ANNUAL REPORT AND ACCOUNTS For the year ended 31 March 2011 Mulberry Annual Report and Accounts Year ended 31 March 2011 Financial HigHligHts l Revenues increased by 69% to £121.6 million (2010: £72.1 million) l Retail sales up 44% to £73.5 million, like-for-like up 43% l Wholesale shipments to third-parties up 130% to £48.1 million l Profit before tax up 358% to £23.3 million (2010: £5.1 million) l Basic earnings per share up by 473% to 29.8p (2010: 5.2p) l Proposed dividend up 82% to 4.0p per share (2010: 2.2p per share) OPERating HigHligHts l 9 new stores opened during the year in Beijing, Hong Kong, Malaysia, Korea, Qatar, UAE, the Netherlands and Sydney l New flagship store opened at 50 New Bond Street, London l Global expansion continued with international revenues growing 145% to £40.5 million (2010: £16.6 million) l Online sales grew 64% to £9.2 million, accounting for 8% of sales l New London headquarters opened on Kensington Church Street 8 YEaR REvEnuE gROwtH 130 120 110 100 90 80 70 60 50 40 30 20 10 0 £m 1 2004 2005 2006 2007 2008 2009 2010 2011 20698.04 1/07/2011 Proof 4 Mulberry Annual Report and Accounts Contents Chairman and Chief Executive’s review Financial review Directors, secretary and advisers Corporate governance Directors’ remuneration report Directors’ report Statement of directors’ responsibilities Independent auditor’s report Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash flow statement Notes to the consolidated financial statements Independent auditor’s report Company balance sheet Notes to the Company financial statements Notice of Annual General Meeting Group five year summary Page 3 5 6 7 9 12 16 17 18 18 19 20 21 22 51 52 53 59 64 2 Mulberry Group plc 20698.04 1/07/2011 Proof 4 3 Chairman and Chief Executive’s review Year ended 31 March 2011 The Group has continued to deliver strong sales and profit growth during the year to 31 March 2011. As a result of continuous investment over a number of years, we have been successful in developing international demand for the Mulberry brand. This, combined with the programme of new store openings in all regions, means that future growth is becoming less dependent upon consumers in the UK or any other single market. Looking forward, we will continue our strategy of building the brand in international markets by investing in opening shops and progressively increasing our marketing activity to drive sales growth. BusinEss REviEw Sales increased 69% to £121.6 million for the year to 31 March 2011 (2010: £72.1 million) and profit before tax increased 358% to £23.3 million (2010: £5.1 million). International sales were £40.5 million, 145% up on the prior year. Retail sales from our own stores, department store concessions and website in the UK, France, the Netherlands and North America have increased by 44% compared to the prior year to £73.5 million (like-for-like up 43%). UK Retail sales in our own 44 stores and department store concessions increased for the year by 40% (like-for-like up 39%). Our UK full price stores and concessions were up 48% (like-for-like up 47%). Sales through our website, www.mulberry.com, grew by 64% to £9.2 million during the year, accounting for 8% of Group sales (2010: 8%). In addition to being a profitable and growing sales channel, the website is a key marketing tool for the brand. Our two stores in New York have recorded sales increases of 122% compared to the prior year whilst our North American wholesale and online businesses have also increased satisfactorily. In France, sales in our Rue St Honoré store increased by 151% compared to the prior year. Wholesale shipments to customers during the year to 31 March 2011 were £48.1 million, up 130% compared to the prior year. The Wholesale business includes sales to our European franchise partners, European and North American independent retailers and department stores, as well as sales to our international distribution partners in Asia and the Middle East. In Asia, sales to our partner shops and wholesale accounts grew by 319% to £14.8 million, reflecting strong underlying growth and the opening of new shops, as well as restocking from their depleted inventory position at 31 March 2010. The Group’s balance sheet remains strong with cash of £21.4 million and no debt at 31 March 2011. This means that we are able to move quickly to invest in new retail opportunities and other projects when they arise. The Mulberry network of stores continues to develop. On 1 December 2010, we opened a new flagship store at 50 New Bond Street, London and closed the old flagship store at 40–41 New Bond Street. Sales since opening at the new store are 42% higher than sales at the old store for the same period last year. We have also moved our Manchester store to the new Spinningfields development and opened a concession in De Bijenkorf, Amsterdam during the year. During the year, new Mulberry stores have been opened by our partners in Beijing, Hong Kong, Malaysia, Korea, Qatar, UAE and Sydney. During March 2011, the Group moved into its new London headquarters at 30 Kensington Church Street, bringing all the London teams under one roof for the first time and providing excellent showroom facilities. The net cash cost of this project during the year was £3.2 million. We opened new showrooms in both Paris and New York during the year to support the growing international wholesale business. As a result of the rapid increase in demand, we have doubled the production of women’s handbags whilst ensuring that quality standards are maintained. cuRREnt tRaDing anD OutlOOK In our 40th anniversary year, Mulberry continues to focus on the craftsmanship and quality that is synonymous with its brand. These authentic British attributes differentiate the brand and are in tune with the changing times and attitudes. The strong consumer demand for Mulberry products has continued since 31 March 2011. 2 3 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Chairman and Chief Executive’s review (continued) During the 10 weeks to 4 June 2011, total Retail sales were 38% above the same period last year with like-for-like sales up 42%. Within this figure, UK full price Retail sales have grown by 33% like-for-like compared to the off price business which has increased by 56% like-for-like. With 5 months selling yet to go the Autumn/Winter 2011 season has started strongly with the third-party wholesale order book already 38% higher than the Autumn/Winter 2010 end of season position. In May 2011, we delivered the new Taylor family of bags, which has been well received and will join the already strong product line up. In Europe, we have taken back the distribution rights for Germany, the Netherlands and Belgium from our agents and the retail rights from our Amsterdam franchise partner. The main Amsterdam store, which is currently closed for redevelopment, will reopen under our direct control before Christmas. We are planning to open approximately 10 stores in Germany, Switzerland and Austria over the next 3 years as sites become available. We are already negotiating on a number of leases. In North America, a new 5,000 sq ft flagship store on Spring Street, Soho, New York will open during the Autumn which will mark the beginning of the next stage of development of our North American business. We have commenced a search for locations on the West Coast in Los Angeles and San Francisco with the objective of building a small group of stores over the next 2 years. Our partner in Korea, who started the current year with 10 shop-in-shops, has already opened another 3 and is planning a further 5 before the end of March 2012. Club 21, our partner for the rest of Asia, plans to open a number of new stores as sites become available. The main focus will be on China after the successful opening of a Beijing store during January 2011 which is already trading profitably. In Hong Kong, the very successful store in Harbour City will relocate to a much larger space before Christmas. In addition, we are working with Club 21 on plans to expand in Japan which is an under-developed market for Mulberry. We continue to build production capacity with our partners around the world in order to meet the rapidly growing demand. In the UK, we are expanding our factory in Somerset and construction is well advanced. We will start occupying the new space during August 2011. This will add approximately 30% to our UK capacity and is projected to generate over 50 new manufacturing jobs which will include school leavers who will be trained under our apprenticeship scheme. DiviDEnDs The Board is recommending the payment of a dividend on the ordinary shares of 4.0p per ordinary share (2010: 2.2p) which will be paid on 19 August 2011 to shareholders on the register on 22 July 2011. DiREctOR cHangEs During the year, Edward Vandyk stepped down as a Non-Executive Director after 8 years of service and Melissa Ong was appointed to the Board as a Non-Executive Director bringing considerable experience of the Asian markets. staFF I would like to take this opportunity to thank all of our staff and our partners for their enthusiasm and commitment to Mulberry and its strategy. The significant achievements of the last year would not have been possible without them. Godfrey Davis Chairman and Chief Executive 15 June 2011 4 Mulberry Group plc 20698.04 1/07/2011 Proof 4 5 Financial review Year ended 31 March 2011 gROss MaRgin The Group’s gross profit as a percentage of revenue has increased to 65% from 59% for the prior year. This significant increase in gross margin is a consequence of a higher proportion of sales being made at full retail price throughout the year combined with much reduced summer and winter clearance sales compared to the prior year because there was relatively little end of season stock for clearance. The underlying gross margin has also seen an increase of approximately 1% due to volume related efficiency. nEt OPERating EXPEnsEs Net operating expenses for the year increased by £18.9 million to £56.5 million (2010: £37.6 million). The main elements of this increase were: £4.9 million variable rents and agents’ commissions directly linked to the sales growth; £2.3 million non-recurring property costs arising largely from rent and related costs incurred during the fit out of the flagship store that opened during December on New Bond Street and the new corporate headquarters opened during March 2011; £3.2 million additional spend on advertising and promotion and; £4.7 million increased employee costs. EXcEPtiOnal itEMs Under the terms of the purchase agreement for the USA business which was announced on 14 May 2009, £1.0 million of deferred consideration will become payable to Challice Limited should the turnover in the North American market exceed a threshold of $6.0 million for the year ending 31 March 2012. Given the rapid growth currently being experienced in this market, it is deemed prudent to make a provision for this exceptional cost now. The £1.0 million consideration may be satisfied in either cash or shares at the option of the Group following the end of the 2011/12 financial year. In addition, £0.9 million of exceptional income has been recognised in relation to the surrender of the lease on the old New Bond Street store. As a result, the net exceptional costs for the year were £0.1 million. The residual net book value of the fixed assets at the old New Bond Street store of £1.0 million was expensed during the previous financial year ended 31 March 2010 and disclosed as an exceptional item. sHaRE OF REsults OF assOciatEs Our associate in Norway had a successful year with our share of their results increasing to £0.3 million (2010: £0.2 million). FinancE incOME anD EXPEnsE The decrease in net finance income to £30,000 (2010: £48,000) has resulted from the continued low rates of interest available in the market. taXatiOn The Group has an effective tax rate of 26.9% for the year (2010: 41.7%) resulting in a tax charge of £6.3 million (2010: £2.1 million). The decrease in the effective rate compared to the prior year is due to the absence of unrelieved overseas losses and exceptional property impairment which attracted no tax relief in the prior year. In the current year, the US deferred consideration is a non-deductible expense but this has been offset by tax deductions for share options exercised in the year and other timing differences. BalancE sHEEt Investment in property, plant and equipment for the year totalled £12.8 million (2010: £2.0 million) and included the new London offices (£7.0 million), the UK factory (£0.9 million) and the relocation of the New Bond Street and Manchester stores (£3.0 million). The expenditure of £0.5 million on intangible assets reflects the ongoing investment in the Group’s ERP system and the development of our online capabilities. Inventory levels have increased by £13.3 million to £22.4 million (2010: £9.1 million) which reflects the increased scale of the business and the fact that the timetable for the launch of the Autumn/Winter 2011 season has been brought forward by one month compared to the prior year, resulting in Autumn/Winter 2011 inventory being in the warehouse at the year end for the first time. casH FlOw The cash generated from operations for the year amounted to an inflow of £26.6 million (2010: inflow of £12.9 million). The net cash balance has increased to £21.4 million at 31 March 2011 (2010: £12.2 million) due to the operational performance of the Group. sHaREHOlDER REtuRn The basic earnings per share for the year increased by 473% to 29.8p (2010: 5.2p). This reflects the increase in pre-tax profit and the lower effective tax rate. 4 Roger Mather Group Finance Director 15 June 2011 5 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Directors: Directors, secretary and advisers Year ended 31 March 2011 Godfrey Pawle Davis FCA Roger Thomas Mather FCA Robert (Robin) Edward Graeme Gibson Andrew Christopher (Chris) Roberts FCCA Steven Grapstein Bernard Lam Kong Heng Melissa Ong Registered Office: The Rookery, Chilcompton, Somerset BA3 4EH