Interim Results
Burberry Group PLC
15 November 2005
Burberry Group plc
Interim Results
15 November 2005. Burberry Group plc reports interim results for its first half
to 30 September 2005.
Summary of Results(1)
Six months to September
------------------------- --------
2005 2004 Change
£m £m %
------- -------- --------
Turnover 354.9 347.5 2
Operating profit before Atlas costs(2) 78.8 77.6 2
Operating profit 75.8 77.6 (2)
Attributable profit 53.1 54.6 (3)
Diluted EPS before Atlas costs 11.3p 10.8p 5
Diluted EPS 10.9p 10.8p 1
Diluted weighted average number of Ordinary
Shares 488.8m 507.1m (4)
Financial Highlights
• Total revenues increased 3% on an underlying(3) basis to £355 million
- Retail revenues increased 9% underlying
- Wholesale revenues declined 1% underlying
- Licensing revenue increased 3% underlying
• Operating profit before Atlas costs increased 2% to £79 million
• Operating margin before Atlas costs of 22.2% vs 22.3% in prior period
• Diluted EPS before Atlas costs increased 5% to 11.3p
• Interim dividend increased 25% to 2.5p per Ordinary Share
• As of 30 September 2005, an aggregate of £123 million shares repurchased
Strategic and Operating Highlights
• Retail expansion on track with opening of four new and replacement stores
and six concessions
- Completed key store renovations
• Acquired Taiwan distributors
• Concluded womenswear retail concession agreement with major customer in
Spain
• Continued to rebalance retail/wholesale channel mix in US market
• Announced new eyewear licence
• Project Atlas, major infrastructure redesign initiative underway
______________
(1) Financial results are reported under International Financial Reporting
Standards. Prior year figures have been restated in line with these
principles.
(2) Project Atlas costs of £3.0 million (2004: nil) relate to the Group's
infrastructure redesign initiative announced in May 2005.
(3) Underlying figures exclude the financial effect of Burberry's Taiwan-related
business in both reporting periods and are calculated at the same exchange
rates used in the 2004/05 year's reported results for the period. Burberry
completed the acquisition of the operations and assets of its distributors
in Taiwan in August 2005 (the 'Taiwan Acquisition').
Rose Marie Bravo, Chief Executive, stated, 'In the context of a period marked by
strategic investment and transition, Burberry delivered a solid performance in
the first half. With cold weather arriving and the holidays approaching, we
enter our most important time of year with cautious optimism.'
Management will discuss these results during a presentation to analysts and
institutions at 1:00pm today at Merrill Lynch Financial Centre, The Auditorium,
100 Newgate Street, London EC1A 1HQ (telephone +44 (0) 20 7968 0577). The
presentation will also be broadcast live on the Internet at www.burberryplc.com
and can be accessed by telephone at +44 (0) 20 7081 7194 (UK and international)
and +1 866 432 7186 (US). Replay: +44 (0) 20 7081 9440, access number 299766.
Enquiries:
Burberry 020 7968 0577
Stacey Cartwright CFO
Matt McEvoy Strategy and IR
John Scaramuzza Strategy and IR
Brunswick 020 7404 5959
Susan Gilchrist
Robert Gardener
Alex Tweed
The financial information contained in this announcement has not been audited.
Certain statements made in this announcement are forward looking statements.
Such statements are based on current expectations and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from any expected future results in forward looking statements.
This announcement does not constitute an invitation to underwrite, subscribe for
or otherwise acquire or dispose of any Burberry Group plc shares. Past
performance is not a guide to future performance and persons needing advice
should consult an independent financial adviser.
Chief Executive's Review
In the context of a period marked by strategic investment and transition,
Burberry delivered a solid performance in the first half. Revenues increased 3%
on an underlying basis and diluted EPS before costs of Project Atlas, the
Group's infrastructure redesign initiative, increased 5%. These results reflect
the continued execution of Burberry's core strategies, phases of strategic and
operational transition in certain business segments and regions and a variety of
external market conditions. Highlights of these factors are discussed below.
Regions. Burberry maintained steady progress across its trading regions during
the half.
• US. In the US, strong retail growth, driven by new and existing stores,
was partially offset by reduced wholesale sales to produce 5% underlying
revenue growth for the half. The reduction in wholesale sales reflects
caution on the part of certain wholesale customers resulting from a soft
spring season and ongoing channel adjustment. With the Group's ongoing
substantial expansion of own retail space in this market, Burberry continues
to rebalance the retail/wholesale channel mix in the US. The Group opened a
store in San Antonio, Texas in September and plans to add three stores in
the second half.
• Europe. Europe's 1% underlying revenue decline in the period reflects
varying performance across the region. In Spain, softer demand and
distribution channel evolution led to a moderate wholesale sales decline for
the half. In other Continental European markets, solid retail growth driven
by new stores and concessions combined with robust wholesale growth to
produce strong gains. Italy experienced particular strength, stimulated by
the Milan and Rome stores. The UK market, affected by external factors,
continued to be soft across both retail and wholesale channels. During the
half, Burberry opened a replacement store in Zurich and completed renovation
of the Frankfurt and Munich stores.
• Non-Japan Asia. Revenue in Non-Japan Asia increased 9% on an underlying
basis during the half. In Greater China (Hong Kong and mainland China),
growth across the retail and wholesale channels continued to be fuelled by
demand from mainland consumers. In Korea, selling space additions and a
favourable duty free business drove revenue gains in a challenging
consumer-spending environment. Gains at existing stores and travel-related
customers drove revenue increases in Southeast Asia. During the half,
Burberry opened three concessions in Hong Kong and Korea and a replacement
store in Taipei.
• Japan. Sales volumes in Japan experienced a small decline as the result
of a soft apparel environment and Burberry's ongoing programme to enhance
brand positioning in this market. This programme involves licence
transitions/cancellations, restricting distribution of most product
categories and upgrading selected products in terms of design and quality.
As part of this, management began preparations for Burberry's direct selling
of men's ties, scarves and silks from the brand's international collection,
which is scheduled to commence in autumn 2006. These imported products will
replace licensed domestic products in these categories.
• Emerging markets. Boosted by new stores, sales to emerging markets
increased substantially in the first half. In conjunction with local
partners, the Group opened franchised stores in Istanbul (Turkey), Warsaw
(Poland), Sao Paolo (Brazil), Jeddah (Saudi Arabia) and Riyadh (Saudi
Arabia).
Channels. The Group continued to execute its core retail, wholesale and
licensing strategies.
• Retail. Investment in retail expansion continued on plan. During the
half, the Group opened three Burberry stores (including two replacement
stores), an outlet store and six concessions. In addition, seven stores
underwent renovation during the period. In total, on a year-over-year basis,
average selling space increased approximately 8% (excluding the effect of
the Taiwan acquisition).
• Wholesale. In key wholesale markets, Burberry took significant strategic
action designed to strengthen brand control. In August, the Group acquired
the operations of its distributors in Taiwan, which include 12 retail
locations. In Spain, management finalised arrangements for the conversion of
portions of its womenswear business from a wholesale to a retail concession
format. Burberry will begin operating womenswear retail concessions in the
stores of its largest customer in the financial fourth quarter. These
initiatives result in sales shifts both in terms of timing and channel
relative to the previous year. In the case of Taiwan, the acquisition
reduced sales by approximately £7 million and operating profit by £3 million
in the first half relative to results that would have been reported under
the region's former distributor status. The womenswear conversion in Spain
will reduce reported sales by approximately £6 million in the second half
and operating profit by £3 million relative to results which would have been
expected under the former wholesale configuration. Following a period of
transition, management expects these actions to enhance Burberry's
positioning and financial performance in Taiwan and Spain.
• Licensing. Burberry's product licenses generally performed well in the
half. Against strong comparatives of the previous year driven by the launch
of Burberry Brit for men and an increase in the royalty rate, fragrance
royalty growth moderated relative to the previous year. During the half,
Burberry's fragrance team prepared for a major product launch in spring
2006. Entering its third year, the watch business experienced strong growth
as the product line continued to strengthen and distribution expanded. In
October, the Group also announced an important new eyewear licence with
Luxottica Group. The first collections under this agreement are expected to
appear at retail in late 2006.
Products. Burberry advanced its strategies across major product categories
during the first half.
• Prorsum. Burberry's Prorsum runway collection continued to set the
creative and editorial pace for the Group. With outstanding critical
acclaim, the Autumn 2005 collection is achieving strong results at retail.
The label's capsule line of accessories is also meeting enthusiastic
consumer response.
