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Annual report 2010/11
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1
burberry
An iconic british luxury
brand established in 1856
leverages its rich heritage,proven strategies and
talented team to assure
sustainable, profitable
growth on a global scale
Contents
4 Financial highlights
8 Chairmans letter
12 Chie Executive Ocers letter
18 Executive team
22 Burberry Group overview
28 Strategy
44 Business and nancial review
54 Risk
58 Corporate responsibility
66 Board o Directors
68 Directors Report
71 Corporate governance
76 Directors Remuneration Report
86 Statement o directors responsibilities
87 Independent auditors report to the members o Burberry Group plc
88 Group income statement
89 Group statement o comprehensive income
90 Group balance sheet
91 Group statement o changes in equity
92 Group statement o cash fows
93 Notes to the nancial statements
133 Five year summary
135 Independent auditors report to the members o Burberry Group plc
136 Company balance sheet
137 Notes to the Company nancial statements
141 Shareholder inormation
143 Executive team
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4
FINANCIAL HIGHLIGHTS
DELIVERING RECORD PROFITS
1,501m
Total revenue (Year to March)
0 1501
1,501
850
995
1,202
1,185
1,280
11
07
08
09
10*
10
962m
Retail revenue (Year to March)
0 962
962
410
484
630
710
749
11
07
08
09
10*
10
441m
Wholesale revenue (Year to March)
0 489
441
354
426
489
377
434
11
07
08
09
10*
10
Revenue by channel in 2010/11
Retail 64%
Wholesale 29%
Licensing 7%
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301.1m
Adjusted operating profit (Year to March)
0.000000 301.100006
301.1
185.1
206.2
180.8
219.9
219.9
11
07
08
09
10*
10
Adjusted operating profit is stated before exceptional items
Reported operating profit 302.1m (2010: 216.5m)
297.9m
Net cash/(debt) (As at 31 March 2011)
0.000000 297.899994
11
07
08
09
10
297.9
(2.8)
(64.2)
262.0
7.6
48.9p
Adjusted diluted earnings per share (Year to March)
0.000000 48.900002
48.9
29.1
31.6
30.2
35.1
35.1
11
07
08
09
10*
10
Adjusted diluted EPS is stated before exceptional items
Reported diluted EPS 46.9p (2010: 18.4p)
20.0p
Dividend per share (Year to March)
0 20
20.0
10.5
12.0
14.0
12.0
11
07
08
09
10
2007-2009 and 2010* include the results of the discontinued Spanish operations. 2010 has beenrepresented to exclude the discontinued Spanish operations.
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CHAIRMANS LETTER
growth on this scale would not have been possible. In
nancial terms, disciplined execution o these strategies
over the ve year period has resulted in Burberrys 102%
revenue growth and 82% increase in operating prot, with
core retail/wholesale operating prot increasing 128% on a
112% revenue gain. This notwithstanding a nancial crisis
in mid-course.
The ve year nancial prole is capped by the record
2010/11 perormance. Total revenue grew 27% to
1,501m, a 24% gain at constant exchange rates.
Operating prot increased 37% to 301.1m, achieving an
historical high 15.6% retail/wholesale operating margin.Diluted EPS reached 48.9p, a 39% gain. Ater-tax return
on capital, at 35%, remained strong. All o these gures are
on an adjusted basis, and exclude the impact o the now
discontinued legacy business in Spain. The Group ended
the year with a 298m net cash balance. The Board has
recommended a 43% increase in the ull year dividend
to 20.0p.
Looking ahead. While on a secular basis, underlying trends
contributing to luxury growth wealth creation, rise o
growth market consumers, continuing consumer interest
appear avourable, the global macro environment suggests
some reserve.
Although Burberry was among the leading perormers
in the sector during 2010/11, a strong rebound in luxury
spending on the heels o recession lited most participants.
Despite some healthy headline orecasts, the current
climate includes distinct uncertainties record scal
decits in advanced economies, rising infation in high
growth economies and record commodity prices or
all. Political tensions in sensitive areas o the world also
present potential challenges. In short, the macro backdrop
may not be as avourable in 2011/12.
Near-term actors aside, the Boards optimism or
Burberrys uture remains in ull. The Group possesses a
clear and well executed strategy, world-class management
and design teams and a strong nancial prole, urtherenabled by a powerul culture capable o executing under
a range o market conditions. And the brand operates in
attractive markets with specic opportunities across the
spectrum. Burberrys results or the year and across this
volatile ve year period clearly demonstrate these qualities.
On behal o the Board and shareholders, I thank the team
around the world or their contributions to these excellent
results, and look orward to Burberrys urther progress.
John Peace, Chairman
An historic year or Burberry record revenue, margin and
prot. These results refect not only the most recent years
eort, but ve years o endeavour by this team.The ve key strategies, outlined urther in this report, have
been executed with lasting eect on the business and
business model. In terms o status, the Burberry brand
has clearly solidied its unique democratic positioning
within the luxury arena. Retail, the channel which
maximises the brands ability to manage consumer
perception, has become the primary route o distribution,
moving rom 43% o total revenue in 2005/06 to 64% in
2010/11 (greater adjusting or ull China integration)
while licensing activities have been largely conned to
three global categories and Japan, with the oundation set
or uture integration o the brands business in that market.
Burberry has also gained share across geographies, in
both developed markets such as the US and high growth
economies like the Middle East. Work in Asia, most
recently the acquisition o the brands store network in
China, has positioned Burberry well in this high growth
luxury region. In line with the strategy, attractive non-
apparel categories have been intensied, accounting or
40% o retail/wholesale revenue in 2010/11 relative to 29%
in 2005/06. Lastly, through a range o initiatives, including
development o an integrated supply chain and SAP
implementation throughout the majority o the business,
operational capability has been upgraded substantially.
Without this investment in inrastructure and expertise,
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Chief executive officers letter
At the most undamental level, managements primary
objectives are the continued development o the Burberry
brand and delivering sustained, protable growth over
the long term. These objectives are addressed through
a precise vision or the Group, a consistent strategy and
a distinctive set o values. Although the global recession o
2008-2009 slowed progress in some respects, we did not
compromise pursuit o either objective. With an improving
external environment in 2010/11, the team capitalised
on the expertise and inrastructure developed during
preceding years and the Groups strong nancial position
to accelerate investment in the brand and reassert thestrategic growth agenda.
Brand Investment
We have long held that great brands project a pure,
consistent experience across all channels in order to
standout in todays cluttered consumer arena. Sharp
denition communicates the point o dierence and
inorms consumer choice, while also conveying authenticity
and integrity, which are vitally important to a heritage brand
such as Burberry. A pure brand image captures mindshare.
Further, globally pervasive digital technology is altering
consumers relationships with brands both expectations
o, and ways o interacting with, them. Digitals capabilities
o movement, sound, inormation capacity andsel-navigation allow or an all-encompassing emotive
brand experience, which can be achieved anywhere
not conned to a brands physical environment, such
as a retail store. The technology has raised consumers
expectations or a voice in, and greater access to, the
brand. Consumers also increasingly expect transparency
and clarity with respect to the company behind the brand.
Burberry World launch. In line with these principles,
the Group launched Burberry World a website
providing the complete expression o the Burberry
brand, as well as ull e-commerce capability in the
nal quarter o 2010/11. Burberry World oers access
to the brands dening eatures, including heritageand archival imagery, behind-the-scenes ootage o
key events, such as runway shows and photo shoots,
philanthropic activity and comprehensive product views
and inormation the site contains the most complete
product assortment available or purchase anywhere.
Burberry World also connects the broader Burberry
community through Burberry Acoustic a site eaturing
music and videos rom emerging British artists and
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artothetrench.com, our social media site allowing
members to explore and share experiences o the iconic
trench coat. Beyond simply delivering an on-brand
interace online, our goal is to provide the perect,
complete Burberry experience. We are also reorienting
other consumer-related activity, including retail stores,
or multi-channel connectivity however a consumer
engages with the brand, the experience should be
consistent. In terms o its direct commerce implications,
we expect Burberry World to drive sales across all
channels digital (currently transactional in 45 countries
and six languages), retail, wholesale and licences through long-term consumer engagement and direct
merchandise access and inormation. Achieved through
substantial investment, this global platorm is the ocal
point or the brand.