secretary: Roger Thomas Mather FCA nominated adviser and nominated Broker: Altium Capital Limited London Registered auditor: Deloitte LLP Bristol solicitors: Principal Bankers: Registrars: Osborne Clarke Bristol HSBC Bank plc Bristol Computershare Investor Services plc PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH 6 Mulberry Group plc 20698.04 1/07/2011 Proof 4 7 Corporate governance Year ended 31 March 2011 The Company is listed on the Alternative Investment Market and is not required to comply with the provisions set out in Section 1 of the 2008 FRC Combined Code. However, the Directors support the principles contained in these requirements and apply these where they consider they are appropriate to Mulberry Group plc. tHE BOaRD OF DiREctORs During the year the Board comprised of 2 Executive Directors and 5 Non-Executive Directors. Details of the Directors and the changes during the year are set out on page 9. Since the roles of Chairman and Chief Executive are not separated, as recommended by the Combined Code, the Directors consider it important that the Board should include Non-Executive Directors who bring strong independent judgement and considerable knowledge and experience to the Board’s deliberations. The Board meets formally on a bi-monthly basis and is responsible inter alia for overall Group strategy, investments and capital projects and for ensuring that an appropriate framework of internal control is in place throughout the Group. The Executive Directors are each employed under a contract of employment which can be terminated on not more than one year’s notice. The Non-Executive Directors provide their services under twelve month agreements renewed annually in January. nOMinatiOns anD REMunERatiOn cOMMittEE The Nominations and Remuneration Committee is chaired by a Non-Executive Director, Robin Gibson. It is responsible for nominating Directors to the Board and then determining the remuneration and terms and conditions of employment of Directors and senior employees of the Group. The Directors’ remuneration report is set out on pages 9, 10 and 11. auDit cOMMittEE The Audit Committee is chaired by a Non-Executive Director, Chris Roberts. It is the opinion of the Board that all Directors should attend Audit Committee meetings where possible as part of the programme to maintain the Group’s systems of internal control. The Committee may examine any matters relating to the financial affairs of the Group. This includes review of the annual financial statements prior to their approval by the Board, together with accounting policies and compliance with accounting standards, and of internal control procedures and monthly financial reporting, and other related functions as the Committee may require. The Non-Executive Directors have access to the Group’s auditor and legal advisers at any time without Executive Directors being present. intERnal Financial cOntROl The Board has overall responsibility for the Group’s systems of internal financial control and for monitoring their effectiveness. The Directors place considerable importance on maintaining full control and direction over appropriate strategic, financial, organisational and compliance issues, and have put in place an organisational structure with formally defined lines of responsibility and delegation of authority. There are established procedures for planning and capital expenditure, for information and reporting systems and for monitoring the Group’s business and its performance. Adherence to specified procedures is required at all times and the Board actively promotes a culture of quality and integrity. Compliance is monitored by the Directors. The systems of internal financial control are designed to provide reasonable, but not absolute, assurance against material misstatement or loss. They include comprehensive budgeting systems with an annual budget approved by the Board, monthly consideration of actual operational results compared with budgets, forecasts and regular reviews by the Board of year end forecasts. The Board reports to shareholders half-yearly. 6 7 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Corporate governance (continued) The Group’s control systems address key business and financial risks. Matters arising are reviewed on a regular basis. Performance indicators are reviewed at least monthly to assess progress towards objectives. Variances from approved plans are followed up vigorously. The auditor is engaged to express an opinion on the financial statements. They review and test the system of internal financial control and the data contained in the financial statements to the extent necessary to express their audit opinion. gOing cOncERn After making enquiries, the Directors have a reasonable expectation that the Company will have adequate resources to continue in operational existence for the foreseeable future. More information on how the Board assesses and controls the principal risks of the business (including going concern) is given within the Directors’ report. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and financial statements. 8 Mulberry Group plc 20698.04 1/07/2011 Proof 4 9 Directors’ remuneration report Year ended 31 March 2011 Mulberry Group plc is listed on the Alternative Investment Market and therefore is not required to prepare a Directors’ remuneration report. The following narrative disclosures are prepared on a voluntary basis and are not subject to audit. During the year, the Nominations and Remuneration Committee comprised: l Robin Gibson (Chairman and Non-Executive Director) l Chris Roberts (Non-Executive Director) l Steven Grapstein (Non-Executive Director) l Bernard Heng (Non-Executive Director) l Melissa Ong (Non-Executive Director) – appointed 7 September 2010 l Edward Vandyk (Non-Executive Director) – resigned 7 September 2010 The Committee decides the remuneration policy that applies to Executive Directors and the Group’s other senior management. In setting the policy it considers a number of factors including: l the basic salaries and benefits available to Executive Directors of comparable companies; l the need to attract and retain Directors of an appropriate calibre; and l the need to ensure Executive Directors’ commitment to the continued success of the Group by means of incentive schemes. The Committee meets at least once a year in order to consider and set the annual salaries for Executive Directors, having regard to personal performance. Executive Directors’ salaries are reviewed on 31 March each year, along with the remuneration of all other Group employees. REMunERatiOn OF nOn‑EXEcutivE DiREctORs The Non-Executive Directors each receive a fee for their services, which is agreed by the Board taking into account the role to be undertaken. They do not receive any pension or other benefits from the Company apart from a small allowance of Mulberry products, nor do they participate in any of the share option or bonus schemes. The Non-Executive Directors are appointed for a twelve month term. REMunERatiOn POlicY FOR EXEcutivE DiREctORs The Company’s remuneration policy for Executive Directors is to: l have regard to the Director’s experience and the nature and complexity of their work in order to pay a competitive salary that attracts and retains Directors of the highest quality; l link individual remuneration packages to the Group’s long-term performance through the award of annual bonuses and share-based incentive schemes; l provide post-retirement benefits through the Group’s pension schemes; and l provide employment-related benefits including the provision of a company car or cash alternative, life assurance, insurance relating to the Director’s duties, medical insurance and permanent health insurance. 8 9 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Directors’ remuneration report (continued) salaRiEs anD incEntivE BOnusEs Each Executive Director receives a base salary and an annual incentive bonus which shall not in any year exceed 50% of the basic salary for the Director, without the prior sanction of the Nominations and Remuneration Committee. The base salary reflects job responsibility, market value and the sustained level of individual performance. The long-term incentive strategy for the Executive Directors and management team has been revised by the Nominations and Remuneration Committee to include a balance of benefits to reward current performance and long- term commitment. The strategy comprises of the following: l An unapproved share option scheme which was introduced in April 2008 following the expiry of the previous scheme. Options granted in this scheme vest after three years. l A Deferred Bonus Plan which represents a long-term award scheme where participants receive all or part of their annual bonus in shares. These shares are held as deferred shares in the Mulberry Group Plc Employee Share Trust. Matching shares are then granted and vest after a period of two years conditional upon the participant remaining an employee of the Group and the original deferred shares remaining in the Trust. l A Co-ownership Equity Incentive Plan where participants are granted shares which are co-owned by the Mulberry Group Plc Employee Share Trust and participate in the value to the extent that the Mulberry share price exceeds 20% above the market price at the date of grant. The vesting period is three years, after which the employee has the right to acquire the beneficial interest in the share. This plan was established in August 2009. The following information is required by the Companies Act and is subject to audit. Executive Directors Godfrey Davis Roger Mather Non-Executive Directors Robin Gibson Chris Roberts Steven Grapstein Bernard Heng Melissa Ong Edward Vandyk Fees/ Basic salary £’000 220 160 18 18 18 18 9 8 Bonus £’000 313 228 – – – – – – Pension taxable benefits contributions £’000 £’000 25 18 1 1 – – 1 1 55 22 – – – – – – 2011 total £’000 613 428 19 19 18 18 10 9 2010 total £’000 449 304 18 17 17 18 – 18 Total 469 541 47 77 1,134 841 10 Mulberry Group plc 20698.04 1/07/2011 Proof 4 11 The emoluments disclosed above do not include any amounts for the value of share options or share awards granted to or held by the Directors. These are detailed as follows: a) Options granted under the unapproved share option schemes Godfrey Davis Godfrey Davis Roger Mather 31 March 2010 100,000 150,000 250,000 granted Exercised Forfeited 31 March 2011 Exercise price (p) – – – – – – – – – 100,000 150,000 250,000 145.5 144.5 144.7 The outstanding options are exercisable between 4 August 2008 and 25 July 2018. On 14 April 2011, Roger Mather exercised 130,000 of the options at a market price of 1250p. b) Matching shares granted under the Deferred Bonus Plan 31 March 2010 granted Exercised Forfeited 31 March 2011 Exercise price (p) Godfrey Davis Roger Mather 48,932 35,922 5,037 7,196 – 4,014 – – 53,969 39,104 – – The matching shares vest between 15 August 2010 and 30 June 2013. Each of the matching shares relates to vested and unvested shares held in the Mulberry Group Plc Employee Share Trust. The market price of the shares granted during the year was 1362p. c) Jointly owned shares under the Co-ownership Equity Incentive Plan Godfrey Davis Roger Mather 31 March 2010 300,000 250,000 granted Exercised Forfeited 31 March 2011 Exercise price (p) – – – – – – 300,000 250,000 145.8 145.8 The right to acquire the beneficial interest in the shares will vest on 9 October 2012 and remain exercisable until 9 October 2019. The market price of the shares at the date of the award was 121.5p. The market price of Mulberry Group plc ordinary shares at 31 March 2011 was 1372p (2010: 190.5p) and the range during the year was 185p to 1415p (2010: 59.5p to 200p). 10 11 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Directors’ report Year ended 31 March 2011 The Directors present their report on the affairs of the Group, together with the financial statements and independent auditor’s report, for the year ended 31 March 2011. BusinEss REviEw anD PRinciPal activitiEs The Group’s principal activities are the design and manufacture or sourcing of fashion accessories and clothing and their subsequent sale through wholesale channels or the Group’s own shops in home and export markets. There have not been any significant changes in these activities during the year under review. The Directors are not aware, at the date of this report, of any likely major changes in the Group’s activities during the next year. The Company’s principal activity is that of a holding company. The Group continues to invest in design and development in order to develop and market two accessory and clothing collections per year. This results in the continuous introduction of new products and updates to existing products. The Directors regard this investment in design and product development as necessary for continuing success in the medium to long-term future. The Chairman and Chief Executive’s review on pages 3 and 4 and the Financial review on page 5 provide a review of the business for the year and future developments. PRinciPal RisKs anD uncERtaintiEs The management of the business and the execution of the Group’s growth strategies are subject to a number of risks, which could adversely affect the Group’s future development. Competitive pressures, changes in fashion and hence consumer demand are continuing risks which could result in the loss of sales. The Group manages this risk by the continuous investment in the design of new products and marketing to stimulate customer interest and by maintaining strong relationships with customers. During the current year, the Group has shown continued resilience to the wider global economic climate but any further deterioration could affect sales both in the UK and internationally. A significant amount of Mulberry sales are generated in the UK. As a result, a decline in the UK economy that reduced consumer spending on luxury goods could materially affect our trading results. The Group’s continuing strategy to increase the penetration of international markets is expected to reduce the impact of this risk over time. The impact on current trading is discussed further in the Chairman and Chief Executive’s review. A major terrorist attack, particularly in central London, could seriously affect our operations, as would a fire or significant disruption to our warehouse. The Group has developed a business continuity plan to mitigate the impact on the business where possible. The risk of the loss of key personnel is mitigated by regular reviews of remuneration packages (including long-term incentive schemes) and succession planning within the management team. The Group continues to engage in a substantial programme of change. Over the next year, the Group plans to implement the remaining modules of its ERP system covering product development and manufacturing and to commence implementation of a new internet platform, and a Retail EPOS system which will operate initially in its international stores. If these projects were to be unsuccessful, it could have an impact on operations. Senior management involvement and significant pre-implementation testing are part of the carefully designed project to minimise the risks of the roll out. The Group’s sales and purchases are made in Sterling, Euros and US Dollars and so it is exposed to the movement in the Euro and the US Dollar to Sterling exchange rates. The Group manages this risk by building a natural hedge of Euro and US Dollar denominated sales and purchases whereby the inflows and outflows of Euros and US Dollars are roughly equal. If significant currency positions were to develop, forward foreign exchange contracts would be used to mitigate the exposure. 