Annual Financial Report

RNS Number : 3685O

Burberry Group PLC

09 June 2022

 

9 June 2022

Burberry Group plc - Annual Financial Report

The following documents have today been made available to shareholders of Burberry Group plc

(the "Company"):

1.  Annual Report and Accounts for the financial year ended 2 April 2022 (the "2021/22 Annual Report");

2.  Notice of the 2022 Annual General Meeting (the "Notice of AGM"); and

3.  Form of Proxy for the 2022 Annual General Meeting (the "Form of Proxy").

Pursuant to Listing Rule 9.6.1, each of these documents has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

In accordance with Disclosure Guidance and Transparency Rule ("DTR") 6.3.5(3), the documents are also available on the Company's website at Burberryplc.com .

The Company's 2022 Annual General Meeting ( "AGM" or the "Meeting") will take place at 2.00pm on Tuesday, 12 July 2022 at Horseferry House 2, 1a Page Street, London, SW1P 4PQ. 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 Disclosure Guidance and Transparency Rule ("DTR") 6.3.5, the information in the Appendix below is extracted from the 2021/22 Annual Report and should be read in conjunction with the Company's preliminary results announcement issued on 18 May 2022 (the "Preliminary Announcement"), both of which can be viewed at 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 2021/22 Annual Report in full. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2021/22 Annual Report.

The information contained in this announcement, and in the Preliminary Announcement, does not constitute the Company's statutory accounts, but is derived from the statutory accounts. The statutory accounts for the financial year ended 2 April 2022 have been approved by the Board of Directors and will be delivered to the Registrar of Companies following the AGM.

Enquiries

Investors and analysts  
Julian Easthope
VP, Investor Relations  
[e-mail]
020 3367 4458

Media
Andrew Roberts
SVP, Corporate Relations and Engagement
[e-mail]
020 3367 3764

This announcement does not constitute an invitation to underwrite, subscribe for or otherwise acquire or dispose of any Burberry Group plc shares, in the UK, or in the US, or under the US Securities Act 1933 or in any other jurisdiction.

Burberry is listed on the London Stock Exchange (BRBY.L) and is a constituent of the FTSE 100 index. ADR symbol OTC:BURBY. 

BURBERRY, the Equestrian Knight Device, the Burberry Check and the Thomas Burberry Monogram and Print are trademarks belonging to Burberry.

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 2 April 2022 are contained in the 2021/22 Annual Report. The Independent Auditors' Report on the Company financial statements and the parent company financial statements (the "Audit Report") is set out in full on pages 221 to 235 of the 2021/22 Annual Report. The Audit Report is unqualified and does not contain any statements under section 498(2) (regarding adequacy of accounting records and returns) or under section 498(3) (regarding provision of necessary information and explanations) of the Companies Act 2006.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following information is extracted from page 220 of the 2021/22 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 and the Company's position and performance, business model and strategy. Each of the directors, whose names and functions are listed on pages 154 to 158 confirm that, to the best of their knowledge:

· the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;

· the Group financial statements, which have been prepared in accordance with the UK-adopted International Accounting Standards, 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 and the Company, together with a description of the principal risks and uncertainties that it faces.

PRINCIPAL RISKS

The following information is extracted from pages 107 to 129 of the 2021/22 Annual Report.

OUR APPROACH TO RISK

Effective risk management is essential to executing our strategy and achieving sustainable shareholder value. We assess the risks we need to take in order to remain successful and to grow, and we use the available evidence to manage those risks as effectively as possible. These risk assessments are formally updated, documented and approved at least twice a year.

The Board is ultimately responsible for determining the nature and extent of the principal risks it is willing to take to achieve our strategic objectives (the Board's risk appetite), as well as challenging management's implementation of effective systems of risk identification, assessment and mitigation. The Board has delegated the responsibility for reviewing the effectiveness of the Group's internal controls and risk management arrangements to the Audit Committee. Ongoing review of these controls is provided through internal governance processes.

The Group Risk team (Group Risk) comprises risk management, risk analytics, business continuity and insurance. This team assesses and prioritises risks to determine mitigating actions and to secure a more resilient organisation. Group Risk also promotes agility, by highlighting areas of control which require further investment, and in managing the Group's incident response to urgent, emerging challenges. This multidisciplinary team is an integral part of our business, and reports to our CO&FO.