Correcting legacy issues. Although great progress
has been made in revitalising the Burberry brand over
the last decade, inconsistencies with the modern
democratic luxury positioning remain. During the year,
the Group intensied investment in correcting these
legacy brand issues. In retail, while the outlet store
ormat is primarily an inventory management tool, parts
o the portolio are not appropriately aligned with the
brand; as a result, several outlet stores were closed
in the year, as others were upgraded, renovated and
expanded. In the wholesale channel, management
is concentrating distribution in ewer doors, those
consistent with the brands status, and improving
in-store presentation through several initiatives,
including an emphasis on dedicated real estate. In the
licensing arena, the year saw the impact o the Japan
leather goods licence termination, as part o the multi-
year process to align that market with the global brand.
Finally, with the Spring/Summer 2011 season, Burberry
largely completed the local-to-global product transition
in Spain. Each o these activities was undertaken
at a signicant cost to earnings, which will only be
recaptured over time through greater brand vitality. TheGroup will continue to take similar action to puriy brand
presence in the seasons ahead.
Reasserting the Growth Agenda
Condent in the long-term potential o the Burberry brand
and our design, marketing and retail-led business, we
reasserted the strategic growth agenda as the world
began to emerge rom recession.
China acquisition. In September, Burberry acquired
its store network in China rom a longstanding ranchise
partner or approximately 65m. China is the most
exciting luxury market in the world today, whether
dened by current size, growth rate or long-term
potential. Already estimated to be the ourth largest
luxury customer group globally, the Chinese consumeris projected to be the most important sector growth
driver both domestically and internationally over at
least the next ew years. In addition to the transaction,
under which the Group acquired 50 stores, the local
team opened an additional net seven stores during
the year. Since acquisition, the stores have achieved
approximately 30% sales gains on a year-over-year
basis. Burberry is well positioned in this market,
and the acquisition is a key growth platorm or the
brands uture.
Retail expansion. Retail investment accelerated with a
62% increase in store-related capital expenditure during
the year. Average space expanded 9%, excluding theChina acquisition, led by 28 mainline store additions,
many o which were clustered in high potential markets.
Investments included fagship stores in new markets,
including Beijing and Sydney the rst fagships in
China and Australia as well as established markets
such as London, Milan and Paris. Store renovation
activity also intensied to ensure the entire portolio
keeps pace with the brands aspirations and digital
presentation standards; major projects included
Las Vegas and Boston.
Marketing in the digital dimension. Marketing eorts
enlarging the brands digital dimension also intensied
in 2010/11. With digital content becoming a primaryvehicle to communicate brand identity and engage
consumers, we continued to invest in content, both in
terms o creation capability and volume. An expanded
team o digital experts develops rich bodies o
consumer-oriented content around any brand activity
the traditional still images o Burberrys main advertising
campaigns are now accompanied by sets o video
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Chief executive officers letter continued
stories, while simple product shots have become video
clips. A local ashion show or store opening becomes
a global event through l ive-streamed production.
Digital innovations, such as virtual trunk shows,
which allow runway show viewers to select items or
immediate purchase, urther immerse consumers in
the brand. To extend consumer reach, Burberry works
with leading digital media companies to distribute this
exciting content across their platorms. The Group
has also increased digital marketing investment through
greater use o email and online advertising. During
the year, the brand deepened engagement with itssocial media communities including the proprietary
artothetrench.com through the addition o dedicated
content and more requent interaction. With almost ve
million ans (at 31 March), Burberry is the leading luxury
brand on Facebook. Burberry has achieved a leadership
position within the luxury sector in the digital marketing
arena, and will continue to invest substantially in these
activities. Reerencing these and related initiatives,
Fast Company magazine named Burberry to its 2011
list o the worlds 50 most innovative companies.
Product intensifcation. In the product arena,
Burberry directed investment to both core and young
categories. To drive innovation in the core womens and
mens outerwear and large leather goods categories,
the design and merchandising teams explored a
wider range o exotic and luxury materials, pursued
technical innovation and broadened the highest ashion
components o the lines. The teams also reoriented
development processes around creating distinct
monthly product capsules to ensure a continuous fow
o new and compelling merchandise to stores. The
Group continued to invest in replenishment capability
with the goal o constant availability o continuity core
product at retail. Looking at young businesses, the
childrenswear operations, previously located in Spain,
were integrated with the London-based product
divisions, with additional resource commitment indesign and merchandising. The underdeveloped
womens shoe category benetted rom similar resource
intensication, as well as assortment expansion and
greater space allocation within our store network,
where sales growth accelerated in the year.
New market investment. Investment in new markets
also accelerated. Burberry launched its Latin America
strategy with a dedicated regional management team
and headquarters located in So Paulo, Brazil. The
team opened stores in Brasilia, So Paulo and Puebla,
Mexico during the year. Looking east, the Group urther
developed its joint operation to capitalise on the rapidly
growing consumer economy in India. Burberry now
has ve stores in this exciting market. Although in the
near term these operations incur signicant start-up
expenses, we expect them to contribute meaningully
to uture prot growth. In addition, through ranchisepartners, the Group entered our new markets in
2010/11, including Egypt and Mongolia.
Inrastructure investment. Reasserting the growth
agenda required continued evolution and investment in
inrastructure nance, inormation technology, human
resources, legal. Across the agenda rom disciplined
management o replenishment inventory to producing
digital events to meeting the structural requirements
o new markets these resources enabled and
contributed to growth in the year.
Culture and values
Alongside brand and growth, we continued to invest in our
culture. As a team, we look to reinorce a company culturecharacterised by
Shared vision or the uture o brand and business
Democratic and meritocratic ethos
Connected, collaborative style o interaction
Focus on the Burberry brand as the touchstone against
which all activity is measured
These principles relate directly to the brands core values:
to protect, explore and inspire. Investing (both mental
and nancial resources) in this culture encompasses a
broad range o initiatives, rom communication activities to
compensation structures and other employee benets toencouraging perormance standards which also extend
beyond the organisation to our partners. These uniting
cultural orces, along with our passion, emotion and
conviction, are as important to Burberrys success as the
ve strategic themes. Though a commercial enabler, this
culture equally denes the type o community we believe
in, and the type o company we want to be.
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Record fnancial results
In addition to investing or the uture, the team continued
to execute, achieving record revenue and proft in the year.
Revenue increased 27% to 1,501m. An 11% comparable
store sales gain combined with 9% space expansion and
a 12% contribution rom China to produce 36% retail
revenue growth (22% excluding the China acquisition) to
962m. Wholesale revenue increased 17% (26% ex-China)
to 441m. Licensing revenue was marginally ahead with
the eect o terminated Japan and apparel licences oset
by strength across global licences and currency gains.
Under the single brand, the Group is a well balancedportolio o businesses balanced diversity within each
o product, channel and region. With the exception o
the Japan licences, all parts o this portolio perormed
well in the year. Adjusted operating proft increased 37%
to 301m with adjusted retail/wholesale operating proft
growing 59% on a 29% revenue gain achieving an
historical high 15.6% adjusted retail/wholesale operating
margin. Notwithstanding the substantial investment,
the Group ended the year with net cash o 298m.
Looking ahead
In summary, its been an historic year or the Group,
the result o a united eort o employees, suppliers,
customers and licensing and ranchise partners. We thank
this extended team or their commitment and partnership.
Turning to 2011/12, although the external environment
may be less certain, we look orward with optimism.
The brand is well positioned, the strategies are eective,
the team is united and the consumer engaged. We will
continue to invest to realise the potential o this great
brand and business.
Angela Ahrendts, Chie Executive Ofcer
48.9Pin 2010/11 +39%
Growth in adjusted diluted EPSis a key valuation metric for Burberrys shareholders
11
09
10
10*
07
08
48.9
30.2
35.1
35.1
29.1
31.6
+39%
-4%
+16%
+21%
+9%
2007-2009 and 2010* include the result of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
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EXECUTIVE TEAM
ACHIEVING balance through
Experience and talent
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BURBERRY GROUP OVERVIEW
A diversified business model
Burberry is a global luxury brand with a distinctive British heritage, core outerwear and large leather goods base,
and some o the most recognised icons in the world. Burberry designs and sources apparel and accessories,
selling through a diversifed network o retail, digital, wholesale and licensing channels worldwide.
The business is managed by channel, region and product, supported by corporate unctions.
Evolving channel mix
Burberry sells its products to the end consumer through both retail (including digital commerce) and wholesale channels.
