Annual Financial Report

RNS Number : 2374I

Burberry Group PLC

10 June 2011

 



10 June 2011

Annual Financial Report

Burberry Group plc

Pursuant to Listing Rule 9.6.1, Burberry Group plc (the "Group") has submitted the following documents to the National Storage Mechanism and they will shortly be available for inspection at: www.hemscott.com/nsm.do:

1.   Annual Report and Accounts for the year ended 31 March 2011;

2.   Notice of Annual General Meeting; and

3.   Form of Proxy.

The Annual Report and Notice of Annual General Meeting are also available on the Burberry Group plc website at www.burberryplc.com.

In compliance with DTR 6.3.5, the following information is extracted from Burberry Group plc's Annual Report and Accounts for the financial year ended 31 March 2011 (the "2010/11 Annual Report and Accounts") and should be read in conjunction with Burberry Group plc's Preliminary Announcement issued on 26 May 2011, both of which can be viewed at www.burberryplc.com.  Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service.  This material is not a substitute for reading the 2010/11 Annual Report and Accounts in full and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2010/11 Annual Report and Accounts.

ADDITIONAL INFORMATION REQUIRED BY DTR 6.3.5

RISKS

The following information is extracted from pages 54 to 56 of the 2010/11 Annual Report and Accounts.

Effective management of risks is essential to the delivery of the Group's objectives, the achievement of sustainable shareholder value, the protection of its reputation and meeting corporate governance requirements. The risks set out below represent the principal risks and uncertainties which may adversely impact the management of the Group and the execution of its growth strategies. The steps the Group takes to address these risks, where they are matters within its control, are also described. Such steps will mitigate but not eliminate risks. Some of the risks relate to external factors which are beyond the Group's control. The order of the risks is in no way an indication of their relative importance, and each of the risks should be considered independently. If more than one of the events contemplated by the risks set out below occur, it is possible that the combined overall effect of such events may be compounded. The Board has overall responsibility for ensuring that risks are effectively managed by the Group. The Board has delegated to the Audit Committee responsibility for reviewing the effectiveness of the Group's system of internal control and risk management methodology. Risks are formally reviewed by the Group Risk Committee which meets at least three times a year. Key business risks are also considered as part of the Group's strategy development and ongoing business review processes. The risk assessment process has been enhanced during the financial year incorporating best practice identified during a benchmarking review. Please refer to the Corporate Governance section for further details of the Group's risk management processes and internal controls.