• Womenswear. Experiencing a soft spring season, womenswear's underlying
revenue increased 1%. At the same time, the womenswear team made important
strategic progress in the period. In outerwear, the team's efforts to
enhance Burberry's key quilted coat business were rewarded with a favourable
consumer response to autumn's new styles and silhouettes. Responding to
consumers' demand for frequent new merchandise, womenswear has reorganised
its design process to produce five collections per year. Womenswear
generated 34% of total revenue in the period.
• Menswear. With 4% underlying growth, menswear experienced a strong first
half, particularly within the Group's own stores. The menswear team's
emphasis on more classic styling across the collection and intensifying
selection in prime classifications were important contributors to this
performance. Also, Burberry's first menswear specific marketing initiatives
were launched in large European and US markets in autumn 2005. Menswear
represented 28% of reported revenue.
• Accessories. Accessories experienced 2% underlying revenue growth. The
Group's core handbag range experienced a flat performance, as the new line
of Prorsum handbags met enthusiastic demand within Burberry's own stores. In
the second quarter, unseasonably warm weather in several markets dulled
sales of Burberry's iconic scarves and other cold weather items. An emphasis
on new styles and designs and reinvention of the classics are critical to
the success of this important category. As Burberry has done with its core
quilted jackets, the Group is in the process of upgrading iconic handbag
groups. The new Haymarket line has been well received and Burberry will be
adding successful Prorsum styles to the core assortment. Accessories
(excluding childrenswear) comprised 25% of revenue in the period.
Project Atlas
Announced in May 2005, Burberry's infrastructure redesign programme, Project
Atlas, generally progressed as planned during the first half.
Inter-disciplinary, cross-geography working teams were established and intensive
work began in the period to create a substantially stronger platform to support
the long-term operation and growth of the Group. The initial phases of the
project are oriented toward establishing the building blocks required for the
redesign of these fundamental processes. In the case of the retail and wholesale
businesses, for example, project teams concentrated on creating global common
data standards - critical input for structuring an integrated information
system. In retail, teams were devoted to defining optimal procedures and
processes to inform design of the retail information system, which is expected
to be rolled out beginning in the second half of 2006. In the case of financial
management, teams developed a blueprint for Burberry's global financial
architecture. In line with expectations, expenses of £3 million and capital
expenditures of £3.9 million were incurred in the first half.
Financial summary
Turnover increased 3% on an underlying basis (2% reported) to £355 million.
Gross margin declined from 58.6% to 57.8% primarily as a result of increased end
of season sale activity in the current half relative to the previous period.
This was largely offset by a decline in the expense ratio from 36.2% to 35.6%
(before Atlas costs). As a result, the Group achieved a 22.2% operating margin
before Atlas costs in the half, broadly consistent with the previous year's
22.3%. Operating profit before Atlas costs increased 2% to £78.8 million and
associated diluted EPS increased 5% to 11.3p. After Atlas costs, operating
profit was £75.8 million with diluted EPS of 10.9p in the half. The directors
have declared a 25% increase in the interim dividend to 2.5p. As of 30 September
2005, the Group had repurchased an aggregate of £123 million of its shares under
its £250 million repurchase program.
Second half outlook
Looking to the second half of 2005/06:
• Retail. Retail expansion continues on track. The Group opened a store in
San Diego (California) in early October and plans to open Burberry stores in
Naples (Florida) and Palm Beach Gardens (Florida) and four outlet stores in
the period. Average retail selling space is planned to increase by
approximately 10% in the second half, 9% for the financial year, excluding
the effect of the Taiwan Acquisition.
• Wholesale. On the basis of Spring/Summer 2006 merchandise orders
received to date, Burberry anticipates a moderate underlying decline in
wholesale sales for the second half of the year. As stores are added in the
US, the Group continues to rebalance its channel mix in that market.
Burberry also anticipates soft demand in Spain and the UK in the second
half. In addition, the conversion of portions of its womenswear business in
Spain from a wholesale to a retail concession format in the financial fourth
quarter will affect reported results. Sales will shift both in terms of
timing and channel relative to the previous year. The Taiwan Acquisition
will have a similar effect.
• Licensing. Burberry anticipates licensing revenue growth broadly
consistent with that of the first half. In Japan, Burberry will continue its
activities to enhance brand positioning, which restrain volume growth.
Revenues will also be affected by the initial phase of the transition to a
new eyewear licence. With respect to other licenses, Burberry expects trends
to be broadly consistent with those of the first half of the year.
Chief Executive transition
On 11 October 2005, the Group announced that Angela Ahrendts will join Burberry
in January 2006 as an executive director and will become Chief Executive in July
2006. Rose Marie Bravo, current Chief Executive, will assume the newly created
role of Vice Chairman at that time. In the period between January and July 2006,
Ms. Ahrendts will report to Ms. Bravo to ensure a smooth transition of
responsibilities, and thereafter to the Chairman of the Board.
Demerger of Burberry
Earlier this year, GUS plc, owner of approximately 65% of Burberry's ordinary
shares, announced its intention to demerge Burberry from the group by the end of
2005. GUS is expected to release definitive details of the proposed demerger on
17 November 2005.
Burberry will release a third quarter trading statement on 11 January 2006.
Financial Review
Group results
Six months to Six months to
30 September 2005 30 September 2004
----------------------- ---------------------
Percentage of Percentage of
£m turnover £m turnover
----------------------------- ----- ----------- ------ -----------
Turnover
Retail 124.2 35.0% 111.0 31.9%
Wholesale 191.1 53.8% 197.2 56.8%
Licence 39.6 11.2% 39.3 11.3%
----------------------------- ------ --------- ------ ---------
Total turnover 354.9 100.0% 347.5 100.0%
Cost of sales (149.7) (42.2%) (144.0) (41.4%)
----------------------------- ------ --------- ------ ---------
Gross profit 205.2 57.8% 203.5 58.6%
Net operating expenses before
Atlas costs (126.4) (35.6%) (125.9) (36.2%)
----------------------------- ------ --------- ------ ---------
Operating profit before Atlas
costs 78.8 22.2% 77.6 22.3%
Atlas costs (3.0) (0.8%) - -
----------------------------- ------ --------- ------ ---------
Operating profit 75.8 21.4% 77.6 22.3%
Net finance income 2.3 0.6% 1.8 0.5%
----------------------------- ------ --------- ------ ---------
Profit before taxation 78.1 22.0% 79.4 22.8%
Taxation (25.0) (7.0%) (24.8) (7.1%)
----------------------------- ------ --------- ------ ---------
Attributable profit 53.1 15.0% 54.6 15.7%
----------------------------- ------ --------- ------ ---------
Diluted EPS before Atlas
costs 11.3p - 10.8p -
Diluted EPS 10.9p - 10.8p -
----------------------------- ------ --------- ------ ---------
Diluted weighted average
number of Ordinary Shares
(millions) 488.8 - 507.1 -
----------------------------- ------ --------- ------ ---------
Burberry Group turnover is composed of revenue from three channels of
distribution: retail, wholesale and licensing operations. Wholesale revenue
arises from the sale of men's and women's apparel and accessories to wholesale
customers worldwide, principally leading and prestige department stores and
speciality retailers. Retail revenue is derived from sales through the Group's
directly operated store network. At 30 September 2005, the Group operated 177
retail locations (2004: 151) consisting of 62 Burberry stores (2004: 57), 90
concessions (2004: 70) and 25 outlet stores (2004: 24). Licence revenue consists
of royalties receivable from Japanese and product licensing partners.
Turnover
Total turnover in the first half advanced to £354.9m from £347.5m in the prior
period, representing an increase of 2%, or 3% on an underlying basis. In
determining 'underlying' performance, financial results are adjusted to exclude
the financial effects of the Taiwan Acquisition and the impact of foreign
currency exchange rate movements between periods. The Taiwan Acquisition
resulted in a sales shift from Burberry's wholesale channel to its retail
channel. Therefore, in determining underlying performance, the financial effect
of the Group's Taiwan-related business is excluded from both reporting periods.
Retail revenues increased by 12% reported (9% underlying) to £124.2m, driven by
contributions from new and refurbished stores. The acquisition of 12 retail
locations in Taiwan during August 2005 also contributed to reported gains.