For 2010/11, retail accounted or 64% o revenue and wholesale 29%. Burberry also has licensing agreements in Japan
and globally, leveraging the local and technical expertise o its licence partners.
RetailIncludes 174 mainline stores, 199concessions within department storesand 44 outlets, as well as digital commercearound the world
32% underlying growth (20% excluding
impact o China acquisition)
11% comparable store growth
Net 26 mainline store openings
in the year, including Beijing,
So Paulo and Mumbai
WholesaleIncludes sales to department stores,multi-brand specialty accounts and TravelRetail, as well as sales to its ranchiseeswho operate 56 Burberry stores, mainlyin Emerging Markets
16% underlying growth
(25% excluding impact oChina acquisition)
Strength rom Asia Pacic and the
Americas, particularly Asia Travel Retail
and US department stores
Entered our new markets with
ranchise partners (Armenia, Egypt,
Israel and Mongolia)
LicensingIncludes royalty income received romBurberrys licensees in Japan, its globallicensees or ragrance, eyewear andtimepieces, and a small Europeanchildrenswear licensee
4% underlying decline
Growth in global product licences osetby termination o Japanese leather goods
licence in 2010 and the nal regional
menswear licences
Greater integration between
strategy, product development
and digital marketing
64% 29% 7%
Revenue by channelExcluding the results o the discontinued Spanish operations. Underlying is calculated at constant exchange rates.
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Broad geographic portfolio
Burberry operates in our regions: Europe, Asia Pacifc, Americas and Rest o World.
Americas
Includes US, Canada,Central and South America
Up 16% underlying
Good progress in US
wholesale; expansion o real
estate in department stores
Three store openings in
Latin America (Brasilia and
So Paulo, Brazil and
Puebla, Mexico)
Europe
Excluding the results o thediscontinued Spanish operations
Up 15% underlying
Double-digit comparable
store sales growth; frst Brit
trial store in Europe opened
in Milan
Continued ocus on key
department store customers
and rationalisation o small,
non brand-enhancing speciality
accounts in wholesale
Rest o World
Up 43% underlying
Indian joint operation opened
three stores in Delhi, Mumbai
and Hyderabad
Burberry Middle East opened
frst two department store
concessions in Harvey
Nichols and Bloomingdales
Asia Pacifc
Includes China and the Japanesenon-apparel joint operation
Up 53% underlying
China acquisition completed
acquired stores comparable
growth about 30% in the
second hal
Flagship store opened
in Beijing
27% 34% 33% 6%
Retail and wholesale revenue by destinationExcluding the results o the discontinued Spanish operations. Underlying is calculated at constant exchange rates.
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BURBERRY GROUP OVERVIEW CONTINUED
40% 33% 23% 4%
pRODUCTS
Diversified offering
Within the Burberry oering, there is a product
hierarchy each collection with unique branding
and a distinct Burberry identity.
At the top is Burberry Prorsum, the most ashion
orward collection centred around catwalk/
runway shows each year. Prorsum, the Latin
word or moves orward, provides the design
inspiration or the brand.
In the centre o the pyramid is Burberry London or what a customer wears on weekdays or
work (tailored ready to wear).
And at the base o the pyramid is Burberry
Brit what a customer wears on the weekend
(casual wear), including Burberry Sport.
Collections are distinctly designed and
merchandised across the pyramid to drive the
brands revenue and protability. Outerwear
and non-apparel span all levels as Burberry
continues to innovate and diversiy these
core categories.
Non-apparel Up 32% underlying
Large leather goods
(handbags) about hal
o revenue
Small leather goods and
scarves outperormed
Womenswear Up 21% underlying
About 60% is outerwear;
Prorsum and London
collections outperormed
Growth balanced between
continued innovation
and replenishment
Childrenswear Up 23% underlying
Spring/Summer 2011
rst season managed by
London-based team
Foundation built rom
mens and womens
proven strategies
Menswear Up 29% underlying
About 40% is outerwear;
Prorsum and London
collections outperormed
Spring/Summer 2011 the
rst collection designed
entirely in-house
Retail and wholesale revenue by productExcluding the results o the discontinued Spanish operations.
BURBERRY
BRIT
BURBERRY
PRORSUM
BURBERRY
LONDON
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STRATEGY
BRAND AND BUSINESS
From its ounding in 1856, Burberry has become the leading British luxury brand globally.
The brand is defned by:
Britishness
Authentic outerwear heritage
Historic icons: the trench coat,
trademark check and Prorsum
knight logo
Democratic luxury positioning
Innovation and intuition
The business is driven by:
Design, marketing and
retail-led strategies
Digital ocus and integration
Channel diversity: retail,
digital commerce, wholesale
and licensing
Multi-category competency:
non-apparel, womenswear,
menswear and childrenswear
Global reach and balance:
across core regions and
emerging markets
The culture is distinguished by:
Core values: to protect,
explore and inspire
Democratic and meritocratic
ethos
Collaboration and
connectedness
Contributing to its communities,
including through the
Burberry Foundation
Unied and passionate teams are responsible or maintaining the integrity and vitality o this extraordinary brand while
continuing to develop a business which remains relevant to ever-evolving markets and consumer tastes. The ollowing
pages outline the Groups strategy under each o its ve key themes.
LEvERAGING
ThE
fRANchISE
INTENSIfYING
NoN-AppAREL
DEvELopmENT
AccELERATING
RETAIL-LED
GRowTh
INvESTING
IN UNDER-
pENETRATEDmARkETS
pURSUING
opERATIoNAL
ExcELLENcE
oUR STRATEGIc ThEmES
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STRATEGY coNTINUED
LEvERAGING ThE fRANchISE
Through more coordinated use o brand assets and greater integration o its global organisation, Burberry has
the opportunity to enhance consumer responsiveness and operate more efciently and eectively. This potential
lies both in the ront and back-o-house operations.
In 2010/11 Burberry was again included in Interbrands
Top 100 Global Brands; was awarded the 2010 British
Graduate 100 Award or Where Fashion Graduates Want
to Work; and was recognised as the 13th most innovative
company in the world by Fast Company magazine, as well
as receiving the Inaugural Innovation Award at the 2010
British Fashion Awards.
Product and marketing excellence underpin this brand
momentum. Key highlights in 2010/11 include:
Marketing innovation
LaunchednewBurberry.comsite
The rollout o the new Burberry.com website began
in the ourth quarter o 2010/11, with the site live in
six languages and transactional across 45 countries
by the year end. The site, known as Burberry World, is
the ultimate expression o the Burberry brand, allowing
customers globally in many cases or the rst time
to connect with all its aspects, rom heritage, to music
and video, to the ull product oer. Through the use o
dynamic audiovisual content the site becomes a place
to engage, entertain and interact, as well as providing
the ultimate online luxury shopping experience through
a personalised customer service oer that includes the
ability to Click to Chat and Click to Call in real time and
in 14 languages. The site provides a powerul locus
or ongoing eorts to build the Burberry community
around the world.
Extendedluxuryleadershippositioninsocialmedia
Engaging with social media is a urther critical part
o the Groups strategy to connect customers with
the Burberry brand. In 2010/11, Burberry urther built
its leadership position amongst luxury brands on
Facebook, ending the year with approaching ve million
ans, as well as almost 200,000 ollowers on Twitter
and over our mil lion channel views on YouTube. A key
milestone in late 2010/11 was the launch o the brand
on Chinese social media sites Sina Weibo, Kaixin001,
Douban and YouKu, having launched country-specicTwitter accounts in Brazil, Mexico, Japan, Turkey and
Korea earlier in the year. The Groups own social media
site, artothetrench.com, continued to inspire people
around the world and across generations to share their
experiences o the iconic trench coat. By the end o the
year, the site had received more than 11 million page
views since its launch in November 2009.
Continuedtransformationoffashionshows
Burberry continued to break new ground in the reach
and impact o its ashion shows. Previously closed
door events or invited guests, the use o livestream
technology allowed Burberry to take these key brand
moments to an ever-wider audience over the course o
the year, culminating with the livestream o the Burberry
Spring/Summer 2011 womenswear show, which has
been watched by over one million people across more
than 180 countries around the world. The introduction
o retail theatre technology allowed the livestreaming
o shows directly to fagship stores globally, while thedevelopment o instant digital commerce purchase
capability, supported by supply chain innovation, has
allowed customers or the rst time to buy directly
rom the runway or delivery in seven weeks. Further
innovations, such as the streaming o the September
2010 womenswear show in 3D to ve locations around
the world, and the hosting o the Autumn/Winter 2011
womenswear show on the iconic video screens in
Piccadilly Circus, London, have continued to broaden
reach and awareness.
