 2017 the Company had purchased £97.2m of its
own shares including stamp duty. For further details refer to note 22.
26. 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 87 to 111 and forms part of these financial
statements, includes, for those share options and awards where performance obligations have been met, the notional
gains arising on the future exercise but excludes the charge in respect of these share options and awards recognised in
the Group Income Statement.
Wages and salaries
Termination benefits2
Social security costs
Share-based compensation (all awards and options settled in shares)
Other pension costs
Total
Year to
31 March
2017
£m
408.3
10.5
48.8
13.1
13.7
494.4
Year to
31 March
20161
£m
374.0
2.5
37.7
(0.3)
13.6
427.5
1 Employee costs for the year ended 31 March 2016 have been re-presented to include employee-related costs within cost of sales.
2 Termination benefits include £9.7m (2016: £nil) relating to restructuring costs, of which £1.6m (2016: £nil) relate to related parties. Refer to note 6 and note 27
for further details.
The average number of full-time equivalent employees (including executive directors) during the year was as follows:
EMEIA1
Americas
Asia Pacific
Total
1 EMEIA comprises Europe, Middle East, India and Africa.
Number of employees
Year to
31 March
2017
5,062
1,954
2,812
9,828
Year to
31 March
2016
5,310
2,005
2,866
10,181
Share options granted to directors and employees
The Group operates a number of equity-settled share-based compensation schemes for its directors and employees. Details
of each of these schemes are set out in this note. The share option schemes have been valued using the Black-Scholes
option pricing model.
The key inputs used in the Black-Scholes pricing model to determine the fair value include the share price at the commencement
date; the exercise price attached to the option; the vesting period of the award; an appropriate risk-free interest rate; a dividend
yield discount for those schemes that do not accrue dividends during the course of the vesting period; and an expected share
price volatility, which is determined by calculating the historical annualised standard deviation of the market price of Burberry
Group plc shares over a period of time, prior to the grant, equivalent to the vesting period of the option.
The Burberry Senior Executive Restricted Share Plan (‘the RSP’), which has market-based performance conditions attached,
has 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.
162
163
163
Notes to the Financial Statements
26. Employee costs (continued)
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 16 June 2016, 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 2016. These options are exercisable
for a period of up to six months from 1 September 2019 and 1 September 2021 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 three-year and five-year grants is £0.94 and £0.45 respectively. The fair values have been
determined by applying the Black-Scholes option pricing model. 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
3 year grant
£10.69
£8.72
3 years
3.74%
26.3%
0.39%
5 year grant
£10.69
£8.72
5 years
3.74%
33.0%
0.62%
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 and forfeited during the year
Withdrawn during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
Weighted
average
exercise
price
1,262.5p
872.0p
1,156.7p
1,228.7p
1,182.6p
1,044.4p
1,220.0p
Year to
31 March
2017
1,153,641
803,345
(208,727)
(382,993)
(136,666)
1,228,600
267
Weighted
average
exercise
price
1,175.0p
1,364.0p
1,241.4p
1,229.6p
1,038.6p
1,262.5p
998.9p
Year to
31 March
2016
1,161,489
471,453
(172,524)
(97,331)
(209,446)
1,153,641
4,297
The weighted average share price at the respective exercise dates in the year was £14.76 (2016: £13.18).
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
Option term
30 June 2010 – 28 February 2016
24 June 2011 – 28 February 2017
22 June 2012 – 28 February 2016
22 June 2012 – 28 February 2018
20 June 2013 – 28 February 2017
20 June 2013 – 28 February 2019
20 June 2014 – 28 February 2018
20 June 2014 – 28 February 2020
18 June 2015 – 28 February 2019
18 June 2015 – 28 February 2021
16 June 2016 – 28 February 2020
16 June 2016 – 28 February 2022
Total
Exercise
price
557.0p
1,049.0p
1,104.0p
1,104.0p
1,220.0p
1,220.0p
1,216.0p
1,216.0p
1,364.0p
1,364.0p
872.0p
872.0p
Number of
shares under
option as at
31 March
2017
–
–
–
7,885
267
6,446
285,935
13,582
200,566
12,172
644,614
57,133
1,228,600
Number of
shares under
option as at
31 March
2016
826
35,445
3,471
11,035
167,118
11,974
479,716
31,737
387,987
24,332
–
–
1,153,641
164
164
Notes to the Financial Statements
Notes to the Financial Statements
26. Employee costs (continued)
Savings-Related Share Option Scheme
ordinary shares was introduced for employees.
In the financial year ended 31 March 2007, a Savings-Related Share Option Scheme (Sharesave) offering Burberry Group plc
On 16 June 2016, 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 2016. These options are exercisable
for a period of up to six months from 1 September 2019 and 1 September 2021 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 three-year and five-year grants is £0.94 and £0.45 respectively. The fair values have been
determined by applying the Black-Scholes option pricing model. The key factors used in determining the fair value were
Movements in the number of share options outstanding and their weighted average exercise prices are as follows:
Share price at contract commencement date
as follows:
Exercise price
Life of award
Dividend yield
Expected volatility
Risk-free interest rate
Outstanding at 1 April
Granted during the year
Lapsed and forfeited during the year
Withdrawn during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
Option term
30 June 2010 – 28 February 2016
24 June 2011 – 28 February 2017
22 June 2012 – 28 February 2016
22 June 2012 – 28 February 2018
20 June 2013 – 28 February 2017
20 June 2013 – 28 February 2019
20 June 2014 – 28 February 2018
20 June 2014 – 28 February 2020
18 June 2015 – 28 February 2019
18 June 2015 – 28 February 2021
16 June 2016 – 28 February 2020
16 June 2016 – 28 February 2022
Total
3 year grant
5 year grant
£10.69
£8.72
3 years
3.74%
26.3%
0.39%
Weighted
average
exercise
price
1,175.0p
1,364.0p
1,241.4p
1,229.6p
1,038.6p
1,262.5p
998.9p
£10.69
£8.72
5 years
3.74%
33.0%
0.62%
Year to
31 March
2016
1,161,489
471,453
(172,524)
(97,331)
(209,446)
1,153,641
4,297
Weighted
average
exercise
price
1,262.5p
872.0p
1,156.7p
1,228.7p
1,182.6p
1,044.4p
1,220.0p
Year to
31 March
2017
1,153,641
803,345
(208,727)
(382,993)
(136,666)
1,228,600
267
Exercise
price
557.0p
1,049.0p
1,104.0p
1,104.0p
1,220.0p
1,220.0p
1,216.0p
1,216.0p
1,364.0p
1,364.0p
872.0p
872.0p
Number of
shares under
option as at
31 March
2017
Number of
shares under
option as at
31 March
–
–
–
7,885
267
6,446
285,935
13,582
200,566
12,172
644,614
57,133
2016
826
35,445
3,471
11,035
167,118
11,974
479,716
31,737
387,987
24,332
–
–
1,228,600
1,153,641
The weighted average share price at the respective exercise dates in the year was £14.76 (2016: £13.18).
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
26. 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.
All awards vest after three years and the vesting of these share awards is dependent on continued employment over the
vesting period.
On 28 July 2016, 255,850 ordinary shares were granted under this scheme (2016: 223,140). The fair value of the awards
granted is £13.20, determined by applying the Black-Scholes option pricing model. 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
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Granted during the year
Lapsed and forfeited during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
£13.20
£nil
Equivalent to vesting period
26.6%
0.12%
Year to
31 March
2017
534,220
255,850
(124,675)
(109,817)
555,578
84,073
Year to
31 March
2016
501,040
223,140
(96,810)
(93,150)
534,220
81,730
The weighted average share price at the respective exercise dates in the year was £13.76 (2016: £15.28).
Share awards outstanding at the end of the year have the following terms:
Term of the award
12 July 2002 – 18 July 20821
30 August 2003 – 18 July 20821
20 August 2004 – 18 July 20821
1 September 2005 – 18 July 20821
19 July 2010 – 18 July 20821
18 July 2011 – 18 July 20821
18 July 2012 – 18 July 20821
18 July 2012 – 18 September 2015
17 July 2013 – 18 July 20821
17 July 2013 – 17 October 2016
31 July 2014 – 18 July 20821
31 July 2014 – 31 October 2017
30 July 2015 – 18 July 20821
30 July 2015 – 30 October 2018
28 July 2016 – 18 July 20821
28 July 2016 – 28 October 2019
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
2017
2,200
2,450
5,200
3,000
12,220
9,810
20,190
–
29,003
–
50,610
63,600
62,005
82,560
84,840
127,890
555,578
Number of
awards as at
31 March
2016
2,500
2,650
5,800
3,880
19,560
18,090
29,220
30
51,510
67,050
61,980
83,310
77,640
111,000
–
–
534,220
164
165
165
Notes to the Financial Statements
26. Employee costs (continued)
The Burberry Group plc Executive Share Plan 2014 (‘the ESP’)
The ESP was set up in the year ended 31 March 2015, to replace the previous two long-term incentive plans – the Burberry
Co-Investment Plan and the RSP. The ESP aims to reward executives and senior management for sustainable long-term
performance and successful execution of the Group’s long-term strategy.
Under the ESP, participants are awarded shares, structured as nil-cost options, up to a maximum value of four times base
salary per annum. Awards may be subject to a combination of non-market performance conditions, including compound
annual Group adjusted PBT growth; compound annual Group revenue growth; and average retail/wholesale adjusted return
on invested capital (‘ROIC’). Performance conditions will be measured over a three-year period from the last reporting period
prior to the grant date. Each performance condition will stipulate a threshold and maximum target. The portion of the scheme
relating to each performance target will vest 25% if the threshold target is met, and then on a straight-line basis up to 100%
if the maximum target is met. Dependent on the performance of the vesting conditions, 50% of the award will vest on the third
anniversary of the grant date, and the remaining 50% of the award will vest on the fourth anniversary of the grant date.
Awards made to the Senior Leadership Team will be subject to all three non-market performance conditions and will be
measured 50% based on annual adjusted PBT growth; 25% based on annual revenue growth; and 25% based on adjusted
retail/wholesale ROIC.
Awards made to Senior Management in 2015 will be subject to two non-market performance conditions and will be measured
75% based on annual adjusted PBT growth and 25% based on annual revenue growth. Awards made to Senior Management
during the current year will be subject to two non-market performance conditions and will be measured 50% based on annual
adjusted PBT growth and 50% based on annual revenue growth.
Awards made to Management will not be subject to performance conditions apart from continued service during the
vesting period.
During the year, the following grants were made under the ESP:
Date of grant Options granted
1,324,647
30 January 2017
Fair
value Participant group
£16.26 Senior Leadership Team 3-year growth in Group adjusted PBT
Performance conditions
30 January 2017
1,044,596
£16.26 Senior Management
30 January 2017
201,670
£16.26 Management
3-year growth in Group revenue
3-year average retail/wholesale adjusted
ROIC
3-year growth in Group adjusted PBT
3-year growth in Group revenue
Continued service
Targets
Threshold Maximum
6%
5.5%
1%
1%
13.9%
1%
1%
N/A
15.2%
6%
5.5%
N/A
The annual ESP grant usually occurs in July, aligned with the timing of the Group performance review process. The grant date
for the 2016 ESP award was delayed until January 2017 as a result of the on-going productivity and efficiency agenda, to allow
appropriate targets to be set and agreed. For all participants apart from executive directors, it was agreed that the vesting
dates will be aligned with the standard performance review timetable, meaning that for those participants, dependent on the
performance conditions being met, 50% of the grant will vest on 22 July 2019 and 50% of the grant will vest on 22 July 2020.
For the executive directors, the vesting dates fall on the third and fourth anniversaries of the grant date.
The fair values for the above grants have been determined by applying the Black-Scholes option pricing model. The key factors
used in determining the fair value were as follows:
Share price at contract commencement date
Exercise price
Life of award
Expected volatility
Risk-free interest rate
30 January 2017
£16.26
£nil
Equivalent to
vesting period
26.5%
0.43%
Obligations under this plan will be met either by market purchase shares via the ESOP trust or by the issue of ordinary shares
of the Company.