During the half, the Group opened three Burberry stores (including two
replacement stores), an outlet, six concessions and completed seven store
refurbishments. Retail performance varied by region. In the US, solid sales
growth was driven by contributions from new stores, complemented by gains at
existing stores. Against strong comparatives, new stores and concessions drove
revenue growth in Continental European markets. The UK market, affected by
external factors, was soft. In Asia, Korea achieved a small gain notwithstanding
the difficult retail environment. Led by existing stores, Hong Kong and
Southeast Asian markets generally experienced strong increases in the period.
Affected by the Taiwan Acquisition, reported wholesale revenues declined 3% to
£191.1m in the half. Underlying sales declined 1%. The US market experienced a
moderate decline as a result of Burberry's ongoing adjustment of the brand's
wholesale/retail balance in this market, as well as caution on the part of
certain wholesale customers. In Europe, soft demand in Spain produced a moderate
sales decline during the period. Other Continental European markets achieved
strong gains. The UK continued to be soft. Asia achieved good underlying growth.
Emerging markets achieved strong gains, boosted by new stores, including the
opening of five franchise stores in the half.
Licensing revenues in the half increased by 1% reported (3% underlying) to
£39.6m. Flat Japan-related royalties reflected a small volume decline resulting
from licence transitions/cancellations, Burberry's programme to restrict
selectively distribution of certain products and a soft apparel market. This was
largely offset by an increase in certain royalty rates. Excluding the effect of
cancelled licenses, total underlying licensing revenue increased 6%. Licensing
revenue growth also reflected solid gains from Burberry's global licenses.
Fragrance-related royalty growth slowed reflecting strong comparatives resulting
from the Burberry Brit for men launch in the previous year and the anniversary
of the royalty rate increase.
Operating profit
Gross profit as a percentage of turnover was 57.8% in the first half of 2005/06
relative to 58.6% in the prior period. The decline largely resulted from
increased levels of seasonal clearance activity for the spring/summer season
relative to the previous year.
Net operating expenses before Atlas costs as a percentage of turnover decreased
to 35.6% from 36.2% in the previous period. Improvement in the expense ratio
largely reflected one-time items in the current period, including a gain on
property sales.
As a result of these factors, operating profit before Atlas costs increased 2%
to £78.8m, or 22.2% of turnover relative to 22.3% in the previous period.
Exchange rate differences relative to the previous period reduced reported
operating profit by £0.4m.
Net expenses associated with Project Atlas totalled £3.0m. Reported operating
profit was £75.8m for the half.
Net finance income
Net interest income was £2.3m in the six months to September 2005 compared to
£1.8m in the prior period.
Profit before taxation
As a result of the above factors, Burberry reported profit before taxation and
Atlas costs of £81.1m in the six months to 30 September 2005 compared to £79.4m
in the prior period. Including Atlas costs, profit before taxation was £78.1m in
the current period.
Attributable profit
Burberry recorded a 32.0% effective tax rate (2004: 31.2%) on profit resulting
in a £25.0m tax charge and reported attributable profit of £53.1m for the six
months to 30 September 2005 compared to £54.6m reported in the prior period. The
effective tax rate for the period is in line with the expected rate for the full
financial year.
Diluted earnings per share before Atlas costs increased 5% to 11.3p in the half
compared to 10.8p in the prior period. Including Atlas costs, the Group reported
diluted earnings per share of 10.9p. In the six months to September 2005, the
diluted weighted average number of ordinary shares in issue was 488.8m (2004:
507.1m).
Cash flow and net funds
Historically, Burberry's principal uses of funds have been to support capital
expenditures and working capital growth in connection with the expansion of its
business, acquisitions and share repurchases. Principal sources of funds have
been cash flow from operations. Burberry expects to finance the expansion of it
business, capital expenditures including strategic infrastructure investments
and share repurchases with existing cash balances, cash generated from operating
activities and the use of its credit facilities.
The table below sets out the principal components of cash flow for the six
months to 30 September 2005 and 30 September 2004 and net funds at the period
end:
Six months to Six months to
30 September 30 September
2005 2004
£m £m
------------------------------------------------- ----------- -----------
Operating profit 75.8 77.6
Depreciation and related charges 11.3 9.7
Profit on disposal of fixed assets (0.9) (0.1)
Charges in respect of employee share incentive
schemes 3.8 4.5
Increase in stocks (9.1) (12.6)
Increase in debtors (36.5) (40.6)
Decrease in creditors (18.7) (1.6)
------------------------------------------------- ----------- -----------
Net cash inflow from operating activities 25.7 36.9
Net interest received 1.7 2.1
Taxation paid (18.1) (19.9)
Capital expenditures and acquisition related
payments (15.8) (16.9)
Net sale/(purchase) of shares by ESOPs 1.7 (7.4)
Issue of ordinary share capital 3.5 3.3
Share repurchases (64.5) -
Equity dividends paid (21.5) (14.9)
------------------------------------------------- ----------- -----------
Movement in net funds resulting from cash flows (87.3) (16.8)
------------------------------------------------- ----------- -----------
Exchange gains 2.5 1.9
------------------------------------------------- ----------- -----------
Movement in net funds (84.8) (14.9)
------------------------------------------------- ----------- -----------
Net funds at end of period 85.1 143.0
------------------------------------------------- ----------- -----------
Net cash inflow from operating activities was £25.7m in the first half compared
to £36.9m in the prior period. Stocks levels increased £9.1m, broadly consistent
with historical seasonal patterns. The £36.5m increase in debtors is in line
with seasonal growth of trade receivables. The £18.7m decrease in creditors
includes timing differences in the payment of trade creditors and settlement of
profit shares with respect to prior year acquisitions.
Capital expenditures and acquisition related payments included net purchases of
fixed assets of £8.1m relating primarily to continued investment in the Group's
retail operations and infrastructure, Project Atlas investment of £3.9m and
£3.8m as partial consideration for the acquisition of the operations of
Burberry's distributors in Taiwan. Capital expenditures for the full 2005/06
financial year are expected to total approximately £35m.
In line with its risk management policy, Burberry has continued to hedge its
principal foreign currency transaction exposures arising in respect of Yen
denominated royalty income and Euro denominated product purchases and sales.
In connection with share option awards, the Group sold £1.7m of equity from its
Employee Share Ownership Trusts and received £3.5m (2004: £3.3m) from the issue
of new shares following the exercise of share-based options.
Consistent with the £250m share repurchase programme announced in November 2004,
Burberry commenced the repurchase of shares in January 2005. In the six months
to 30 September 2005 the Group repurchased 15.9m shares for a total cost of
£64.5m. Aggregate purchases under the repurchase programme since January 2005
amounted to £123m.
An interim dividend of 2.5p per share (2004: 2.0p), £11.8m in total, will be
payable on 2 February 2006.
Group income statement - unaudited
Note Six months to Six months to Year to
30 September 30 September 31 March
2005(1) 2004(2) 2005(2)
£m £m £m
---------------------------------------- ---- ------ ------ ------
Turnover 4 354.9 347.5 715.5
Cost of sales (149.7) (144.0) (291.3)
---------------------------------------- --- ------ ------ ------
Gross profit 205.2 203.5 424.2
Net operating expenses (129.4) (125.9) (262.9)
---------------------------------------- ---- ------ ------ ------
Operating profit 75.8 77.6 161.3
Financing:
---------------------------------------- ---- ------ ------ ------
Interest and similar income 2.4 2.2 5.5
Interest expense and similar charges (0.3) (0.4) (0.6)
Financing fair value remeasurements 0.2 - -
---------------------------------------- ---- ------ ------ ------
Net finance income 4 2.3 1.8 4.9
---------------------------------------- ---- ------ ------ ------
Profit before taxation 4 78.1 79.4 166.2
Taxation 6 (25.0) (24.8) (53.4)
---------------------------------------- ---- ------ ------ ------
Attributable profit for the period 13 53.1 54.6 112.8
---------------------------------------- ---- ------ ------ ------
All the profit for the period is
attributable to the equity holders of
the company.
---------------------------------------- ---- ------ ------ ------
Pence per share
-----------------
Earnings
- basic 7 11.2p 11.0p 22.8p
- diluted 7 10.9p 10.8p 22.4p
Dividends
Dividend per share - interim (not
recognised as a liability at
30 September) 8 2.5p 2.0p 2.0p
Dividend per share - final
(not recognised as a liability at
31 March) 8 - - 4.5p
---------------------------------------- ---- ------ ------ ------
Non-GAAP measures £m £m £m
Reconciliation to adjusted operating
profit
Operating profit 75.8 77.6 161.3
Atlas costs 5 3.0 - -
---------------------------------------- ---- ------ ------ ------
Operating profit before Atlas costs 78.8 77.6 161.3
---------------------------------------- ---- ------ ------ ------
Pence per share
Earnings per share before Atlas costs
- basic 7 11.6p 11.0p 22.8p
- diluted 7 11.3p 10.8p 22.4p
(1) Reflects the adoption of IAS 32 and IAS 39 and further guidance on IFRS (see
note 3).