Furtherdigitisationofthebrand
Continued investment and an intense ocus on
inrastructure development meant the Group was able
to accelerate the digitisation o the brand. In 2010/11,
the Group urther bolstered its world-class creative
and IT teams to remain at the oreront o innovation
and excellence in the creation and distribution o
digital assets.
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STRATEGY coNTINUED
LEvERAGING ThE fRANchISE coNTINUED
Product excellence
Keyapparelcategoriesoutperformance
Outerwear remains the core o the Burberry apparel
business, rom timeless iconic pieces to innovative
contemporary styles. A key growth driver, outerwear
accounted or over hal o mainline retail apparel sales
in the year. At the top end o the pyramid, ashion
outerwear drove outperormance rom Prorsum,
the runway collection that creates the halo or the
entire Burberry brand.
IntegratedmenswearSS11 saw the launch o the rst ully in-house global
menswear collection. Historically a licensed business,
the Group exited all 11 licences between 2006/07
and 2010/11, enabling the relaunch and repositioning
o this category. This rst pure collection drove
outperormance in menswear during the year,
with reported growth o 31%.
Furtherbuiltchildrenswear
Building childrenswear remains a key ocus or
the Group. Childrenswear was ormally integrated
into the global business in 2010/11, with the division
now located in the Groups London headquarters
and its product aligned with core design and
merchandising strategies.
2010/11 also saw the intensication o ongoing eorts
to correct those legacy issues that are inconsistent with
the global luxury positioning o the Burberry brand.A key ocus o this eort has been to upgrade the
brand positioning with wholesale partners. A number
o Japanese non-apparel licences were also terminated
during the year and the restructuring and transormation
o the Spanish business were succesully completed,
with the global collection rolled out across all channels
or the rst time rom SS11.
measuring ur rgress
Total revenue growth (Year to March) measures the appeal of the
brand to consumers, be it through Burberry stores or those of its
department store or specialty retail customers.
In 2010/11, Burberrys revenue was 1,501m a 24% underlying
increase on the previous year. China, which transferred from
wholesale to retail on 1 September 2010 following the acquisition
of the former franchisees operations, contributed 5% to this
underlying growth.
Growth rate is year-on-year underlying change i.e. at constant exchange rates.
2007-2009 and 2010* include the result of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
1,501min 2010/11 +24%11
07
08
09
10
10*
1,501
850995
1,202
1,185
1,280
+24%
+15%
+18%
+7%
+1%
Retail Wholesale Licensing
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STRATEGY coNTINUED
INTENSIfYING NoN-AppAREL DEvELopmENT
Intensiy and ocus on under-penetrated non-apparel categories to leverage urther Burberry design and merchandising
expertise and iconic branding through investment in product development, marketing and supply chain.
Non-apparel remains a key driver o growth, contributing
40% o retail/wholesale sales during the year. In 2010/11
it was again the Groups astest growing product category.
Largeleathergoods
Large leather goods remain the backbone o the
Burberry non-apparel business, representing about
50% o revenues in this category.
Mensaccessories
Mens accessories was amongst the strongest
perorming categories within non-apparel, albeit rom
a small base. Strong growth across wholesale andretail channels was driven by a signicantly expanded
assortment servicing increased demand. Consistent
global growth in this category was complemented by
a particularly strong perormance in certain markets
such as China, where the predominantly male
luxury consumer responded very positively to the
accessories oer.
Shoes
Womens shoes represent an important growth
opportunity or Burberry, reaching 7% o mainline
sales in 2010/11. Boots, a natural complement
to the Burberry outerwear oer, perormed
particularly strongly.
Licensing
Beauty
In June 2010, the Group launched its rst cosmetics
line, Burberry Beauty, with its ragrance licensee
Interparums. Reinorcing the brands core trench
and outerwear heritage through its ocus on natural,
eortless beauty, Burberry Beauty was rst introduced
as a test ormat through a limited number o wholesale
partners globally and later directly to customers on
burberry.com. Supported by digital assets and used in
all Burberry advertising campaigns and runway shows,
Burberry Beauty is enjoying a strong early responserom consumers and press as it approaches its
rst anniversary.
Globallicences
Burberry has three global licensing agreements:
ragrance (Interparums), timepieces (Fossil) and
eyewear (Luxottica). During the year, Burberry
strengthened its organisation to manage these
relationships more intensively, more closely aligning
strategies to unlock the potential o licensed products
in line with owned categories.
measuring ur rgress
Growth in non-apparel revenue (Year to March) measures the
success of Burberrys initiatives to expand in this category, which
includes handbags, small leather goods, scarves, shoes, belts
and jewellery.
In 2010/11, non-apparel revenue increased by 32% underlying
compared to 24% for Burberry as a whole. Non-apparel accounted
for 40% of retail/wholesale revenue, compared to 38% last year.
Handbags are core to non-apparel, representing about half of revenue.
Revenue is retail/wholesale only. Growth rate is year-on-year underlying change
i.e. at constant exchange rates.
2007-2009 and 2010* include the result of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
563min 2010/11 +32%11
07
0809
10*
10
563
211
290366
417
420
+32%
+15%
+39%+12%
+10%
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STRATEGY coNTINUED
Aelerating RETAIL-LED GRowTh
Shit company culture and processes rom a static wholesale model to a dynamic retail model.
Retail-led growth reers not only to the operation o Burberrys own stores, but also to a undamental
shit in the Groups operating structure.
2010/11 saw strong progress in building the brands retail
presence globally.
Retailexpansionandoptimisation
A record number o new Burberry stores opened
around the world in 2010/11. A net 26 mainline stores
were opened during the year, including a new fagship
in Beijing, while a net 34 concessions were added. In
line with the Groups fagship cluster strategy, hal o the
new stores were opened in existing high prole markets,
while store renovations included major upgrades in
Boston and Las Vegas.
Digitalintegration
2010/11 saw investment in in-store Retail Theatre
technology to connect and leverage innovative content
across all platorms. This technology enabled Burberry
to synchronise completely consistent messages
to customers across all mediums or the rst time,
and oered an unrivalled audiovisual experience or
customers in stores. iPads were also introduced to
selected stores globally, allowing access to increased
inventory through Burberry World.
Productivitygains
A continued ocus on driving store productivity led
to the achievement o 11% comparable store sales
growth in the year. Average unit retail prices rose in
the period, while product fow and replenishment
capability improved. The Groups ongoing investment
in customer service standards was a key driver in
improving productivity, evolving to cover customer
interactions across all channels to deliver a consistently
high quality experience. A global Customer Service
team was established during the year to oer 24/7
tailored support to customers in 14 languages, bytelephone, email and through the new Click to Call
and Click to Chat unctions on Burberry World. Client
Services, which provides a personalised luxury service
to the Groups most important clients, expanded to 30
locations across the world, and the Burberry Experience
sales and service programme was successully
extended rom the Americas, Asia and Europe to
Emerging Markets including China.
Newconcepttests
The Brit store concept was rolled out urther in 2010/11,
ollowing the opening o the rst test store in New York
in late 2009. Five new stores showcasing this casual,
contemporary expression o the Burberry brand were
opened over the course o the year, including the rst
outside the US in Milan.
measuring ur rgress
Growth in retail revenue (Year to March) includes comparable store
sales growth (measuring growth in productivity of existing stores),
plus revenue from new space.
Growth rate is year-on-year underlying change i.e. at constant exchange rates.
Comparable store sales growth is defined as the annual percentage increase in sales
from stores that have been opened for more than 12 months, adjusted for closures
and refurbishments.
32%in 2010/1111
07
08
09
10
32%
24%
20%
14%
15%
Comparable stores New space China
Total retail sales increased by 32% underlying in the year. Comparable
store revenue growth increased by 11% (H1: 9%; H2: 13%), average
selling prices increased again in mainline stores and traffic benefited
from digital marketing initiatives. The transfer of China revenue from
wholesale to retail from 1 September 2010 following the acquisition
of the franchisees operations contributed 12%, with the balance
from new space.
Number of stores (As at March)measures the reach of Burberry
directly-operated stores around the world.
Excluding the discontinued business in Spain, the number of
stores directly operated by Burberry increased by 105 in 2010/11.
