Annual Financial Report

RNS Number : 5285P

Burberry Group PLC

08 June 2015

 



8 June 2015

Annual Financial Report

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 2015;

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 ("AGM") will take place at 9.30am on Thursday, 16 July 2015 at the offices of Nomura, 1 Angel Lane, London EC4R 3AB. 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.

The Group is proposing to adopt new articles of association (the "New Articles") at the AGM which will reflect developments in market practice and provide clarification and additional flexibility on certain matters. A summary of the key changes to the Group's existing articles of association is set out in the Notice of Annual General Meeting available at www.burberryplc.com/annual_general_meeting. A copy of the New Articles has been submitted to the National Storage Mechanism in accordance with DTR 6.1.2 of the FCA's Disclosure and Transparency Rules and will shortly be available at: www.hemscott.com/nsm.do. The New Articles showing all the changes to the Group's existing articles are available for inspection from the date of this announcement at the Group's registered office (Horseferry House, Horseferry Road, London SW1P 2AW) and the offices of Slaughter and May (One Bunhill Row, London EC1Y 8YY) until the AGM and also at the AGM from 9.00am until its conclusion.

In compliance with The Disclosure and Transparency Rules (DTR) 6.3.5, the information in the Appendix below is extracted from Burberry Group plc's Annual Report and Accounts for the financial year ended 31 March 2015 (the "2014/15 Annual Report and Accounts") and should be read in conjunction with Burberry Group plc's Preliminary Announcement issued on 20 May 2015, 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 2014/15 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 2014/15 Annual Report and Accounts.

Enquiries

Burberry

Fay Dodds	VP, Investor Relations	020 3367 3524
Julian Payne	VP, PR and Corporate Relations	020 3428 8795
Brunswick		020 7404 5959
Nick Claydon
Laura Buchanan

APPENDIX: 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 2015 are contained in the 2014/15 Annual Report and Accounts. The Independent Auditor's Report on the Group financial statements is set out in full on pages 111 to 115 of the 2014/15 Annual Report and Accounts and the Independent Auditor's Report on the parent company financial statements is set out in full on pages 163 to 164 of the 2014/15 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 110 of the 2014/15 Annual Report and Accounts.

The directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

Each of the directors, whose names and functions are listed on pages 62 to 63 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 Strategic Report 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.

PRINCIPAL RISKS

The following information is extracted from pages 56 to 59 of the 2014/15 Annual Report and Accounts.

Effective management of risk is essential to the execution of the Group's strategies, the achievement of sustainable shareholder value, the protection of the brand and ensuring good governance.

The Board has overall responsibility for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives (its risk appetite), and for ensuring that risks are managed effectively. The Board has delegated to the Audit Committee the 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 Vice President - Group Risk Officer facilitates a risk assessment process in each key business area and global support function to review the significant risks facing Group operations and to record the relevant controls and actions in place to mitigate these. The detailed assessments are then consolidated to provide input into the overall Group risk assessment. See the Corporate Governance Report for further details of the Group's risk management processes and internal controls.

The Board and the executive management team use a combination of different and complementary skills to assess the risks facing the business. In determining its risk appetite the Board considers a variety of information when reviewing the Group operations and in approving key matters reserved for its decision. This information includes:

·      updates provided by senior management on key strategic and operational matters;

·      discussion and approval by the Board of the Group's three-year Strategic plan and budget;

·      information provided for the purposes of deciding whether to approve those significant matters which have been reserved for the Board; and

·      Group risk assessments facilitated by the Group's Risk Function and the reports of the external auditors.

The risks set out in the table on the following pages represent the principal risks and uncertainties which may adversely impact the performance of the Group and the execution of its core strategies. The Group's core strategies are set out on pages 27 to 41. Other factors could also adversely affect Group performance and so the risks set out should not be considered to be a complete set of all potential risks and uncertainties.

The key steps the Group takes to address these principal risks are described in the table under 'Mitigation'. It is not possible for the Group to implement controls to respond to all the risks it may face, and the steps the Group has taken to address certain risks (including those listed) may not manage these risks effectively.

The principal risks are not listed in order of significance and each of the risks should be considered independently. If more than one of the events contemplated by the risks set out occur, it is possible that the combined overall impact of such events may be compounded.

The Group continues to identify as a principal risk that Group revenues are increasingly dependent on consumers from the Asia region with a significant proportion of the Group's sales to Asian consumers globally. Since the last Annual Report, the Asian trading environment is becoming more uncertain. In particular, there were disruptions in Hong Kong, a high margin market, resulting in a deceleration in comparable retail sales in Hong Kong in the second half of the financial year.