Risk management activities are reviewed by Internal Audit and other control functions, which provide assurance to our Risk Committee, Audit Committee, and Board, as described on page 144. During FY 2021/22, we commenced a risk modelling project with Cambridge University's Centre for Risk Studies, which began by modelling our climate-related risks (see TCFD section on page 130). This work will be expanded through FY 2022/23 to encompass other principal risks.

RISK APPETITE

We will pursue growth and accept a certain level of risk to ignite brand heat commensurate with our position in luxury fashion. We approve capital investment in strategic projects and accept a moderate to high risk in pursuit of innovation and profitable growth, balancing a reasonable return on capital with a reasonable level of commercial risk within the approved capital allocation framework.

Complying with applicable laws and doing the right thing are part of our culture and underpin our strategic ambition. In evaluating risks and opportunities, we prioritise the interests and safety of our customers and our people. We seek to protect the long-term value and reputation of the brand, maximising commercial benefits to support responsible and sustainable global growth within our defined risk tolerance.

OUR PRINCIPAL RISKS

The Board considers the principal risks to be the most significant risks faced by the Group, including those that are the most material to our performance and those that could threaten our business model or the future long-term solvency or liquidity of Burberry. They do not comprise all the risks associated with our business and are not set out in priority order. Additional risks not known to management, or currently deemed to be less material, may also have an adverse effect on our business.

Our risk framework is structured around the following categories of risk: External, Strategic, Operational, Compliance and Climate Change. Each principal risk is linked to one of these categories and may impact one or more of our strategic priorities. We have reviewed and updated the descriptions and mitigating actions of our principal risks and emerging risks. We reviewed whether the level of risk associated with each of the principal risks is increasing or decreasing compared to the previous financial year and noted new risks, which do not have a basis for comparison. Our risk management processes are designed to enable us to identify risks that can be partially mitigated through insurance. We focus our insurance resources on the most critical areas or where there is a legal requirement, and where we can get best value for money for risk transfer.

EMERGING RISKS

Our understanding of emerging risks which have potential to affect our business is an area of focus for us. We undertake detailed horizon scanning in conjunction with our strategy team to identify and assess emerging risks and opportunities and how to address them. Emerging risks are by their nature highly uncertain, and to manage this, we involve specialist third parties where necessary to better understand them and their potential impacts. Our risk management approach considers short term to be one year, medium term to be two to five years and long term more than five years.

Macro	Macroeconomic impacts - escalating inflation particularly in food and energy prices which may lead to increased interest rates as central banks try to curb inflation, heightening the risk of recession
	Changing regulatory environment - new regulations continue to emerge, including financial reporting (UK Corporate Governance regulations), raw material transparency (New York bill) and UK/EU/US government sanctions on Russia, all of which increase the risk of non-compliance
	Geopolitical - increasing geopolitical tensions and bifurcation, which may restrict free trade through mechanism such as quotas and tariffs
Consumer	Changing consumer preferences - expectations around product and sustainability continue to increase, along with heightened focus on the ESG performance of companies
	Significance of influential groups/third parties on consumer spending patterns - increased reliance on third parties to produce content to influence consumer spending (for example, social media influencers), which carries risk of damage to brand image
Industry	Industry concentration - increase in concentration on key customer groups resulting in greater competition for growth targets and polarisation of luxury players in the global fashion industry
	New technology - leading to changes in consumer spending habits and expectations around product availability (for example, virtual stores, the metaverse, and new materials)
	Circularity - new business models and increase in product re-sale markets, including fashion rental
	Full supply chain traceability - requiring investment in new technologies and greater collaboration amongst participants in the fashion value chain

EXTERNAL RISKS

COVID-19 Impact

·

·

Examples of Risks

·

· Recovery is delayed by a resurgence in virus infections

· Challenges to liquidity to manage operations and meet liabilities as they fall due

· The Group's regional trading performance and cash flows are significantly impacted by further extended periods of closures of Burberry retail stores, manufacturing facilities and distribution centres

· Burberry's regional internal manufacturing sites and global network of suppliers, storage and distribution hubs are disrupted, significantly impacting the supply chain and the speed with which we recover as government restrictions are lifted