166
166
Notes to the Financial Statements
Notes to the Financial Statements
26. Employee costs (continued)
The Burberry Group plc Executive Share Plan 2014 (‘the ESP’)
The ESP was set up in the year ended 31 March 2015, to replace the previous two long-term incentive plans – the Burberry
Co-Investment Plan and the RSP. The ESP aims to reward executives and senior management for sustainable long-term
performance and successful execution of the Group’s long-term strategy.
Under the ESP, participants are awarded shares, structured as nil-cost options, up to a maximum value of four times base
salary per annum. Awards may be subject to a combination of non-market performance conditions, including compound
annual Group adjusted PBT growth; compound annual Group revenue growth; and average retail/wholesale adjusted return
on invested capital (‘ROIC’). Performance conditions will be measured over a three-year period from the last reporting period
prior to the grant date. Each performance condition will stipulate a threshold and maximum target. The portion of the scheme
relating to each performance target will vest 25% if the threshold target is met, and then on a straight-line basis up to 100%
if the maximum target is met. Dependent on the performance of the vesting conditions, 50% of the award will vest on the third
anniversary of the grant date, and the remaining 50% of the award will vest on the fourth anniversary of the grant date.
Awards made to the Senior Leadership Team will be subject to all three non-market performance conditions and will be
measured 50% based on annual adjusted PBT growth; 25% based on annual revenue growth; and 25% based on adjusted
retail/wholesale ROIC.
Awards made to Senior Management in 2015 will be subject to two non-market performance conditions and will be measured
75% based on annual adjusted PBT growth and 25% based on annual revenue growth. Awards made to Senior Management
during the current year will be subject to two non-market performance conditions and will be measured 50% based on annual
adjusted PBT growth and 50% based on annual revenue growth.
Awards made to Management will not be subject to performance conditions apart from continued service during the
vesting period.
During the year, the following grants were made under the ESP:
Date of grant Options granted
value Participant group
Performance conditions
Threshold Maximum
30 January 2017
1,324,647
£16.26 Senior Leadership Team 3-year growth in Group adjusted PBT
Fair
30 January 2017
1,044,596
£16.26 Senior Management
3-year growth in Group adjusted PBT
30 January 2017
201,670
£16.26 Management
Continued service
3-year growth in Group revenue
3-year average retail/wholesale adjusted
ROIC
3-year growth in Group revenue
Targets
13.9%
15.2%
1%
1%
1%
1%
N/A
6%
5.5%
6%
5.5%
N/A
The annual ESP grant usually occurs in July, aligned with the timing of the Group performance review process. The grant date
for the 2016 ESP award was delayed until January 2017 as a result of the on-going productivity and efficiency agenda, to allow
appropriate targets to be set and agreed. For all participants apart from executive directors, it was agreed that the vesting
dates will be aligned with the standard performance review timetable, meaning that for those participants, dependent on the
performance conditions being met, 50% of the grant will vest on 22 July 2019 and 50% of the grant will vest on 22 July 2020.
For the executive directors, the vesting dates fall on the third and fourth anniversaries of the grant date.
The fair values for the above grants have been determined by applying the Black-Scholes option pricing model. The key factors
used in determining the fair value were as follows:
Share price at contract commencement date
Exercise price
Life of award
Expected volatility
Risk-free interest rate
of the Company.
Obligations under this plan will be met either by market purchase shares via the ESOP trust or by the issue of ordinary shares
30 January 2017
Equivalent to
vesting period
£16.26
£nil
26.5%
0.43%
26. Employee costs (continued)
The Burberry Group plc Executive Share Plan 2014 (‘the ESP’) (continued)
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Granted during the year
Lapsed and forfeited during the year
Exercised 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
22 July 2015 – 21 July 2025
18 November 2015 – 17 November 2025
30 January 2017 – 30 January 2027
Total
Burberry Senior Executive Restricted Share Plan 2004 (‘the RSP’)
The final grant under the RSP was made on 12 June 2014.
Year to
31 March
2017
3,238,480
2,570,913
(701,016)
(4,121)
5,104,256
–
Year to
31 March
2016
–
3,408,928
(170,448)
–
3,238,480
–
Number of
awards as at
31 March
2017
2,497,624
102,294
2,504,338
5,104,256
Number of
awards as at
31 March
2016
3,100,064
138,416
–
3,238,480
Under the RSP participants were awarded shares, structured as nil-cost options, up to a maximum value of two times base
salary per annum. Certain participants were granted awards subject to both market and non-market performance conditions,
while other participants were granted awards subject to non-market performance conditions only. A limited number of awards
were granted without performance conditions.
The market performance condition is a measure of TSR performance relative to sector peers. The non-market performance
condition is compound annual adjusted PBT growth over a three-year period from the date of grant.
Awards subject to both market and non-market performance conditions will vest in full if the Group achieves at least upper
quartile TSR relative to its global peers, and if the maximum adjusted PBT growth target is achieved. A proportion of the award
(12.5%) vests if TSR performance exceeds the median of the peer group, or if the threshold adjusted PBT growth target is
achieved. Vesting against each metric occurs on a straight-line basis between the threshold and maximum. None of the award
vests if TSR performance is below the median of the peer group and if the adjusted PBT growth is below the threshold. 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 anniversaries of the date of grant.
Awards subject to non-market performance conditions only will vest in full if the maximum adjusted PBT growth target is
achieved. A proportion of the award (25%) vests if the threshold adjusted PBT growth target is achieved. Vesting occurs
on a straight-line basis between the threshold and maximum. None of the award vests if the adjusted PBT growth is below
the threshold. 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 anniversaries of the date of grant.
166
167
167
Notes to the Financial Statements
26. Employee costs (continued)
Burberry Senior Executive Restricted Share Plan 2004 (‘the RSP’) (continued)
The threshold and maximum adjusted PBT growth targets for the RSP awards that are still within the initial three-year vesting
period as at 31 March 2017 are:
Year of grant and participant group
2014 – market and non-market conditions
2014 – non-market conditions only
2014 – no performance conditions
Number
of awards
outstanding as
at 31 March
2017
722,141
897,545
200,680
3 year compound adjusted PBT
growth targets
Threshold
5%
5%
N/A
Maximum
15%
15%
N/A
Obligations under this plan will be met either by market purchase shares via the ESOP trust or by the issue of ordinary shares
of the Company.
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Lapsed and forfeited during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
Year to
31 March
2017
5,190,300
(2,404,237)
(517,675)
2,268,388
291,462
Year to
31 March
2016
7,913,082
(1,959,768)
(763,014)
5,190,300
401,183
The weighted average share price at the respective exercise dates in the year was £13.60 (2016: £15.12).
Share awards outstanding at the end of the year have the following terms:
Term of the award
10 August 2006 – 9 August 2016
27 November 2006 – 26 November 2016
11 June 2007 – 10 June 2017
25 June 2008 – 24 June 2018
1 June 2009 – 31 May 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
13 June 2012 – 12 June 2022
16 November 2012 – 15 November 2022
14 June 2013 – 13 June 2023
17 June 2013 – 16 June 2023
25 November 2013 – 24 November 2023
12 June 2014 – 11 June 2024
Total
Number of
awards as at
31 March
2017
–
–
2,787
4,849
44,375
76,360
1,125
54,205
5,585
136,793
14,383
105,125
–
2,435
1,820,366
2,268,388
Number of
awards as at
31 March
2016
4,463
2,124
6,612
15,817
67,092
122,342
1,500
230,262
15,522
305,939
34,101
1,966,666
243,542
22,656
2,151,662
5,190,300
168
168
Notes to the Financial Statements
Notes to the Financial Statements
26. Employee costs (continued)
Burberry Senior Executive Restricted Share Plan 2004 (‘the RSP’) (continued)
The threshold and maximum adjusted PBT growth targets for the RSP awards that are still within the initial three-year vesting
period as at 31 March 2017 are:
3 year compound adjusted PBT
growth targets
Number
of awards
outstanding as
at 31 March
2017
Threshold
Maximum
722,141
897,545
200,680
5%
5%
N/A
15%
15%
N/A
Obligations under this plan will be met either by market purchase shares via the ESOP trust or by the issue of ordinary shares
Movements in the number of share awards outstanding are as follows:
26. Employee costs (continued)
The Burberry Co-Investment Plan
The final award granted under the Burberry Co-Investment Plan was made on 12 June 2014.
Under the Burberry Co-Investment Plan, executive directors and certain senior management were 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. The awards are also subject to secondary
performance conditions.
Awards granted in 2014 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%) vests 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 vests if adjusted PBT growth is below
5% per annum.
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Lapsed and forfeited during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
Year to
31 March
2017
1,560,519
(817,971)
(14,430)
728,118
41,213
Year to
31 March
2016
2,777,125
(318,647)
(897,959)
1,560,519
55,643
The weighted average share price at the respective exercise dates in the year was £12.69 (2016: £15.31).
The weighted average share price at the respective exercise dates in the year was £13.60 (2016: £15.12).
Share awards outstanding at the end of the year have the following terms:
Share awards outstanding at the end of the year have the following terms:
Term of the award
18 July 2012 – 17 July 2017
14 June 2013 – 13 June 2018
12 June 2014 – 11 June 2019
Total
Number of
awards as at
31 March
2017
41,213
–
686,905
728,118
Number of
awards as at
31 March
2016
55,643
714,365
790,511
1,560,519
Year of grant and participant group
2014 – market and non-market conditions
2014 – non-market conditions only
2014 – no performance conditions
of the Company.
Outstanding at 1 April
Lapsed and forfeited during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
Term of the award
10 August 2006 – 9 August 2016
27 November 2006 – 26 November 2016
11 June 2007 – 10 June 2017
25 June 2008 – 24 June 2018
1 June 2009 – 31 May 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
13 June 2012 – 12 June 2022
16 November 2012 – 15 November 2022
14 June 2013 – 13 June 2023
17 June 2013 – 16 June 2023
25 November 2013 – 24 November 2023
12 June 2014 – 11 June 2024
Total
Year to
31 March
2017
5,190,300
(2,404,237)
(517,675)
2,268,388
291,462
Year to
31 March
2016
7,913,082
(1,959,768)
(763,014)
5,190,300
401,183
Number of
awards as at
31 March
2017
Number of
awards as at
31 March
–
–
2,787
4,849
44,375
76,360
1,125
54,205
5,585
136,793
14,383
105,125
–
2,435
1,820,366
2,268,388
2016
4,463
2,124
6,612
15,817
67,092
122,342
1,500
230,262
15,522
305,939
34,101
1,966,666
243,542
22,656
2,151,662
5,190,300
168
169
169
Notes to the Financial Statements
26. Employee costs (continued)
June 2013 One-off Grant
On 14 June 2013, options in respect of 1,000,000 ordinary shares were granted as a one-off award, with a £nil exercise price.
The options were granted on the basis that they would vest in three tranches: 20% exercisable on 15 July 2016; 40% exercisable
on 15 July 2017; and the remaining 40% exercisable on 15 July 2018, dependent upon continued employment over the vesting
period. Under the current arrangement, the first tranche now becomes exercisable on 15 July 2017 (or earlier upon termination
of employment). Any vested but unexercised options will automatically lapse on 15 July 2019.
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
Year to
31 March
2017
1,000,000
–
1,000,000
–
Year to
31 March
2016
1,000,000
–
1,000,000
–
June 2014 One-off Grant
On 12 June 2014, options in respect of 500,000 ordinary shares were granted as a one-off award, with a £nil exercise price.
The options were granted on the basis that they are due to vest in three stages: 25% are exercisable on 31 July 2017;
25% are exercisable on 31 July 2018; and the remaining 50% are exercisable on 31 July 2019. Key strategic performance
objectives linked to the long-term growth of the Group must be met in order for the options to vest. These performance
conditions will be assessed at each of the relevant vesting dates, and each tranche will only vest to the extent that performance
targets have been achieved at that date. Any vested but unexercised options will automatically lapse on 31 July 2020.
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
Year to
31 March
2017
500,000
–
500,000
–
Year to
31 March
2016
500,000
–
500,000
–
November 2015 One-off Grant
On 18 November 2015, options in respect of 73,000 ordinary shares were granted as a one-off award, with a £nil exercise price.