These included a net 26 new mainline stores, a net 34 new
concessions around the world (including 20 concessions in Spain
opened in Q4 to sell the global collection) as well as the acquisition
of 50 stores in China.
417as at March 201111
07
08
09
10
10*
417
292368
419
312
440
Mainline Concessions Outlets
2007-2009 and 2010* include the stores of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
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STRATEGY coNTINUED
INvESTING IN UNDER-pENETRATED mARkETS
Focus on and invest in under-penetrated markets. For Burberry, these consist o both developed markets like the
United States and emerging markets including China, India and the Middle East. All distribution channels and a variety
o business models are used to optimise these opportunities.
Key highlights in 2010/11 include:
Chinaacquisition
The acquisition o the Burberry business in China was a
clear highlight o the year. In September 2010, or about
65m, the Group acquired 50 stores across 30 cities,
which had previously been operated by its Hong Kong
based ranchisee. This acquisition gives the Group
control o the Burberry brand in the astest-growing
luxury market in the world. Ten new stores have already
been opened since the acquisition, including the
brands most digitally-advanced fagship in the world
in Beijing. Merchandising and inventory initiatives havesuccessully driven productivity in existing stores, with
comparative store sales up about 30% in the second
hal o the year.
ExtendedpresenceinLatinAmerica,Indiaand
newmarkets
Following the establishment o a joint operation in India
and the establishment o regional oces in So Paulo
and Dubai in 2009/10, the Group continued to extend
the Burberry presence in these high growth markets.
A major brand event in Mumbai in December 2010
marked the opening o the brands th store in India,
with related PR and marketing activity introducing the
brand to this young, digitally-aware customer base.
In Latin America, the Group opened its rst store in
the key city o So Paulo, and now has three stores
operating in Latin America. A total o 25 stores were
opened in Emerging Markets over the course o
2010/11. Through ranchise partners, the rst Burberry
stores were opened in Armenia, Egypt, Israel and
Mongolia during the year.
Buildingwholesale
The Group continued to invest in its wholesale
presence globally, building separate London, Brit andchildrenswear corners in department stores, exiting
generic outerwear departments and adding real
estate or menswear. A ocus on building in-season
replenishment capability supported growth. 2010/11
also saw a continued ocus on building the Burberry
Travel Retail business.
measuring ur rgress
Number of stores in Emerging Markets (As at March)
measures the reach of the Burberry brand in these high
potential countries.
Burberry added a net 25 stores in Emerging Markets, of which a net
seven stores were in China, five in the Middle East and three each
in India and Latin America. Of the 136 stores, 80 are directly operated,
of which 57 are in China, three in Latin America, 15 in the Burberry
Middle East joint operation and five in the Burberry India joint operation.
Emerging Markets include: China, the Middle East, Eastern Europe, Russia, Brazil,
India and other parts of South East Asia, South Africa and Latin America.
136as at March 201111
07
08
09
10
136
58
79
91
111
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STRATEGY coNTINUED
pURSUING opERATIoNAL ExcELLENcE
Burberry continues to pursue its goal to be recognised as much or operational expertise as or product
and marketing excellence.
A continued ocus on, and investment in, operational
excellence has driven improvements across all business
unctions, and has been a key enabler or ront-end innovation.
Enhancedcapabilities
Reinorcing and rening core back-end disciplines
was a central ocus again in 2010/11, specically
in replenishment, planning, logistics and sourcing.
Replenishment practices were enhanced across
all product categories, resulting in a nearly 50%
contribution o replenishment styles to mainline
sales over the year. Enhancing planning capabilities
enabled better execution and inventory managementand 2010/11 also saw the development o a global
pricing architecture. Improvements in sourcing drove
savings during the year and quality programmes were
introduced to actories and distribution centres globally.
Logistics enhancements enabled the execution o
monthly deliveries and ullment o in-season reorders.
Introducedmonthlyow
In 2010/11 the Group began to execute a synchronised
monthly fow o new product and foorsets across its
physical and virtual real estate, eatured in tailored
digital assets. Requiring a co-ordinated and integrated
approach across the business, rom Design, to
Merchandising, to Buying and Retail, this new approachintroduces a rereshed oer each month, while providing
a strong platorm rom which to connect customers
more regularly with the Burberry brand.
ContinuedSAPimplementation
The Group took urther steps towards the completion o
its implementation o SAP, with 80% o stores covered by
the end o the year and the incorporation o China and
Burberry Middle East scheduled or 2011/12. In addition,
between April and November 2010, Burberry successully
implemented a new, single SAP HR database or the
employee records o 6,500 employees in 25 countries
across Europe, the Americas and Asia. This is allowing
the Group to align its global HR processes and structures,
and is providing global visibility or the rst time.
PrioritisedorganisationaleffectivenessCloser collaborative relationships within the business
have been critical to the successul development and
implementation o Group initiatives. Further senior level
governance structures have been established during the
year to leverage operating best practice globally and to
co ordinate all capital investments. For example, IT has
become an integral partner to key marketing and retail
initiatives including Burberry World and Retail Theatre,
while supply chain innovation has been a key enabler
in allowing customers to purchase directly rom the
runway. The oundation was also set during the year or
the establishment o a global shared services team to
drive eciencies and enhance nancial control across
the business, while global strategy teams have been
established to build detailed medium to long-term views
or all regions. Externally, partnership working continues
to bring benets in key areas such as corporate
responsibility. Burberry joined the Ethical Trading Initiative
during the year, making it the rst luxury brand to do so.
measuring ur rgress
Retail/wholesale gross margin (Year to March) measures, among
other things, how efficiently Burberry sources its products.
64.9%in 2010/11
Gross margin in retail/wholesale increased by 390 basis points
to 64.9% in 2010/11 compared to the 61.0% margin the prior year
(excluding the discontinued Spanish operations) due to the shift
from wholesale to retail and increased replenishment.
11
07
08
09
10
10*
64.9%
56.9%
58.5%
52.1%
61.0%
59.7%
2007-2009 and 2010* include the result of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
Adjusted retail/wholesale operating profit margin (Year to March)
measures how Burberrys initiatives and its investment to improve its
business processes, including sourcing, IT and logistics are impacting its
profit margin.
15.6%in 2010/1111
07
08
09
10*
10
15.6%
14.6%
14.9%
9.8%
12.7%
11.6%
Burberrys adjusted retail/wholesale operating profit margin increased
from 12.7% in 2009/10 (excluding the discontinued Spanish
operations) to 15.6%. Regional cost leverage was achieved despite
the shift from wholesale to retail and investment in new ventures.
Adjusted operating profit margin is stated before exceptional items.
2007-2009 and 2010* include the result of the discontinued Spanish operations.
2010 has been represented to exclude the discontinued Spanish operations.
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BUSINESS AND FINANCIAL REVIEW
GROUP FINANCIAL HIGHLIGHTS
+27% Revenue o 1,501m,up 27%
(2010: 1,185m)
15.6% Adjusted retail/wholesale operatingmargin at record level o 15.6%
(2010: 12.7%)
+39% Adjusted proft beore tax o297.9m up 39%
(2010: 214.8m)
27.9% Tax rate on adjusted proft beoretax o 27.9%
(2010: 27.4%)
+39% Adjusted diluted earnings per shareup 39% to 48.9p
(2010: 35.1p)
+43% Full year dividend per shareup 43% to 20.0p
(2010: 14.0p)
Year to 31 March* % change
million 2011 2010 reported FX underlying
Continuing operationsRevenue 1,501.3 1,185.1 27 24
Cost o sales (491.6) (423.9) (16)
Gross margin 1,009.7 761.2 33
Operating expenses# (708.6) (541.3) (31)
Adjusted operating proft 301.1 219.9 37 34
Net fnance charge# (3.2) (5.1) 37
Adjusted proft beore taxation 297.9 214.8 39 36
Exceptional items (2.2) (3.4)
Proft beore taxation 295.7 211.4
Taxation (83.2) (58.8)
Discontinued operations (6.2) (70.4)
Non-controlling interest 2.1 (0.8)
Attributable proft 208.4 81.4
Adjusted EPS (pence)~ 48.9 35.1
EPS (pence)~ 46.9 18.4
Weighted average number o ordinary shares (millions) 444.0 441.9
* FY 2010 has been re-presented to show the results o the discontinued Spanish operations separately. Discontinued operations in 2011include an operating loss o 2.1m (2010: nil), restructuring costs o 4.1m (2010: 45.4m) and a nil tax charge (2010: 25.0m).