· Impairment of goodwill, retail assets and inventory

·

We are continuing to monitor the potential impacts of the COVID-19 pandemic and we continue to prioritise the safety of our people, customers and suppliers. Our response is globally coordinated but locally tailored, driven by regional developments. We regularly update our modelling of the impact of the pandemic across all our regions and on the Group. The impact of pandemic risk on our viability and asset impairment is carefully considered, as well as on other principal risks, especially those related to our customers, supply chain and operations. Risk movement and outlook COVID-19 was a new principal risk in FY 2019/20 and was considered to have been effectively managed by our Executive Committee, functional heads, regional leaders and Business Continuity team. We assess a diverse range of exogenous risk factors: infection and hospitalisation rates, vaccine efficacy, lockdowns and social restriction policies, travel policy and other factors when assessing the regional risks and potential impact. We aggregate these regional risks to form an assessment of risk to the Group. This risk remains similar to last year for the Group which reflects an increase in Mainland China as a result of ongoing restrictions and a decrease in other key markets.
Link to Strategy	Actions Taken by Management
Pandemic risk remains a significant factor in our ability to execute our strategy. The risk varies by region over time. In each region, we ensure that we comply with legal obligations, which vary depending on national responses to COVID-19 developments.	· The Group Executive Committee is responsible for the overall management of our response to the COVID-19 pandemic. Mitigating actions are delegated to the relevant regional and function leadership teams to ensure we maintain an agile, tailored response, including the temporary closure of stores, offices and other buildings, as required · We monitor emerging regional regulations as COVID-19 continues to develop and evolve. We are focused on promoting and protecting the health and safety of our people, customers, partners and communities, and ensuring we comply with regulations · Where local regulations are less restrictive, we recognise individual needs and preferences. We provide free PPE and offer a flexible working approach to our colleagues, where possible. We have tailored our commercial approach to each market, which includes targeted marketing investment in Mainland China and the USA · We keep product, inventory and supply chain under constant review to maintain supply chain operations while optimising buying commitments and ensuring an undisrupted flow of product to our customers · Burberry has significant financial headroom and minimal leverage. We have £0.9 billion of cash, excluding proceeds of £0.3 billion from the Sustainability Bond, and a further £0.3 billion undrawn from the revolving credit facility. We have completed detailed stress testing to understand the extent to which the Group could withstand a loss of revenues within the limits of its available financial resources. Details of this reverse stress testing are set out in the Viability Assessment on page 146 · We continue to manage cash and costs to protect the Group's liquidity. A comprehensive cost mitigation programme has been delivered. Other levers include delaying discretionary capital. We also focus on investment in commercial areas to drive revenues and strengthen the brand
Risk Tolerance
We prioritise and have a low risk tolerance regarding the safety and wellbeing of our people, our customers, partners and the communities in which we operate.
· Changes to the nature of the pandemic, such as the introduction of novel variants, impacts the health of our employees and their ability to operate effectively

 

Macro-Economic and Political Instability

The Group operates in a wide range of markets and is exposed to changing economic, regulatory, social and political developments, which may impact consumer demand or affect our supply chain and manufacturing, and therefore our profitability. Adverse macroeconomic conditions or country-specific crises, such as natural disasters, global health emergencies or civil unrest, may significantly affect our markets and our ability to operate. Risk movement and outlook The risk has increased over the last two years. The outlook remains uncertain as we continue to navigate through several significant macroeconomic and political events, including the macroeconomic impact of the conflict in Ukraine. External factors, such as global health emergencies and natural disasters, are difficult to predict, although we remain confident in our ability to adapt and respond as they emerge.
Link to Strategy	Actions Taken by Management
Volatility in the external environment could impact our overall financial performance and operations.	· We quickly and decisively responded to the macroeconomic impact of the conflict in Ukraine through our coordinated cross-function cross-region Group Incident Management team and supporting operational groups · We continue to respond in a way that leverages our brand appeal and global reach across multiple customer segments and regions to mitigate reliance on a particular customer group · We recognise the importance of Mainland China and the Chinese consumer for the luxury industry · We continue to assess shifts occurring in the industry and in consumer preferences to ensure our plans are dynamic and responsive to the market · We monitor external macroeconomic and regulatory changes and perform horizon scanning supported by insights from the Group Strategy, Commercial and Finance teams
Risk Tolerance
We have a low tolerance for risk in this area but recognise external factors can be more difficult to mitigate as they are often outside our control. This requires us to be resilient, while retaining the agility required to respond effectively.
Examples of Risks
· Rapidly changing market sentiment caused by international crises, leading to uncertainty in the economic outlook for the luxury sector · Rising inflation both in a supply chain and consumer context · Global health emergencies affecting countries and regions · Disruptions to and increased cost associated with the internal and external supply chain · Increased customs and duty charges resulting from international trade disputes