Risk	Impact	Mitigation
Loss of key management or the inability to attract and retain key employees.	The loss of key individuals or the inability to recruit and retain individuals with the relevant talent and experience would adversely impact the Group's ability to deliver its strategies.	Competitive incentive arrangements exist, with specific initiatives in place designed to retain key individuals. Recruitment is ongoing and talent review and succession planning programmes are in place.
The Group's operations depend on IT systems and operational infrastructure in order to trade efficiently. Increasingly technology is also being used to stream major events and to communicate through social media.	A failure in these systems or a denial of service could have a significant impact on the Group's operations and reputation, and potentially result in the loss of sensitive information. Negative social media campaigns could impact on the Group's reputation.	A number of controls to maintain the integrity and efficiency of the Group's IT systems are in place, including recovery plans which would be implemented in the event of a major failure. IT security is continually reviewed and updated.
Major incidents such as natural catastrophes, global pandemics or terrorist attacks affecting one or more of the Group's key locations could significantly impact its operations.	A major incident at a key location would significantly impact business operations, the impact clearly varying depending on the location and its nature. The impact of the loss of a distribution hub would clearly differ from a global pandemic, but both would impact revenue and profits.	Business continuity plans are in place to mitigate operational risks, but cannot ensure the uninterrupted operation of the business, particularly in the short term. The regional spread of the Group's three key distribution hubs also helps to mitigate risk. There is a Group incident management framework in place that addresses the reporting and management of major incidents.
The Group operates in a number of emerging markets which are typically more volatile than developed markets, and are subject to changing economic, regulatory, social and political developments that are beyond the Group's control. Infrastructure and services also tend to be less developed.	Seizure of assets or staff. Related party business practice that is inconsistent with the Group's ethical standards and the UK regulatory environment. Increased operational costs due to country specific processes driven by the regulatory environment.	The Group uses the services of professional consultants to advise on legal and regulatory issues when entering new markets, to undertake due diligence and to monitor ongoing developments. The Group has strengthened the teams responsible for its emerging markets operations and works with franchisees or joint operation partners who compensate for its relative lack of experience in a number of these markets.
Risk	Impact	Mitigation
Failure by the Group or associated third parties to act in accordance with ethical standards.	A failure to act appropriately could result in penalties, adverse press coverage and reputational damage with a resulting drop in sales and profit.	A number of 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, further details of which are set out in the Corporate Responsibility report.
The Group's operations are subject to a broad spectrum of regulatory environments with which it needs to comply. The pace of change and the consistency of application of legislation vary significantly in the countries in which the Group operates, particularly in an environment where public sector debt is often high and tax revenues are falling.	Failure to comply could leave the Group open to civil and/or criminal legal challenge, significant penalties and reputational damage.	The Group continually monitors and improves processes to gain assurance that its licensees, suppliers, franchisees, 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 for ensuring employees are aware of regulations relevant to their roles. A number of assurance processes are in place to monitor compliance.
Over-reliance on key supply chain vendors.	The Group relies on a small number of vendors in key product categories, and for specialist digital and IT services. Failure of one of these businesses to deliver products or services would have a significant impact on business operations.	The Group continues to strengthen its supply chain management team to enable it to evolve and develop its manufacturing base to reduce the dependency on key vendors. The Group has strengthened its internal digital and IT teams during the year and continues to facilitate knowledge transfer to internal resources. Annual financial checks are carried out on all key vendors.
Risk	Impact	Mitigation
The significant growth within the business puts pressure on resources and the supply chain.	Failure to effectively manage the pace of change will inevitably adversely impact the Group's operations and return on investment.	Governance processes are in place for each major strategic initiative and these are supplemented by monthly meetings with senior management to review operational performance. Management and operational structures are continually reviewed to ensure that these support the Group's growth. The Group closely manages key supplier relationships, which includes the monitoring of financial and non-financial performance.
A substantial proportion of Group profits is reliant upon its licensed business in Japan and other key licensed product categories.	The Group expects licensees to maintain operational and financial control over their businesses. Should licensees fail to manage their operations effectively or be affected by a major incident, the royalty income may decline directly impacting the profits of the Group.	To minimise risks in Japan the Group has established its own operations in Tokyo, and there are minimum royalty payments specified in its licence agreements, including the apparel licence with Sanyo Shokai and Mitsui & Company. Under its licence agreements, the Group can control product development, marketing and distribution. Regular licensee royalty reviews take place to monitor compliance with licence terms, which can manage but not eliminate non-compliance.
Economic downturn.	The Group's performance remains strong; however, reduced consumer wealth driven by adverse economic conditions could lead to a reduction in demand, disrupt its supply chain or lead to an increase in bad debts, all of which would impact sales and profitability.	The global reach of Burberry helps mitigate local economic risks. In addition, the Group's financial reporting and review processes would highlight any ongoing drop in demand. Counterparty credit checks are in place for all key customers and suppliers, and flexible payment terms are used to assist suppliers as required.
Risk	Impact	Mitigation
Unauthorised use of the Group's trademarks and other proprietary rights.	Trademarks and other intellectual property (IP) rights are fundamentally important to the Group's reputation, success and competitive position. Unauthorised use of these, as well as the distribution of counterfeit products, damages the Burberry brand image and profits.	The Group's global IP team has been expanded during the year to increase cover in emerging markets. Where infringements are identified (often in partnerships with other luxury brands and retailers) these are addressed through a mixture of criminal and civil legal action and negotiated settlement. IP rights are largely driven by national law and the Group cannot necessarily be as effective in all jurisdictions in addressing IP issues.
Inability to absorb commodity price increases.	The Group's ability to produce products and deliver them on time depends on the availability and price of commodities, which fluctuate according to global economic conditions, weather patterns, civil unrest and natural disasters. Failure to obtain adequate supplies, or supplies at the right time, will impact gross margin and profit.	The Group's agreements with suppliers are negotiated by its global sourcing teams in advance.
Anticipated benefits of acquisitions and joint operations may not be realised.	The Group's acquisitions, strategic alliances and joint operations may not yield the financial outcomes expected, and can therefore impact sales, profitability and the return on investment.	In addition to rigorous due diligence processes for acquisitions, using both in-house experts and professional advisers, post acquisition reviews are also undertaken to ensure the business is performing in line with acquisition business plans.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following information is extracted from page 86 of the 2010/11 Annual Report and Accounts.

Each of the directors, whose names and functions are listed on page 67 confirm that, to the best of their knowledge:

·     the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

·     the Directors' Report contained on page 68 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

NOTE 30 RELATED PARTY TRANSACTIONS

The following information is extracted from page 131 of the 2010/11 Annual Report and Accounts.

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. The related party transactions relate to total compensation in respect of key management, who are defined as the Board of Directors and certain members of senior management.

The total compensation in respect of key management for the year was as follows:

	Year to 31 March 2011 £m	Year to 31 March 2010 £m
Salaries and short-term benefits	9.7	8.6
Post-employment benefits	0.3	0.3
Share based compensation	7.0	4.0
Total	17.0	12.9

The aggregate cost to the Group of the exercise of share options and awards to key management in the year to 31 March 2011 was £1.0m (2010: £5.2m).

 

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