The options vest in three stages: 25,000 options on 1 July 2016; 30,000 options on 1 July 2017; and the remaining 18,000
options on 1 July 2018. The vesting of these options is dependent upon continued employment over the vesting period.
Any vested but unexercised options will automatically lapse on 18 November 2025.
Movements in the number of share awards outstanding are as follows:
Year to
31 March
2017
73,000
–
(25,000)
48,000
–
Year to
31 March
2016
–
73,000
–
73,000
–
Outstanding at 1 April
Granted during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
The share price on the date of exercise was £14.71.
170
170
Notes to the Financial Statements
Notes to the Financial Statements
26. Employee costs (continued)
June 2013 One-off Grant
On 14 June 2013, options in respect of 1,000,000 ordinary shares were granted as a one-off award, with a £nil exercise price.
The options were granted on the basis that they would vest in three tranches: 20% exercisable on 15 July 2016; 40% exercisable
on 15 July 2017; and the remaining 40% exercisable on 15 July 2018, dependent upon continued employment over the vesting
period. Under the current arrangement, the first tranche now becomes exercisable on 15 July 2017 (or earlier upon termination
of employment). Any vested but unexercised options will automatically lapse on 15 July 2019.
Movements in the number of share awards outstanding are as follows:
On 12 June 2014, options in respect of 500,000 ordinary shares were granted as a one-off award, with a £nil exercise price.
The options were granted on the basis that they are due to vest in three stages: 25% are exercisable on 31 July 2017;
25% are exercisable on 31 July 2018; and the remaining 50% are exercisable on 31 July 2019. Key strategic performance
objectives linked to the long-term growth of the Group must be met in order for the options to vest. These performance
conditions will be assessed at each of the relevant vesting dates, and each tranche will only vest to the extent that performance
targets have been achieved at that date. Any vested but unexercised options will automatically lapse on 31 July 2020.
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
June 2014 One-off Grant
Outstanding at 1 April
Granted during the year
Outstanding at 31 March
Exercisable at 31 March
November 2015 One-off Grant
On 18 November 2015, options in respect of 73,000 ordinary shares were granted as a one-off award, with a £nil exercise price.
The options vest in three stages: 25,000 options on 1 July 2016; 30,000 options on 1 July 2017; and the remaining 18,000
options on 1 July 2018. The vesting of these options is dependent upon continued employment over the vesting period.
Any vested but unexercised options will automatically lapse on 18 November 2025.
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Granted during the year
Exercised during the year
Outstanding at 31 March
Exercisable at 31 March
The share price on the date of exercise was £14.71.
Year to
31 March
2017
1,000,000
–
–
Year to
31 March
2016
1,000,000
–
–
1,000,000
1,000,000
Year to
31 March
2017
500,000
–
–
Year to
31 March
2016
500,000
–
–
500,000
500,000
Year to
31 March
2017
73,000
(25,000)
48,000
–
–
Year to
31 March
2016
73,000
73,000
–
–
–
26. Employee costs (continued)
November 2015 Exceptional Grant
On 18 November 2015, options in respect of 570,151 ordinary shares were granted as an exceptional one-off grant, with a
£nil exercise price. On 30 January 2017, additional options in respect of 86,338 ordinary shares were granted under the same
terms as the original November 2015 grant.
The options are due to vest in two stages: 50% exercisable on 15 December 2017; and the remaining 50% exercisable
on 15 December 2018. The vesting of these options will be dependent upon continued employment as well as continued
satisfactory performance. Any unvested options will automatically lapse on 18 November 2025.
The fair value of additional options granted on 30 January 2017 is £16.26, determined by applying the Black-Scholes option
pricing model. The key factors used in determining the fair value were as follows:
Share price at contract commencement date
Exercise price
Life of award
Expected volatility
Risk-free interest rate
Movements in the number of share awards outstanding are as follows:
Outstanding at 1 April
Granted during the year
Lapsed and forfeited during the year
Outstanding at 31 March
Exercisable at 31 March
30 January 2017
£16.26
£nil
Equivalent to
vesting period
30.6%
0.2%
Year to
31 March
2017
570,151
86,338
(112,558)
543,931
–
Year to
31 March
2016
–
570,151
–
570,151
–
January 2017 Exceptional Grant
On 30 January 2017, options in respect of 284,096 ordinary shares were granted as an exceptional one-off grant, with a £nil
exercise price. The options are due to vest on 22 July 2018. Vesting of these options is dependent upon continued employment
as well as satisfactory performance over the vesting period. Any vested unexercised options will automatically lapse on
22 December 2026.
The fair value of the award is £16.26, determined by applying the Black-Scholes option pricing model. The key factors used
in determining the fair value were as follows:
Share price at contract commencement date
Exercise price
Life of award
Expected volatility
Risk-free interest rate
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
30 January 2017
£16.26
£nil
Equivalent to
vesting period
32.8%
0.1%
Year to
31 March
2017
–
284,096
284,096
–
170
171
171
Notes to the Financial Statements
26. Employee costs (continued)
January 2017 One-off Awards
On 30 January 2017, options in respect of 240,000 ordinary shares were granted as two one-off awards, both with a £nil exercise
price. The first award was for options in respect of 215,000 ordinary shares, and the second award was for options in respect
of 25,000 ordinary shares.
Both awards are due to vest in three stages. The first award will vest in the following manner: 86,000 options exercisable on
22 July 2017; 64,500 options exercisable on 22 July 2018; and 64,500 options exercisable on 22 July 2019. The second award
will vest in the following manner: 8,250 options exercisable on 27 March 2018; 8,250 options exercisable on 27 March 2019;
and 8,500 options exercisable on 27 March 2020. The vesting of both of these awards is dependent upon continued
employment over the vesting period. Any vested but unexercised options will automatically lapse on 30 January 2027.
The fair value of the first award is £16.26 and the fair value of the second award is £16.26. The fair values for both awards
have been determined by applying the Black-Scholes option pricing model. The key factors used in determining the fair
value were as follows:
Share price at contract commencement date
Exercise price
Life of award
Expected volatility
Risk-free interest rate
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
First award
£16.26
£nil
Equivalent to
vesting period
28.2%
0.3%
Second award
£16.26
£nil
Equivalent to
vesting period
26.9%
0.4%
Year to
31 March
2017
–
240,000
240,000
–
27. 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, short-term benefits and social security costs
Termination benefits
Post-employment benefits
Share based compensation (all awards and options settled in shares)
Total
There were no other material related party transactions in the period.
Year to
31 March
2017
£m
14.3
1.6
–
5.5
21.4
Year to
31 March
2016
£m
9.1
–
0.1
0.5
9.7
172
172
Notes to the Financial Statements
Notes to the Financial Statements
28. Subsidiary undertakings and investments
In accordance with Section 409 of the Companies Act 2006 a full list of related undertakings as at 31 March 2017, including
their country of incorporation and percentage share ownership, is disclosed below. Unless otherwise stated, all undertakings
are indirectly owned by Burberry Group plc and operate in the country of incorporation. All the subsidiary undertakings have
been consolidated as at 31 March 2017. In addition to the subsidiary undertakings listed below, the Group also holds an interest
in 21.5% of the ordinary shares of Suitspain SL (36), which is incorporated in Spain and is currently in the process of liquidation.
26. Employee costs (continued)
January 2017 One-off Awards
of 25,000 ordinary shares.
On 30 January 2017, options in respect of 240,000 ordinary shares were granted as two one-off awards, both with a £nil exercise
price. The first award was for options in respect of 215,000 ordinary shares, and the second award was for options in respect
Both awards are due to vest in three stages. The first award will vest in the following manner: 86,000 options exercisable on
22 July 2017; 64,500 options exercisable on 22 July 2018; and 64,500 options exercisable on 22 July 2019. The second award
will vest in the following manner: 8,250 options exercisable on 27 March 2018; 8,250 options exercisable on 27 March 2019;
and 8,500 options exercisable on 27 March 2020. The vesting of both of these awards is dependent upon continued
employment over the vesting period. Any vested but unexercised options will automatically lapse on 30 January 2027.
The fair value of the first award is £16.26 and the fair value of the second award is £16.26. The fair values for both awards
have been determined by applying the Black-Scholes option pricing model. The key factors used in determining the fair
Share price at contract commencement date
value were as follows:
Exercise price
Life of award
Expected volatility
Risk-free interest rate
Outstanding at 1 April
Granted during the year
Outstanding at 31 March
Exercisable at 31 March
27. Related party transactions
Movements in the number of share awards outstanding are as follows:
Salaries, short-term benefits and social security costs
Termination benefits
Post-employment benefits
Total
Share based compensation (all awards and options settled in shares)
There were no other material related party transactions in the period.
First award
Second award
Equivalent to
vesting period
Equivalent to
vesting period
£16.26
£nil
28.2%
0.3%
£16.26
£nil
26.9%
0.4%
Year to
31 March
2017
240,000
240,000
–
–
Year to
31 March
2017
£m
14.3
1.6
–
5.5
21.4
Year to
31 March
2016
£m
9.1
–
0.1
0.5
9.7
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:
Company name
Burberry Pacific Pty Ltd (1)
Burberry (Austria) GmbH (2)
Sandringham Bahrain SPC2 (3)
Burberry Antwerp N.V.(4)
Burberry Brasil Comércio de Artigos de Vestuário e Acessórios Ltda (5)
Burberry Canada Inc (6)
Burberry (Shanghai) Trading Co., Ltd (7)
Burberry Czech Rep s.r.o. (8)
Burberry France SASU (9)
Burberry (Deutschland) GmbH (10)
Burberry Asia Holdings Limited (11)
Burberry Asia Limited (11)
Burberry China Holdings Limited (11)
Burberry Hungary kft (12)
Burberry India Private Limited (13)
Burberry Ireland Investments (14)
Burberry Ireland Limited (14)
Burberry Italy (Rome) SRL (15)
Burberry Italy SRL1 (15)
Burberry Japan K.K. (16)
Burberry Al Kuwait General Trading Textiles and
Accessories Company WLL3 (17)
Burberry Macau Limited (18)
Burberry (Malaysia) Sdn. Bhd. (19)
Horseferry Mexico S.A. de C.V. (20)
Horseferry Mexico Servicios Administrativos, S.A. de C.V. (20)
Burberry Netherlands BV (21)
Burberry Qatar W.L.L3 (22)
Burberry Korea Limited (23)
Burberry Retail LLC (24)
Burberry Saudi Company Limited (25)
Burberry (Singapore) Distribution Co. PTE Ltd (26)
Burberry (Spain) Retail SL (27)
Burberry Latin America Holdings, S.L. (27)
Burberry (Suisse) SA1 (28)
Burberry (Taiwan) Co Ltd (29)
Burberry (Thailand) Limited (30)
Burberry FZ-LLC (31)
Burberry Middle East LLC3 (32)
Burberry (Espana) Holdings Limited (33)
Burberry (No. 1) Unlimited (33)
Burberry (No. 7) Unlimited (33)
Burberry (Spain) Finance Limited1 (33)
Burberry (UK) Limited (33)
Burberry Beauty Limited1 (33)
Burberry Distribution Limited (33)
Burberry Europe Holdings Limited1 (33)
Burberry Finance Limited (33)
Burberry Haymarket Limited1 (33)
Burberry Holdings Limited (33)
Burberry International Holdings Limited1 (33)
172
173
173
Country of
incorporation
Australia
Austria
Bahrain
Belgium
Brazil
Canada
China
Czech Republic
France
Germany
Hong Kong
Hong Kong
Hong Kong
Hungary
India
Ireland
Ireland
Italy
Italy
Japan
Kuwait
Macau
Malaysia
Mexico
Interest
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Common stock
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary A shares
Ordinary B shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary quota
Ordinary shares
Ordinary (fixed) shares
Ordinary (variable) shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Participatory share
Mexico
Netherlands
Qatar
Republic of Korea
Russian Federation
Kingdom of Saudi Arabia Ordinary shares
Ordinary shares
Singapore
Ordinary shares
Spain
Ordinary shares
Spain
Ordinary shares
Switzerland
Ordinary shares
Taiwan
Ordinary shares
Thailand
Ordinary shares
United Arab Emirates
Ordinary shares
United Arab Emirates
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Ordinary shares
United Kingdom
Holding
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
49
100
100
100
100
100
100
49
100
100
75
100
100
100
100
100
100
100
49
100
100
100
100
100
100
100
100
100
100
100
100
Notes to the Financial Statements
28. Subsidiary undertakings and investments (continued)
Company name
Burberry Italy Retail Limited4 (33)
Burberry Latin America Limited (33)
Burberry Limited (33)
Burberry London Limited (33)
Burberry New York 2005 Limited (33)
Burberry New York Unlimited (33)
Burberry Spain (UK) Limited (33)
Burberry Treasury Limited (33)
Burberry Wholesale 2005 Limited (33)
Burberry Wholesale Unlimited (33)
Burberrys Limited1 (33)
Hampstead (UK) Limited1 (33)
Sweet Street Developments Limited (33)
Temple Works Limited (33)
The Scotch House Limited1 (33)
Thomas Burberry Holdings Limited1 (33)
Thomas Burberry Limited1 (33)
Woodrow-Universal Limited1 (33)
Woodrow-Universal Pension Trustee Limited1 (33)
Worldwide Debt Collections Limited (34)
Burberry (Wholesale) Limited (35)
Burberry Limited (35)
Burberry North America, Inc (35)
Burberry USA Holdings Inc (35)
Burberry Warehousing Corporation (35)
Castleford Industries, Ltd (35)
Castleford Tailors, Ltd (35)