Further impact from the UK's withdrawal from the EU

Various scenarios could impact the Group's financial position, operating model and people. Risk movement and outlook The UK's withdrawal from the EU on 31 December 2020 has crystallised with some supply chain disruption and costs realised, notwithstanding the EU-UK Trade and Cooperation agreement. Further disruption may arise in the event of destabilisation of the trading arrangements between the EU and UK, potentially giving rise to incremental border costs and delays. However, the risk has reduced since last year.
Link to Strategy	Actions Taken by Management
Volatility arising from uncertainty around the trading relationship between the UK and EU following the end of the transition period may impact our overall financial and operating performance, as well as our ambitions under supply chain Operational Excellence.	· Our steering committee continually monitors the evolving post-transition trading relationship between the UK and EU, and oversees our mitigation plans · While the business has experienced some short-term disruption, ongoing mitigation reduced the risk to all business activities, including supply chain, trade compliance, IP and people · We engage with UK government departments and other external stakeholders to ensure they are fully informed of our circumstances
Risk Tolerance
We have a low tolerance for risk arising from uncertainty regarding the trading relationship between the UK and EU.
Examples of Risks
· Additional customs duty based on the post-transition trading relationship between the UK and EU · Disruption to business operations · Impact on some current business project roadmaps · Extended supply chain lead times could increase inventory levels · Uncertainty over the rights of EU nationals and UK immigration law could increase the risk of being unable to recruit and retain talent · Exchange rate volatility impacts Group revenues, margins, profits and cash flow

STRATEGIC RISKS

Image and Reputation  

We invest in building trust in our brand and protecting our image and reputation globally. Unfavourable incidents, unethical behaviour or erroneous media coverage relating to the Group's people, practices, products or third-party suppliers could damage the Group's image and reputation and negatively impact the value of our brand. A negative perception of the Group's values could potentially lead to a slowdown in sales as well as a loss of customers. While internal enhancements continue to be made to protect Burberry's image and reputation, we operate in a complex and volatile external environment. Scrutiny of our brand is high and the risk to our brand is elevated as a result of global events. Working with third parties, including collaborators and influencers, creates additional risk. Risk movement and outlook The risk has increased over the last two years. The outlook remains uncertain as we continue to navigate through several significant macroeconomic and political events and external factors, including global health emergencies and natural disasters.
Link to Strategy	Actions Taken by Management
All strategic pillars.	· Oversight of mitigation of reputational issues by the Ethics and Risk Committees · Audit of reputational risks, continued monitoring of risks and development of mitigation plans · Undertaking marketing risk analysis/risk register and implementation of mitigation procedures · Codified incident management policy, monitoring of social networks and response procedures · Review process in place for engagements with collaborators, influencers and/or celebrities · Approval processes and editorial controls in place to ensure all product and content is reviewed and signed off prior to external release · Development of due diligence policy in connection with retention of talent and partners · Training and monitoring of adherence to Burberry's Model Wellbeing Policy for all people who engage with models on Burberry's behalf, including employees, freelancers, casting agents, contractors and external third parties · Training and monitoring of adherence by personnel to the requirements in the Group's Responsible Business Principles · Continued supplier audits and supplier training programmes to ensure compliance in day-to-day operations · Continued development of our global Diversity and Inclusion strategy as well as the widening of our Internal Diversity and Inclusion Council membership to support its implementation · Renewal of Cultural Advisory Council members · Updated and consolidated our Code of Conduct for our people and third parties to ensure they act lawfully and in accordance with Burberry's values
Risk Tolerance
Protecting our brand and reputation safeguards our licence to operate. We have a moderate risk appetite in order to deliver our strategy supported by processes to avoid or mitigate any reputational/brand risk where possible.
Examples of Risks
· Unethical behaviour on the part of individuals or entities connected with the Group · Unfavourable or erroneous media coverage or negative discussions on social networks about the Group's products, content or practices · An organisation, association, celebrity, influencer, collaborator or model associated with Burberry becoming involved in a reputational incident · Suppliers or partners not respecting the Group's Responsible Business Principles · Alleged infringement or appropriation of third-party rights in connection with the production of content and design of product · Failure of our people or those acting on Burberry's behalf to adhere to Burberry's Model Wellbeing Policy · Failure to understand social issues and respect cultural sensitivities around product and marketing content