Risk	Business & Core Strategy impact	Mitigation
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. -     Inspire with the Brand -     Optimise Channels -     Unlock Market Opportunity -     Pursue Operational Excellence	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.
Sustained economic slowdown.	The Group's performance remains strong; however, the sustained economic slowdown has (or could): (i) reduced consumer wealth leading to a reduction in demand; (ii) impacted the financial stability of suppliers and customers and their ability to secure finance which could disrupt the Group's supply chain or lead to an increase in bad debts; and (iii) impacted the financial stability and recovery of banks and other financial institutions, all of which could adversely impact sales and profitability. -     Optimise Channels -     Unlock Market Opportunity	The global reach of the Group helps to mitigate local economic risks. In addition, the Group's financial reporting and review processes are designed to highlight any change in ongoing sales performance. 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.
The Group's revenues are increasingly dependent on consumers from the Asia region.	A significant proportion of the Group's sales are to Asian consumers globally. Consequently any change to consumer tastes or the economic, regulatory, social and/or political environment in Asia could adversely impact Asian consumers' disposable income, confidence and travel which could impact the Group's revenue and profits. -     Inspire with the Brand -     Optimise Channels -     Unlock Market Opportunity -     Pursue Operational Excellence	The global reach of the Group helps to mitigate reliance on particular consumers. In addition, the Group continues to focus on engaging with the Chinese luxury consumer, both in China and while travelling abroad, including: by optimising product assortments and merchandising; and investing in digital and in-store services such as Mandarin-speaking sales associates across top tourist destinations outside China. The Group has commenced its plans for the transition of its global business in Japan following the expiration of its licence with Sanyo Shokai and Mitsui & Company in 2015.
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, with 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. -  All Core Strategies	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 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 for a number of high-impact events. These plans are regularly reviewed and updated.
Volatility in foreign exchange rates could have a significant impact on the Group's reported results.	The Group operates on a global basis and earns revenues, incurs costs and makes investments in a number of currencies. The Group's financial results are reported in Sterling. The majority of reported revenues are earned in non-Sterling currencies, with a significant proportion of costs in Sterling. Therefore the Sterling value of reported revenues, profits and cash flows may be reduced as a result of currency exchange rate movements. -  All Core Strategies	The Group seeks to hedge anticipated significant external transactional cash flows using financial instruments. The Group monitors the desirability of hedging the net assets of non-Sterling subsidiaries when translated into Sterling for reporting purposes, but the Group has not entered into any transactions for this purpose in the current or previous year.
Failure by the Group or associated third parties to act in accordance with ethical and environmental standards.	A failure to act appropriately could result in penalties, adverse press coverage and reputational damage with a resulting drop in sales and profit. -  Inspire with the Brand	A number of initiatives are in place, led by the Corporate Responsibility function. These include the continuing activities set out in the Burberry Impact 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. -  All Core Strategies	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 corporate 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 were strengthened during the year. Assurance processes are in place to monitor compliance in a number of key risk areas, with results being reported to the Group Risk Committee and Board Audit Committee.
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. -  Inspire with the Brand -  Realise Product Potential	The Group continues to evolve its supply chain organisation design to develop its manufacturing base to reduce dependence on key vendors. The Group has continued to strengthen its internal digital and IT teams and continues to facilitate knowledge transfer to internal resources.
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. -  All Core Strategies	Competitive incentive arrangements currently exist, with specific initiatives in place designed to retain key individuals. Recent regulatory changes may make it more difficult to remain competitive in the global market for executive talent. Recruitment is ongoing and talent review and succession planning programmes are in place and are regularly reviewed and updated.
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. -  Inspire with the Brand -  Optimise Channels -  Unlock Market Opportunity	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 works with franchisees or partners who compensate for its relative lack of experience in a number of these markets.
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. -  All Core Strategies	Governance processes are in place for each major strategic initiative and these are supplemented by a Group Programme Management Office which provides governance to support the business change agenda. Regular meetings with senior management are undertaken 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 licence with Sanyo Shokai and Mitsui & Company (Sanyo Shokai) in Japan (the 'Sanyo Licence') expires in 2015, whereupon the royalty income under the licence will cease. 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 Group profits. -  Inspire with the Brand -  Pursue Operational Excellence	The Group has made further progress in transforming its operations in Japan with the introduction of Burberry's global luxury collection in this market, through directly operated stores and concessions, in department stores and digital commerce. To facilitate the brand transformation in Japan, the Group has agreed an orderly transition with Sanyo Shokai. In addition, a new three-year licence with Sanyo Shokai allows them the continued use of the Blue and Black labels in Japan in exchange for a licence fee. These labels do not use the Burberry name. There are minimum royalty payments specified in its licence agreements. 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.
Unauthorised use of the Group's trademarks and other proprietary rights.	Trade marks 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. -  Inspire with the Brand -  Realise Product Potential -  Optimise Channels -  Unlock Market Opportunity	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, including in the digital environment. Given the Group's emphasis on digital innovation the team places a particular focus on this area. Where infringements are identified these are addressed through a mixture of criminal and civil legal action and negotiated settlement. IP rights are driven largely 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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