12 Mulberry Group plc 20698.04 1/07/2011 Proof 4 13 The management of cash is of fundamental importance. The large growth in sales has led to a significant cash inflow. This has partly been offset by the capital expenditure programme in the year, so that at the year end the Group had a cash balance of £21.4 million. As discussed in the Chairman and Chief Executive’s review, the Group has agreed various capital expenditure plans for the coming year which will be financed by the Group’s operating cash flow. The Group currently has no debt but nonetheless has organised facilities of £4.5 million (including £2.0 million of a multicurrency overdraft facility). These banking facilities are in place until 31 May 2012. As such, the Group is on a firm financial footing and confident of its ability to continue as a going concern. REsults anD DiviDEnDs The results for the year are set out in the consolidated income statement. The Directors are recommending the payment of a final dividend of 4.0p per ordinary share (2010: 2.2p), to be paid on 19 August 2011 to ordinary shareholders on the register on 22 July 2011. tREasuRY anD FOREign EXcHangE The Group has continued a policy of balancing its currency exchange exposures which arise through normal trading. This is achieved through the natural hedge which exists, in which the total inflows and outflows generated from normal trading, principally in the Euro and US Dollar, are balanced to similar levels. This minimises the potential impact on the Group of movements in exchange rates. Where necessary the Group would enter into forward foreign exchange contracts to manage the currency risks arising from the Group’s operations and its sources of finance not covered by the natural hedge. There were no open forward foreign exchange contracts at the year end. The Group’s policy is and has been throughout the year that no trading in financial instruments shall be undertaken. The Group’s financial instruments, other than derivatives, comprise cash and liquid resources and items such as trade debtors and trade creditors that arise directly from its operations. DiREctORs anD tHEiR intEREsts The Directors who served during the year and subsequently are shown below. Executive Directors godfrey Davis Fca, 62, is Chairman and Chief Executive. He is a fellow of the Institute of Chartered Accountants in England and Wales and joined Mulberry as Group Finance Director in 1987 after 15 years at Arthur Andersen, where he was an international partner. He became Chairman and Chief Executive in November 2002. He is also a Director of Hestercombe Gardens Limited, a Trustee of Hestercombe Gardens Trust and a Director of Woodard Schools (Taunton) Limited. Roger Mather Fca, 46, is the Group Finance Director. He is a fellow of the Institute of Chartered Accountants in England and Wales having trained professionally with Price Waterhouse. He joined Mulberry during November 2007 after spending the previous 10 years in senior finance and commercial roles within the multi-national Otto Group based both in Hong Kong and the UK. He was appointed as Company Secretary on 20 December 2007 and was appointed as a Director on 7 May 2008. non‑Executive Directors Robin gibson, 69, is Chairman of the Nominations and Remuneration Committee. He was appointed on 1 May 1996. andrew christopher Roberts Fcca, 47, is Chairman of the Audit Committee. He was appointed on 6 June 2002. Chris is Finance Director of Astaire Group plc, an AIM quoted financial services group. He is a fellow of the Chartered Association of Certified Accountants. steven grapstein, 53, was appointed on 17 November 2003. He is presently the Chief Executive Officer of Como Holdings USA Inc., an international investment group with extensive interests in the retail and hotel industries; Chairman of Presidio International dba A/X Armani Exchange, a fashion retail company, and serves as Chairman of the Board of Directors of Tesoro Petroleum Corporation, a US publicly held Fortune 150 company engaged in the oil and gas industry. He is a certified public accountant. 12 13 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Directors’ report (continued) Bernard lam Kong Heng, 65, was appointed on 17 November 2003. He is presently the Chief Executive of Como Holdings (UK) Ltd. a Singapore based company which has extensive retail, hotel and real estate operations in the UK and internationally. Melissa Ong, 37, was appointed on 7 September 2010. She is also a Director of the following international companies which are involved in the retail and hotel industries: Club 21 (Singapore) Pte Ltd, Supernature Pte Ltd, Lushington Entertainment Pte Ltd and Will Focus Ltd. Previous Directors Edward Vandyk, was appointed as a Non-Executive Director on 6 June 2002 and resigned on 7 September 2010. Directors’ beneficial interests in the shares of the company are as follows: Godfrey Davis Roger Mather Robin Gibson 5p Ordinary 5p Ordinary shares 2010 shares 2011 916,404 43,282 5,029 1,718,490 35,922 10,029 Melissa Ong does not hold any shares directly in the Company. However she is the daughter of Ong Beng Seng and Christina Ong, who together are beneficially interested in approximately 57% of the Company’s total voting rights. The other Directors had no interests in the shares of the Company. Details of Directors’ share options, share awards (including jointly owned shares issued under the Co-ownership Equity Incentive plan) and other interests in shares are disclosed in the Directors’ remuneration report. suBstantial sHaREHOlDings At 15 June 2011 the Company had been notified of the following interests of 3% or more of the share capital of the Company, other than those of the Directors above: l Challice Limited l Banque Havilland SA 57.0% 24.7% suPPliER PaYMEnt POlicY The Company’s current policy concerning the payment of its suppliers is: l settle the terms of payment with those suppliers when agreeing the terms of each transaction; l ensure that those suppliers are made aware of the terms of payment; and l abide by the terms of payment, subject to the terms and conditions being met by the supplier. At the year end, trade creditors expressed as a number of days purchases outstanding was nil for the Company (2010: nil). The Group uses its cash resources to take advantage of early payment terms with suppliers. As such, for Mulberry Company (Design) Limited, the main trading subsidiary, it was 16 days (2010: 22 days). 14 Mulberry Group plc 20698.04 1/07/2011 Proof 4 15 EQual OPPORtunitiEs The Group is committed to an active equal opportunities policy. It is our policy to promote an environment free from discrimination, harassment and victimisation, where everyone will receive equal treatment regardless of gender, colour, ethnic or national origin, disability, age, marital status, sexual orientation or religion. We apply employment practices which are fair, equitable and consistent with the skills and abilities of our employees and the needs of the business. DisaBlED EMPlOYEEs Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees. EMPlOYEE cOnsultatiOn The Group places considerable value on the involvement of its employees and has continued its previous practice of keeping them informed on matters affecting them as employees and on the various factors affecting the performance of the Group, which is achieved through formal and informal meetings. Employee representatives are consulted regularly on a wide range of matters affecting their current and future interests. cHaRitaBlE anD POlitical DOnatiOns The Group made charitable donations of £44,000 (2010: £8,000) during the year. The Group made no political donations. auDitOR In the case of each of the persons who are Directors of the Company at the date when this report was approved: l so far as each of the Directors is aware, there is no relevant audit information of which the Company’s auditor is unaware; and l each of the Directors has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. Deloitte LLP have expressed their willingness to continue as auditor and a resolution to re-appoint them will be proposed at the forthcoming Annual General Meeting. By order of the Board Roger Mather Secretary 15 June 2011 14 15 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Statement of directors’ responsibilities Year ended 31 March 2011 The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the parent company financial statements, the Directors are required to: l select suitable accounting policies and then apply them consistently; l make judgements and accounting estimates that are reasonable and prudent; l state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. In preparing the Group financial statements, International Accounting Standard 1 requires that Directors: l properly select and apply accounting policies; l present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; l provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and l make an assessment of the Company’s ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company 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 corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 16 Mulberry Group plc 20698.04 1/07/2011 Proof 4 16 Independent auditor’s report To the members of Mulberry Group plc We have audited the Group financial statements of Mulberry Group plc for the year ended 31 March 2011 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement, and the related notes 1 to 33. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent misstatements or inconsistencies we consider the implications for our report. OPINION ON FINANCIAL STATEMENTS In our opinion the Group financial statements: l give a true and fair view of the state of the Group’s affairs as at 31 March 2011 and of its profit for the year then ended; l have been properly prepared in accordance with IFRSs as adopted by the European Union; and l have been prepared in accordance with the requirements of the Companies Act 2006. OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion the information given in the Directors’ report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following matters where under the Companies Act 2006 requires us to report to you if, in our opinion: l certain disclosures of Directors’ remuneration specified by law are not made; or l we have not received all the information and explanations we require for our audit. OTHER MATTER We have reported separately on the parent company financial statements of Mulberry Group plc for the year ended 31 March 2011 and on the information in the Directors’ remuneration report that is described as having been audited. David Hedditch (Senior Statutory Auditor) for and on behalf of Deloitte LLP, Chartered Accountants and Statutory Auditor, Bristol, United Kingdom 15 June 2011 17 Mulberry Group plc 20698.04 1/07/2011 Proof 4 17 Consolidated income statement Year ended 31 March 2011 Revenue Cost of sales Gross profit Administrative expenses Other operating income Operating profit Operating profit before exceptional items Share of results of associates Finance income Finance expense Profit before tax Tax Profit for the year Attributable to: Equity holders of the parent Basic earnings per share Diluted earnings per share All activities arise from continuing operations. Note 2011 £’000 2010 £’000 5 7 7 7 19 11 12 13 8 121,645 (42,144) 72,052 (29,565) 79,501 42,487 (58,147) 1,656 (38,077) 446 23,010 23,110 305 74 (44) 4,856 5,843 192 74 (26) 23,345 5,096 (6,282) (2,124) 17,063 2,972 17,063 2,972 pence pence 15 15 29.8 29.1 5.2 5.2 Consolidated statement of comprehensive income Year ended 31 March 2011 Profit for the year Exchange differences on translation of foreign operations Total comprehensive income for the year Attributable to: Equity holders of the parent 2011 £’000 17,063 1 2010 £’000 2,972 (108) 17,064 2,864 17,064 2,864 18 Mulberry Group plc 20698.04 1/07/2011 Proof 4 19 Consolidated balance sheet At 31 March 2011 Note 16 17 19 23 20 21 21 2011 £’000 2,134 18,207 210 69 2010 £’000 2,499 7,876 347 38 20,620 10,760 22,408 12,186 21,373 9,090 8,263 12,171 55,967 29,524 76,587 40,284 24 (30,476) (4,079) (12,197) (1,622) 25 26 (34,555) (13,819) 42,032 26,465 2,943 7,007 (621) 154 1,467 386 30,696 2,943 7,007 (107) 154 1,467 385 14,616 42,032 26,465 Non-current assets Intangible assets Property, plant and equipment Interests in associates Deferred tax asset Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Current tax liabilities Total liabilities Net assets Equity Share capital Share premium account Own share reserve Capital redemption reserve Special reserve Foreign exchange reserve Retained earnings Total equity The financial statements of Mulberry Group plc (company number 01180514) were approved by the Board of Directors and authorised for issue on 15 June 2011. They were signed on its behalf by: Godfrey Davis Director Roger Mather Director 18 19 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Consolidated statement of changes in equity Year ended 31 March 2011 Share capital £’000 Capital Share Own share redemption reserve reserve £’000 £’000 premium £’000 Foreign Special exchange reserve* reserve £’000 £’000 Retained earnings £’000 Total £’000 2,871 7,007 (49) 154 1,467 493 12,441 24,384 – 72 – – – – – – – – – – – (58) – – – – – – – – – – – (108) – 2,972 – 2,864 72 – – – 351 – 351 (58) (1,148) (1,148) 2,943 7,007 (107) 154 1,467 385 14,616 26,465 – – – – – – – – – – – – – (514) – – – – – – – – – – – 1 17,063 17,064 – – – – 701 (418) – 701 (418) (514) (1,266) (1,266) 2,943 7,007 (621) 154 1,467 386 30,696 42,032 Balance at 1 April 2009 Total comprehensive income/(expense) for the year Issued share capital Charge for employee share-based payments Own shares Ordinary dividends paid Balance at 31 March 2010 Total comprehensive income for the year Charge for employee share-based payments Exercise of share options Own shares Ordinary dividends paid Balance at 31 March 2011 * The special reserve was created as part of a capital restructuring of the Group in 2004. 20 Mulberry Group plc 20698.04 1/07/2011 Proof 4 21 Consolidated cash flow statement Year ended 31 March 2011 Operating profit for the year Adjustments for: Depreciation and impairment of property, plant and equipment Amortisation of intangible assets Loss on sale of property, plant and equipment Effects of foreign exchange Share-based payments charge Operating cash flows before movements in working capital (Increase)/decrease in inventories Increase in receivables Increase in payables Cash generated from operations Corporation taxes paid Interest paid Net cash inflow from operating activities Investing activities: Interest received Dividend received from associate Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Acquisition of intangible fixed assets Net cash used in investing activities Financing activities: Dividends paid Proceeds on issue of shares Cash settlement of share awards Investment in own shares Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2011 £’000 2010 £’000 23,010 4,856 2,261 837 152 24 701 2,879 289 74 (14) 351 26,985 8,435 (13,318) (3,848) 16,805 5,740 (2,065) 829 26,624 12,939 (3,856) (44) (1,693) (26) 22,724 11,220 47 308 (11,176) – (503) 74 – (1,365) 6 (340) (11,324) (1,625) (1,266) – (418) (514) (1,148) 72 – (58) (2,198) (1,134) 9,202 12,171 8,461 3,710 21,373 12,171 20 21 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 1. GENERAL INFORMATION Mulberry Group plc is a company incorporated in England and Wales under the Companies Act. The address of the registered office is given on page 6. The nature of the Group’s operations and its principal activities are set out in note 6 and in the Directors’ report. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 3. 2. ADOPTION OF NEW AND REVISED STANDARDS In the current year the following new and revised Standards and Interpretations have been adopted but have not had an impact on the Group: l l l l l IFRS 2 – Share-based payments IFRS 3 – Business combinations IAS 31 – Interests in joint ventures IAS 32 – Financial instruments: presentation IFRS 5, IFRS 8, IAS 1, IAS 17, IAS 27, IAS 36, IAS 38, IAS 39 amendments from annual improvement process l l l l instruments: recognition IAS 39 – Financial & measurement IFRIC 9 – Reassessment of embedded derivatives IFRIC 16 – Hedges of a net investment in a foreign operation IFRIC 17 – Distribution non-cash assets At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective: l l l l l l l IFRS 7 – Financial instruments IFRS 9 – Financial instruments IFRS 10 – Consolidated financial statements IFRS 11 – Joint arrangements IFRS 12 – Disclosure of interests in other entities IFRS 13 – Fair value measurement IFRS 5, IAS 1, IAS 34 amendments from annual improvement process l l l l l l IAS 12 – Income taxes IAS 24 – Related party transactions IAS 27 (2011) IAS 28 (2011) IFRIC 14 IFRIC 19 The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. 3. SIGNIFICANT ACCOUNTING POLICIES Basis of accounting The financial statements have been prepared in accordance with IFRSs adopted by the European Union. For the year ended 31 March 2011, the financial year runs for the 52 weeks to 26 March 2011. The financial statements are prepared under the historical cost convention. The principal accounting policies adopted are set out below. Going concern The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further details are contained in the Directors’ report. 22 Mulberry Group plc 20698.04 1/07/2011 Proof 4 23 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of each investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of in any year are included in the consolidated income statement from the date of acquisition or up to the date of disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Goodwill Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Intangible assets Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation. Amortisation is charged to the income statement on a straight-line basis over the estimated useful life of the asset. Computer software that is integral to a related item of hardware is included as property, plant and equipment. All other computer software is recorded as an intangible asset and is amortised over the estimated useful life of the asset (typically 20% to 25% depreciation policy). Research and development Expenditure on research is written off against profits as incurred. An internally generated intangible asset arising from the Group’s product development is recognised only if the following conditions are met: l An asset is created that can be identified; l l The development cost of the asset can be measured reliably. It is probable that the asset created will generate future economic benefits; and Internally generated intangible assets are amortised on a straight-line basis over the useful lives. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. Property, plant and equipment Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and any recognised impairment loss. Assets in the course of construction are carried at cost less any recognised impairment loss. Cost includes professional fees. Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the straight-line method, on the following bases: Freehold buildings Short leasehold land and buildings Fixtures, fittings and equipment Plant and equipment Motor vehicles 5% over the term of the lease 10% to 33% 20% 25% 23 Mulberry Group plc 20698.04 1/07/2011 Proof 4 22 Notes to the consolidated financial statements Year ended 31 March 2011 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment (continued) Freehold land and assets under the course of construction are not depreciated. Depreciation on assets commences when the assets are ready for intended use. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income. Impairment of tangible and intangible assets At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Investments in associates An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through the participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over these policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of the associates in excess of the Group’s interest in those associates are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Group’s share of the net fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. Any deficiency of the cost of acquisition below the Group’s share of the fair values of the identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition) is credited in profit or loss in the period of acquisition. Where a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. 24 Mulberry Group plc 20698.04 1/07/2011 Proof 4 25 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises materials, direct labour costs and those overheads incurred in bringing the inventories to their current location and condition. Cost is calculated using the standard cost method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. 25 Mulberry Group plc 20698.04 1/07/2011 Proof 4 24 Notes to the consolidated financial statements Year ended 31 March 2011 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Provisions A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and where it is probable that an outflow will be required to settle the obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third-party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Share-based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. Retirement benefit costs Payments to employees’ personal pension plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. Revenue recognition Revenue represents amounts receivable for goods provided in the normal course of business, net of discounts, VAT and other sales-related taxes and intra-group transactions. Sales of goods are recognised at the point of sale, or for the wholesale business, when goods are delivered and title has passed. Sales of gift vouchers are recognised on presentation of the voucher for payment of goods. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Royalty income is recognised on an accrual basis in accordance with the substance of the relevant agreement and is recognised as other operating income. Operating profit Operating profit is stated before the share of results of associates, finance income and finance expense. 26 Mulberry Group plc 20698.04 1/07/2011 Proof 4 27 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currencies The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pounds sterling, which is the functional currency of the company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s foreign exchange reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Financial instruments Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Trade receivables Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the fair value of the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis against profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. 27 Mulberry Group plc 20698.04 1/07/2011 Proof 4 26 Notes to the consolidated financial statements Year ended 31 March 2011 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Trade payables Trade payables are not interest-bearing and are stated at their nominal value. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. 4. CRITICAL ACCOUNTING jUDGEMENTS AND kEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The critical judgements undertaken by the Directors relate to the key sources of estimation uncertainty. The following estimates that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Impairment of property, plant and equipment Property, plant and equipment are 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 is determined based on value in use calculations prepared on the basis of management’s assumptions and estimates. Depreciation of property, plant and equipment Depreciation is charged so as to write off the cost of assets over their estimated useful lives. The selection of the estimated lives requires the exercise of management judgement. Recoverability of intangible asset The carrying value of the lease premium and related costs for the shop in Rue St Honoré, Paris, is reassessed each year based on the ongoing performance of the store and the realisable value of the lease. Stock provisions The Group designs, produces and sells luxury goods and as such is at risk that the net realisable value of stock will be less than the carrying value. Provisions for raw materials are calculated based on the expected future usage and for finished goods on the saleability of finished goods and age and condition of the items. Onerous lease provisions Following the relocation of the London offices, management have considered the need for provision against any future lease costs and have concluded that at the year end no costs were considered probable. 28 Mulberry Group plc 20698.04 1/07/2011 Proof 4 29 5. REVENUE Sale of goods Royalty income Other income Finance income Total revenue 2011 £’000 121,645 385 1,271 74 2010 £’000 72,052 402 44 74 123,375 72,572 Included within other income in 2011 is the £900,000 income received on the exit of the New Bond Street lease (see note 7). 6. BUSINESS AND GEOGRAPHICAL SEGMENTS The Group has adopted IFRS 8 Operating Segments with effect from 1 April 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required the Group to identify two sets of segments (business and geographical), using a risks and returns approach, with the Group’s system of financial reporting to key management personnel serving only as the starting point for the identification of such segments. Following the adoption of this Standard, no change has been made to the identified reportable segments. (A) Business segments For management purposes, the Group is currently organised into two operating divisions – the Retail and Design businesses. These divisions are the basis upon which the Group reports its primary segment information. The principal activities are as follows: Retail – sale of Mulberry branded fashion accessories and clothing through a number of shops and department store concessions. Design – brand management, marketing, product design, manufacture, sourcing and wholesale distribution for the Mulberry brand. Inter-segment sales for both years are charged at market prices in line with our third party wholesale customers. 28 29 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 6. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) Segment information about these businesses is presented below. 2011 Design £’000 48,148 (16,048) 32,100 (24,573) – 756 2011 Retail £’000 2011 Total £’000 2010 Design £’000 73,497 (26,096) 121,645 (42,144) 20,961 (8,035) 47,401 (32,484) – 900 79,501 (57,057) – 1,656 12,926 (13,000) – 404 2010 Retail £’000 51,091 (21,530) 29,561 (24,073) (987) – 2010 Total £’000 72,052 (29,565) 42,487 (37,073) (987) 404 Revenue Cost of sales Gross profit Net operating costs Exceptional costs Other operating income Segment result 8,283 15,817 24,100 330 4,501 4,831 Net other operating (costs)/income Share of results of associate Net finance income Profit before tax (1,090) 305 30 23,345 25 192 48 5,096 Eliminated above is £27,114,000 (2010: £21,905,000) of intercompany sales from Mulberry Company (Design) to the retail businesses. Other information Capital expenditure Depreciation and amortisation 2011 Design £’000 2011 Retail £’000 2011 Total £’000 2010 Design £’000 2010 Retail £’000 1,236 4,373 5,609 1,130 965 2010 Total £’000 2,095 1,456 1,439 2,895 753 2,298 3,051 In addition, £7,646,000 (2010: £250,000) of capital expenditure and £203,000 (2010: £117,000) of depreciation was incurred by the parent company which is not included in the segments above. 30 Mulberry Group plc 20698.04 1/07/2011 Proof 4 31 6. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued) 2011 Design £’000 2011 Retail £’000 2011 Total £’000 2010 Design £’000 2010 Retail £’000 2010 Total £’000 Balance Sheet Segment assets 42,962 22,917 65,880 22,732 13,975 36,707 Interests in associates Unallocated corporate assets Consolidated assets 210 10,497 76,587 347 3,230 40,284 Segment liabilities 16,792 7,581 24,373 8,033 3,540 11,573 Unallocated corporate liabilities Consolidated liabilities (B) Geographical segments 10,182 34,555 2,246 13,819 The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods: Europe Asia North America Rest of the World Sales revenue by geographical market 2010 £’000 2011 £’000 99,151 15,503 5,200 1,791 64,851 3,645 2,298 1,258 121,645 72,052 The Group’s operations are mainly located in Europe and as such no additional geographical analysis has been provided. 7. EXCEPTIONAL INCOME AND EXPENSES On 5 October 2009, a transaction to assume operational control of the two New York stores and the distribution rights to the North American market previously held by our joint venture partner, Mulberry USA LLC, was completed. As part of the agreement, deferred consideration of up to £1,000,000, will become payable to Challice Limited (the previous 50% shareholder of Mulberry USA LLC and the majority shareholder of Mulberry Group plc) on a stepped basis if sales generated from the USA operations during the third year post completion exceed certain agreed thresholds. The consideration will be payable in cash or, at Mulberry Group plc’s option, new Mulberry shares, the number of shares being calculated at the then prevailing share price. Following the growth in the USA operations, as at 31 March 2011 the Directors have concluded that it is probable that the deferred consideration will become payable. As such a provision for £1,000,000 has been made. 30 31 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 7. EXCEPTIONAL INCOME AND EXPENSES (continued) As part of the Group’s future growth strategy, the decision was made during the year ended 31 March 2010 to relocate the flagship New Bond Street store to an alternative site on New Bond Street. Consequently, the residual net book value of the leasehold improvements and fixtures and fittings at the existing store on the anticipated date of closure of £987,000 was deemed to be impaired. Given the one-off nature and size of the impairment, the costs were disclosed separately on the face of the consolidated income statement. Furthermore, an agreement was made with the landlord to purchase back the lease of the old New Bond Street store in return for a payment to the Group of £900,000. This was received during January 2011. 8. PROFIT FOR THE YEAR Profit for the year has been arrived at after charging/(crediting): Net foreign exchange loss/(gain) Depreciation and impairment of property, plant and equipment: Owned (including exceptional impairment in 2010 per note 7) Amortisation of intangible assets Operating lease rentals Write downs of inventories recognised as an expense Staff costs (see note 10) Impairment of trade receivables Loss on disposal of property, plant and equipment 9. AUDITOR REMUNERATION The analysis of auditor’s remuneration is as follows: Fees payable to the Company’s auditor for the audit of the Company’s annual accounts Fees payable to the Company’s auditor and their associates for other services to the Group: The audit of the Company’s subsidiaries pursuant to legislation Total audit fees Tax services Other services Total non-audit fees 2011 £’000 2010 £’000 76 (201) 2,261 837 7,441 353 21,847 183 152 2,879 289 4,486 48 17,335 105 74 2011 £’000 2010 £’000 16 37 53 12 36 48 £’000 £’000 85 3 88 71 32 103 In 2011 tax services includes advice in relation to the company share schemes. In 2010 tax and other services includes advice in relation to restructuring of the USA operations. 32 Mulberry Group plc 20698.04 1/07/2011 Proof 4 33 10. STAFF COSTS The average monthly number of employees (including Executive Directors and those on a part time basis) was: Production Sales and distribution Administration Their aggregate remuneration comprised: Wages and salaries Social security costs Other pension costs (see note 30) Share-based payments (see note 29) 2011 Number 2010 Number 313 436 72 821 292 374 55 721 £’000 £’000 18,726 1,964 456 701 14,984 1,603 397 351 21,847 17,335 Details of Directors’ remuneration and interests are provided in the audited section of the Directors’ remuneration report and should be regarded as part of these financial statements. 11. FINANCE INCOME Interest income on cash balances 12. FINANCE EXPENSE Interest on bank overdraft and loans 13. TAX Current tax Adjustment to prior year corporation tax Deferred tax (note 23) Adjustment to prior year deferred tax 2011 £’000 2010 £’000 74 74 2011 £’000 2010 £’000 44 26 2011 £’000 6,416 (103) (13) (18) 2010 £’000 2,297 (3) (170) – 6,282 2,124 32 33 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 13. TAX (continued) The charge for the year can be reconciled to the profit per the consolidated income statement as follows: Profit before tax £’000 £’000 23,345 5,096 £’000 £’000 Tax at the UK corporation tax rate of 28% (2010: 28%) Tax effect of items that are (deductible)/not deductible in determining taxable profit Depreciation in excess of capital allowances Short-term timing differences Permanent differences Profits offset against prior year losses Losses carried forward to offset against future profits Losses not available for set off against future profits 6,537 (360) 156 23 – (74) – – 1,427 150 265 (8) (12) – 142 160 Tax expense for the year 6,282 2,124 In the Budget on 23 March 2011 the Government announced that legislation will be introduced in the Finance Bill 2011 to reduce the main rate of corporation tax from 28% to 26% from 1 April 2011 and to 25% from 1 April 2012. On 29 March 2011 a resolution approving the rate change to 26% was passed. Therefore 26% has been used to calculate the position on deferred tax at 31 March 2011 (2010: 28%). Further phased reductions to 23% by April 2014 have not yet been enacted. The Directors are not aware of any other factors that will materially affect the future tax charge. 14. DIVIDENDS The dividends approved and paid during the year are as follows: 2.2p (2010: 2.0p) per share on 5p ordinary shares 2011 £’000 2010 £’000 1,266 1,148 The Directors are recommending the payment of a final dividend of 4.0p per ordinary share. This proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. 34 Mulberry Group plc 20698.04 1/07/2011 Proof 4 35 15. EARNINGS PER SHARE (‘EPS’) Basic earnings per share Diluted earnings per share Adjusted basic earnings per share Adjusted diluted earnings per share Earnings per share is calculated based on the following data: Profit for the year for basic and diluted earnings per share Adjustment to exclude exceptional items (see note 7) 2011 pence 2010 pence 29.8 29.1 30.4 29.7 2011 £’000 17,063 352 5.2 5.2 6.9 6.9 2010 £’000 2,972 987 Adjusted profit for the year for adjusted basic and diluted earnings per share 17,415 3,959 Weighted average number of ordinary shares for the purpose of basic EPS Effect of dilutive potential ordinary shares: share options Weighted average number of ordinary shares for the purpose of diluted EPS 2011 million 2010 million 57.3 1.4 58.7 57.4 0.1 57.5 The weighted average number of ordinary shares in issue during the year excludes those held by the Mulberry Group Plc Employee Share Trust. On 14 April 2011, 300,000 5p ordinary shares were issued at par. This share issue has not been adjusted for in the above EPS calculations. 34 35 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 16. INTANGIBLE ASSETS Cost At 1 April 2009 Additions Exchange differences At 1 April 2010 Additions Exchange differences At 31 March 2011 Amortisation At 1 April 2009 Charge for the year Exchange differences At 1 April 2010 Charge for the year Exchange differences At 31 March 2011 Carrying amount At 31 March 2011 At 31 March 2010 At 31 March 2009 Software £’000 852 340 – 1,192 503 – Lease costs £’000 2,076 – (84) 1,992 – (35) Total £’000 2,928 340 (84) 3,184 503 (35) 1,695 1,957 3,652 224 216 – 440 768 – 1,208 487 752 628 177 73 (5) 245 69 (4) 310 1,647 1,747 1,899 401 289 (5) 685 837 (4) 1,518 2,134 2,499 2,527 Lease costs comprise the lease premium and related costs associated with the Group’s shop on Rue St Honoré in Paris which are being amortised over the effective lease term of twenty seven years. At 31 March 2011, the Group had entered into contractual commitments for the acquisition of software of £615,000 (2010: nil). 36 Mulberry Group plc 20698.04 1/07/2011 Proof 4 37 17. PROPERTY, PLANT AND EQUIPMENT Freehold land and buildings £’000 Short leasehold land and buildings £’000 Plant and equipment £’000 Fixtures, fittings and equipment £’000 Motor vehicles £’000 3,763 85 – – 3,848 752 – – 3,195 515 (131) (6) 3,573 8,581 (3,051) – 4,063 686 (58) – 4,691 511 – – 8,377 701 (130) (26) 8,922 2,907 (2,179) (14) 105 18 (24) – 99 1 – – Total £’000 19,503 2,005 (343) (32) 21,133 12,752 (5,230) (14) Cost At 1 April 2009 Additions Disposals Exchange differences At 1 April 2010 Additions Disposals Exchange differences At 31 March 2011 4,600 9,103 5,202 9,636 100 28,641 Accumulated depreciation At 1 April 2009 Charge for the year Disposals Exchange differences At 1 April 2010 Charge for the year Disposals Exchange differences 1,188 107 – – 1,295 109 – – 1,880 1,098 (81) (3) 2,894 262 (2,978) – 2,893 416 (43) – 3,266 500 – – 4,627 1,237 (95) (7) 5,762 1,366 (2,100) (6) 43 21 (24) – 40 24 – – 10,631 2,879 (243) (10) 13,257 2,261 (5,078) (6) At 31 March 2011 1,404 178 3,766 5,022 64 10,434 Carrying amount At 31 March 2011 3,196 8,925 1,436 4,614 At 31 March 2010 2,553 679 1,425 3,160 At 31 March 2009 2,575 1,315 1,170 3,750 36 59 62 18,207 7,876 8,872 Freehold land of £997,000 (2010: £997,000) has not been depreciated. 18. SUBSIDIARIES A list of the significant investments in subsidiaries, including the name, country of incorporation, proportion of ownership interest is given in note 36 to the Company’s separate financial statements. 36 37 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 19. INTERESTS IN ASSOCIATES Aggregated amounts relating to associates Total assets Total liabilities Revenues Profit Aggregated amounts recognised relating to associates Share of profits recognised for the year 2011 £’000 1,177 (1,040) 2,060 610 2010 £’000 1,372 (673) 1,706 383 £’000 £’000 305 192 A list of the significant investments in associates, including the name, country of incorporation, proportion of ownership interest is given in note 36 to the Company’s separate financial statements. 20. INVENTORIES Raw materials Work-in-progress Finished goods 21. OTHER FINANCIAL ASSETS Trade and other receivables Amount receivable for the sale of goods Allowance for doubtful debts Amounts owed by associate undertakings Other debtors Prepayments and accrued income 2011 £’000 1,684 655 20,069 22,408 2011 £’000 8,977 (403) 8,574 386 696 2,530 12,186 2010 £’000 619 425 8,046 9,090 2010 £’000 6,022 (220) 5,802 398 680 1,383 8,263 38 Mulberry Group plc 20698.04 1/07/2011 Proof 4 39 21. OTHER FINANCIAL ASSETS (continued) Trade receivables The average credit period taken on the sale of goods is 39 days (2010: 43 days). No interest is charged on the outstanding receivables. The Group has provided for the estimated irrecoverable amount from the sale of goods, where there is doubt as to the recoverability of the receivables balance. Before accepting any new customer, the Group assesses the potential customer’s credit quality and defines individual credit limits by customer. The Group’s receivables comprise primarily department stores, franchisee partners and associates, and wholesale customers. Those customers who represented more than 10% of the total balance of trade receivables at the year end were Club 21 and House of Fraser (Stores) Limited. Included in the Group’s trade receivables balance are debtors with a carrying amount of £1,494,000 (2010: £684,000) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. Ageing of past due but not impaired receivables 0 to 30 days overdue 31 to 60 days overdue 2011 £’000 1,494 – 1,494 2010 £’000 684 – 684 Given the relatively small nature of the provision for receivables no further analysis is provided. Cash and cash equivalents Cash and cash equivalents £’000 £’000 21,373 12,171 Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates to their fair value. 22. BORROWINGS The Group’s borrowings comprise bank overdrafts which are repayable on demand. The multicurrency overdraft facilities of £2,000,000 (2010: £2,000,000) have been secured by a charge over the Group’s assets. The interest rates are determined based on 1% over the bank base rate. In addition the Group has available trade facilities of £2,500,000 (2010: £2,500,000). No borrowings were outstanding at the year end (2010: nil). 