Global Chinese consumer spending

A significant change to Chinese consumer spending habits globally due to changes in the economic, regulatory, social or political environment in Mainland China, including a further health emergency or a natural disaster, may adversely impact domestic consumers' disposable income and confidence. Such changes could also lead to Chinese consumers scaling back on spending and travel. This could impact the Group's revenue and profits outside Mainland China, which may not be fully compensated by the repatriation of spend in the country. Risk movement and outlook The risks associated with Chinese consumer spending have increased since the prior year and remain the Group's highest principal risk. This is driven by a number of factors, including the resurgence of COVID-19 disruptions in Mainland China and associated restrictions on movement, which reduce the potential for domestic and tourist spend. Due to the significant proportion of sales to Chinese consumers, the Group may lose revenues and profits as a result of changes in Chinese consumer spending patterns resulting from shifts in the economic, social or geopolitical environment.
Link to Strategy	Actions Taken by Management
All strategic pillars.	· Sustained execution of Mainland China strategy, including localised campaigns and additional marketing spend to support growth targets · Building new social partnerships in Mainland China in strategic locations, and developing innovative customer experiences, storytelling and products that are locally relevant · Sustained investment in inventory and technology to support our Mainland China digital business across our own platform and those of our third-party partners · Targeted investments supporting tailored strategies in other regions to diversify our global consumer profile
Risk Tolerance
We accept a certain level of concentration risk in relation to consumer nationality to maximise growth opportunities.
Examples of Risks
· We suffer a major reputational shock in Mainland China causing a deterioration in brand value · Burberry's growth in Asia does not meet expectations either in magnitude or timing, especially in Mainland China · Slower recovery in Asia due to a resurgence of COVID-19 · We are unable to capture additional consumer spend in Mainland China

Foreign exchange

Volatility in foreign exchange rates could have a significant impact on the Group's reported results. Burberry is exposed to uncertainty through foreign exchange movements. Major events such as the COVID-19 pandemic and the conflict in Ukraine might impact foreign exchange rates, which in turn could cause significant change in the Group's reported results. Risk movement and outlook The risk has not changed significantly since the prior year. In light of the macroeconomic environment, geopolitical risks remain heightened and foreign exchange rates remain volatile.
Link to Strategy	Actions Taken by Management
Volatility in foreign exchange rates could impact our overall financial performance.	· Burberry hedges some external purchases of goods and some inter-company balances using financial instruments. Burberry does not hedge anticipated intra-group foreign currency transactions · Burberry monitors the desirability of hedging the net assets of non-sterling subsidiaries when translated into sterling for reporting purposes. We have only entered into modest transactions for this purpose · Burberry monitors the overall impact of unhedged exchange movements and provides guidance to shareholders if exchange rates move on a quarterly basis
Risk Tolerance
Burberry does not seek to manage structural foreign exchange risk relating to its overseas retail operations.
Examples of Risks
· Burberry operates on a global basis and earns revenues, incurs costs and makes investments in a number of currencies. Burberry's financial results are reported in sterling. Most reported revenues are earned in non-sterling currencies, with a significant proportion of costs in sterling. Therefore, changes in exchange rates, which are driven by multiple factors, such as global economic trends, could impact Burberry's revenues, margins, profits and cash flows · Changes in exchange rates driven by global economic trends could reduce the attractiveness of international shopping for travelling tourists