(2) Does not reflect the adoption of IAS 32 and IAS 39, however does reflect
further guidance on IFRS (see note 3).
Group statement of recognised income and expense - unaudited
Note Six months to Six months to Year to
30 September 30 September 31 March
2005(1) 2004(2) 2005(2)
£m £m £m
---------------------------------------- ---- ------ ------ ------
Attributable profit for the period 53.1 54.6 112.8
Cash flow hedges (2.5) - -
Currency translation differences 7.0 10.5 5.7
Actuarial gains/(loss) on defined
benefit pension scheme 1.8 - (1.5)
Tax on items taken directly to equity 0.6 (0.3) (0.4)
---------------------------------------- ---- ------ ------ ------
Net income recognised directly in equity 13 6.9 10.2 3.8
Transfers
Transferred to profit and loss on cash
flow hedges (1.8) - -
Tax on items transferred from equity 0.7 - -
---------------------------------------- ---- ------ ------ ------
Net transfers (1.1) - -
---------------------------------------- ---- ------ ------ ------
Net gains not recognised in income
statement 5.8 10.2 3.8
---------------------------------------- ---- ------ ------ ------
Total recognised income for the period 13 58.9 64.8 116.6
---------------------------------------- ---- ------ ------ ------
(1) Reflects the adoption of IAS 32 and IAS 39 and further guidance on IFRS (see
note 3).
(2) Does not reflect the adoption of IAS 32 and IAS 39, however does reflect
further guidance on IFRS (see note 3).
All the recognised income and expense for the period is attributable to the
equity holders of the company.
Group balance sheet - unaudited
Note As at As at As at
30 September 30 September 31 March
2005(1) 2004(2) 2005(2)
£m £m £m
---------------------------------------- ---- ------ ------ ------
ASSETS
Non-current assets
Intangible assets 132.3 124.5 124.9
Property, plant and equipment 162.5 147.9 154.7
Deferred taxation assets 24.9 20.7 26.4
Trade and other receivables 10 3.9 1.2 1.3
Income tax recoverable 0.6 0.8 0.8
---------------------------------------- ---- ------ ------ ------
324.2 295.1 308.1
Current assets
Stock 113.2 104.4 102.5
Trade and other receivables 10 143.6 143.4 112.2
Derivative financial assets 2.5 - -
Income tax recoverable 4.5 0.1 3.1
Cash and cash equivalents 85.1 143.5 169.9
---------------------------------------- ---- ------ ------ ------
348.9 391.4 387.7
Non-current assets classified as held
for sale - 2.8 1.2
---------------------------------------- ---- ------ ------ ------
Total assets 673.1 689.3 697.0
---------------------------------------- ---- ------ ------ ------
LIABILITIES
Non-current liabilities
Long term liabilities 11 (16.2) (14.5) (14.8)
Deferred taxation liabilities (13.2) (10.8) (13.0)
Retirement benefit obligations (0.4) (2.5) (2.1)
Provisions (3.1) (5.0) (3.2)
---------------------------------------- ---- ------ ------ ------
(32.9) (32.8) (33.1)
---------------------------------------- ---- ------ ------ ------
Current liabilities
Bank overdrafts - (0.5) -
Trade and other payables 12 (142.3) (145.3) (160.3)
Derivative financial liabilities (3.1) - -
Income tax liabilities (32.6) (26.1) (25.2)
---------------------------------------- ---- ------ ------ ------
(178.0) (171.9) (185.5)
---------------------------------------- ---- ------ ------ ------
Total liabilities (210.9) (204.7) (218.6)
---------------------------------------- ---- ------ ------ ------
Net assets 462.2 484.6 478.4
---------------------------------------- ---- ------ ------ ------
EQUITY
Capital and reserves attributable to the
company's equity holders
Ordinary Share capital 13 0.2 1.1 1.1
Share premium account 13 151.3 133.9 136.1
Hedging reserve 13 (0.1) - -
Foreign currency translation reserve 13 12.9 10.1 5.6
Capital reserve 13 24.9 25.7 24.9
Retained earnings 13 273.0 313.8 310.7
---------------------------------------- ---- ------ ------ ------
Total equity 462.2 484.6 478.4
---------------------------------------- ---- ------ ------ ------
(1) Reflects the adoption of IAS 32 and IAS 39 and further guidance on IFRS (see
note 3).
(2) Does not reflect the adoption of IAS 32 and IAS 39, however does reflect
further guidance on IFRS (see note 3).
Group cash flow statement - unaudited
Note Six months to Six months to Year to
30 September 30 September 31 March
2005 2004 2005
£m £m £m
---------------------------------------- ---- ------ ------ ------
Cash flows from operating activities
Operating profit 75.8 77.6 161.3
Depreciation, impairment and trademark
amortisation charges 11.3 9.7 24.4
Gain on disposal of fixed assets and
similar non-cash charges (0.9) (0.1) (1.1)
Charges in respect of employee share
incentive schemes 3.8 4.5 9.5
Increase in stocks (9.1) (12.6) (12.9)
Increase in debtors (36.5) (40.6) (7.3)
(Decrease)/increase in creditors (18.7) (1.6) 1.5
---------------------------------------- ---- ------ ------ ------
Cash generated from operations 25.7 36.9 175.4
Taxation paid (18.1) (19.9) (49.5)
---------------------------------------- ---- ------ ------ ------
Net cash inflow from operating
activities 7.6 17.0 125.9
Cash flows from investing activities
Purchase of tangible and intangible
fixed assets (15.0) (17.2) (37.2)
Proceeds from sale of property, plant
and equipment 3.0 0.3 3.1
Acquisition of subsidiary 9 (3.8) - -
---------------------------------------- ---- ------ ------ ------
Net cash outflow from investing
activities (15.8) (16.9) (34.1)
Cash flows from financing activities
Interest received 2.0 2.3 5.3
Interest paid (0.3) (0.2) (0.6)
Equity dividends paid (21.5) (14.9) (24.9)
Issue of Ordinary Share capital 3.5 3.3 4.4
Purchase of shares through share buy
back (64.5) - (58.4)
Purchase of own shares by ESOPs - (8.7) (8.7)
Sale of own shares by ESOPs 1.7 1.3 1.8
---------------------------------------- ---- ------ ------ ------
Net cash outflow from financing
activities (79.1) (16.9) (81.1)
---------------------------------------- ---- ------ ------ ------
Net (decrease)/increase in cash and cash
equivalents (87.3) (16.8) 10.7
Effect of exchange rate changes on
opening balances 2.5 1.9 1.3
Cash and cash equivalents at beginning
of period 169.9 157.9 157.9
---------------------------------------- ---- ------ ------ ------
Cash and cash equivalents at end of
period 85.1 143.0 169.9
---------------------------------------- ---- ------ ------ ------
Analysis of cash and cash equivalents
As at As at As at
30 September 30 September 31 March
2005 2004 2005
£m £m £m
------------------------------------------ ------ ------ ------
Cash 26.8 44.6 62.4
Short term deposits 58.3 98.9 107.5
------------------------------------------ ------ ------ ------
Cash and cash equivalents as per the
balance sheet 85.1 143.5 169.9
Bank overdrafts as per the balance sheet - (0.5) -
------------------------------------------ ------ ------ ------
Cash and cash equivalents per the cash
flow statement 85.1 143.0 169.9
------------------------------------------ ------ ------ ------
Notes to the interim financial statements
1. Basis of preparation
The interim financial statements for Burberry Group comprises the unaudited
results for the six months to 30 September 2005 and 30 September 2004 and for
the year to 31 March 2005. Under European Union (EU) legislation, it is
mandatory for EU listed companies to report under International Financial
Reporting Standards (IFRS), for financial years commencing after 1 January 2005.
The results to 30 September 2005 have been prepared in accordance with the
accounting policies which the Group intends to adopt for the year to 31 March
2006. The results to 30 September 2004 and 31 March 2005 have been restated from
UK GAAP to IFRS using the same accounting policies as those used for the results
to 30 September 2005, other than as described in note 3 - Changes in accounting
policies and presentation. The principle adjustments that were required by
Burberry Group on conversion to IFRS are set out in note 15 - Transition to
IFRS. This information has been extracted from the 'Burberry Group plc financial
results under IFRS' published on 10 June 2005 and which is available on the
Group's website (www.burberry.com).