38 39 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 23. DEFERRED TAX The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting periods. Accelerated Short-term timing depreciation differences £’000 £’000 tax At 1 April 2009 Charge/(credit) to income At 1 April 2010 Charge/(credit) to income Net deferred tax liability/(asset) as at 31 March 2011 332 (162) 170 14 184 (200) (8) (208) (45) (253) Total £’000 132 (170) (38) (31) (69) Certain deferred tax assets and liabilities have been off set. The following is the analysis of the deferred tax balances (after off set) for financial reporting purposes: Deferred tax liability Deferred tax asset 24. OTHER FINANCIAL LIABILITIES Trade and other payables Trade creditors Accruals and deferred income Other creditors 2011 £’000 2010 £’000 184 (253) (69) 170 (208) (38) 2011 £’000 9,171 18,527 2,778 2010 £’000 3,826 6,236 2,135 30,476 12,197 Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 16 days (2010: 22 days). For most suppliers no interest is charged on the trade payables for the first 60 days from the date of the invoice. Thereafter, interest is charged on the outstanding balances at various interest rates. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. Included within accruals is the £1,000,000 provision for the USA deferred consideration (2010: nil), £4,717,000 relating to deferred income for lease incentives (2010: £526,000), £3,900,000 relating to payroll and bonus payments made post year end cut off (2010: nil) and £1,537,000 accruals for fixed assets (2010: nil). The Directors consider that the carrying amount of trade payables approximates to their fair value. 40 Mulberry Group plc 20698.04 1/07/2011 Proof 4 41 25. SHARE CAPITAL Authorised 65,000,000 ordinary shares of 5p each (2010: 65,000,000) Issued and fully paid 58,869,505 ordinary shares of 5p each (2010: 58,869,505) 2011 £’000 2010 £’000 3,250 3,250 £’000 £’000 2,943 2,943 The Company has granted 80,000 options in respect of 5p ordinary shares during the year (2010: 175,000). On 8 October 2009, 1,450,000 5p ordinary shares were issued at par to the Mulberry Group Plc Employee Share Trust for share awards. Subsequent to the year end, on 14 April 2011 the Company issued 300,000 5p ordinary shares in order to satisfy the exercise of share options. 26. RESERVES The own share reserve represents 1,634,857 5p ordinary shares (2010: 1,472,143) at a cost of £621,000 (2010: £107,000). The shares have been purchased in the market or issued as new shares by the Company, and are held by the Mulberry Group Plc Employee Share Trust to satisfy the deferred and matching shares under the Deferred Bonus Plan and Co-ownership Equity Incentive Plan. During the year, the reserve increased following the purchase of 188,000 5p ordinary shares from the open market with a market value of £524,000 and reduced by the vesting of 25,286 shares with a value of £10,000. 27. OPERATING LEASE ARRANGEMENTS 2011 £’000 2010 £’000 Minimum lease payments under operating leases recognised as an expense in the year 7,387 4,486 At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Within one year In the second to fifth years inclusive After five years £’000 £’000 7,565 32,905 43,688 5,453 21,260 38,276 84,158 64,989 Operating lease payments represent rentals payable by the Group for certain of its retail stores, warehouse and offices. The leases are for a varied length of time with the longest lease running until 2035. Leases are typically subject to rent reviews at specified intervals and some payments are contingent upon levels of revenue above minimum thresholds. The amount paid under this contingent element in the year was £1,383,000 (2010: £236,000). 41 Mulberry Group plc 20698.04 1/07/2011 Proof 4 40 Notes to the consolidated financial statements Year ended 31 March 2011 28. CONTINGENT LIABILITIES Mulberry Group plc has acted as a guarantor on various property leases entered into between its subsidiaries and third-party lessors. No amounts were outstanding at the year end in respect of such guarantees (2010: nil). 29. SHARE-BASED PAYMENTS The Group operated the following schemes during the year. The Mulberry Group plc 1996 Company Share Option Scheme The scheme was open to all employees. The exercise price is equal to the market value of the shares on the date of grant. The vesting period is three years. If the options remain unexercised after a period of ten years from the date of grant, the options expire. Options may be forfeited if the employee leaves the Group. This scheme expired in 2006. Mulberry Group plc 2008 Unapproved Share Option Scheme The scheme was established on 14 April 2008 and is open to all employees of Mulberry Group plc and its subsidiaries. The exercise price is equal to the market value of the shares on the date of grant. The vesting period is three years. If the options remain unexercised after a period of ten years from the date of grant the options expire. Options may be forfeited if the employee leaves the Group. Details of the share options outstanding for both schemes during the year are as follows: 2011 2010 Weighted average exercise price (in p) Number of share options Weighted average exercise price (in p) Number of share options Outstanding at beginning of year Granted during the year Forfeited during the year Exercised during the year 1,366,000 80,000 (20,000) (65,000) 145.7 1205.0 144.7 144.7 1,481,000 175,000 (40,000) (250,000) Outstanding at the end of the year 1,361,000 213.0 1,366,000 Exercisable at the end of the year 100,000 146.2 125,000 144.7 152.0 144.7 145.1 145.7 146.2 The weighted average share price at the date of exercise for share options exercised during the period was 144.7p (2010: 145.1p). The options outstanding at 31 March 2011 had a weighted average remaining contractual life of 0.5 years (2010: 1.3 years). The inputs into the Black–Scholes model are as follows: Share price Exercise price Expected volatility Expected life Risk-free rate Expected dividend yields 2011 2010 50.0p to 1205.0p 50.0p to 1205.0p 33.57% to 62.41% 3.25 years to 5 years 1.88% to 5.05% 0% to 1.88% 50.0p to 152.0p 50.0p to 152.0p 33.57% to 62.41% 3.25 years to 5 years 1.99% to 5.05% 0% to 1.6% 42 Mulberry Group plc 20698.04 1/07/2011 Proof 4 43 29. SHARE-BASED PAYMENTS (continued) Expected volatility was based on historical volatility over the expected life of the schemes. The expected life is based upon historical data and has been adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions, and behavioural considerations. Mulberry Group plc 2008 Deferred Bonus Plan The plan was established on 8 August 2008 and is open to all employees of Mulberry Group plc and its subsidiaries. The share-based payments charge relates to the cost of matching shares awarded to employees participating in this plan. The vesting period is two years. If the matching shares remain unexercised after a period of ten years from the date of grant the award expires. The matching shares may be forfeited if the employee leaves the Group. Details of the share options outstanding during the year are as follows: 2011 2010 Number of Number of matching shares matching shares Outstanding at beginning of year Granted during the year Exercised during the year Forfeited Outstanding at the end of the year Exercisable at the end of the year 216,685 33,270 (11,238) – 31,129 195,413 – (9,857) 238,717 216,685 10,034 – The options outstanding at 31 March 2011 had a weighted average remaining contractual life of 1.3 years (2010: 1.8 years) and have an exercise price of nil. The inputs into the Black–Scholes model are as follows: Share price Exercise price Expected volatility Expected life Risk-free rate Expected dividend yields 2011 2010 121.5p to 194.0p nil 43.93% to 76.07% 2 years 6 months 1.59% to 4.52% 1.23% to 1.6% 121.5p to 194.0p nil 43.93% to 76.07% 2 years 6 months 1.59% to 4.52% 1.23% to 1.6% Expected volatility was based on historical volatility over the expected life of the scheme. The expected life is based upon historical data and has been adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions, and behavioural considerations. Mulberry Group plc 2009 Co-ownership Equity Incentive Plan The plan was established on 20 August 2009. The vesting period is three years. The jointly owned shares may be forfeited if the employee leaves the Group prior to vesting and the rights of the participants lapse if the award has not been exercised after a period of seven years from the date of vesting. 42 43 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 29. SHARE-BASED PAYMENTS (continued) Details of the share awards outstanding during the year are as follows: 2011 2010 Weighted average exercise price (in p) Number of share awards Weighted average exercise price (in p) Number of share awards Outstanding at beginning of year Granted during the year 1,325,000 – 145.8 – – 1,325,000 Outstanding at the end of the year 1,325,000 145.8 1,325,000 Exercisable at the end of the year – – – – 145.8 145.8 – The co-owned share rights outstanding at 31 March 2011 had a weighted average remaining contractual life of 1.5 years (2010: 2.5 years). The inputs into the Black–Scholes model are as follows: Share price Exercise price Expected volatility Expected life Risk-free rate Expected dividend yields 2011 2010 121.5p 145.8p 53.79% 2 years 3 months 2.16% 1.6% 121.5p 145.8p 53.79% 2 years 3 months 2.16% 1.6% Expected volatility was based on historical volatility over the expected life of the scheme. The expected life is based upon historical data and has been adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions, and behavioural considerations. The Group recognised the following expenses related to share-based payments: Mulberry Group plc 2008 Unapproved Share Option Scheme Mulberry Group plc 2008 Deferred Bonus Plan Mulberry Group plc 2009 Co-ownership Equity Incentive Plan 2011 £’000 2010 £’000 440 107 154 701 282 25 44 351 30. RETIREMENT BENEFIT SCHEMES The Group contributes to personal pension plans for all qualifying employees. The total cost charged to income of £456,000 (2010: £397,000) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 31 March 2011, contributions due in respect of the current reporting period which had not been paid over to the schemes were £69,000 (2010: £52,000). 44 Mulberry Group plc 20698.04 1/07/2011 Proof 4 45 31. FINANCIAL INSTRUMENTS Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity and notes 25 and 26. Externally imposed capital requirement The Group is not subject to externally imposed capital requirements. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3 to the financial statements. Categories of financial instruments Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost Financial risk management objectives Carrying values 2011 £’000 2010 £’000 30,333 18,371 9,171 3,826 The Group’s Finance Director is responsible to the Board for the Group’s financial risk management. This includes analysing the Group’s exposure by degree and magnitude of risks. These risks include market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group seeks to minimise the effects of these risks where possible. It does this by maintaining bank accounts in all of the major currencies in which it trades and it operates its own internal hedging by offsetting currency receipts on sales against purchases in related currencies. Where there is significant risk remaining, and the Group deems it necessary, it uses derivative financial instruments to hedge these risk exposures. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group reviews the need to enter into financial instruments on a regular basis but has not entered into any during the current or previous periods. As the Group has no debt, it is not significantly exposed to interest rate risk on its financial liabilities and continues to seek to maximise the returns from its bank deposits. 44 45 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 31. FINANCIAL INSTRUMENTS (continued) Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Euro US Dollar Liabilities Assets 2011 £’000 2,045 522 2010 £’000 480 761 2011 £’000 3,822 3,933 2010 £’000 891 1,808 Foreign currency sensitivity analysis The Group is mainly exposed to the US Dollar and Euro currencies. The following table details the Group’s sensitivity to a 10% increase and decrease in Sterling against the relevant foreign currencies. 10% is the sensitivity rate which represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and other equity where Sterling strengthens 10% against the relevant currency. For a 10% weakening of Sterling against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative or positive. Euro currency impact US Dollar currency impact 2011 £’000 2010 £’000 2011 £’000 2010 £’000 Profit or loss 161 173 309 57 Interest rate risk management and sensitivity analysis The Group’s exposure to interest rate risk on borrowings is limited as there is no outstanding debt within the Group. The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. The Group’s sensitivity to changes in interest rates has been illustrated based on a 1% increase or decrease in interest rates. For floating rate deposits and liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 1% increase or decrease has been applied to represent management’s assessment of the reasonably possible change in interest rates. If interest rates had been 1% higher and all other variables were held constant, the Group’s profit for the year ended 31 March 2011 would have increased by £118,000 (2010: increase by £65,000). This is mainly attributable to the Group’s exposure to interest rates on its cash deposits. The Group’s sensitivity to interest rates has increased during the current period mainly due to the net increase in the funds on which interest is received. 46 Mulberry Group plc 20698.04 1/07/2011 Proof 4 47 31. FINANCIAL INSTRUMENTS (continued) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining letters of credit where deemed appropriate, as a means of mitigating the risk of financial loss from defaults. Trade receivables consist of a large number of customers. Credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit insurance cover is purchased. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics, other than as disclosed in note 21. The Group defines counterparties as having similar characteristics if they are connected entities. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 22 is a description of additional undrawn facilities that the Group has at its disposal to reduce further liquidity risk. Liquidity and interest risk tables The Group’s financial assets all contractually mature within the next year. Trade receivables do not accrue interest. The weighted average interest rate on cash and cash equivalents was 0.5% (2010: 0.25%). The following tables detail the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. Weighted average interest rate 2011 Less than 1 year £’000 1 to 2 years £’000 2 to 3 years £’000 3 to 4 years £’000 4 to 5 years £’000 Total £’000 Trade and other payables – 34,555 – – – – 34,555 Weighted average interest rate 2010 Less than 1 year £’000 1 to 2 years £’000 2 to 3 years £’000 3 to 4 years £’000 4 to 5 years £’000 Total £’000 Trade and other payables – 12,197 – – – – 12,197 Fair value of financial instruments The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate to their fair values. 46 47 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the consolidated financial statements Year ended 31 March 2011 32. RELATED PARTY TRANSACTIONS Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below. USA transaction On 5 October 2009, the transaction to assume operational control of the two New York shops and the distribution rights to the North American market previously held by our joint venture partner, Mulberry USA LLC, was completed. As part of this agreement, deferred consideration of up to £1,000,000, will become payable to Challice Limited (the remaining shareholder of Mulberry USA LLC and the majority shareholder of Mulberry Group plc) on a stepped basis if sales generated from the USA operations during the third year post completion exceed certain agreed thresholds. The consideration will be payable in cash or, at Mulberry Group plc’s option, new Mulberry shares, the number of shares being calculated at the then prevailing share price. As at 31 March 2011, it is considered probable that the deferred consideration will become payable in full and a balance of £1,000,000 has been included within accruals. Trading transactions During the year, Group companies entered into the following transactions with related parties who are not members of the Group: Mulberry Oslo AS Club 21 Retail (Hong Kong) Limited* Club 21 Pte Limited* Club 21 (Thailand) Co Limited* Club 21 Pte Limited Taiwan Branch* Club 21 Distribution (S) Pte Limited* Club Twenty-One Retail (M) Sdn Bhd* Club 21 Australia Pty Ltd* Mulberry USA LLC Sale of goods 2011 £’000 1,433 3,103 1,038 454 227 – 375 396 – 2010 £’000 678 541 173 265 139 30 85 – 26 Amounts owed by related parties 2011 £’000 2010 £’000 386† 343 186 41 13 – 66 110 – 398† 196 83 40 69 6 2 – 252 * These are related parties of the Group as they are all related companies of Challice Limited, the majority shareholder of the Group. † Includes £214,000 of dividend income outstanding at the year end (2010: £166,000). All sales of goods have been made on an arm’s length basis. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. 48 Mulberry Group plc 20698.04 1/07/2011 Proof 4 49 32. RELATED PARTY TRANSACTIONS (continued) Remuneration of key management personnel The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’. Further information about the remuneration of individual Directors is provided within the audited part of the Directors’ remuneration report. Short-term employee benefits Post-employment benefits Share-based payments 2011 £’000 1,057 77 302 1,436 2010 £’000 770 71 125 966 33. CONTROLLING PARTY At the year end, Challice Limited controlled 57.3% of the issued share capital of the Company. The ultimate controlling parties of Challice Limited are Mr Ong Beng Seng and Mrs Christina Ong. As at the date of signing Challice Limited controlled 57.0% of the issued share capital. 48 49 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Company financial statements Contents Independent auditor’s report Company balance sheet Notes to the Company financial statements Notice of Annual General Meeting Group five year summary Page 51 52 53 59 64 50 Mulberry Group plc 20698.04 1/07/2011 Proof 4 51 Independent auditor’s report To the members of Mulberry Group plc We have audited the parent company financial statements of Mulberry Group plc for the year ended 31 March 2011 which comprise the parent company balance sheet and the related notes 34 to 45. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. OPINION ON FINANCIAL STATEMENTS In our opinion the parent company financial statements: l give a true and fair view of the state of the parent company’s affairs as at 31 March 2011; l have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and l have been prepared in accordance with the requirements of the Companies Act 2006. OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: l adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or l l certain disclosures of Directors’ remuneration specified by law are not made; or l we have not received all the information and explanations we require for our audit. OTHER MATTERS We have reported separately on the Group financial statements of Mulberry Group plc for the year ended 31 March 2011. David Hedditch (Senior Statutory Auditor) for and on behalf of Deloitte LLP, Chartered Accountants and Statutory Auditor, Bristol, United Kingdom 15 June 2011 51 Mulberry Group plc 20698.04 1/07/2011 Proof 4 50 Company balance sheet At 31 March 2011 Fixed assets Tangible assets Investments Current assets Debtors Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Provision for liabilities Net assets Capital and reserves Called up share capital Share premium account Capital redemption reserve Special reserve Profit and loss account Shareholders’ funds Note 37 36 38 39 2011 £’000 10,171 13,202 2010 £’000 2,728 13,202 23,373 15,930 11,211 1,719 (9,615) (704) 1,596 1,015 24,969 16,945 40 (178) (7) 24,791 16,938 2,943 7,007 154 4,187 10,500 2,943 7,007 154 4,187 2,647 24,791 16,938 42 43 43 43 43 44 The financial statements of Mulberry Group plc (company number 01180514) were approved by the Board of Directors and authorised for issue on 15 June 2011. They were signed on its behalf by: Godfrey Davis Director Roger Mather Director 52 Mulberry Group plc 20698.04 1/07/2011 Proof 4 53 Notes to the company financial statements Year ended 31 March 2011 34. SIGNIFICANT ACCOUNTING POLICIES Basis of accounting The separate financial statements of the Company are presented as required by the Companies Act 2006 and have been prepared in accordance with applicable United Kingdom Accounting Standards and law. They have been prepared under the historical cost convention and under the going concern assumption. Further details of the Directors’ considerations in relation to going concern are included in the Directors’ report. The principal accounting policies are summarised below. These have been applied consistently throughout the year and the preceding year. Tangible fixed assets Fixed assets are shown at cost less accumulated depreciation and any provision for impairment. Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected useful life at the following rates per annum: Freehold buildings Short leasehold property Fixtures and fittings Freehold land is not depreciated. Investments 5% term of the lease 10% to 33% per annum Fixed asset investments in subsidiaries and associates are shown at cost less provision for impairment. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs. Foreign exchange Transactions denominated in foreign currencies are translated into Sterling at the rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates ruling at that date. These translation differences are dealt with in the profit and loss account. Pension costs Payments to employees’ personal pension plans are charged as an expense as they fall due. 52 53 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the company financial statements Year ended 31 March 2011 34. SIGNIFICANT ACCOUNTING POLICIES (continued) Taxation Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. The taxation liabilities are reduced wholly or in part by the surrender of tax losses by fellow Group undertakings for which payment is made. Cash flow statement A cash flow statement has not been prepared as the consolidated financial statements include a consolidated cash flow statement. 35. PROFIT FOR THE YEAR As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account for the year. Mulberry Group plc reported a profit for the financial year ended 31 March 2011 of £8,836,000 (2010: £960,000). The auditor’s remuneration for audit and other services is disclosed within note 9 to the consolidated financial statements. The only employees of the Company are the Directors whose emoluments are disclosed in the Directors’ remuneration report. 36. FIXED ASSET INVESTMENTS Cost At 1 April 2010 and 31 March 2011 Provision for impairment At 1 April 2010 and 31 March 2011 Net book value At 1 April 2010 and 31 March 2011 Subsidiaries Subsidiaries loans £’000 shares £’000 Total £’000 2,858 11,804 14,662 (1,460) – (1,460) 1,398 11,804 13,202 54 Mulberry Group plc 20698.04 1/07/2011 Proof 4 55 36. FIXED ASSET INVESTMENTS (continued) The Company has investments in the following subsidiaries and associates which principally contributed to the profits or net assets of the Group. Subsidiaries Mulberry Company (Design) Limited Country of incorporation England and Wales Mulberry Company (France) SARL France Mulberry Company (Sales) Limited England and Wales Mulberry Company (Europe) Limited Kilver Street Inc England and Wales USA Mulberry Group Plc Employee Share Trust Guernsey Principal activity Holding of ordinary shares Design and manufacture of clothing and fashion accessories in the UK Establishment and operation of retail shops in France Establishment and operation of retail shops in the UK Intermediary holding company Establishment and operation of retail shops in the USA Operation of an employee share trust 100% 100% 100%* 100% 100% 100% Associates Mulberry Oslo AS† Norway Operation of a retail shop in Oslo 50%* * Owned by Mulberry Company (Europe) Limited † Accounting reference date of 30 September 37. TANGIBLE FIXED ASSETS Cost At 1 April 2010 Additions Disposals At 31 March 2011 Depreciation At 1 April 2010 Charge for the year Disposals At 31 March 2011 Net book value End of year Beginning of year Freehold land and buildings £’000 3,848 752 – Short leasehold land and buildings £’000 489 6,089 (290) 4,600 6,288 1,295 109 – 1,404 314 94 (290) 118 Fixtures and fittings £’000 – 805 – 805 – – – – Total £’000 4,337 7,646 (290) 11,693 1,609 203 (290) 1,522 3,196 6,170 805 10,171 2,553 175 – 2,728 Freehold land of £997,000 (2010: £997,000) has not been depreciated. 55 Mulberry Group plc 20698.04 1/07/2011 Proof 4 54 Notes to the company financial statements Year ended 31 March 2011 38. DEBTORS Amounts falling due within one year: Amounts owed by Group undertakings Prepayments and accrued income Corporation tax debtor 39. CREDITORS Amounts falling due within one year: Amounts owed to Group undertakings Accruals and deferred income 40. PROVISIONS FOR LIABILITIES Deferred tax – accelerated capital allowances Deferred tax liability at 1 April 2010 Charge for the year Deferred tax liability at 31 March 2011 2011 £’000 11,185 26 – 11,211 2011 £’000 4,439 5,176 9,615 2011 £’000 178 2010 £’000 1,540 129 50 1,719 2010 £’000 464 240 704 2010 £’000 7 £’000 7 171 178 56 Mulberry Group plc 20698.04 1/07/2011 Proof 4 57 41. RELATED PARTY TRANSACTIONS Details of related party transactions are provided in note 32 of the consolidated financial statements. The Company has taken advantage of the exemption in FRS 8 not to disclose details of transactions with other wholly owned Group companies. 42. CALLED UP SHARE CAPITAL Authorised 65,000,000 ordinary shares of 5p each (2010: 65,000,000) Issued and fully paid 58,869,505 ordinary shares of 5p each (2010: 58,869,505) 2011 £’000 2010 £’000 3,250 3,250 £’000 £’000 2,943 2,943 During the year the Company has granted 80,000 options in respect of 5p ordinary shares (2010: 175,000). On 8 October 2009, 1,450,000 5p ordinary shares were issued at par to the Mulberry Group Plc Employee Share Trust for share awards. Subsequent to the year end, on 14 April 2011 the Company issued 300,000 5p ordinary shares in order to satisfy the exercise of share options. 43. RESERVES Balance at 1 April 2010 Profit for the year Ordinary dividends paid Charge for share-based payments Exercise of share options Share capital £’000 2,943 – – – – Capital Share redemption reserve £’000 premium £’000 7,007 – – – – 154 – – – – 154 Special reserve* £’000 4,187 – – – – Profit and loss account £’000 2,647 8,836 (1,266) 701 (418) 4,187 10,500 Balance at 31 March 2011 2,943 7,007 * Created as part of a capital restructuring of the Group in 2004 The cumulative amount of goodwill resulting from acquisitions in earlier financial years which has been written off is £165,000 (2010: £165,000). 56 57 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notes to the company financial statements Year ended 31 March 2011 44. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS Balance at 1 April 2010 Profit for the year Ordinary dividends paid Charge for share-based payments Exercise of share options Balance at 31 March 2011 45. CONTINGENT LIABILITIES £’000 16,938 8,836 (1,266) 701 (418) 24,791 Mulberry Group plc has acted as a guarantor on various property leases entered into between its subsidiaries and third-party lessors. No amounts were outstanding at the year end in respect of such guarantees (2010: nil). 58 Mulberry Group plc 20698.04 1/07/2011 Proof 4 59 Notice of Annual General Meeting Year ended 31 March 2011 Notice is given that the Annual General Meeting of Mulberry Group plc will be held at Mulberry Group plc’s offices, 30 Kensington Church Street, London, W8 4HA on 17 August 2011 at 11 am for the following purposes: ORDINARY BUSINESS: To consider and, if thought fit, pass the following resolutions, which will be proposed as ordinary resolutions: Adoption of financial statements 1. That the report of the Directors and the financial statements for the year ended 31 March 2011 together with the independent auditor’s report be received and adopted. Dividend declaration 2. To declare a final dividend of 4.0 pence per ordinary share for the year ended 31 March 2011. Election of Directors 3. To elect Miss Melissa Ong as a Director who, having been appointed since the last Annual General Meeting, offers herself for re-election in accordance with the Company’s Articles of Association. Re-election of retiring Directors 4. That Mr R E G Gibson who retires as a Director by rotation in accordance with the Company’s Articles of Association be re-elected as a Director. 5. That Mr A C Roberts who retires as a Director by rotation in accordance with the Company’s Articles of Association be re-elected as a Director. Appointment of auditor 6. That Deloitte LLP be re-appointed as auditor of the Company until the conclusion of the next general meeting before which accounts are laid and, that their remuneration be agreed by the Directors. SPECIAL BUSINESS: To consider and, if thought fit, pass the following resolutions, of which resolution 7 will be proposed as an ordinary resolution, and resolutions 8 and 9 will be proposed as special resolutions: Directors’ power to allot relevant securities 7. That, in substitution for any equivalent authorities and powers granted to the Directors prior to the passing of this resolution, the Directors be and they are generally and unconditionally authorised pursuant to Section 551 of the Act to exercise all powers of the Company to allot shares in the Company, and grant rights to subscribe for or to convert any security into shares of the Company (such shares, and rights to subscribe for or to convert any security into shares of the Company being “relevant securities”) up to an aggregate nominal amount of £986,158, provided that, unless previously revoked, varied or extended, this authority shall expire on the conclusion of the Annual General Meeting of the Company to be held in 2012, except that the Company may at any time before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such an offer or agreement as if this authority had not expired. Waiver of statutory pre-emption rights 8. That the Directors be and they are empowered pursuant to Section 570(1) of the Act to allot equity securities (as defined in Section 560(1) of the Act) of the Company wholly for cash pursuant to the authority of the Directors under Section 551 of the Act conferred by resolution 7 above, and/or by way of a sale of treasury shares (by virtue of Section 573 of the Act), in each case as if Section 561(1) of the Act did not apply to such allotment, provided that: 58 59 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notice of Annual General Meeting (continued) (a) the power conferred by this resolution shall be limited to: (i) the allotment of equity securities in connection with an offer of equity securities to the holders of ordinary shares in the capital of the Company in proportion as nearly as practicable to their respective holdings of such shares, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with fractional entitlements or legal or practical problems arising under the laws or requirements of any overseas territory or by virtue of shares being represented by depository receipts or the requirements of any regulatory body or stock exchange or any other matter whatsoever; and (ii) the allotment, otherwise than pursuant to sub-paragraph (i) above, of equity securities up to an aggregate nominal value equal to £147,924; and (b) unless previously revoked, varied or extended, this power shall expire on the conclusion of the Annual General Meeting of the Company to be held in 2012 except that the Company may before the expiry of this power make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if this power had not expired. Authority to purchase ordinary shares (market purchases) 9. That the Company be and is hereby unconditionally and generally authorised for the purposes of Section 701 of the Act to make market purchases (within the meaning of Section 693(4) of the Act) of its ordinary shares of 5p each (“Ordinary Shares”) provided that: (a) the maximum number of Ordinary Shares authorised to be purchased is 2,958,475; (b) the minimum price which may be paid for any such Ordinary Share is 5p; (c) the maximum price which may be paid for an Ordinary Share shall be an amount equal to 105% of the average middle market prices for an Ordinary Share as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the Ordinary Share is contracted to be purchased; and (d) this authority shall, unless previously renewed, revoked or varied, expire on the earlier of the date falling 18 months after the date of the passing of this resolution and the conclusion of the Annual General Meeting of the Company to be held in 2012, but the Company may enter into a contract for the purchase of Ordinary Shares before the expiry of this authority which would or might be completed (wholly or partly) after its expiry. By order of the Board Roger Mather Secretary 15 June 2011 Registered office: The Rookery, Chilcompton, Somerset, BA3 4EH 60 Mulberry Group plc 20698.04 1/07/2011 Proof 4 61 Notes: 1. All members holding ordinary shares are entitled to attend, speak and vote at the meeting. Such members may appoint a proxy to attend, speak and vote instead of them. A proxy need not also be a member of the Company but must attend the Annual General Meeting in order to represent his appointer. A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares (so a member must have more than one share to be able to appoint more than one proxy). A form of proxy is enclosed. The notes to the form of proxy include instructions on how to appoint the Chairman of the Annual General Meeting or another person as proxy and how to appoint a proxy electronically or by using the CREST proxy appointment service. To be effective the form must reach the Company’s registrar, Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol BS99 6ZY by 11 am on 15 August 2011. 2. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that only those persons registered in the register of members of the Company at 6.00 pm on 15 August 2011 (or if the Annual General Meeting is adjourned, 48 hours before the time fixed for the adjourned Annual General Meeting) shall be entitled to attend and vote at the Annual General Meeting in respect of the number of shares registered in their name at that time. Any changes to the register of members after such time shall be disregarded in determining the rights of any person to attend or vote at the Annual General Meeting. 3. Please note that communications regarding the matters set out in this Notice of Annual General Meeting will not be accepted in electronic form other than as specified in the enclosed form of proxy. 4. As at 15 June 2011 (being the last business day prior to the publication of this Notice) the Company’s issued share capital consists of 59,169,505 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 15 June 2011 are 59,169,505. 5. The following documents are available for inspection at the registered office of the Company during the usual business hours on any weekday (Saturday, Sunday or public holidays excluded) from the date of this Notice until the conclusion of the Annual General Meeting and will also be available for inspection at the place of the Annual General Meeting from 10.45 am on the day of the Annual General Meeting until its conclusion: (a) the register of Directors’ interests in the shares of the Company; and (b) copies of the Executive Directors’ service contracts with the Company and letters of appointment of the Non- Executive Directors. 60 61 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Notice of Annual General Meeting (continued) Explanatory notes to the special business to be transacted at the meeting Resolution 7 – Directors’ power to allot relevant securities Resolution 7, which will be proposed as an ordinary resolution, grants the Directors authority to allot shares in the capital of the Company and other relevant securities up to an aggregate nominal value of £986,158, representing approximately one-third of the nominal value of the issued ordinary share capital of the Company as at 15 June 2011, being the latest practicable date before publication of this Notice. The Directors do not have any present intention of exercising the authorities conferred by this resolution but they consider it desirable that the specified amount of unissued share capital is available for issue so that they can more readily take advantage of possible opportunities in the future. Unless revoked, varied or extended, this authority will expire at the conclusion of the next Annual General Meeting of the Company or the date falling 18 months from the passing of the resolution, whichever is the earlier. Resolution 8 – waiver of statutory pre-emption rights Resolution 8, which will be proposed as a special resolution, authorises the Directors in certain circumstances to allot equity securities for cash other than in accordance with statutory pre-emption rights (which require a Company to offer all allotments for cash first to existing shareholders in proportion to their holdings). The relevant circumstances are either where the allotment takes place in connection with a rights issue or the allotment is limited to a maximum nominal amount of £147,924, representing approximately 5% of the nominal value of the issued ordinary share capital of the Company as at 15 June 2011, being the latest practicable date before publication of this Notice. Unless revoked, varied or extended, this authority will expire at the conclusion of the next Annual General Meeting of the Company or 18 months after the passing of the resolution, whichever is the earlier. The Company may hold any shares it buys back “in treasury” and then sell them at a later date for cash rather than simply cancelling them. Any such sales are required to be made on a pre-emptive, pro-rata basis to existing shareholders unless shareholders agree by special resolution to disapply such pre-emption rights. Accordingly, in addition to giving the Directors power to allot unissued ordinary shares on a non pre-emptive basis, resolution 8 will also give the Directors power to sell ordinary shares held in treasury on a non pre-emptive basis, subject always to the limitations noted above. The Directors consider that the power proposed to be granted by resolution 8 is necessary to retain flexibility in relation to the management of the Company’s share capital, although they do not have any intention at the present time of exercising such power. Resolution 9 – authority to purchase ordinary shares (market purchases) Resolution 9, which will be proposed as a special resolution, authorises the Directors to make market purchases of up to 2,958,475 ordinary shares (representing approximately 5% of the Company’s issued ordinary shares as at 15 June 2011, being the latest practicable date before publication of this Notice). Shares so purchased may be cancelled or held as treasury shares as noted above. The authority will expire at the end of the next Annual General Meeting of the Company or 18 months from the passing of the resolution, whichever is the earlier. The Directors intend to seek renewal of this authority at subsequent Annual General Meetings. The minimum price that can be paid for an ordinary share is 5p, being the nominal value of an ordinary share. The maximum price that can be paid is 5% over the average of the middle market prices for an ordinary share, derived from the Daily Official List of the London Stock Exchange, for the five business days immediately before the day on which the share is contracted to be purchased. The Directors intend to exercise this right only when, in light of the market conditions prevailing at the time and taking into account all relevant factors (for example, the effect on earnings per share), they believe that such purchases are in the best interests of the Company and shareholders generally. The overall position of the Company will be taken into account before deciding upon this course of action. The decision as to whether any such shares bought back will be cancelled or held in treasury will be made by the Directors on the same basis at the time of the purchase. 62 Mulberry Group plc 20698.04 1/07/2011 Proof 4 63 62 63 Mulberry Group plc 20698.04 1/07/2011 Proof 4 Group five year summary Year ended 31 March 2011 Results Revenue Operating profit Profit before tax 2007 £’000 2008 £’000 2009 £’000 2010 £’000 2011 £’000 45,078 51,174 58,585 72,052 121,645 6,672 4,774 3,930 4,856 23,010 6,200 5,186 4,177 5,096 23,345 Profit attributable to equity holders 3,981 3,436 2,581 2,972 17,063 Assets employed Non-current assets Current assets Current liabilities Non-current liabilities 8,910 20,828 (8,879) (3,990) 10,791 23,570 (11,821) (21) 11,694 24,572 (11,750) (132) 10,760 29,524 (13,819) – 20,620 55,967 (34,555) – Net assets 16,869 22,519 24,384 26,465 42,032 key statistics Earnings per share Diluted earnings per share 8.1p 7.4p 6.0p 6.0p 4.5p 4.5p 5.2p 5.2p 29.8p 29.1p 64 Mulberry Group plc 20698.04 1/07/2011 Proof 4 64 Mulberry Group plc The Rookery Chilcompton Somerset BA3 4EH Tel +44 (0)1761 234 500 Fax +44 (0)1761 234 555 mulberry.com