OPERATIONAL RISKS

Loss of data or cyberattack

A cyberattack results in a system outage, impacting core operations and/or results in a major data loss leading to reputational damage and financial loss. A cyber risk-aware workforce and the Group's technology environment are critical to success. A robust control environment helps decrease risks to core business operations and/or major data loss. Risk movement and outlook This risk is assessed to have slightly increased in comparison to the prior year as a result of an increase in global cyber threat during the year.
Link to Strategy	Actions Taken by Management
Having a cyber risk-aware workforce and resilient technology landscape is integral to delivering our strategy.	· Governance provided through a cross-functional Cyber Security Steering Group with Executive membership and sponsorship · Continued investment in information security capabilities · Second line assurance checks reporting on control effectiveness to Executive and IT management through monthly scorecards · 24/7/365 security monitoring and analytics capability supported by security incident response processes · Information Security Advisory function to embed security in new projects and initiatives · Security training and awareness and phishing tests rolled out to employees globally with completion monitoring · Implementation of solutions to help detect personal and sensitive data loss with improved control over user access management · Test responses to cybersecurity incidents through simulations · Data Privacy Steering Committee, a cross-functional group to review data controls around existing systems and assess potential data risks (from both a legal and reputational perspective) associated with new IT, Marketing, Retail and Digital initiatives across Burberry · Ongoing collaboration between the Data Protection office, Legal, IT and Information Security functions to ensure policies are adhered to in respect of the appropriate collection, security, storage, retention and deletion of personal data · In line with other organisations, Burberry encounters information security incidents from time to time and has policies, processes and technologies in place to detect and respond to these as appropriate · Both Cloud Governance and Ransomware Audits were completed in January 2022 by the Internal Audit team in line with the NIST framework
Risk Tolerance
We have a low risk tolerance in this area.
Examples of Risks
· Malware results in a loss of system control causing business disruption and/or major data loss · Credential compromise of customer or employee accounts leading to business disruption and/or major data loss · Accidental personal data loss or disclosure leading to regulatory fines · Attack on Burberry.com causing business disruption and/or major data loss · Compromise or misconfiguration of externally facing assets causing business disruption and/or major data loss · Fines due to failure to comply with EU General Data Protection Regulation (GDPR) and/or equivalent applicable data protection legislation globally

IT operations

There is a risk that IT operations fail to support critical processes across the Group, including Retail and Digital, as well as Group functions, such as Supply Chain and Finance. Risk movement and outlook The impact of this risk has remained the same, with the likelihood remaining high due to ongoing data centre migration work increasing risk to system recovery and elongated system outages. Our focus remains on key system upgrades, which increase our resilience and security, as well as addressing key underpinning risks and essential investment.
Link to Strategy	Actions Taken by Management
All strategic pillars.	· IT Portfolio Forum in place with Executive representation to support IT investment decisions and oversee delivery of prioritised IT programmes and initiatives · IT function has clear alignment between the IT teams, the strategic pillars, business functions and operations · Implementation of controls to help maintain continuity of the Group's IT systems, including evolution of IT recovery plans, which would be implemented in the event of a major failure · A tested Group incident management framework is in place to report, escalate and respond to high-impact events · Further evolution of the IT operating model with a Business Systems Platform function to elevate the performance and security of core systems, supported by a business-wide steering committee · Elevated focus on key risks to support decision making on operating budgets and investment · External technology partner network and focused delivery in line with current risk appetite and strategic priorities · Our Internal Audit team completed a review of our IT vendors in February 2022
Risk Tolerance
We adopt a strategy to reduce key risks to the disruption of IT operations wherever possible.
Examples of Risks
· Failure to provide technology platforms that meet customer demands and support innovation could result in failure to deliver the strategy and loss of revenue · Failure to provide stable and resilient technology platforms that meet business demands across retail and corporate sites could result in failure to deliver the strategy and negatively impact operations due to poor system performance and/or system outages