In preparing this financial information, the directors have assumed that the
European Commission will endorse the amendment to IAS 19 ' Employee Benefits'
issued by the IASB in December 2004. In addition, Burberry has decided to adopt
early IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations' and
Draft Technical Correction 1 'Proposed amendments to IAS 21 The effects of
changes in Foreign Exchange Rates - Net investment in a Foreign Operation'.
IFRS are subject to ongoing review and endorsement by the European Commission,
or possible amendment by the IASB, and are therefore subject to possible change.
Further standards or interpretations may also be issued that could be applicable
for the full year consolidated financial statements. These potential changes
could result in the need to change the basis of accounting or presentation of
certain financial information from that presented in this document.
The interim financial statements are not audited and do not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985. This
financial information has been formally reviewed by the Group's auditors,
PricewaterhouseCoopers LLP.
Statutory consolidated financial statements for the Group for the year to 31
March 2005, prepared in accordance with UK GAAP, were reported on by the
auditors without qualification or statement under section 237(2) or (3) of the
Companies Act 1985 and have been delivered to the Registrar of Companies.
Comparative information for the year to 31 March 2005 shown within this report
has been extracted from the 'Burberry Group plc financial results under IFRS' as
published by the Group on 10 June 2005.
Basis of consolidation
The Group interim financial statements comprises those of the parent company and
its subsidiaries, presented as a single economic entity.
The effects of intra-group transactions are eliminated in preparing the Group
interim financial statements.
Subsidiaries are consolidated from the date on which control is transferred to
the Group and cease to be consolidated from the date on which control is
transferred out of the Group. Where there is a loss of control of a subsidiary,
the consolidated financial statements include the results for the portion of the
reporting period during which Burberry Group plc had control.
The preparation of interim financial statements requires management to make
estimates and assumptions that affect the reported amount of revenues, expenses,
assets and liabilities and the disclosure of contingent liabilities. If in the
future such estimates and assumptions, which are based on management's best
judgement at the date of the interim financial statements, deviate from actual
circumstances, the original estimate and assumptions will be modified as
appropriate in the period in which the circumstances change.
2. Accounting policies and presentation
The same accounting policies and methods of computation have been followed in
the interim financial statement as those published by the company on 10 June
2005, in the document 'Burberry Group plc financial results under IFRS', except
for those changes in accounting policies set out in note 3. The accounting
policies previously published are available on the Group's website
(www.burberry.com).
3. Changes in accounting policies and presentation
The results for the six months to 30 September 2005, have incorporated the
impact of the adoption of: IAS 32 'Financial Instruments: Disclosure and
Presentation'; IAS 39 'Financial Instruments: Recognition and Measurement'; the
Draft Technical Correction 1 'Proposed amendments to IAS 21 The effects of
changes in Foreign Exchange Rates - Net investment in a Foreign Operation' and
further interpretation of IAS 38 'Intangible Assets'.
Impact of the adoption of IAS 32 and IAS 39
IFRS 1 'First time adoption of IFRS' allows an entity to produce comparative
information, which does not comply with IAS 32 and IAS 39. However, for the
first IFRS reporting period, being 31 March 2006, the adjustment between the
balance sheet at the comparative period's reporting date (under the previous
GAAP) and the balance sheet at the start of the first IFRS reporting period must
be accounted for as a change in accounting policy.
The Group has taken advantage of this exemption and has adopted IAS 32
'Financial Instruments: Presentation and Disclosure' and IAS 39 'Financial
Instruments: Recognition and Measurement' with effect from 1 April 2005. The
impact of these standards on the Group's opening balance sheet is shown below.
The principal impact of the adoption of IAS 32 and IAS 39 on the Group's
financial statements relates to the classification of redeemable preference
shares and the recognition of derivative financial instruments.
Redeemable preference shares are now considered to be a liability rather than
equity.
Notes to the interim financial statements (continued)
3. Changes in accounting policies and presentation (continued)
Burberry Group uses derivative financial instruments to hedge its exposure to
fluctuations in foreign exchange rates arising on certain trading transactions.
The principal derivative instruments used are forward currency contracts taken
out to hedge certain future royalty receivables and product purchases. Under UK
GAAP, derivative instruments were held off balance sheet.
Under IFRS, derivatives are initially recognised at fair value on the date a
derivative contract is entered into and are subsequently remeasured at their
fair value. The method of recognising the resulting gain or loss depends on
whether the derivative is designated as a hedging instrument, and if so, the
nature of the item being hedged. The Group designates certain derivatives as
either: (1) hedges of the fair value of recognised assets and liabilities or a
firm commitment (fair value hedge); or (2) hedges of highly probable forecast
transactions (cash flow hedges).
The gain or loss on fair value hedges is taken to the income statement, along
with the gain or loss on the hedged item.
The portion of the gain or loss on cash flow hedges determined to be effective,
is initially taken to the hedging reserve within equity. The ineffective portion
of the gain or loss is recognised in the income statement within net finance
income. The amount recognised directly to equity is released to the income
statement, when the underlying transaction affects the income statement. If it
is expected that all or a portion of a loss recognised directly in equity will
not be recovered in one or more future periods, the amount that is not expected
to be recovered will be reclassified to the income statement.
The adjustments to the opening balance sheet at 1 April 2005 are shown in the
table below, only those line items that have been impacted are shown:
Restated
Opening opening
balance sheet Effect of adoption of position at
under IFRS IAS 32 and IAS 39 1 April 2005
------------------------------------- ------ -------------------------------- --------
Reclassification Remeasurement
£m £m £m £m
------------------------------------- ------ ------ ------ ------
Current assets
Derivative financial assets - - 5.8 5.8
Current liabilities
Derivative financial liabilities - - (1.6) (1.6)
Non-current liabilities
Long term liabilities (14.8) (0.8) - (15.6)
Deferred tax liabilities (13.0) - (1.5) (14.5)
------------------------------------- ------ ------ ------ ------
Impact on net assets (0.8) 2.7
------------------------------------- ------ ------ ------ ------
Ordinary Share capital 1.1 (0.8) - 0.3
Hedging reserve - - 2.6 2.6
Retained earnings 310.7 - 0.1 310.8
------------------------------------- ------ ------ ------ ------
Impact on equity (0.8) 2.7
------------------------------------- ------ ------ ------ ------
Impact of the adoption of Draft Technical Correction 1
Draft Technical Correction 1 is expected to become effective before the end of
the year. IAS 21 currently requires exchange differences arising on a monetary
item that forms part of the parent company's net investment in a foreign
operation to be recognised in equity. The application of this requirement is
restricted to funding transacted directly between the parent and the foreign
operation. The proposed amendment clarifies that exchange differences arising on
a monetary item that forms part of a reporting entity's net investment in a
foreign operation should be recognised in equity irrespective of whether it is
the parent or a fellow subsidiary that enters into the transaction with the
foreign operation. In preparing this financial information, the directors have
assumed that this amendment is approved by the EU and can be adopted for the
year to 31 March 2006 and accordingly gains and losses on intercompany balances
have been recognised directly in equity.
The impact of the above treatment is to:
(a) reduce net finance income by £0.8m in the six months to 30 September 2004
and £0.7m in the year to 31 March 2005;
(b) reduce the taxation charge by £0.3m in the six months to 30 September 2004
and £0.1m in the year to 31 March 2005;
(c) reduce the retained earnings by £0.5m in the six months to 30 September 2004
and £0.6m in the year to 31 March; and
(d) increase the foreign currency translation reserve by £0.5m in the six months
to 30 September 2004 and £0.6m in the year to 31 March 2005.
This treatment in respect of IAS 21 differs from that adopted in the information
published by the company on 10 June 2005 in the document called 'Burberry Group
plc financial results under IFRS'.
Further interpretation of IAS 38 'Intangible assets'
Further interpretation of IAS 38 since the company published its IFRS
information on 10 June 2005, entitled 'Burberry Group plc financial results
under IFRS', has resulted in monies paid in respect of certain retail properties
being classified as intangible assets rather than within property, plant and
equipment. The impact of this reclassification was £9.0m as at 30 September 2004
and £8.6m as at 31 March 2005.
Notes to the interim financial statements (continued)
4. Segmental analysis
(a) Turnover and profit before taxation - by origin
Europe comprises operations in France, Germany, Italy, Switzerland, and the UK.