Adjusted measures exclude restructuring costs and the Chinese put option liability fnance charge.
# Operating expenses in the table above exclude restructuring costs a 1.0m credit in 2011 (2010: 3.4m charge) included in the reported expenseso 707.6m (2010: 544.7m). The net fnance charge in the table above excludes a 3.2m Chinese put option liability fnance charge (2010: nil)included in the reported fnance charge o 6.4m (2010: 5.1m).
~ EPS is calculated on a diluted basis.
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Retail
64% of revenue (2010: 60%); generated from 174
mainline stores, 199 concessions within department stores,
44 outlets and digital commerce
Retail sales increased by 32% on an underlying basis (36%at reported FX). China, which transerred rom wholesaleto retail on 1 September 2010 ollowing the acquisition othe ormer ranchisees operations, contributed 12% o thisunderlying growth. New space in other regions generateda urther 9% o the underlying growth.
Comparable store sales in the year increased by 11%(H1: 9%; H2: 13%), with mainline stores signicantlyoutperorming in line with the strategy. In mainline stores,average selling prices increased again, largely refectingmix (greater penetration o Burberry Prorsum and Londonwith continued outperormance rom outerwear) andimproved ull price sell-through. Trac beneted romdigital marketing initiatives and the introduction in thesecond hal o the year o monthly fow o products,oering newness or consumers. Replenishment stylesaccounted or nearly hal o mainline revenue up bynearly 10 percentage points in the last year.
Asia Pacic, where retail accounted or about 80% orevenue in the year, perormed strongly, with double-digitcomparable store sales growth throughout the period,led by Hong Kong and Taiwan. Excluding China, a netseven stores were opened in the region, o which ve wereclustered in Hong Kong. Comparable store sales growtho the acquired business in China was about 30% in thesecond hal. These sales were not included in Burberrys11% comparable growth in the year.
Europe delivered double-digit comparable growth in
the year, with the ocus o investment on both mainlinestores, including London Heathrow Terminal 5 and therst Burberry Brit trial outside the United States, in Milan,as well as new concessions or non-apparel and Brit inprestige department stores.
Americas perormance improved in the second hal othe year. In the United States, Burberry opened a urtherour Brit trial stores. Outside the United States, Burberryopened its ourth store in Canada, as well as its rst twostores in Brazil and its rst in Mexico.
The Burberry Middle East joint operation, with 15 storesin the region, delivered a strong ourth quarter due toincreased tourist activity. Further investment was made
in the Dubai regional oce and in retail expertise.
Average retail selling space increased by 18% in the year(H1: 11%; H2: 26%), o which China (both acquired andnew stores) contributed 9% in the year (H1: 3%; H2: 16%).
Revenue by channelYear to 31 March % change
million 2011 2010 reported FX underlying
Retail*# 962.3 710.1 36 32
Wholesale*# 440.6 377.5 17 16
Licensing 98.4 97.5 1 (4)
Revenue continuing operations 1,501.3 1,185.1 27 24
Discontinued Spanish operations 49.3 94.8 (48) (46)
1,550.6 1,279.9 21 19
* FY 2010 re-presented to exclude discontinued Spanish operations (retail 39m; wholesale 56m). FY 2011 Spain discontinued sales are26m retail; 23m wholesale.
# Burberry acquired its Chinese operations with eect rom 1 September 2010. Excluding China in both FY 2010 and FY 2011 gives underlyinggrowth o 20% in retail and 25% in wholesale.
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BUSINESS AND FINANCIAL REVIEW CONTINUED
Wholesale
29% of revenue (2010: 32%); generated from sales to
department stores, multi-brand specialty accounts,
Emerging Market franchisees and Travel Retail
Excluding China, underlying wholesale revenue increasedby 25% in the year. This refects restocking by wholesalecustomers as well as robust consumer demand or theBurberry brand. Improved planning, supply chain andlogistics capabilities enabled Burberry to satisy higherin-season orders and to achieve better order ullmentrates. Menswear perormed very strongly, especially
in the second hal, as Spring/Summer 2011 was therst collection designed entirely in-house, ollowing thetermination o the nal regional menswear licences.
By region, Asia Pacic, the Americas and EmergingMarkets all perormed strongly. A net nine stores wereopened by ranchisees during the year. Europe, whichaccounts or about 40% o Group wholesale revenue,showed more moderate growth as the business continuedto ocus on key department store customers andrationalise small, non brand-enhancing specialty accounts.Initial sales o the Spring/Summer 2011 global collectionin Spain contributed 2% to the 25% underlying growthin the ull year (H1: nil; H2: 4% contribution to growth).
Including China, wholesale revenue increased by 16%on an underlying basis (up 17% at reported FX).
Licensing
7% of revenue (2010: 8%); of which approximately
two-thirds from Japan (split roughly two-thirds apparel
and one-third from various short-term non-apparel
licences) and the balance from global product licences
(fragrance, eyewear and timepieces) and European
wholesale childrenswear
Total licensing revenue in the year declined by 4% onan underlying basis, in line with guidance. Revenue wasup 1% at reported FX, refecting the strength o the yen,which is largely hedged 12 months orward.
The planned termination o the nal regional menswearlicences and the Japanese leather goods l icence reducedrevenue by 6m, as expected. Other Japanese royaltyincome was broadly fat year-on-year, while the globalproduct licences delivered double-digit growth.
During the year, Burberry strengthened its organisationto manage relationships with global product licenseesmore intensively, more closely aligning strategies torealise the potential o licensed products in line withowned categories. In December 2010, Burberry andInterparums extended certain terms o their ragrancelicence by one year.
Burberry continues to evaluate integration opportunitiesin licensing.
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Adjusted operating proftYear to 31 March % change
million 2011 2010 reported FX underlying
Retail/wholesale 219.5 137.7 59 58
Licensing 81.6 82.2 (1) (6)
Adjusted operating proft 301.1 219.9 37 34
Adjusted operating margin 20.1% 18.6%
Retail/wholesale adjusted operating proftYear to 31 March % change
million 2011 2010 reported FX
Revenue 1,402.9 1,087.6 29
Cost o sales (491.6) (423.9) (16)
Gross margin 911.3 663.7 37
Gross margin 64.9% 61.0%
Operating expenses (691.8) (526.0) (32)
Adjusted operating proft 219.5137.7 59
Operating expenses as % o sales 49.3% 48.3%Adjusted operating margin 15.6% 12.7%
Adjusted operating prot in the year increasedby 37% to 301.1m, including a 6.3m benet
rom exchange rates.
Retail/wholesale adjusted operating prot grew by 59% to219.5m, up 82m year-on-year. A gross margin increaseo 390 basis points was partly oset by higher operatingexpenses as guided.
Gross margin
Gross margin or the year increased by 390 basis pointsto 64.9%. In the rst hal, gross margin improved by 670basis points, driven by increased ull price sell-throughresulting rom strategies implemented in the second halo the previous year. Following the 1,400 basis pointimprovement in the second hal o FY 2009/10, thesecond hal increase in FY 2010/11 was, as expected,more modest (up 170 basis points). This refected theshit to retail rom wholesale, a urther but more moderateimprovement in mainline sell-through and higher saleso replenishment styles, oset in part by a mix shit toBurberry Prorsum and London.
Operating expenses
Operating expenses as a percentage o revenue were49.3% in the ull year (H1: 49.5%; H2: 49.1%).
Regional expenses, which are about two-thirds o totalcosts, grew by less than the rate o sales growth, despitethe shit to retail and an increased investment o about40m in new ventures such as China, Latin America,India and the Japanese non-apparel joint operation.
This operating leverage was then re-invested in corporateinitiatives to drive uture growth, in areas such as design,customer service, IT and marketing. The cost o shareschemes increased by about 15m year-on-year, witha similar increase currently expected in FY 2011/12.
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BUSINESS AND FINANCIAL REVIEW CONTINUED
Licensing operating proft
Year to 31 MarchYear to
31 March 2011
million 2011 2010 underlying
Revenue 98.4 97.5 94.0
Cost o sales
Gross margin 98.4 97.5 94.0
Gross margin 100% 100%
Operating expenses (16.8) (15.3) (17.0)
Operating proft 81.6 82.2 77.0
Operating margin 82.9% 84.3%
Licensing revenue declined by 4% on an underlying basis,up 1% at reported FX. With slightly higher operatingexpenses as Burberry strengthened its in-house team,operating prot was 81.6m, a margin o 82.9%.