People

Inability to attract, motivate, develop and retain our people to perform to the best of their ability in order to meet our strategic objectives. Risk movement and outlook This risk remains a priority. It is subject to complex macro factors, which have led to an increase in the level of risk over the last 12 months. While we experienced reduced levels of voluntary attrition through the pandemic, these returned to pre-pandemic levels in the second half of FY 2021/22. In addition, in some geographies, global trading disruption continues to impact our people's ability to meet planned business goals.
Link to Strategy	Actions Taken by Management
Delivery of our strategy relies on our ability to engage and inspire our people to deliver outstanding results for the Group.	Leadership and culture · All leaders have a leadership objective and Diversity and Inclusion objectives included in their goals. Executive Committee members are accountable for attracting and retaining diverse talent and fostering an inclusive culture · During FY 2021/22, we created Leadership Standards, which were embedded across the organisation. These standards bring to life our purpose and values with tangible examples for both people leaders and colleagues · Throughout the year, we sourced in-the-moment feedback from our colleagues, with two surveys completed with our provider, Glint. Results demonstrated that employees remained very engaged, had a strong connection with the brand and felt supported by their leaders · We foster an inclusive culture where all employees feel connected to their work · We empower and equip leaders to lead through change · We engage employees through our ongoing commitment to corporate responsibility and embedding our ESG ambitions across the business Talent and careers: · Strengthening capabilities and enhancing our approach to talent management throughout the organisation · Scaled learning opportunities for all our people through enhanced self-directed digital content · Maintained rigorous processes to identify and engage high-potential talent and support succession planning · Enhanced performance management through refined processes and systems, elevate support material, and increased communications and leader touchpoints · Further interview training cascaded to ensure an equitable recruitment experience Reward and recognition · Simplification of our retail commission and incentive schemes to drive performance and business results · Deployed an in-the-moment feedback tool to recognise and share gratitude between colleagues · Delivered a global online celebration at year-end to reinforce our values, celebrate our collective achievements and recognise top performers · Maintaining a pay-for-performance culture Diversity and Inclusion · Employee Resource Groups continued to build in strength and momentum, connecting colleagues across key themes of diversity to support an inclusive culture across all parts of our organisation · Regional and functional Diversity and Inclusion working groups deployed action plans to attract and retain diverse top talent, foster an open and inclusive culture, and educate and raise awareness · Cultural Advisory Council engaged directly with colleagues through "In Conversation" sessions Colleague experience, including wellbeing and employee relations · Refreshed both the Summer and Festive Programmes to focus on Burberry's wellbeing offering. Launched Wellbeing Days to provide all colleagues with paid time off to focus on wellbeing · Launched new inclusive policies and support, including a global portal to help colleagues who experience domestic abuse, in addition to a Bereavement policy and Menopause support site · Launched a partnership with Headspace, providing free access for all colleagues to its award-winning mental health app. The partnership's goal is to support all colleagues in forging habits that benefit their mental health
Risk Tolerance
We recognise the value and importance of successfully delivering our Inspired People strategy and therefore have a low tolerance for risk in this area.
Examples of Risks
· Loss of critical talent/knowledge/unmanageable levels of attrition heightened by challenging business conditions and continued economic uncertainty · Failure to build and retain the right capabilities throughout the organisation

Business interruption

A major incident impacts countries where the Group operates, has its main locations or where its suppliers are located, and significantly interrupts the business. This may be caused by a wide range of events at a country level, including changes in the geopolitical landscape, natural catastrophe, pandemic or changes in regulations, or at a local level, such as fire, terrorism or quality control failures. Risk movement and outlook The risk level of business interruption has increased since last year, although we continue to demonstrate resilience. We expect a heightened level of risk of business interruption to continue for the foreseeable future due to continuing instability in the geopolitical landscape. Disruption from COVID-19 continues to be felt around the world, with the breadth and depth of the disruption varying across regions and time and with the potential for suppliers, manufacturers and markets to be disrupted. Port congestion continues to significantly slow the circulatory movement of ships and containers, removing capacity, lengthening transit times, and increasing shipping costs.
Link to Strategy	Actions Taken by Management
Our Product and Distribution strategic pillars set out the framework for us to operate effectively and efficiently. We harness Operational Excellence to ensure continuity of supply of compliant products and services of the highest quality to our customers. Our ability to continually execute and operate key sites and factories to develop, manufacture, distribute and sell our products is a key strategic priority.	· We have policies and procedures in place designed to ensure the health and safety of our employees and to deal with major incidents, including business continuity and disaster recovery · The Group continues to evolve its supply chain organisational design to develop its manufacturing base and to reduce dependence on key sites and vendors · A Group incident management framework is in place to ensure that incidents are reported and managed effectively at the appropriate level · Prioritising our people, customers and communities, we managed multiple incidents, including fire, flood and weather-related issues or interruptions in the regular running of stores, offices and systems · Our Global Incident Management Team (GIMT) and Regional Incident Management Teams take part in training and incident management exercises involving large parts of the Group, our customers, and Corporate Communications function · Business continuity plans are in place for our eight main sites, including our three major distribution centres, our two UK factories, and Burberry Manifattura in Italy · Our product suppliers and vendors are subject to a quality control programme, which includes regular site inspections and independent product testing · Robust security arrangements are in place across our store network to protect people and products · The Group maintains significant protection of key IT systems designed to prevent and minimise any potential interruption. This includes resilient design and the provision of disaster recovery services to continue operating within pre-agreed time scales in case of a major incident. Our plans as tested during the year were found to be effective · Management regularly reviews business continuity and disaster recovery risks, recognising that these plans cannot always ensure the uninterrupted operation of the business, particularly in the short term · A comprehensive insurance programme supported by natural catastrophe modelling and insurance optimisation studies is in place to offset the financial consequences of insured events, including fires, flood, natural catastrophes and product liabilities
Risk Tolerance
We have a low tolerance for risk in this area, particularly in respect of product safety and quality.
Examples of Risks
· Burberry operates three owned factories and a global network of storage and distribution hubs. These face typical property risks, such as fire, flood and terrorism · Burberry works with several suppliers of highly specific, high-quality raw materials, which could be difficult to replace quickly. Their loss could interrupt the delivery of core products or a seasonal range · A serious product quality issue may result in a product recall · Socio-political tension, sanctions, counter-sanctions and trade compliance challenges may impact the effectiveness and efficiency of our supply chain · A global health emergency impacts a key market, which significantly affects the supply chain · Instability in the geopolitical landscape leads to trade disruption between key countries resulting in an inability to move product between countries or significant delays