1 Held directly by Burberry Group plc.
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
United States
United States
Interest
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary A shares
Ordinary B shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary A shares
Ordinary B shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Class X common stock
Class Y common stock
Class X common stock
Class Y common stock
Common stock
Common stock
Common stock
Series A common stock
Common stock
Holding
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2 The Group has an indirect holding of 100% of the issued share capital through a nominee.
3 The Group has a 100% share of profits of Burberry Middle East LLC as well as a 100% and 88% share of profits in Burberry Middle East LLC’s subsidiaries in
Kuwait and Qatar respectively. The Group has the power to control these companies via the terms of the shareholder agreement for Burberry Middle East LLC.
4 Operates principally in Italy.
Level 5, 343 George Street, Sydney NSW 2000, Australia
Kohlmarkt 2, 1010, Wien, Austria
Building 1A, Road 365 (Isa Al Kabeer Avenue), Manama Center 316, Unit 7, Moda Mall, Manama, Bahrain
2000 Antwerp, Schuttershofstraat 29, Belgium
Rua Do Rócio, 350 3º Andar, Vila Olimpia , São Paulo – SP, CEP 04552-000, Brazil
1 First Canadian Place, 100 King Street West, Suite 1600, Toronto ON M5X 1G5, Canada
33/F, Wheelock Square, 1717 Nanjing West Road, Jing'an District, Shanghai, China, 200040, China
Praha 1, Pařížská 11/67, 110 00, Czech Republic
56 rue du Faubourg Saint Honore, 75008, Paris, France
Ref Registered office address
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10) Konigsalle 50, D 40212, Dusseldorf, Germany
(11) Suites 2201-02 & 11-14, 22/F Devon House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong
(12) Horvath & Partners DLA Piper, MOMentum Office Complex, 49-51 Csorsz Street, Budapest, H-1124, Hungary
(13)
3-A-1 Taj Apartments, Rao Tula Ram Marg, New Delhi, 110022, India
(14) Suite 9, Bunkilla Plaza, Bracetown Office Park, Clonee, County Meath, Ireland
(15) Via Montenapoleone 12, 20121, Milan, Italy
(16) Ginza YOMIKO Building, 1-8-14 Ginza, Chuo-Ku, Tokyo, 104-0061, Japan
(17) Hawali, Block 4, Building, 26007, PO Box 99, Code 13001, Safat, Kuwait
(18) Avenida Dr. Sun Yat Sen, s/n, Building One Central, 1st Floor, Shops 125-127, Macau Special Adminstrative Region, Macau
(19) Suite 01-02B 1st Floor, Menara Keck Seng, 203 Jalan Bukit Bintang, 55100. Kuala Lumpur, Malaysia
(20) Ejercito Nacional Mexicano 843b, Granada, Miguel Hidalgo, Distrito Federal 11520, Mexico
(21) Pieter Cornelisz. Hoofstraat 48-50, 1071BZ, Amsterdam, Netherlands
174
174
Notes to the Financial Statements
Notes to the Financial Statements
28. Subsidiary undertakings and investments (continued)
Company name
Burberry Italy Retail Limited4 (33)
Burberry Latin America Limited (33)
Burberry Limited (33)
Burberry London Limited (33)
Burberry New York 2005 Limited (33)
Burberry New York Unlimited (33)
Burberry Spain (UK) Limited (33)
Burberry Treasury Limited (33)
Burberry Wholesale 2005 Limited (33)
Burberry Wholesale Unlimited (33)
Burberrys Limited1 (33)
Hampstead (UK) Limited1 (33)
Sweet Street Developments Limited (33)
Temple Works Limited (33)
The Scotch House Limited1 (33)
Thomas Burberry Holdings Limited1 (33)
Thomas Burberry Limited1 (33)
Woodrow-Universal Limited1 (33)
Woodrow-Universal Pension Trustee Limited1 (33)
Worldwide Debt Collections Limited (34)
Burberry (Wholesale) Limited (35)
Burberry Limited (35)
Burberry North America, Inc (35)
Burberry USA Holdings Inc (35)
Burberry Warehousing Corporation (35)
Castleford Industries, Ltd (35)
Castleford Tailors, Ltd (35)
1 Held directly by Burberry Group plc.
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
United States
United States
Interest
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary A shares
Ordinary B shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary A shares
Ordinary B shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Class X common stock
Class Y common stock
Class X common stock
Class Y common stock
Common stock
Common stock
Common stock
Series A common stock
Common stock
Holding
(%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2 The Group has an indirect holding of 100% of the issued share capital through a nominee.
3 The Group has a 100% share of profits of Burberry Middle East LLC as well as a 100% and 88% share of profits in Burberry Middle East LLC’s subsidiaries in
Kuwait and Qatar respectively. The Group has the power to control these companies via the terms of the shareholder agreement for Burberry Middle East LLC.
4 Operates principally in Italy.
Ref Registered office address
Level 5, 343 George Street, Sydney NSW 2000, Australia
Kohlmarkt 2, 1010, Wien, Austria
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Building 1A, Road 365 (Isa Al Kabeer Avenue), Manama Center 316, Unit 7, Moda Mall, Manama, Bahrain
2000 Antwerp, Schuttershofstraat 29, Belgium
Rua Do Rócio, 350 3º Andar, Vila Olimpia , São Paulo – SP, CEP 04552-000, Brazil
1 First Canadian Place, 100 King Street West, Suite 1600, Toronto ON M5X 1G5, Canada
33/F, Wheelock Square, 1717 Nanjing West Road, Jing'an District, Shanghai, China, 200040, China
Praha 1, Pařížská 11/67, 110 00, Czech Republic
56 rue du Faubourg Saint Honore, 75008, Paris, France
(10) Konigsalle 50, D 40212, Dusseldorf, Germany
(11) Suites 2201-02 & 11-14, 22/F Devon House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong
(12) Horvath & Partners DLA Piper, MOMentum Office Complex, 49-51 Csorsz Street, Budapest, H-1124, Hungary
(13)
3-A-1 Taj Apartments, Rao Tula Ram Marg, New Delhi, 110022, India
(14) Suite 9, Bunkilla Plaza, Bracetown Office Park, Clonee, County Meath, Ireland
(15) Via Montenapoleone 12, 20121, Milan, Italy
(16) Ginza YOMIKO Building, 1-8-14 Ginza, Chuo-Ku, Tokyo, 104-0061, Japan
(17) Hawali, Block 4, Building, 26007, PO Box 99, Code 13001, Safat, Kuwait
(18) Avenida Dr. Sun Yat Sen, s/n, Building One Central, 1st Floor, Shops 125-127, Macau Special Adminstrative Region, Macau
(19) Suite 01-02B 1st Floor, Menara Keck Seng, 203 Jalan Bukit Bintang, 55100. Kuala Lumpur, Malaysia
(20) Ejercito Nacional Mexicano 843b, Granada, Miguel Hidalgo, Distrito Federal 11520, Mexico
(21) Pieter Cornelisz. Hoofstraat 48-50, 1071BZ, Amsterdam, Netherlands
(Cheongdam-dong) 459, Dosan-daero, Gangnam-gu, Seoul, Republic of Korea
28. Subsidiary undertakings and investments (continued)
Ref Registered office address
(22) PO Box 783, Doha, Qatar
(23)
(24) Ulitsa Petrovka, 7, 107031, Moscow, Russian Federation
(25) The Plaza Olaya Street, PO Box 2392, Riyadh, 12244, Saudi Arabia
(26)
50 Scotts Road #04-03, 228242, Singapore
(27) Calle Valencia 640, 08026 Barcelona, Spain
(28)
(29)
(30)
(31) Dubai Design District, Building 08, 3rd Floor, PO Box 333266, Dubai, United Arab Emirates
(32) Unit 312 and 313, Third Floor, Building 08, Dubai Design District, Dubai, United Arab Emirates
(33) Horseferry House, Horseferry Road, London, SW1P 2AW, United Kingdom
(34) Adelaide House, London Bridge, London, EC4R 9HA, United Kingdom
(35)
(36) Travessera de gracia 11-p.5 08021, Barcelona, Spain
444 Madison Avenue, New York NY 10022, United States
c/o L&S Trust Services SA, 30 Route de Chêne, 1208, Genève, Switzerland
5 Floor, No 447, Chang Chun Road, Taipei, 105, Taiwan, Province of China
989 Siam Piwat Tower Building, 12A floor, Unit B1, B2 Ramai Road, Kwang Pathumwan, Khet Pathumwan, Bangkok, 10330, Thailand
29. Transactions with non-controlling interests
During the year ended 31 March 2017, the Group entered into two transactions with non-controlling interests. The impact
of these transactions has been presented in the financial statements of the Group in the following manner:
Charge taken through statement of changes in equity
Cash outflow recognised in statement of cash flows
Burberry Middle East
transaction
£m
44.6
(15.1)
Burberry Shanghai
transaction
£m
53.7
(53.7)
Total
£m
98.3
(68.8)
A liability in relation to the remaining deferred consideration to be paid on the Burberry Middle East transaction has also
been recognised. Refer to note 19 for further details on the carrying value of the liability at 31 March 2017.
Burberry Middle East LLC
On 22 April 2016 the Group entered into an agreement to transfer the economic right to the non-controlling interest in
Burberry Middle East LLC to the Group in consideration for payments to be made to the minority shareholder relating
to an agreed percentage of the future revenue of Burberry Middle East LLC and its subsidiaries, Burberry Al Kuwait General
Trading Textiles and Accessories Company WLL and Burberry Qatar WLL, over the period 2016 to 2023, together with fixed
payments of AED 120.0m (£22.6m), relating to profits of Burberry Middle East LLC up to 31 March 2016, to be paid over the
period 2016 to 2019.
In the judgement of management, the fixed payments of AED 120.0m are most appropriately treated as part of the
consideration for purchasing the non-controlling interest in Burberry Middle East LLC. Therefore the transaction has been
accounted for as a purchase of the non-controlling interest in Burberry Middle East LLC and its subsidiaries by the Group,
for fixed and contingent deferred consideration, with the exception of a 12% interest in Burberry Qatar WLL which will
continue to be held by another minority shareholder.
The present value of the fixed and contingent deferred consideration in total, at the date of the transaction, was estimated
to be AED 236.0m (£44.6m). Non-controlling interests with a book value of £25.5m were transferred to retained earnings.
Deferred consideration of AED 80.7m (£15.1m) was subsequently settled in the period.
Burberry (Shanghai) Trading Co., Ltd
On 1 August 2016, the Group acquired the remaining 15% economic interest in its business in China, which was held by
Sparkle Roll Holdings Ltd, a non-Group company, for consideration of CNY 470.9m (£53.7m), through the exercise of a
call option held by the Group. The transaction has been accounted for as a purchase of the 15% non-controlling interest
in Burberry (Shanghai) Trading Co., Ltd, for consideration of £53.7m. Non-controlling interests with a book value of £27.7m
were transferred to retained earnings.
The Group had also granted a put option over the same 15% economic interest to Sparkle Retail Holdings Ltd which was
exercisable after 1 September 2020. The net present value of the expected put option payment was held as a non-current
financial liability. Upon exercise of the call option by the Group, the put option expired and as a result, the value of the liability
at the date of exercise, being £51.0m, was transferred directly to retained earnings.
174
175
175
Notes to the Financial Statements
30. Contingent liabilities
In a number of jurisdictions the Group is subject to claims against it and to tax audits. These typically relate to Value Added
Taxes, sales taxes, customs duties, corporate taxes, transfer pricing, payroll taxes, various contractual claims and other
matters. During the year, the Group reached a resolution of its dispute with the Spanish tax authorities regarding the tax
treatment of interest paid during the year ended 31 March 2005. Where appropriate, the estimated cost of known obligations
have been provided in these financial statements in accordance with the Group’s accounting policies but these matters are
inherently difficult to quantify. While changes to the amounts that may be payable could be material to the results or cash
flows of the Group in the period in which they are recognised, the Group does not currently expect the outcome of these
contingent liabilities to have a material effect on the Group’s financial condition.
31. Events after the balance sheet date
On 3 April 2017 Burberry entered into an agreement with Coty Geneva SARL Versoix (Coty) to grant Coty a licence for its
fragrance and beauty products and to transfer Burberry’s Beauty operations to Coty. Under this agreement, Coty will make
an upfront payment to Burberry of £130m for the licence and related transfer of the Beauty operations. Coty will also pay
Burberry for assets transferring, principally inventory, estimated to be approximately £50m subject to any completion
adjustments. Burberry will receive further payments, relating to royalties, over the term of the licence.
This agreement is expected to complete in October 2017. Burberry will receive the above sums on completion of the
transaction. Associated costs will be incurred, currently estimated to be £30m. The licence agreement and the business
transfer will be accounted for in the financial statements for the year ending 31 March 2018. Some of the costs arising in
relation to the transaction have been incurred and recognised in the current period (refer to note 6).
176
176
Notes to the Financial Statements
Five Year Summary
30. Contingent liabilities
In a number of jurisdictions the Group is subject to claims against it and to tax audits. These typically relate to Value Added
Taxes, sales taxes, customs duties, corporate taxes, transfer pricing, payroll taxes, various contractual claims and other
matters. During the year, the Group reached a resolution of its dispute with the Spanish tax authorities regarding the tax
treatment of interest paid during the year ended 31 March 2005. Where appropriate, the estimated cost of known obligations
have been provided in these financial statements in accordance with the Group’s accounting policies but these matters are
inherently difficult to quantify. While changes to the amounts that may be payable could be material to the results or cash
flows of the Group in the period in which they are recognised, the Group does not currently expect the outcome of these
contingent liabilities to have a material effect on the Group’s financial condition.
31. Events after the balance sheet date
On 3 April 2017 Burberry entered into an agreement with Coty Geneva SARL Versoix (Coty) to grant Coty a licence for its
fragrance and beauty products and to transfer Burberry’s Beauty operations to Coty. Under this agreement, Coty will make
an upfront payment to Burberry of £130m for the licence and related transfer of the Beauty operations. Coty will also pay
Burberry for assets transferring, principally inventory, estimated to be approximately £50m subject to any completion
adjustments. Burberry will receive further payments, relating to royalties, over the term of the licence.
This agreement is expected to complete in October 2017. Burberry will receive the above sums on completion of the
transaction. Associated costs will be incurred, currently estimated to be £30m. The licence agreement and the business
transfer will be accounted for in the financial statements for the year ending 31 March 2018. Some of the costs arising in
relation to the transaction have been incurred and recognised in the current period (refer to note 6).
Year to 31 March
Revenue by channel
Retail
Wholesale
Retail/Wholesale
Licensing
Total revenue
Profit by channel
Retail/Wholesale
Licensing
Adjusted operating profit1
Segmental analysis
Retail/Wholesale gross margin
Retail/Wholesale adjusted operating expenses as a percentage of sales1
Retail/Wholesale adjusted operating margin1
Licensing adjusted operating margin
Summary profit analysis
Adjusted operating profit1
Net finance (charge)/income1
Adjusted profit before taxation1
Adjusting items
Profit before taxation
Taxation
Non-controlling interest
Attributable profit
Retail/Wholesale revenue by product division
Accessories2
Womens
Mens
Childrens/Other
Beauty
Retail/Wholesale revenue by destination
Asia Pacific
EMEIA3
Americas
2013
£m
1,416.6
472.7
1,889.3
109.4
1,998.7
£m
335.6
92.5
428.1
%
70.6
52.8
17.8
84.6
£m
428.1
(0.3)
427.8
(77.1)
350.7
(91.5)
(4.9)
254.3
£m
729.1
618.2
464.2
72.6
5.2
£m
745.3
680.7
463.3
Continuing operations
2014
£m
1,622.6
628.0
2,250.6
79.2
2,329.8
£m
393.5
66.8
460.3
%
70.2
52.7
17.5
84.3
£m
460.3
0.7
461.0
(16.6)
444.4
(112.1)
(9.8)
322.5
£m
816.1
684.0
520.8
78.4
151.3
£m
870.3
811.5
568.8
2015
£m
1,807.4
648.1
2,455.5
67.7
2,523.2
2016
£m
1,837.7
634.6
2,472.3
42.4
2,514.7
£m
399.2
56.0
455.2
%
69.2
52.9
16.3
82.7
£m
455.2
0.6
455.8
(11.2)
444.6
(103.5)
(4.8)
336.3
£m
892.5
743.0
557.5
77.7
184.8
£m
938.1
869.0
648.4
£m
380.9
36.9
417.8
%
69.6
54.2
15.4
87.0
£m
417.8
2.8
420.6
(5.0)
415.6
(101.0)
(5.1)
309.5
£m
901.7
729.0
548.4
90.7
202.5
£m
932.9
878.5
660.9
Financial KPIs
Total revenue growth4
Adjusted PBT growth1,4
Adjusted retail/wholesale return on invested capital (ROIC)1
Comparable store sales growth
Adjusted retail/wholesale operating margin1
Adjusted diluted EPS growth1
Year to 31 March
Earnings and dividends
Adjusted earnings per share – diluted1
Earnings per share – diluted
Diluted weighted average number of ordinary shares (millions)
Dividend per share (on a paid basis)
+8%
+13%
19.0%
+5%
17.8%
+14%
2013
pence
per share
70.0
57.0
446.5
26.0
+17%
+8%
19.6%
+12%
17.5%
+8%
2014
pence
per share
75.4
72.1
447.3
29.8
+11%
+7%
17.9%
+9%
16.3%
+2%
2015
pence
per share
76.9
75.1
447.8
32.9
-1%
-10%
14.7%
-1%
15.4%
-9%
2016
pence
per share
69.9
69.4
446.1
35.7
2017
£m
2,127.2
613.9
2,741.1
24.9
2,766.0
£m
437.0
21.7
458.7
%
69.6
53.7
15.9
87.1
£m
458.7
3.7
462.4
(67.6)
394.8
(107.1)
(0.9)
286.8
£m
1,033.2
791.9
623.5
108.1
184.4
£m
1,069.0
991.2
680.9
-2%
-21%
15.4%
+1%
15.9%
+11%
2017
pence
per share
77.4
64.9
442.2
37.3
1 Excludes the impact of adjusting items.
2 The Accessories revenue for the year ended 31 March 2013 has been restated to exclude Beauty retail sales.
3 EMEIA comprises Europe, Middle East, India and Africa. As a result of an internal reorganisation, the Europe and Rest of World divisions were integrated to form
EMEIA, effective from 1 April 2013. The results for the year ended 31 March 2013 have been re-presented to reflect this organisational change.
4 Growth rate is year-on-year underlying change, i.e. at constant exchange rates.
176
177
177
Year to 31 March
Net Cash Flow
Adjusted operating profit1
Restructuring spend
Depreciation and amortisation1
Employee share scheme costs
Proceeds/(payment) on equity swap contracts
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase in payables and provisions1
Other non-cash items
Cash flow from operations
Net interest
Tax paid
Net cash flow from operations
Capital expenditure
Proceeds from disposal of non-current assets
Free cash flow
Payment to terminate licence relationship
Capital contributions from JV partners
Acquisitions
Dividends
Purchase of shares through share buy-back
Other
Exchange difference
Total movement in net cash
Five Year Summary
2013
£m
428.1
(1.0)
111.2
24.9
–
(39.2)
(32.0)
17.6
13.4
523.0
0.9
(99.0)
424.9
(175.9)
–
249.0
(144.1)
0.4
(1.0)
(113.5)
–
(45.3)
12.8
(41.7)
2014
£m
460.3
(0.7)
123.7
25.4
15.7
(68.2)
(73.8)
42.3
10.8
535.5
0.8
(111.1)
425.2
(154.0)
3.0
274.2
–
0.7
(2.6)
(130.7)
–
(21.8)
(13.9)
105.9
2015
£m
455.2
–
123.7
21.0
(0.2)
(15.1)
(43.8)
19.7
7.6
568.1
1.2
(114.4)
454.9
(155.7)
1.3
300.5
–
0.4
(3.4)
(145.3)
–
(16.4)
13.9
149.7
2016
£m
417.8
–
132.2
(0.3)
(1.6)
(49.3)
(31.7)
9.1
26.8
503.0
3.1
(94.8)
411.3
(138.0)
0.5
273.8
–
–
–
(158.4)
–
(8.7)
1.4
108.1
2017
£m
458.7
(16.7)
144.0
13.1
–
8.4
19.7
27.6
33.8
688.6
3.7
(131.6)
560.7
(104.1)
8.5
465.1
–
–
(68.8)
(164.5)
(97.2)
(11.7)
26.0
148.9
Net cash
296.6
402.5
552.2
660.3
809.2
As at 31 March
Balance Sheet
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Taxation (including deferred taxation)
Net cash
Other net assets
Net assets
Reconciliation of Adjusted Retail/Wholesale ROIC
Retail/Wholesale adjusted operating profit1
Adjusted effective tax rate1
Retail/Wholesale adjusted operating profit after tax1
Net assets excluding licensing segment assets
Net cash
Assumed lease assets2,3
Exclude adjusting items:
Licence intangible asset
Put option liability
Deferred consideration
Restructuring liabilities/other
Adjusted operating assets
Average operating assets
Adjusted Retail/Wholesale ROIC
1 Excludes the impact of adjusting items.
2013
£m
210.2
409.1
351.0
199.5
(447.8)
45.3
296.6
(11.1)
1,052.8
2013
£m
335.6
25.8%
249.0
1,048.6
(296.6)
713.0
(70.9)
55.0
–
1.9
1,451.0
1,309.2
19.0%
2014
£m
195.4
398.4
419.8
273.7
(507.2)
47.4
402.5
(22.0)
1,208.0
2014
£m
393.5
24.7%
296.3
1,202.2
(402.5)
782.5
(56.0)
51.3
–
1.5
1,579.0
1,515.0
19.6%
2015
£m
193.5
436.5
436.6
320.8
(523.1)
68.6
552.2
(33.6)
1,451.5
2015
£m
399.2
23.4%
305.8
1,448.9
(552.2)
922.0
(41.1)
54.4
–
0.8
1,832.8
1,705.9
17.9%
2016
£m
189.6
426.2
486.7
351.9
(501.9)
56.4
660.3
(48.3)
1,620.9
2016
£m
380.9
24.7%
286.7
1,617.4
(660.3)
1,101.0
(26.1)
45.8
–
–
2,077.8
1,955.3
14.7%
2017
£m
170.1
399.6
505.3
352.0
(561.0)
83.7
809.2
(61.1)
1,697.8
2017
£m
437.0
25.8%
324.3
1,694.2
(809.2)
1,197.0
–
–
34.7
11.3
2,128.0
2,102.9
15.4%
2 Assumed operating lease assets and assumed operating lease debt are calculated as a factor of five times minimum operating lease payments, excluding the impact
of charges and subsequent utilisations relating to onerous lease provisions. Net charges for onerous lease provisions during the year ended 31 March 2017 were
£7.9m (2016: £20.1m) and £8.3m of existing onerous lease provisions were utilised (2016: £5.0m).