North America comprises operations in the USA. Asia Pacific comprises operations
in Australia, Hong Kong, Korea, Malaysia, Singapore and Taiwan.
Spain Europe North America Asia Pacific Total
--------------------------- ----------- ------------ ------------- ------------ -------------
Six months to 30 September 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
£m £m £m £m £m £m £m £m £m £m
--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross segment turnover 86.5 89.1 190.0 188.4 73.6 69.4 79.6 70.9 429.7 417.8
Inter-segment turnover (0.1) (0.1) (74.7) (69.9) - - - (0.3) (74.8) (70.3)
--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----
Turnover 86.4 89.0 115.3 118.5 73.6 69.4 79.6 70.6 354.9 347.5
--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----
--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating profit before
Atlas costs 14.4 13.8 60.5 57.9 (1.4) 0.5 5.3 5.4 78.8 77.6
Atlas costs - - (3.0) - - - - - (3.0) -
Net finance income 0.5 0.4 1.3 1.1 0.1 0.1 0.4 0.2 2.3 1.8
--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----
Profit before taxation 14.9 14.2 58.8 59.0 (1.3) 0.6 5.7 5.6 78.1 79.4
--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----
Year to 31 March 2005 North Asia
Spain Europe America Pacific Total
£m £m £m £m £m
--------------------------------- ------ ------ ------ ------ ------
Gross segment turnover 170.3 365.3 157.8 149.1 842.5
Inter-segment turnover (0.1) (126.3) - (0.6) (127.0)
--------------------------------- ------ ------ ------ ------ ------
Turnover 170.2 239.0 157.8 148.5 715.5
--------------------------------- ------ ------ ------ ------ ------
-------------------------------- ------ ------ ------ ------ ------
Operating profit 23.5 112.9 7.0 17.9 161.3
Net finance income 0.7 3.4 0.3 0.5 4.9
--------------------------------- ------ ------ ------ ------ ------
Profit before taxation 24.2 116.3 7.3 18.4 166.2
--------------------------------- ------ ------ ------ ------ ------
The results above are stated after the allocation of costs of a group-wide
nature.
(b) Turnover by destination
Six months to Six months to Year to
30 September 30 September 31 March
2005 2004 2005
£m £m £m
----------------------------------------- ------ ------ ------
Spain 74.5 77.5 168.4
Europe 105.5 102.2 188.0
North America 77.1 73.8 165.9
Asia Pacific 92.8 91.2 186.6
Other 5.0 2.8 6.6
----------------------------------------- ------ ------ ------
Total 354.9 347.5 715.5
----------------------------------------- ------ ------ ------
Notes to the interim financial statements (continued)
4. Segmental analysis (continued)
(c) Turnover and profit before taxation - by class of business
Wholesale and Retail Licensing Total
----------------------------- ------------ ------------ ------------
Six months to 30 September 2005 2004 2005 2004 2005 2004
£m £m £m £m £m £m
----------------------------- ------ ------ ------ ------ ------ ------
Gross segment turnover 390.1 378.5 39.6 39.3 429.7 417.8
Inter-segment turnover (74.8) (70.3) - - (74.8) (70.3)
----------------------------- ------ ------ ------ ------ ------ ------
Turnover 315.3 308.2 39.6 39.3 354.9 347.5
----------------------------- ------ ------ ------ ------ ------ ------
----------------------------- ------ ------ ------ ------ ------ ------
Operating profit before Atlas
costs 45.0 43.9 33.8 33.7 78.8 77.6
Atlas costs (3.0) - - - (3.0) -
Net finance income 2.3 1.8 - - 2.3 1.8
----------------------------- ------ ------ ------ ------ ------ ------
Profit before taxation 44.3 45.7 33.8 33.7 78.1 79.4
----------------------------- ------ ------ ------ ------ ------ ------
Year to 31 March Wholesale and Licensing Total
Retail
£m £m £m
----------------------------------------- ------ ------ ------
Gross segment turnover 764.1 78.4 842.5
Inter-segment turnover (127.0) - (127.0)
----------------------------------------- ------ ------ ------
Turnover 637.1 78.4 715.5
----------------------------------------- ------ ------ ------
----------------------------------------- ------ ------ ------
Operating profit 94.3 67.0 161.3
Net finance income 4.9 - 4.9
----------------------------------------- ------ ------ ------
Profit before taxation 99.2 67.0 166.2
----------------------------------------- ------ ------ ------
The results above are stated after the allocation of costs of a group-wide
nature.
(d) An analysis of turnover by product category is presented as additional
information
Six months to Six months to Year to
30 September 30 September 31 March
2005 2004 2005
£m £m £m
----------------------------------------- ------ ------ ------
Womenswear 119.2 118.5 242.1
Menswear 99.9 95.1 194.5
Accessories (including Childrens) 94.8 93.3 197.6
Other 1.4 1.3 2.9
----------------------------------------- ------ ------ ------
Wholesale and Retail 315.3 308.2 637.1
Analysed as:
----------------------------------------- ------ ------ ------
Wholesale 191.1 197.2 371.9
Retail 124.2 111.0 265.2
----------------------------------------- ------ ------ ------
Licence 39.6 39.3 78.4
----------------------------------------- ------ ------ ------
Total 354.9 347.5 715.5
----------------------------------------- ------ ------ ------
Number of directly operated stores,
concessions and outlets open at end
of period 177 151 157
----------------------------------------- ------ ------ ------
5. Atlas costs
Operating profit for the six months to 30 September 2005 includes charges of
£3.0m (2004: £nil) relating to Project Atlas, our major infrastructure redesign
initiative, which was announced in May 2005. In addition, a total of £3.9m
(2004: £nil) has been spent on capitalised IT investment for Project Atlas in
the six months to 30 September 2005. This project is designed to create a
substantially stronger platform to support long term operation and growth of the
Group. Investment in Project Atlas is expected to be around £50m over the three
year period to 2007/08.
6. Taxation
The effective rate of tax is based on the estimated tax charge for the full year
at a rate of 32.0% (2004: 31.2%). The actual effective rate of tax for the year
to 31 March 2005 on this basis was 32.1%.
Notes to the interim financial statements (continued)
7. Earnings per share
The calculation of basic earnings per share is based on attributable profit for
the period divided by the weighted average number of Ordinary Shares in issue
during the period. Basic and diluted earnings per share before Atlas costs are
also disclosed to indicate the underlying profitability of the Burberry Group.
Six months to Six months to Year to
30 September 30 September 31 March
2005 2004 2005
£m £m £m
----------------------------------------- ------ ------ ------
Attributable profit for the period
before Atlas costs 55.2 54.6 112.8
Effect of Atlas costs (after taxation) (2.1) - -
----------------------------------------- ------ ------ ------
Attributable profit for the period 53.1 54.6 112.8
----------------------------------------- ------ ------ ------
The weighted average number of Ordinary Shares represents the weighted average
number of Burberry Group plc Ordinary Shares in issue throughout the period,
excluding Ordinary Shares held in Burberry Group's ESOPs.
Diluted earnings per share is based on the weighted average number of Ordinary
Shares in issue during the period. In addition, account is taken of any awards
made under the share incentive schemes, which will have a dilutive effect when
exercised (full vesting of all outstanding awards is assumed).
Six months to Six months to Year to
30 September 30 September 31 March
2005 2004 2005
Millions Millions Millions
----------------------------------------- ------ ------ ------
Weighted average number of Ordinary
Shares in issue during the period 475.2 496.2 494.1
Dilutive effect of the share incentive
schemes 13.6 10.9 10.4
----------------------------------------- ------ ------ ------
Diluted weighted average number of
Ordinary Shares in issue during the
period 488.8 507.1 504.5
----------------------------------------- ------ ------ ------
Basic earnings per share Six months to Six months to Year to
30 September 30 September 31 March
2005 2004 2005
Pence Pence Pence
----------------------------------------- ------ ------ ------
Basic earnings per share before Atlas
costs 11.6 11.0 22.8
Effect of Atlas costs (0.4) - -
----------------------------------------- ------ ------ ------
Basic earnings per share 11.2 11.0 22.8
----------------------------------------- ------ ------ ------
Diluted earnings per share Six months to Six months to Year to
30 September 30 September 31 March
2005 2004 2005
Pence Pence Pence
----------------------------------------- ------ ------ ------
Diluted earnings per share before
Atlas costs 11.3 10.8 22.4
Effect of Atlas costs (0.4) - -
----------------------------------------- ------ ------ ------
Diluted earnings per share 10.9 10.8 22.4
----------------------------------------- ------ ------ ------
8. Dividends
The interim dividend of 2.5p (2004: 2.0p) per share has been approved by the
Board of directors, after 30 September 2005. Accordingly, this dividend has not
been recognised as a liability at the period end.
The interim dividend will be paid on 2 February 2006 to Shareholders on the
Register at the close of business on 6 January 2006.
A dividend of 4.5p (2004: 3.0p) was paid during the period. For the year to 31
March 2005, a dividend of 5.0p was paid.
9. Acquisition of subsidiary
On 1 August 2005 the Burberry Group acquired the Burberry trade and certain
assets and liabilities ('the Burberry Taiwan acquisition') from Chang's Kent Co.
Limited and Ming Pu Co. Limited, which were Burberry distributors in Taiwan.
The Burberry Taiwan acquisition resulted in the acquisition of 12 retail stores
and concessions for £5.8m. A total of £3.8m was paid by 30 September with
deferred consideration of £2.0m payable by August 2006. The fair value of assets
and liabilities acquired was £2.1m of which £1.5m relates to stock. Goodwill
arising on this transaction amounted to £3.7m.
All assets were recognised at their respective fair values and the residual
excess over the net assets acquired is recognised as goodwill in the financial
statements. The fair value adjustments contain some provisional amounts which
will be finalised by 31 July 2006.
Notes to the interim financial statements (continued)
10. Trade and other receivables
As at As at As at
30 September 30 September 31 March
2005 2004 2005
£m £m £m
----------------------------------------- ------ ------ ------
Non-current
Deposits and prepayments 3.9 1.2 1.3
----------------------------------------- ------ ------ ------
Total non-current trade and other
receivables 3.9 1.2 1.3
Current
Trade receivables 122.3 119.5 91.6
Other receivables 4.1 1.2 1.5
Prepayments and accrued income 17.2 22.5 19.1
Trading balances owed by
GUS group companies - 0.2 -
----------------------------------------- ------ ------ ------
Total current trade and other receivables 143.6 143.4 112.2
----------------------------------------- ------ ------ ------
Total trade receivables 147.5 144.6 113.5
----------------------------------------- ------ ------ ------
11. Long term liabilities
As at As at As at
30 September 30 September 31 March
2005 2004 2005
£m £m £m
----------------------------------------- ------ ------ ------
Unsecured:
Other creditors, accruals and deferred
income 5.4 4.5 4.8
Deferred consideration for acquisition 10.0 10.0 10.0
Redeemable preference share capital 0.8 - -
----------------------------------------- ------ ------ ------
Total 16.2 14.5 14.8
----------------------------------------- ------ ------ ------
Deferred consideration due after more than one year arises from the acquisition
of the trade and certain assets of the Burberry business in Korea.
12. Trade and other payables
As at As at As at
30 September 30 September 31 March
2005 2004 2005
£m £m £m
----------------------------------------- ------ ------ ------
Unsecured:
Trade creditors 22.0 29.5 27.5
Trading balances owed to GUS group
companies 6.2 8.4 6.8
Other taxes and social security costs 7.5 5.8 6.7
Other creditors 19.2 18.5 24.6
Accruals and deferred income 65.6 60.4 72.0
Deferred consideration for acquisitions 21.8 22.7 22.7
----------------------------------------- ------ ------ ------
Total 142.3 145.3 160.3
----------------------------------------- ------ ------ ------
Deferred consideration due within one year arises from the acquisition of
Burberry (Spain) S.A., Mercader y Casadevall S.A. and the Burberry Taiwan
acquisition.
Notes to the interim financial statements (continued)
13. Share capital and reserves
Foreign
Ordinary Share currency
Share premium Hedging translation Capital Retained Total
capital account reserve reserve reserve earnings equity
£m £m £m £m £m £m £m
---------------------------------- ------ ------ ------ ------ ------ ------ ------
Balance as at 1 April 2005 1.1 136.1 - 5.6 24.9 310.7 478.4
Impact of adopting IAS 32 and
IAS 39 (see note 3) (0.8) - 2.6 - - 0.1 1.9
---------------------------------- ------ ------ ------ ------ ------ ------ ------
Restated balance as at
1 April 2005 0.3 136.1 2.6 5.6 24.9 310.8 480.3
Cash flow hedges - - (2.5) - - - (2.5)
Currency translation differences - - - 7.0 - - 7.0
Actuarial gains on defined benefit
pension scheme - - - - - 1.8 1.8
Tax on items taken directly
to equity - - 0.9 0.3 - (0.6) 0.6
---------------------------------- ------ ------ ------ ------ ------ ------ ------
Net income recognised directly in
equity - - (1.6) 7.3 - 1.2 6.9
Transferred to profit and loss on
cash flow hedges - - (1.8) - - - (1.8)
Tax on items transferred from
equity - - 0.7 - - - 0.7
Attributable profit for the period - - - - - 53.1 53.1
---------------------------------- ------ ------ ------ ------ ------ ------ ------
Total recognised income/(expenses)
for the period - - (2.7) 7.3 - 54.3 58.9
Employee share option scheme
- Value of share options granted - - - - - 3.8 3.8
- Exercise of share options - 15.2 - - - 1.8 17.0
- Price differential on exercise
of shares - - - - - (11.7) (11.7)
Share buy back proceeds (0.1) - - - - (64.5) (64.6)
Dividend expense for the period - - - - - (21.5) (21.5)
---------------------------------- ------ ------ ------ ------ ------ ------ ------
Balance as at 30 September 2005 0.2 151.3 (0.1) 12.9 24.9 273.0 462.2
---------------------------------- ------ ------ ------ ------ ------ ------ ------
During the six months to 30 September 2005, the company repurchased and
subsequently cancelled 15,892,169 Ordinary Shares, representing 3% of the issued
share capital, at a total cost of £64.5m. The nominal value of the shares was
£7,946, which was transferred to a capital redemption reserve. Retained earnings
were reduced by £64.5m. The share repurchase programme commenced in January 2005
and since then, a total of 30,607,757 Ordinary Shares have been repurchased and
subsequently cancelled. This represents 6% of the original issued share capital
at a total cost of £122.9m. The nominal value of the shares was £15,304 and has
been transferred to a capital redemption reserve and the retained earnings have
been reduced by £122.9m.
The cost of own shares held in the Burberry Group ESOPs has been offset against
retained earnings, as the amounts paid reduce the profits available for
distribution by the Burberry Group and the company. As at 30 September 2005 the
amounts offset against this reserve are £16.8m (30 September 2004: £19.5m; 31
March 2005: £19.0m).
Revaluation reserves of £23.4m (2004: £23.8m) recognised under UK GAAP have been
transferred to retained earnings and are considered non-distributable. This
amount will become distributable if the revalued properties are sold. The
revaluation reserves recognised under UK GAAP at 31 March 2005 was £23.4m.
Dividend distributions are dependent on the company's accumulated retained
earnings. As at 30 September 2005 the retained earnings of the company was
£656.6m (30 September 2004: £812.1m; 31 March 2005: £742.8m).
Notes to the interim financial statements (continued)
14 Foreign Currency
The results of overseas subsidiaries are translated into the Group's
presentation currency of Sterling at the average exchange rate for the period.
The average exchange rate is used, as it is considered to approximate to the
actual exchange rates on the date of the transactions. The assets and
liabilities of such undertakings are translated at year end exchange rates.
Differences arising on the retranslation of the opening net investment in
subsidiary companies, and on the translation of their results, are taken
directly to the foreign currency translation reserve within equity. The
principal exchange rates used were as follows:
Average
---------------------------------------------
Six months to Six months to Year to
30 September 30 September 31 March
2005 2004 2005
----------------------------------------- ------ ------ ------
Euro 1.47 1.49 1.47
US dollar 1.82 1.81 1.85
Hong Kong dollar 14.17 14.13 14.40
Korean won 1,855 2,099 2,041
----------------------------------------- ------ ------ ------
Closing
---------------------------------------------
As at As at As at
30 September 30 September 31 March
2005 2004 2005
----------------------------------------- ------ ------ ------
Euro 1.47 1.46 1.45
US dollar 1.76 1.81 1.88
Hong Kong dollar 13.68 14.07 14.69
Korean won 1,835 2,078 1,920
----------------------------------------- ------ ------ ------
The average exchange rate achieved by Burberry Group on its Yen royalty income,
taking into account its use of Yen forward sale contracts on a monthly basis
approximately 12 months in advance of royalty receipts, was Yen 189.1: £1 in the
six months to 30 September 2005 (2004: Yen 184.0: £1); year to 31 March 2005 Yen
184.3: £1.