COMPLIANCE RISKS

Regulatory risk and ethical/environmental standards

The Group is subject to a broad spectrum of laws and regulations, in the various jurisdictions in which it operates. These include product safety, trade marks, anti-bribery and corruption, competition, data, corporate governance, employment, environment, tax, trade compliance and employee and customer health and safety. Changes to laws and regulations, including potential non-compliance with sanctions and counter-sanctions, or a major compliance breach, could have a material impact on the business. Risk movement and outlook The relative significance of this risk has increased because of the changing regulatory environment despite the proactive and mitigating steps we have taken to ensure compliance.
Link to Strategy	Actions Taken by Management
Compliance with applicable laws and regulations, and behaving in accordance with our values as a business, underpin all our strategic pillars.	· The Group seeks to continuously improve 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 levels, supported by third-party specialists where required, are responsible for ensuring the Group's compliance with applicable laws, ethical and business policies and regulations, and that employees are aware of the policies, laws and regulations relevant to their roles · Ethical trading and community investment matters are reported to the Ethics Committee, Risk Committee and the Board · Environmental sustainability matters are reported to the Sustainability Committee and the Board to ensure compliance with applicable laws and regulations as well as to mitigate associated legal and reputational risk · Annual independent and internal assurance processes are in place to monitor compliance in a number of key risks, with results reported to our Ethics Committee, Risk Committee and Audit Committee · We have an established framework of policies that aim to drive best practice across our direct and indirect operations, including our Responsible Business Principles and Global Environmental Policy. Policies (available on Burberryplc.com) are owned by senior leadership. They are issued to supply chain partners and form part of our contractual agreements with supply chain partners. Implementation of these policies is monitored on a regular basis · We have updated and consolidated our Code of Conduct for our people and third parties into one comprehensive document, which sets out policies and guidance to ensure that our employees and third parties act lawfully and in accordance with Burberry's values. Training on the Code to employees is in the process of being rolled out globally · Our Data Privacy Committee oversees compliance with applicable data legislation · International tax reform is a key focus of attention with significant developments reported to the Audit Committee
Risk Tolerance
In complying with laws and regulations, including customer and employee safety, environmental and ethical legislation relevant to our operations and supply chain, as well as anti-bribery and corruption, we have a low tolerance for risk.
Examples of Risks
· Regulatory non-compliance (including, for example, failure to comply with applicable data protection legislation, anti-money laundering regulations or applicable sanctions legislation) by the Group or associated third parties working on its behalf may result in financial penalties and reputational damage to our business · Failure by the Group or associated third parties to act in an ethical manner consistent with our Code of Conduct, Responsible Business Principles or our Responsibility agenda could result in reputational damage to the Group · Non-compliance with labour, human rights and environmental standards across our own operations and extended supply chain could result in financial penalties, disruption in production and reputational damage to our business · Tax is a complex area where laws and their interpretations change regularly. Non-compliance by Burberry and its associated third parties could result in unexpected tax and financial loss

Intellectual property and brand protection

Sustained breaches of Burberry's IP rights or allegations of infringement by Burberry pose a risk to our brand. Counterfeiting, copyright, trademark and design infringement in the marketplace could reduce demand for genuine Burberry merchandise and impact the luxury positioning of the brand. