Annual Financial Report

RNS Number : 9968E

Burberry Group PLC

08 June 2012

 



8 June 2012

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 2012;

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.  The Annual Report will be delivered to the Registrar of Companies in due course.   

The Annual General Meeting will take place on Thursday, 12 July 2012 and the total of the votes cast by shareholders for or against or withheld on each resolution to be put to the meeting will be published on www.burberryplc.com as soon as possible after the meeting.

In compliance with The Disclosure and Transparency Rules (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 2012 (the "2011/12 Annual Report and Accounts") and should be read in conjunction with Burberry Group plc's Preliminary Announcement issued on 23 May 2012, 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 2011/12 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 2011/12 Annual Report and Accounts.

ADDITIONAL INFORMATION REQUIRED BY DTR 6.3.5

AUDIT REPORTS

The Preliminary Announcement includes a condensed set of financial statements.  Audited financial statements for the financial year ended 31 March 2012 are contained in the 2011/12 Annual Report and Accounts.  The Independent Auditor's Report on the Group financial statements is set out in full on page 95 of the 2011/12 Annual Report and Accounts and the Independent Auditor's Report on the parent company financial statements is set out in full on page 145 of the 2011/12 Annual Report and Accounts.  Both audit reports are unqualified and do not contain any statements under section 498(2) or section 498 (3) of the Companies Act 2006.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following information is extracted from page 94 of the 2011/12 Annual Report and Accounts.

Each of the directors, whose names and functions are listed on page 68 confirm that, to the best of their knowledge:

·     the Group financial statements, 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 70 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.

RISKS

The following information is extracted from pages 56 to 59 of the 2011/12 Annual Report and Accounts.

Effective management of risks is essential to the execution of the Group's five strategic themes, the achievement of sustainable shareholder value, the protection of the Brand and meeting corporate governance requirements.

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 systems of internal control and risk management methodology.

As part of this review, the Audit Committee considers the principal risks facing the Group and the nature and extent of these risks.  The Group's Internal Audit and Risk Assurance function facilitate a risk assessment process in each key business area and global support function to review the significant risks facing its operations and to record the relevant controls and actions in place to mitigate risks.  The detailed assessments are then consolidated to provide input into the overall Group risk assessment.  Please refer to the Corporate Governance section for further details of the Group's risk management processes and internal controls.

There are areas of the Group's business where it is necessary to take risks to achieve a satisfactory return for shareholders.  The Board has considered the nature and extent of the significant risks it is willing to take in achieving the Group's strategic objectives. 

The risks set out on the following pages represent the principal risks and uncertainties which may adversely impact the management of the Group and the execution of its five key strategic themes. The key 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 principal 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.

When evaluating the Group's principal risks during the financial year under review, the following changes have been identified:

·      the inability of the Group to absorb commodity price increases is no longer viewed as a principal risk due to the activities of the Group's sourcing teams during the year;

·      the failure by the Group to realise the benefits of acquisitions or operations with partners is no longer viewed as a principal risk due to the successful integration of the Group's China business and its positive performance during the year; and

·      in the current macro-economic climate where many country economies and financial institutions have continued to experience severe financial difficulties particularly in the Eurozone, the risk to the Group of a major economic downturn has increased.  The key steps which the Group has taken to mitigate this risk are described overleaf.

Risk	Impact	Mitigation
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 the Group helps mitigate local economic risks. In addition, the Group's financial reporting and review processes are designed to highlight any on-going decrease in sales. Counterparty credit checks are in place for all key customers and suppliers, and flexible payment terms are used to assist suppliers as required. Group Treasury monitors the credit ratings of financial institutions which hold Group deposits to enable the Group to take appropriate action should there be a downgrade in their credit ratings.
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 disrupt the operation of the business and 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 on-going and talent review and succession planning programmes are in place and have been updated during the year.
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. The IT disaster recovery plans are tested on a regular basis. IT security is continually reviewed and updated and third party IT security specialists are used to regularly test these controls.
Over-reliance on key 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 function 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.
Major incidents such as natural catastrophes, global pandemics or terrorist attacks affecting one or more of the Group's key locations could significantly  impact its operations.	A major incident at a key location could significantly impact business operations, 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, and this is tested each year using third party specialists in this field. Tailored plans have also been produced during the year for a number of high impact events.
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 function. These include undertaking ethical trading audits and the Ethical Trading Initiative, further details of which are set out in the Great Brand, Great Company section.
The Group's operations are subject to a broad spectrum of regulatory requirements in the various jurisdictions in which the Group operates. The pace of change and the consistency of application of legislation can vary significantly across these jurisdictions, particularly  in an environment where public sector debt is often high and tax revenues are falling.	Failure to comply with these requirements could leave the Group open to civil and/or criminal legal challenge, significant penalties and reputational damage.	The Group continually monitors and seeks to improve its processes to gain assurance that its licensees, suppliers, franchisees, distributors and agents comply with the Group's contractual terms and conditions, its ethical and business policies and relevant legislation. Specialist teams at 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 these teams have been strengthened during the year. Assurance processes are in place to monitor compliance with results being reported to the Group Risk and Audit Committees.
The significant growth and pace of change within the business puts pressure on both internal and external resources.	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.
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.
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 on-going developments. The Group has continued to strengthen the teams responsible for its emerging markets operations and works with franchisees or partners who compensate for its relative lack of experience in a number of these markets.
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 Brand Protection team has continued to expand during the year to enable the Group to strengthen its brand protection efforts in a number of high risk markets. Where infringements are identified (often by working in partnership with other luxury brands) these are addressed through a mixture of criminal and civil legal action and negotiated settlement. Given the Group's emphasis on digital innovation the team place a particular focus on this area. IP rights are largely driven by national laws which afford varying degrees of protection and enforcement priorities depending on the country. Consequently, the Group cannot necessarily be as effective in all jurisdictions in addressing IP issues.

 

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