Notes to the interim financial statements (continued)
15. Transition to IFRS
For all periods up to and including the year to 31 March 2005 the Burberry Group
has prepared its financial statements in accordance with UK generally accepted
accounting practice (UK GAAP). For the year to 31 March 2006 the Burberry Group
is required to prepare consolidated financial statements in accordance with
International Financial Reporting Standards (IFRS) as endorsed by the European
Commission.
The Group's transition date to IFRS is 1 April 2004. This has been determined in
accordance with IFRS 1 'First Time Adoption of International Financial Reporting
Standards', being the start of the earliest period of comparative information.
IFRS 1 allowed an entity to produce comparative information which does not
comply with IAS 32 and IAS 39. The Group has taken advantage of this exemption
and has adopted IAS 32 and IAS 39 with effect from 1 April 2005. The Group has
also adopted Draft Technical Correction 1 with regard to foreign exchange on
intercompany loans during the six months to 30 September 2005. The
reconciliations shown below do not include the impact of adopting IAS 32, IAS 39
and Draft Technical Correction 1, the impact of adopting these standards is
shown in note 3 - Changes in accounting policies and presentation.
To explain the change to IFRS, a reconciliation has been provided of the equity
at 1 April 2004, 30 September 2004 and 31 March 2005 and the net income for the
six months to 30 September 2004 and year to 31 March 2005 from the previously
published consolidated financial statements, prepared in accordance with UK GAAP
to the accompanying consolidated financial statements prepared in accordance
with IFRS. An explanation of the principle adjustments required by Burberry
Group on conversion to IFRS are set out below. This information had been
extracted from the 'Burberry Group plc financial results under IFRS' as
published by the Group on 10 June 2005, which is available on the Group's
website (www.burberry.com). There have been no material adjustments to the cash
flow statement.
Attributable profit reconciliation between UK GAAP and IFRS:
Six months to Year to
30 September 31 March
2004 2005
£m £m
--------------------------------------------- ------ ------
Attributable profit under UK GAAP 52.3 109.9
Share based payments adjustment (2.1) (5.1)
Goodwill no longer amortised 3.3 6.8
Deferred tax remeasurement 1.2 1.2
Foreign exchange on inter company loans 0.5 0.6
Other (0.1) -
--------------------------------------------- ------ ------
Attributable profit under IFRS 55.1 113.4
--------------------------------------------- ------ ------
Equity reconciliation between UK GAAP and IFRS:
As at As at As at
30 September 31 March 2005 1 April
2004 £m 2004
£m £m
----------------------------------------- ------ ------ ------
Shareholders' equity under UK GAAP 480.1 454.6 429.4
Share based payments 1.0 0.7 0.7
Goodwill no longer amortised 3.3 6.8 -
Deferred tax remeasurement (9.6) (5.3) (12.6)
Dividends 10.0 21.7 14.9
Other (0.2) (0.1) (0.2)
----------------------------------------- ------ ------ ------
Shareholders' equity under IFRS 484.6 478.4 432.2
----------------------------------------- ------ ------ ------
The significant differences between UK GAAP and IFRS which affect the Group are
as follows:
a) Share based payments
Under UK GAAP, the cost of equity-settled transactions were recognised in the
year of performance to which the scheme related. The charge was recognised based
on the fair market value of the share award at the date of grant, less any
consideration receivable from the participating Burberry employee.
Under IFRS equity-settled transaction charges are recognised from the date of
grant over the vesting period of the shares. The total charge is determined with
reference to the fair value of the equity instruments awarded at the date of
grant. The fair value at the date of grant has been determined using the
Black-Scholes Option Pricing Model.
Where awards are contingent upon future events an assessment of the likelihood
of these conditions being achieved is made at the time of the award.
b) Goodwill amortisation
Under UK GAAP, goodwill was capitalised and amortised over its estimated useful
economic life.
Under IFRS, goodwill has been assigned an indefinite life as at the date of
transition and it is no longer amortised. Burberry has elected to apply the
exemption related to Business Combinations and has frozen its goodwill at its
carrying value as at 1 April 2004. All accumulated amortisation at this point in
time has been reclassified against the cost of the goodwill. Impairment reviews
will be carried out on goodwill on an annual basis and any impairment charge
would be charged and if applicable reported as a material item.
Notes to the interim financial statements (continued)
15. Transition to IFRS (continued)
c) Foreign exchange on intercompany loans
Under UK GAAP, any foreign exchange movements arising on the translation of net
assets of foreign subsidiaries were recognised by charging or crediting the
amounts directly to the profit and loss reserve account. In addition, any
exchange difference arising on intercompany loans was also taken directly to the
profit and loss reserves account where the loan formed part of the net
investment in the subsidiary.
Under IFRS, any foreign exchange movements arising on the translation of foreign
subsidiaries is to be taken to a separate component of equity, the foreign
currency translation reserve. Any exchange difference arising on an intercompany
loan should be taken through the income statement, unless the loan is deemed to
form part of the direct investment in the subsidiary.
Draft Technical Correction 1 was issued on 30 September 2005 to address this
matter with the intention that gains and losses on intercompany balances are now
recognised directly in equity. The Group has adopted Draft Technical Correction
1 in preparing its interim financial statements for the period to 30 September
2005 (see note 3 - Changes in accounting policies and presentation).
d) Deferred taxation remeasurement
Under UK GAAP, deferred tax was recognised for all timing differences, being the
difference between an entities taxable profits and its statutory results, which
are expected to reverse.
Deferred tax under IAS 12 'Income Taxes' is recognised on all taxable temporary
differences and all deductible temporary differences and unused tax losses, to
the extent that there are sufficient taxable profits available in future
periods. Temporary differences are the difference between the tax base of an
asset/liability and its carrying amount in the financial statements.
The most significant difference between IFRS and UK GAAP, is that deferred tax
is now recognised on the revaluation of fixed assets.
The Group is also required, under IFRS, to present deferred tax assets
separately from deferred tax liabilities. Offsetting of balances is only allowed
if the entity has a legally enforceable right to set off the recognised amounts
and they intend to settle on a net basis.
e) Dividends
Under UK GAAP, proposed dividends are recorded as a liability at the balance
sheet date. Under IFRS, dividends proposed at the balance sheet date are only
recorded as a liability when the Shareholders have approved their distribution
or for the interim dividend when approved by the Board.
The recognition of the charge in the income statement in relation to dividends
does not affect the timing of the payment of dividends or Burberry's dividend
policy.
Independent review report to Burberry Group plc
Introduction
We have been instructed by the company to review the financial information for
the six months to 30 September 2005 which comprises the consolidated interim
balance sheet as at 30 September 2005 and the related consolidated interim
statements of income, cash flows and statement of recognised income and expense
for the six months then ended and related notes. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with accounting standards adopted for use in the
European Union. This interim report has been prepared in accordance with the
basis set out in note 1.
The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements. As explained in note 1, there is,
however, a possibility that the directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with accounting standards adopted for use in the European Union.
The IFRS standards and IFRIC interpretations that will be applicable and adopted
for use in the European Union at 31 March 2006 are not known with certainty at
the time of preparing this interim financial information.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months to
30 September 2005.
PricewaterhouseCoopers LLP
Chartered Accountants
London
14 November 2005
Shareholder information
Registrar
Enquiries concerning holdings of the company's shares and notification of the
holder's change of address should be referred to Lloyds TSB Registrars, The
Causeway, Worthing, West Sussex, BN99 6DA, telephone: 0870 600 3970. In
addition, Lloyds TSB Registrars offer a range of shareholder information online
at www.shareview.co.uk. A text phone facility for those with hearing
difficulties is available by calling 0870 600 3950.
Share price information
The latest Burberry Group plc share price is available on Ceefax and also on the
Financial Times Cityline Service on 0906 843 2727 (calls charged at 60p per
minute).
Internet
A full range of investor relations information on Burberry Group plc, including
latest share price and dividend history, is available on the Group's website
(www.burberry.com).
Financial calendar for the year to 31 March 2006
Interim dividend record date 6 January 2006
Third quarter trading update 11 January 2006
Interim dividend to be paid 2 February 2006
Second half trading update 12 April 2006
Preliminary announcement of results for the year to
31 March 2006 May 2006
Annual General Meeting July 2006
Registered office
Burberry Group plc
18-22 Haymarket
London
SW1Y 4DQ
Telephone: 020 7968 0000
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