Exceptional itemsYear to 31 March
million 2011 2010
Restructuring credit/(costs) 1.0 (3.4)
Chinese put option liabilitynance charge (3.2)
(2.2) (3.4)
Restructuring
The restructuring credit o 1.0m relates to the release o aprovision held in respect o the cost eciency programmeannounced in January 2009 (2010: 3.4m charge).
15% economic interest in the Chinese business
As disclosed at the time o the transaction, there isa 15% economic interest held by a third party in theacquired China business. As there is a put option whichis exercisable rom 2020, accounting rules state thatthe discounted value o the estimated ultimate liabilitymust be recognised on the balance sheet (47.3m at
31 March 2011). In subsequent periods, there may be twoadjustments taken through the income statement. Firstly,any change to the estimate o the ultimate liability will betaken through operating prot. Secondly, the unwind othe discount (together with the impact o any change indiscount rate) will be taken through interest. Both o thesewill be treated as exceptional items and excluded romadjusted prot beore tax. The 3.2m non-cash chargetaken in the year represents the unwind o the discountin the seven months since acquisition.
Taxation
In FY 2010/11, Burberry had a tax charge o 83m,giving a tax rate, as guided, o 27.9% (2010: 27.4%).
The tax rate on adjusted prot or FY 2011/12 is currentlyexpected to be about 27%.
Discontinued operationsBurberry has now largely completed the restructuringo its Spanish operations announced in February 2010.
The results have been included in discontinued operationsas below.
Year to 31 March
million 2011 2010
Adjusted operating result (2.1)
Restructuring costs (4.1) (45.4)
Taxation (25.0)
Loss or discontinuedSpanish operations (6.2) (70.4)
In FY 2010/11, the discontinued operations generatedsales o 49.3m (2010: 94.8m) and an adjusted operatingloss o 2.1m (2010: nil ). This is better than guided dueto more eective clearance o residual inventory and tightcost control during the exit period. In FY 2011/12, saleso the global collection in Spain through all channels willbe reported within Europe.
Following a small credit in the second hal, the chargeassociated with restructuring Spain was 4.1m in the year.Cash spend was 20m.
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Net cash and balance sheet
Net cash at 31 March 2011 was 298m, up rom 262mat 31 March 2010, nothwithstanding the 52m investmentto date in acquiring the China business and 108m ocapital expenditure. Working capital was broadly neutralin the year. Other major outfows were restructuring spend(20m), tax paid (98m) and dividends (69m).
Inventory at 31 March 2011 was 248m, an increaseo 49% year-on-year, refecting growth in the business.O the 81m increase, roughly one-third is in China andtwo-thirds is the investment to support monthly fow o
new products and increased replenishment.
In March 2011, Burberry renegotiated its revolving creditacility, now totalling 300m and maturing in June 2016.
The pricing and terms o this new acility are signicantlyimproved compared to the previous 260m acilities whichhave been cancelled.
Outlook
While mindul o the global macro challenges in 2011/12,Burberry remains condent in its strategies. With a strongnancial position, Burberry will continue to invest orgrowth in the current year.
Revenue
The ollowing guidance or retail, wholesale and licensingis consistent with that given in April 2011.
Retail
In the year to 31 March 2012, Burberry plans an increaseo 12-13% in average retail selling space. This includes anet 20-25 additional mainline stores with a bias towardsChina, Latin America and the Middle East. In addition,the 50 stores acquired in China will add about 12% toaverage selling space in the rst hal o the year.
Wholesale
In the six months to 30 September 2011, Burberryprojects wholesale revenue excluding China to increaseby a mid teens percentage at constant exchange
rates. Good progress is expected rom the Americas,Travel Retail and Emerging Markets and sales o theglobal collection in Spain are expected to continue tocontribute a low single-digit percentage to this growth.
Including China, wholesale revenue in the rst hal isprojected to increase by a mid single-digit percentageat constant exchange rates (2010: 226m).
Licensing
In the year to 31 March 2012, Burberry expectslicensing revenue at constant exchange rates toincrease by a mid single-digit percentage. This assumesall Japanese apparel and non-apparel royaltyincome is received at contractual minimum levelsas originally planned.
On this basis, underlying licensing revenue rom Japanis expected to be broadly fat year-on-year. A step-upin royalty income rom the apparel licence, which wasnegotiated in October 2009, will be oset by the plannedtermination o additional non-apparel licences in Japan.
The global ragrance, eyewear and timepieces productlicences are expected to deliver double-digit growth.
In the year to 31 March 2012, l icensing revenue atreported FX is expected to increase by a high single-digitpercentage, refecting a more avourable yen hedge rateyear-on-year.
Operating margin
In FY 2010/11, Burberry delivered a record adjustedretail/wholesale operating margin o 15.6%. Gross marginand operating expenses will continue to be dynamicallymanaged to enable urther investment in the business:
to evolve its business model, organisation andinrastructure (in areas including customer service,planning and supply chain);
to drive long term growth (including fagship transitionalcosts and digital initiatives across all channels).
For FY2011/12, Burberry expects to deliver a modestimprovement in operating margin. However, withinvestment weighted to the rst hal, operating marginin the six months to September 2011 is currentlyexpected to be lower than in the same period last year.
Capital expenditure
Capital expenditure in FY 2010/11 was 108m, belowguidance o around 130m, refecting delayed cashoutfow on certain projects.
In FY 2011/12, capital expenditure is planned at180-200m, partly refecting this delayed spend rom2010/11. Given the brand momentum and increasedstore productivity, the year-on-year uplit is mainly inretail, balanced between new stores and reurbishments.
New space growth is planned to accelerate to 12-13%(excluding acquired China stores), while the number omajor renovations is planned to increase signicantlyto between 15 and 20.
Retail investment will be clustered in fagship markets,including London, Paris and Milan; Chicago; and HongKong, Shanghai and So Paulo.
Investment in IT business projects will continue at around30m, with the emphasis on increasing connectivitybetween Burberry and its suppliers, employees,customers and partners.
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BUSINESS AND FINANCIAL REVIEW CONTINUED
Store portolio
Directly-operated stores
Mainline stores Concessions Outlets Total Franchise stores
At 31 March 2010* 131 134 47 312 97
Additions# 28 45 2 75 13
Closures (2) (11) (7) (20) (4)
Transers~ 17 31 2 50 (50)
At 31 March 2011 174 199 44 417 56
* Excluding concessions in Spain.
# Including 20 concessions in Spain opened in Q4 to sell global collection.
~ Transers are the 50 acquired Chinese stores.
Store portolio by region
Directly-operated stores
At 31 March 2011 Mainline stores Concessions Outlets Total Franchise stores
Europe* 37 50 17 104 20
Asia Pacic 48 147 8 203 15
Americas# 72 18 90 3
Rest o World 17 2 1 20 18
Total 174 199 44 417 56
* Including 20 concessions in Spain opened in Q4 to sell global collection.
# Three ranchise stores in the Americas are in Mexico.
Sales to ranchise stores reported in wholesale revenue.
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RISK
PRINCIPAL RISKS
Eective management o risks is essential to the delivery o the Groups objectives, the achievement o sustainable
shareholder value, the protection o its reputation and meeting corporate governance requirements.
Risk Impact Mitigation
Loss o key management or the
inability to attract and retain
key employees.
The loss o key individuals or the inabilityto recruit and retain individuals with the
relevant talent and experience wouldadversely impact the Groups ability todeliver its strategies.
Competitive incentive arrangementsexist, with specic initiatives in place
designed to retain key individuals.Recruitment is ongoing and talentreview and succession planningprogrammes are in place.
The Groups operations depend
on IT systems and operational
inrastructure in order to trade
efciently. Increasingly technology
is also being used to stream major
events and to communicate through
social media.
A ailure in these systems or a denialo service could have a signicantimpact on the Groups operations andreputation, and potentially result in theloss o sensitive inormation. Negativesocial media campaigns could impacton the Groups reputation.
A number o controls to maintain theintegrity and eciency o the Groups ITsystems are in place, including recoveryplans which would be implemented inthe event o a major ailure. IT security iscontinually reviewed and updated.