3 Assumed operating lease assets as at 31 March 2016 have been restated to adjust for the impact of utilisation of existing onerous lease provisions.
178
178
Five Year Summary
Independent Auditors’ Report to the Members of Burberry Group plc
Year to 31 March
Net Cash Flow
Adjusted operating profit1
Restructuring spend
Depreciation and amortisation1
Employee share scheme costs
Proceeds/(payment) on equity swap contracts
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase in payables and provisions1
Other non-cash items
Cash flow from operations
Net interest
Tax paid
Net cash flow from operations
Capital expenditure
Proceeds from disposal of non-current assets
Free cash flow
Payment to terminate licence relationship
Capital contributions from JV partners
Acquisitions
Dividends
Purchase of shares through share buy-back
Other
Exchange difference
Total movement in net cash
Net cash
As at 31 March
Balance Sheet
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Taxation (including deferred taxation)
Net cash
Other net assets
Net assets
Reconciliation of Adjusted Retail/Wholesale ROIC
Retail/Wholesale adjusted operating profit1
Adjusted effective tax rate1
Retail/Wholesale adjusted operating profit after tax1
Net assets excluding licensing segment assets
Net cash
Assumed lease assets2,3
Exclude adjusting items:
Licence intangible asset
Put option liability
Deferred consideration
Restructuring liabilities/other
Adjusted operating assets
Average operating assets
Adjusted Retail/Wholesale ROIC
1 Excludes the impact of adjusting items.
296.6
402.5
552.2
660.3
809.2
2014
£m
460.3
(0.7)
123.7
25.4
15.7
(68.2)
(73.8)
42.3
10.8
535.5
0.8
(111.1)
425.2
(154.0)
3.0
274.2
–
0.7
(2.6)
(130.7)
–
(21.8)
(13.9)
105.9
2014
£m
195.4
398.4
419.8
273.7
(507.2)
47.4
402.5
(22.0)
2014
£m
393.5
24.7%
296.3
1,202.2
(402.5)
782.5
(56.0)
51.3
–
1.5
1,579.0
1,515.0
19.6%
2015
£m
455.2
–
123.7
21.0
(0.2)
(15.1)
(43.8)
19.7
7.6
568.1
1.2
(114.4)
454.9
(155.7)
1.3
300.5
–
0.4
(3.4)
(145.3)
–
(16.4)
13.9
149.7
2015
£m
193.5
436.5
436.6
320.8
(523.1)
68.6
552.2
(33.6)
2015
£m
399.2
23.4%
305.8
1,448.9
(552.2)
922.0
(41.1)
54.4
–
0.8
1,832.8
1,705.9
17.9%
2016
£m
417.8
–
132.2
(0.3)
(1.6)
(49.3)
(31.7)
9.1
26.8
503.0
3.1
(94.8)
411.3
(138.0)
0.5
273.8
–
–
–
–
(158.4)
(8.7)
1.4
108.1
2016
£m
189.6
426.2
486.7
351.9
(501.9)
56.4
660.3
(48.3)
2016
£m
380.9
24.7%
286.7
1,617.4
(660.3)
1,101.0
(26.1)
45.8
–
–
2,077.8
1,955.3
14.7%
2017
£m
458.7
(16.7)
144.0
13.1
–
8.4
19.7
27.6
33.8
688.6
3.7
(131.6)
560.7
(104.1)
8.5
465.1
–
–
(68.8)
(164.5)
(97.2)
(11.7)
26.0
148.9
2017
£m
170.1
399.6
505.3
352.0
(561.0)
83.7
809.2
(61.1)
2017
£m
437.0
25.8%
324.3
1,694.2
(809.2)
1,197.0
–
–
34.7
11.3
2,128.0
2,102.9
15.4%
1,052.8
1,208.0
1,451.5
1,620.9
1,697.8
2013
£m
428.1
(1.0)
111.2
24.9
–
(39.2)
(32.0)
17.6
13.4
523.0
0.9
(99.0)
424.9
(175.9)
–
249.0
(144.1)
0.4
(1.0)
(113.5)
–
(45.3)
12.8
(41.7)
2013
£m
210.2
409.1
351.0
199.5
(447.8)
45.3
296.6
(11.1)
2013
£m
335.6
25.8%
249.0
1,048.6
(296.6)
713.0
(70.9)
55.0
–
1.9
1,451.0
1,309.2
19.0%
178
2 Assumed operating lease assets and assumed operating lease debt are calculated as a factor of five times minimum operating lease payments, excluding the impact
of charges and subsequent utilisations relating to onerous lease provisions. Net charges for onerous lease provisions during the year ended 31 March 2017 were
£7.9m (2016: £20.1m) and £8.3m of existing onerous lease provisions were utilised (2016: £5.0m).
3 Assumed operating lease assets as at 31 March 2016 have been restated to adjust for the impact of utilisation of existing onerous lease provisions.
Report on the Company financial statements
Our opinion
In our opinion, Burberry Group plc’s Company financial statements (the “financial statements”):
· give a true and fair view of the state of the Company’s affairs as at 31 March 2017;
· 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.
What we have audited
The financial statements, included within the Annual Report, comprise:
· the Company Balance Sheet as at 31 March 2017;
· the Company Statement of Changes in Equity for the year then ended; and
· the Notes to the Financial Statements, which include a summary of significant accounting policies and other
explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial
statements. These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is United Kingdom
Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law (United Kingdom
Generally Accepted Accounting Practice).
Other required reporting
Consistency of other information and compliance with applicable requirements
Companies Act 2006 reporting
In our opinion, based in the work undertaken in the course of the audit:
statements are prepared is consistent with the financial statements; and
· the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial
· the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the Company and its environment obtained in the course of the
audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors’
Report. We have nothing to report in this respect.
ISAs (UK & Ireland) reporting
Under International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”) we are required to report to you if, in our
opinion, information in the Annual Report is:
· materially inconsistent with the information in the audited financial statements; or
· apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the
· otherwise misleading.
course of performing our audit; or
We have no exceptions to report arising from this responsibility.
179
179
Independent Auditors’ Report to the Members of Burberry Group plc
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
· we have not received all the information and explanations we require for our audit; or
· adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been
· the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with
received from branches not visited by us; or
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Directors’ remuneration report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
Other Companies Act 2006 reporting
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. We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 118, the directors are responsible for
the preparation of the 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 financial statements in accordance with applicable law and ISAs
(UK & 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.
180
180
Independent Auditors’ Report to the Members of Burberry Group plc
Independent Auditors’ Report to the Members of Burberry Group plc
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
· we have not received all the information and explanations we require for our audit; or
· adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been
received from branches not visited by us; or
· the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Directors’ remuneration report – Companies Act 2006 opinion
the Companies Act 2006.
Other Companies Act 2006 reporting
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
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. We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 118, the directors are responsible for
the preparation of the 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 financial statements in accordance with applicable law and ISAs
(UK & 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.
What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland). 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:
and adequately disclosed;
· whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied
· the reasonableness of significant accounting estimates made by the directors; and
· the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary
to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies
with the audited financial statements and to identify any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic
Report and the Directors’ Report, we consider those reports include the disclosures required by applicable legal requirements.
Other matters
We have reported separately on the Group financial statements of Burberry Group plc for the year ended 31 March 2017.
Paul Cragg
Senior Statutory Auditor,
for and on behalf of PricewaterhouseCoopers LLP,
Chartered Accountants and Statutory Auditors,
London, 17 May 2017
180
181
181
Company Balance Sheet
Fixed assets
Investments in subsidiaries
Current assets
Trade and other receivables – amounts falling due after more than one year
Trade and other receivables – amounts falling due within one year
Derivative assets maturing after more than one year
Derivative assets maturing within one year
Cash at bank and in hand
Creditors – amounts falling due within one year
Derivative liabilities maturing within one year
Net current assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Provisions for liabilities
Net assets
Equity
Called up share capital
Share premium account
Capital reserve
Hedging reserve
Profit and loss account
Total equity
Note
D
E
E
F
F
G
As at
31 March
2017
£m
1,808.4
1,808.4
As at
31 March
2016
£m
1,712.7
1,712.7
423.8
246.5
1.1
1.0
0.3
672.7
(60.1)
–
612.6
2,421.0
(804.9)
(1.0)
1,615.1
0.2
211.4
0.9
4.6
1,398.0
1,615.1
497.2
57.1
0.3
0.2
0.2
555.0
(59.6)
(0.1)
495.3
2,208.0
(801.5)
(1.0)
1,405.5
0.2
209.8
0.9
4.6
1,190.0
1,405.5
Profit for the year on ordinary activities, was £473.1m (2016: £460.1m). The directors consider that, at 31 March 2017, £499.8m
(2016: £485.8m) of the profit and loss account is non-distributable.
The financial statements on pages 182 to 189 were approved by the Board on 17 May 2017 and signed on its behalf by:
Sir John Peace
Chairman
Julie Brown
Chief Operating and Chief Financial Officer
182
182
Company Balance Sheet
Company Statement of Changes in Equity
Balance as at 31 March 2015
Profit for the year
Other comprehensive income:
Tax on net investment hedges transferred to income
Total comprehensive income for the year
Employee share incentive schemes
Value of share options granted
Exercise of share options
Purchase of own shares by ESOP trusts
Dividends paid in the year
Balance as at 31 March 2016
Profit for the year
Total comprehensive income for the year
Employee share incentive schemes
Value of share options granted
Exercise of share options
Purchase of own shares
Share buy-back
Held by ESOP trusts
Dividends paid in the year
Balance as at 31 March 2017
H
H
Called up
share
capital
£m
Note
Share
premium
account
£m
207.6
–
–
–
–
2.2
–
–
209.8
–
–
–
1.6
–
–
–
Capital
reserve
£m
Hedging
reserve
£m
0.9
–
–
–
–
–
–
–
0.9
–
–
–
–
–
–
–
4.1
–
0.5
0.5
–
–
–
–
4.6
–
–
–
–
–
–
–
Profit and
loss
account
£m
898.8
460.1
Total
equity
£m
1,111.6
460.1
–
460.1
0.5
460.6
(0.3)
–
(10.9)
(157.7)
1,190.0
473.1
473.1
13.1
–
(100.5)
(13.3)
(164.4)
(0.3)
2.2
(10.9)
(157.7)
1,405.5
473.1
473.1
13.1
1.6
(100.5)
(13.3)
(164.4)
0.2
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
0.2
211.4
0.9
4.6
1,398.0
1,615.1
Fixed assets
Investments in subsidiaries
Current assets
Trade and other receivables – amounts falling due after more than one year
Trade and other receivables – amounts falling due within one year
Derivative assets maturing after more than one year
Derivative assets maturing within one year
Cash at bank and in hand
Creditors – amounts falling due within one year
Derivative liabilities maturing within one year
Net current assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Provisions for liabilities
Net assets
Equity
Called up share capital
Share premium account
Capital reserve
Hedging reserve
Profit and loss account
Total equity
Note
D
E
E
F
F
G
As at
31 March
2017
£m
1,808.4
1,808.4
423.8
246.5
1.1
1.0
0.3
672.7
(60.1)
–
612.6
2,421.0
(804.9)
(1.0)
1,615.1
0.2
211.4
0.9
4.6
1,398.0
1,615.1
As at
31 March
2016
£m
1,712.7
1,712.7
497.2
57.1
0.3
0.2
0.2
555.0
(59.6)
(0.1)
495.3
2,208.0
(801.5)
(1.0)
1,405.5
0.2
209.8
0.9
4.6
1,190.0
1,405.5
Profit for the year on ordinary activities, was £473.1m (2016: £460.1m). The directors consider that, at 31 March 2017, £499.8m
(2016: £485.8m) of the profit and loss account is non-distributable.
The financial statements on pages 182 to 189 were approved by the Board on 17 May 2017 and signed on its behalf by:
Sir John Peace
Chairman
Julie Brown
Chief Operating and Chief Financial Officer
182
183
183
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 a public company
which is limited by shares and is listed on the London Stock Exchange. The Company’s principal business is investment and
it is incorporated and domiciled in the UK. The Company is registered in England and Wales and the address of its registered
office is Horseferry House, Horseferry Road, London, SW1P 2AW. The Company is the sponsoring entity of The Burberry Group
plc ESOP Trust and The Burberry Group plc SIP Trust (collectively known as the ESOP trusts). These financial statements have
been prepared by including the ESOP trusts within the financial statements of the Company. The purpose of the ESOP trusts
is to purchase shares of the Company in order to satisfy Group share-based payment arrangements.
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 controlled by the Company directly or indirectly.
The financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced
Disclosure Framework’ (‘FRS 101’). The financial statements have been prepared on a going concern basis under the historical
cost convention, as modified by derivative financial asset and derivative financial liabilities measured at fair value through
profit or loss, and in accordance with the Companies Act 2006. As permitted by Section 408 of the Companies Act 2006,
the Company has not presented its own Income Statement.
The preparation of the financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates.
It also requires management to exercise judgement in applying the Company’s accounting policies (see note C).
Financial Reporting Standard 101 – reduced disclosure exemptions
The Company has taken advantage of the applicable disclosure exemptions permitted by FRS 101 in the financial statements,
which are summarised below:
Standard
IFRS 7, ‘Financial Instruments: Disclosures’
IFRS 13, ‘Fair Value Measurement’
Disclosure exemption
• Full exemption
• para 91-99 – disclosure of valuation techniques and inputs used for fair value measurement
of assets and liabilities
IAS 1, ‘Presentation of the Financial Statements’ • para 10(d) – statement of cash flows
• para 10(f) – a statement of financial position as at the beginning of the preceding period when
an entity applies an accounting policy retrospectively or makes a retrospective statement
of items in its financial statements, or when it reclassifies items in its financial statements
• para 16 – statement of compliance with all IFRS
• para 38 – present comparative information in respect of paragraph 79(a)(iv) of IAS 1
• para 38A – requirement for minimum of two primary statements, including cash
flow statements
• para 38B-D – additional comparative information
• para 40A-D – requirements for a third statement of financial position
• para 111 – cash flow statement information
• para 134-136 – capital management disclosures
• Full exemption
• para 30-31 – requirement for the disclosure of information when an entity has not
applied a new IFRS that has been issued but is not yet effective
• para 17 – key management compensation
• The requirements to disclose related party transactions entered into between two or
more members of a group, provided that any subsidiary which is a party to the transaction
is wholly owned by such a member
IAS 7, ‘Statement of Cash Flows’
IAS 8, ‘Accounting Policies, Changes
in Accounting Estimates and Errors’
IAS 24, ‘Related Party Disclosures’
IAS 36, ‘Impairment of Assets’
• para 134(d)-134(f) and 135(c)-135(e)
184
184
Notes to the Company Financial Statements
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 a public company
which is limited by shares and is listed on the London Stock Exchange. The Company’s principal business is investment and
it is incorporated and domiciled in the UK. The Company is registered in England and Wales and the address of its registered
office is Horseferry House, Horseferry Road, London, SW1P 2AW. The Company is the sponsoring entity of The Burberry Group
plc ESOP Trust and The Burberry Group plc SIP Trust (collectively known as the ESOP trusts). These financial statements have
been prepared by including the ESOP trusts within the financial statements of the Company. The purpose of the ESOP trusts
is to purchase shares of the Company in order to satisfy Group share-based payment arrangements.
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 controlled by the Company directly or indirectly.
The financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced
Disclosure Framework’ (‘FRS 101’). The financial statements have been prepared on a going concern basis under the historical
cost convention, as modified by derivative financial asset and derivative financial liabilities measured at fair value through
profit or loss, and in accordance with the Companies Act 2006. As permitted by Section 408 of the Companies Act 2006,
the Company has not presented its own Income Statement.
The preparation of the financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates.
It also requires management to exercise judgement in applying the Company’s accounting policies (see note C).
Financial Reporting Standard 101 – reduced disclosure exemptions
The Company has taken advantage of the applicable disclosure exemptions permitted by FRS 101 in the financial statements,
which are summarised below:
Standard
Disclosure exemption
IFRS 7, ‘Financial Instruments: Disclosures’
• Full exemption
IFRS 13, ‘Fair Value Measurement’
• para 91-99 – disclosure of valuation techniques and inputs used for fair value measurement
of assets and liabilities
IAS 1, ‘Presentation of the Financial Statements’ • para 10(d) – statement of cash flows
• para 10(f) – a statement of financial position as at the beginning of the preceding period when
an entity applies an accounting policy retrospectively or makes a retrospective statement
of items in its financial statements, or when it reclassifies items in its financial statements
• para 16 – statement of compliance with all IFRS
• para 38 – present comparative information in respect of paragraph 79(a)(iv) of IAS 1
• para 38A – requirement for minimum of two primary statements, including cash
flow statements
• para 38B-D – additional comparative information
• para 40A-D – requirements for a third statement of financial position
• para 111 – cash flow statement information
• para 134-136 – capital management disclosures
IAS 7, ‘Statement of Cash Flows’
• Full exemption
IAS 8, ‘Accounting Policies, Changes
in Accounting Estimates and Errors’
• para 30-31 – requirement for the disclosure of information when an entity has not
applied a new IFRS that has been issued but is not yet effective
IAS 24, ‘Related Party Disclosures’
• para 17 – key management compensation
• The requirements to disclose related party transactions entered into between two or
more members of a group, provided that any subsidiary which is a party to the transaction
is wholly owned by such a member
IAS 36, ‘Impairment of Assets’
• para 134(d)-134(f) and 135(c)-135(e)
B. Accounting policies
The following principal accounting policies have been applied in the preparation of these financial statements. These policies
have been consistently applied to all the years presented, unless otherwise stated:
Going concern
Taking into account reasonable possible changes in trading performance and after making enquiries, the directors
consider it appropriate to continue to adopt the going concern basis in preparing the financial statements for the year ended
31 March 2017.
Share schemes
The Group operates a number of equity-settled share-based compensation schemes, under which services are received from
employees (including executive directors) as consideration for equity instruments of the Company. The cost of the share-based
incentives is measured with reference to the fair value of the equity instruments awarded at the date of grant. Appropriate
option pricing models, including Black-Scholes and Monte Carlo, are used to determine the fair value of the awards made.
The fair value takes into account the impact of any market performance conditions, but the impact of non-market performance
conditions is not considered in determining the fair value on the date of grant. 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.
In some circumstances, employees may provide services in advance of the grant date. The grant date fair value is estimated
for the purposes of recognising the expense during the period between the service commencement period and the grant date.
The grant by the Company of options over its equity instruments to employees of subsidiary undertakings in the Group is
treated as a capital contribution. In the Company’s financial statements, the cost of the share-based incentives is recognised
over the vesting period of the awards as an increase in investment in subsidiary undertakings, with a corresponding increase
in equity. Where amounts are received from Group companies in relation to equity instruments granted to the employees
of the subsidiary undertaking, the amount is derecognised from investments in Group companies, to the extent that it was
initially treated as a capital contribution, with any remaining amounts recognised as an increase in equity.
When options and awards are exercised, they are settled either via issue of new shares in the Company, or through shares held
in the ESOP trusts, depending on the terms and conditions of the relevant scheme. The proceeds received from the exercises,
net of any directly attributable transaction costs, are credited to share capital and share premium. Share-based payments
disclosures relevant to the Company are presented within note 26 to the consolidated financial statements.
Dividend distribution
Dividend distributions to Burberry Group plc’s shareholders are recognised as a liability in the year 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 subsidiaries
Investments in subsidiaries are stated at cost, less any provisions to reflect impairment in value.
Impairment of investments in subsidiaries
Investments in subsidiaries are not subject to amortisation and are tested annually for impairment. An impairment loss is recognised
for the amount by which the carrying value 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 (cash-generating units).
184
185
185
Notes to the Company Financial Statements
B. Accounting policies (continued)
Taxation
Tax expense represents the sum of the tax currently payable and deferred tax charge.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit 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 current tax liability is calculated using tax rates which have been enacted or substantively enacted by the
balance sheet date.
Deferred income tax is recognised, using the liabilities method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the 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 Company and it is probable that the temporary difference will not
reverse in the foreseeable future.
Financial instruments
A financial instrument is initially recognised at fair value on the Balance Sheet when the Company 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, with the exception of derivative financial instruments, are stated at
amortised cost using the effective interest rate method. The fair value of the financial assets and liabilities held at amortised
cost approximate their carrying amount due to the use of market interest rates.
The Company’s primary categories of financial instruments are listed below:
Cash at bank and in hand
On the Balance Sheet, cash at bank and in hand comprises cash held with banks.
Trade and other receivables
Trade and other receivables are included in current assets. Receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest rate method, less provision for impairment. A provision for impairment
of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due
according to the original terms of receivables. The amount of the movement in the provision is recognised in the
Income Statement.
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 rate method. Borrowings are classified
in creditors amounts falling due within one year unless the Company has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
186
186
Notes to the Company Financial Statements
Notes to the Company Financial Statements
B. Accounting policies (continued)
Taxation
Tax expense represents the sum of the tax currently payable and deferred tax charge.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit 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 current tax liability is calculated using tax rates which have been enacted or substantively enacted by the
balance sheet date.
Deferred income tax is recognised, using the liabilities method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the 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 Company and it is probable that the temporary difference will not
reverse in the foreseeable future.
Financial instruments
A financial instrument is initially recognised at fair value on the Balance Sheet when the Company 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, with the exception of derivative financial instruments, are stated at
amortised cost using the effective interest rate method. The fair value of the financial assets and liabilities held at amortised
cost approximate their carrying amount due to the use of market interest rates.
The Company’s primary categories of financial instruments are listed below:
Cash at bank and in hand
On the Balance Sheet, cash at bank and in hand comprises cash held with banks.
Trade and other receivables
Trade and other receivables are included in current assets. Receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest rate method, less provision for impairment. A provision for impairment
of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due
according to the original terms of receivables. The amount of the movement in the provision is recognised in the
Income Statement.
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 rate method. Borrowings are classified
in creditors amounts falling due within one year unless the Company has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
B. Accounting policies (continued)
Financial instruments (continued)
Derivative financial instruments
The Company uses equity swap contracts to economically hedge its exposure to fluctuations in the Company’s share price
which impacts the social security costs payable by Group companies in relation to share-based compensation schemes.
The equity swap contracts are initially recognised at fair value at the trade date and classified as held for trading. All subsequent
changes in fair value are recognised in the Income Statement up to the maturity date.
Foreign currency translation
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic environment in which
the Company operates (the functional currency). The financial statements are presented in Sterling which is the Company’s
functional and presentation currency.
Transactions in foreign currencies
Transactions denominated in foreign currencies are translated into the functional currency at the exchange rate prevailing at
the date of the transaction. 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.
Called up share capital
Called up share capital is 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 the Company purchases its own equity share capital (treasury shares), the consideration paid, including any directly
attributable incremental costs, is deducted from equity attributable to owners of the Company 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 owners
of the Company.
C. Key sources of estimation and judgement
Preparation of the financial statements in conformity with FRS 101 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 judgements 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 investments in subsidiaries
Investments in subsidiaries are not subject to amortisation and are tested annually for impairment. When a review for potential
impairment is conducted, the recoverable amount is determined based on the higher of an investment’s fair value less costs
to sell and value-in-use calculations prepared on the basis of management’s assumptions and estimates. Refer to note D for
further details of investments.
Impairment of trade and other receivables
The Company is required to make an estimate of the recoverable value of receivables. When assessing potential impairment
of receivables, management considers factors including any specific known problems or risks. Refer to note E for further
details on the net carrying value of trade and other receivables.
186
187
187
Notes to the Company Financial Statements
D. Investments in subsidiaries
Cost
As at 1 April 2016
Additions
Impairment charge
As at 31 March 2017
£m
1,712.7
96.7
(1.0)
1,808.4
During the year the Company increased its investments in Burberry Haymarket Limited by £66.5m, Thomas Burberry Holdings
Limited by £16.3m and Burberry Limited by £13.9m.
The directors consider that the carrying value of the investments in subsidiaries is supported by their underlying net assets and
value generated by their operations. The subsidiary undertakings and investments of the Burberry Group are listed in note 28
of the Group financial statements.
E. Trade and other receivables
Amounts owed by Group companies
Prepayments
Trade and other receivables – amounts falling due after more than one year
Amounts owed by Group companies
Prepayments
Trade and other receivables – amounts falling due within one year
Total trade and other receivables
All amounts owed by Group companies are interest bearing.
As at
31 March
2017
£m
423.2
0.6
423.8
246.3
0.2
246.5
670.3
As at
31 March
2016
£m
496.4
0.8
497.2
56.7
0.4
57.1
554.3
The interest rate earned is based on relevant national LIBOR equivalents plus 0.5% to 0.9%. These loans are unsecured and
repayable between 1 June 2017 and 17 June 2021.
F. Creditors
Amounts owed to Group companies
Creditors – amounts falling due after more than one year
Amounts owed to Group companies
Other payables
Accruals
Creditors – amounts falling due within one year
Total creditors
As at
31 March
2017
£m
804.9
804.9
56.6
3.3
0.2
60.1
865.0
As at
31 March
2016
£m
801.5
801.5
59.4
–
0.2
59.6
861.1
Amounts owed to Group companies falling due after more than one year are interest bearing. The interest rate earned is based
on LIBOR plus 0.5% to 0.9%. These loans are unsecured and repayable between 17 June 2019 and 17 June 2020.
All amounts owed to Group companies falling due within one year are unsecured, interest free and repayable on demand.
G. Called up share capital
Allotted, called up and fully paid share capital
Ordinary shares of 0.05p (2016: 0.05p) each
As at 1 April 2016
Allotted on exercise of options during the year
As at 31 March 2017
Number
445,037,254
135,811
445,173,065
£m
0.2
–
0.2
188
188
D. Investments in subsidiaries
Cost
As at 1 April 2016
Additions
Impairment charge
As at 31 March 2017
of the Group financial statements.
E. Trade and other receivables
During the year the Company increased its investments in Burberry Haymarket Limited by £66.5m, Thomas Burberry Holdings
Limited by £16.3m and Burberry Limited by £13.9m.
The directors consider that the carrying value of the investments in subsidiaries is supported by their underlying net assets and
value generated by their operations. The subsidiary undertakings and investments of the Burberry Group are listed in note 28
As at
31 March
As at
31 March
Amounts owed by Group companies
Prepayments
Trade and other receivables – amounts falling due after more than one year
Amounts owed by Group companies
Prepayments
Trade and other receivables – amounts falling due within one year
Total trade and other receivables
All amounts owed by Group companies are interest bearing.
The interest rate earned is based on relevant national LIBOR equivalents plus 0.5% to 0.9%. These loans are unsecured and
repayable between 1 June 2017 and 17 June 2021.
As at
31 March
As at
31 March
£m
1,712.7
96.7
(1.0)
1,808.4
2016
£m
496.4
0.8
497.2
56.7
0.4
57.1
554.3
2016
£m
801.5
801.5
59.4
–
0.2
59.6
861.1
£m
0.2
–
0.2
2017
£m
423.2
0.6
423.8
246.3
0.2
246.5
670.3
2017
£m
804.9
804.9
56.6
3.3
0.2
60.1
865.0
Number
445,037,254
135,811
445,173,065
F. Creditors
Amounts owed to Group companies
Creditors – amounts falling due after more than one year
Amounts owed to Group companies
Other payables
Accruals
Total creditors
Creditors – amounts falling due within one year
G. Called up share capital
Allotted, called up and fully paid share capital
Ordinary shares of 0.05p (2016: 0.05p) each
Allotted on exercise of options during the year
As at 1 April 2016
As at 31 March 2017
Notes to the Company Financial Statements
Notes to the Company Financial Statements
G. Called up share capital (continued)
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 ended 31 March 2017, the Company entered into an agreement to purchase
£100m of its own shares back as part of a share buy-back programme. Own shares purchased by the Company, as part of
a share buy-back programme, are classified as treasury shares and their cost offset against the profit and loss account. When
treasury shares are cancelled, a transfer is made from the profit and loss account to the capital redemption reserve, equivalent
to the nominal value of the shares purchased and subsequently cancelled. The cost of shares purchased by ESOP trusts are
offset against the profit and loss account, as the amounts paid reduce the profits available for distribution by the Company.
As at 31 March 2017 the amount held as treasury shares by the Company and offset against the profit and loss reserve is
£97.2m (2016: £nil) including stamp duty of £0.5m (2016: £nil). As at 31 March 2017 the Company held 6.7m treasury shares
(2016: nil), with a market value of £116.1m (2016: £nil). £3.3m (2016: £nil), relating to the cost of shares not yet purchased
under the current share buy-back agreement, has been charged to the profit and loss account in the period, with the payment
obligation recognised in other payables.
As at 31 March 2017 the amount of own shares held by ESOP trusts and offset against the profit and loss account is
£44.7m (2016: £39.9m). As at 31 March 2017, the ESOP trusts held 3.5m shares (2016: 3.1m) in the Company, with a market
value of £59.6m (2016: £42.7m). In the year to 31 March 2017 the ESOP trusts have waived their entitlement to dividends
of £1.7m (2016: £1.2m).
The capital reserve consists of the capital redemption reserve arising on the purchase of own shares.
H. Dividends
Prior year final dividend paid 26.8p per share (2016: 25.5p)
Interim dividend paid 10.5p per share (2016: 10.2p)
Total
Year to
31 March
2017
£m
118.6
45.8
164.4
Year to
31 March
2016
£m
112.5
45.2
157.7
A final dividend in respect of the year to 31 March 2017 of 28.4p (2016: 26.8p) per share, amounting to £123.6m, 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 4 August 2017 to shareholders on the
register at the close of business on 7 July 2017.
I. Financial guarantees
On 25 November 2014, the Group entered into a £300m multi-currency revolving credit facility with a syndicate of third-party
banks. At 31 March 2017, there were £nil outstanding drawings (2016: £nil). During the year the Group exercised an option
to extend the maturity of the facility to November 2021, after receiving consent from all members of the syndicate.
The companies acting as guarantor to the facility consist of Burberry Group plc, Burberry Limited, Burberry Asia Limited,
Burberry (Wholesale) Limited (US) and Burberry Limited (US). The fair value of this financial guarantee as at 31 March 2017
is £nil (2016: £nil).
Amounts owed to Group companies falling due after more than one year are interest bearing. The interest rate earned is based
on LIBOR plus 0.5% to 0.9%. These loans are unsecured and repayable between 17 June 2019 and 17 June 2020.
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.
All amounts owed to Group companies falling due within one year are unsecured, interest free and repayable on demand.
J. Audit fees
The Company has incurred audit fees of £0.1m for the current year which are borne by Burberry Limited (2016: £0.1m).
K. Employee costs
The Company has no employees and therefore no employee costs are included in these financial statements for the year
ended 31 March 2017 (2016: £nil).
188
189
189
Shareholder Information
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:
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Tel: 0371 384 2839. 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
one Burberry ordinary share.
For queries relating to ADRs in Burberry, please use
the following contact details:
BNY Mellon Shareowner Services
P.O. Box 30170
College Station, TX 77842-3170
Tel: Toll free within the US: +1 888 269 2377
Tel: International: +1 201 680 6825
Email enquiries: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
Annual General Meeting
Burberry’s Annual General Meeting will be held at the
InterContinental Hotel, One Hamilton Place, Park Lane,
London W1J 7QY on Thursday, 13 July 2017.
The Notice of Meeting, together with details of the
business to be conducted at the meeting, is available
on the Company’s website at www.burberryplc.com.
The voting results for the 2017 Annual General
Meeting will be accessible on the Company’s website
at www.burberryplc.com shortly after the meeting.
Dividends
An interim dividend for the financial year ended 31 March
2017 of 10.5p per ordinary share was paid on 27 January
2017. A final dividend of 28.4p per share has been proposed
and, subject to approval at the Annual General Meeting on
13 July 2017, will be paid according to the following timetable:
Final dividend record date
Deadline for return of DRIP mandate forms
Final dividend payment date
7 July 2017
14 July 2017
4 August 2017
The ADR local payment date will be approximately five
business days after the proposed dividend payment date
for ordinary shareholders.
Dividends can be paid by BACS directly into a UK
bank account, with the tax voucher being sent to the
shareholder’s address. This is the easiest way for
shareholders to receive dividend payments and avoids the
risk of lost or out of date cheques. A dividend mandate
form is available from Equiniti or at www.shareview.co.uk.
If you are a UK taxpayer, please note that you are eligible
for a tax-free Dividend Allowance of £5,000 in each tax
year. Any dividends received above this amount will be
subject to taxation. Dividends paid on shares held within
pensions and Individual Savings Accounts (‘ISAs’) will
continue to be tax-free. Further information can be found
at www.gov.uk/tax-on-dividends.
Dividends payable in foreign currencies
Equiniti is able to pay dividends to shareholder bank
accounts in over 30 currencies 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 www.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 2017 dividend and future dividends to qualify for the
DRIP, completed application forms must be returned to
Equiniti by 14 July 2017.
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.
190
Shareholder Information
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 www.sharegift.org or by telephone on 02079 303737.
Share price information
The latest Burberry Group plc share price is available
on the Company’s website at www.burberryplc.com.
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.
If you receive any unsolicited investment advice, get the
correct name of the person and organisation and check
that they are properly authorised by the FCA before getting
involved by visiting www.fca.org.uk/register/.
If you deal with an unauthorised firm, you will not be
eligible to receive payment under the Financial Services
Compensation Scheme if things go wrong.
If you think you have been approached by an unauthorised
firm you should contact the FCA consumer helpline on
0800 111 6768.
More detailed information can be found on the FCA
website at www.fca.org.uk/consumers/protect-yourself/
unauthorised-firms.
Website
This Annual Report and other information about
Burberry Group plc, including share price information
and details of results announcements, are available at
www.burberryplc.com.
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 www.shareview.co.uk.
Equiniti offers a range of shareholder information and
services online at www.shareview.co.uk. A textphone
facility for those with hearing difficulties is available by
calling: 0371 384 2255. Lines are open 8.30am to 5.30pm,
Monday to Friday. Please call +44 121 415 7047 if calling
from outside the UK.
Financial calendar
First Quarter Trading Update
Annual General Meeting
Interim Results announcement
Third Quarter Trading Update
Preliminary Results announcement
12 July 2017
13 July 2017
November 2017
January 2018
May 2018
Registered office
Burberry Group plc
Horseferry House
Horseferry Road
London
SW1P 2AW
Registered in England and Wales
Registered Number 03458224
www.burberryplc.com
Share buyback
From July 2016 to April 2017, the Company completed
a buyback programme of £100m. A further share
buyback of £300m will be completed in FY 2018, in
addition to the £50m already announced. Further details
are provided in the Notice of this year’s Annual General
Meeting, which is available on the Company’s website
at www.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 03456 037 037
between 8.00am and 4.30pm, Monday to Friday, and
for internet dealing visit www.shareview.co.uk/dealing.
Shareholders will need their reference number which
can be found on their share certificate.
191
The cover and accounts section of this report (pages 118-192) are printed on Colorplan. This product
is made from virgin ECF pulp, which is produced from sawmill residues, forest thinnings, and roundwood
from managed sustainable forests. The main section (pages 1-117) are printed on Oxygen Offset which
is made from 100% de-inked pulp recycled fibre. Printed in the UK by Pureprint who are a Carbon Neutral
Company. Both the manufacturing mills and printer are registered to the Environmental Management
System ISO14001 and are Forest Stewardship Council® (FSC) chain-of-custody certified.
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 USA, or under the USA Securities Act 1933 or any other jurisdiction.
192