Major incidents such as natural
catastrophes, global pandemics
or terrorist attacks aecting one
or more o the Groups key locationscould signifcantly impact
its operations.
A major incident at a key location wouldsignicantly impact business operations,the impact clearly varying depending on
the location and its nature. The impacto the loss o a distribution hub wouldclearly dier rom a global pandemic,but both would impact revenueand prots.
Business continuity plans are in placeto mitigate operational risks, but cannotensure the uninterrupted operation
o the business, particularly in theshort term. The regional spread o theGroups three key distribution hubs alsohelps to mitigate risk. There is a Groupincident management ramework inplace that addresses the reporting andmanagement o major incidents.
The risks set out below represent the principal risksand uncertainties which may adversely impact themanagement o the Group and the execution o its growthstrategies. The steps the Group takes to address theserisks, where they are matters within its control, are alsodescribed. Such steps will mitigate but not eliminate risks.Some o the risks relate to external actors which arebeyond the Groups control. The order o the risks is in noway an indication o their relative importance, and each othe risks should be considered independently. I more thanone o the events contemplated by the risks set out below
occur, it is possible that the combined overall eect osuch events may be compounded.
The Board has overall responsibility or ensuring thatrisks are eectively managed by the Group. The Boardhas delegated to the Audit Committee responsibilityor reviewing the eectiveness o the Groups systemo internal control and risk management methodology.Risks are ormally reviewed by the Group Risk Committeewhich meets at least three times a year. Key businessrisks are also considered as part o the Groups strategydevelopment and ongoing business review processes.
The risk assessment process has been enhanced duringthe nancial year incorporating best practice identied
during a benchmarking review. Please reer to theCorporate Governance section or urther details o theGroups risk management processes and internal controls.
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Risk Impact Mitigation
The Group operates in a number
o emerging markets which
are typically more volatile than
developed markets, and are subject
to changing economic, regulatory,social and political developments
that are beyond the Groups control.
Inrastructure and services also tend
to be less developed.
Seizure o assets or sta. Related party
business practice that is inconsistent
with the Groups ethical standards
and the UK regulatory environment.
Increased operational costs due tocountry specifc processes driven by
the regulatory environment.
The Group uses the services o
proessional consultants to advise
on legal and regulatory issues when
entering new markets, to undertake
due diligence and to monitor ongoingdevelopments. The Group has
strengthened the teams responsible or
its emerging markets operations and
works with ranchisees or joint operation
partners who compensate or its relative
lack o experience in a number o
these markets.
Failure by the Group or associated
third parties to act in accordance
with ethical standards.
A ailure to act appropriately could result
in penalties, adverse press coverage
and reputational damage with a
resulting drop in sales and proft.
A number o initiatives are in place,
led by the Corporate Responsibility
Committee which reports in to the
Group Risk Committee. These include
undertaking ethical visits and joining the
Ethical Trading Initiative, urther details
o which are set out in the Corporate
Responsibility report.
The Groups operations are subject
to a broad spectrum o regulatory
environments with which it needs
to comply. The pace o change
and the consistency o application
o legislation vary signifcantly
in the countries in which the
Group operates, particularly in an
environment where public sector
debt is oten high and tax revenues
are alling.
Failure to comply could leave the
Group open to civil and/or criminal legal
challenge, signifcant penalties and
reputational damage.
The Group continually monitors and
improves processes to gain assurance
that its licensees, suppliers, ranchisees,
distributors and agents comply with its
terms and conditions and relevant local
legislation and good practice.
Specialist teams at Group and regional
level, supported by third-party specialists
where required are responsible or ensuring
employees are aware o regulations
relevant to their roles. A number o
assurance processes are in place to
monitor compliance.
Over-reliance on key supplychain vendors.
The Group relies on a small numbero vendors in key product categories,
and or specialist digital and IT services.
Failure o one o these businesses to
deliver products or services would have a
signifcant impact on business operations.
The Group continues to strengthenits supply chain management team
to enable it to evolve and develop its
manuacturing base to reduce the
dependency on key vendors. The
Group has strengthened its internal
digital and IT teams during the year
and continues to acilitate knowledge
transer to internal resources. Annual
fnancial checks are carried out on all
key vendors.
The signifcant growth within the
business puts pressure on resources
and the supply chain.
Failure to eectively manage the pace
o change will inevitably adversely
impact the Groups operations and
return on investment.
Governance processes are in place
or each major strategic initiative and
these are supplemented by monthly
meetings with senior management
to review operational perormance.Management and operational structures
are continually reviewed to ensure that
these support the Groups growth.
The Group closely manages key
supplier relationships, which includes
the monitoring o fnancial and
non-fnancial perormance.
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Risk Impact Mitigation
A substantial proportion o Group
profts is reliant upon its licensed
business in Japan and other key
licensed product categories.
The Group expects licensees tomaintain operational and nancialcontrol over their businesses. Shouldlicensees ail to manage their operations
eectively or be aected by a majorincident, the royalty income maydecline directly impacting the protso the Group.
To minimise risks in Japan the Grouphas established its own operationsin Tokyo, and there are minimumroyalty payments specied in its
licence agreements, including theapparel licence with Sanyo Shokai andMitsui & Company. Under its licenceagreements, the Group can controlproduct development, marketingand distribution. Regular licenseeroyalty reviews take place to monitorcompliance with licence terms,which can manage but not eliminatenon-compliance.
Economic downturn. The Groups perormance remainsstrong; however, reduced consumerwealth driven by adverse economicconditions could lead to a reduction indemand, disrupt its supply chain or lead
to an increase in bad debts, all o whichwould impact sales and protability.
The global reach o Burberry helpsmitigate local economic risks.In addition, the Groups nancialreporting and review processes wouldhighlight any ongoing drop in demand.
Counterparty credit checks are in placeor all key customers and suppliers,and fexible payment terms are used toassist suppliers as required.
Unauthorised use o the
Groups trademarks and other
proprietary rights.
Trademarks and other intellectualproperty (IP) rights are undamentallyimportant to the Groups reputation,success and competitive position.Unauthorised use o these, as well asthe distribution o countereit products,damages the Burberry brand imageand prots.
The Groups global IP team has beenexpanded during the year to increasecover in emerging markets. Whereinringements are identied (oten inpartnerships with other luxury brandsand retailers) these are addressedthrough a mixture o criminal and civillegal action and negotiated settlement.
IP rights are largely driven by nationallaw and the Group cannot necessarilybe as eective in all jurisdictions in
addressing IP issues.
Inability to absorb commodity
price increases.
The Groups ability to produceproducts and deliver them on timedepends on the availability and price ocommodities, which fuctuate accordingto global economic conditions, weatherpatterns, civil unrest and naturaldisasters. Failure to obtain adequatesupplies, or supplies at the right time,will impact gross margin and prot.
The Groups agreements with suppliersare negotiated by its global sourcingteams in advance.
Anticipated benefts o acquisitions
and joint operations may not
be realised.
The Groups acquisitions, strategicalliances and joint operations may notyield the nancial outcomes expected,and can thereore impact sales,
protability and the return on investment.
In addition to rigorous due diligenceprocesses or acquisitions, using bothin-house experts and proessionaladvisers, post acquisition reviews are
also undertaken to ensure the businessis perorming in line with acquisitionbusiness plans.
RISK CONTINUED
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CORPORATE RESPONSIBILITY
EXCELLENCE IN PEOPLE
Seizing the energy o our brand and the passion o our people, we lead the evolution o an agile, connected Burberry,
creating the talent o today and tomorrow.
Burberry is part o an extended community made up oboth employees and external partners, with the twin aimso being a great brand, as well as a great company to workor and do business with.
Evolving the organisation, across regions and unctions,is a natural part o the business and has become secondnature. This year we have established a number ocross-unctional strategic decision councils that enableus to stay closely connected and make timely decisionsabout business priorities that support our ve key businessstrategies. Each strategic council is chaired and co-chaired
by a member o the Executive Strategic Council andindividuals rom cross-sections o the business are invitedto connect and collaborate based on their expertise.Examples o these councils include a Strategic CustomerCouncil, Strategic Innovation Council and StrategicResponsibility Council.
A more robust process to identiy talent and potentialwas also implemented during the year, to eed eectivesuccession and workorce planning, and elevate our existingLeadership Development programme and bi-annual TalentReviews. Every employee in the company is now eligibleto participate in the Groups reeshare plans and is in aperormance based incentive sc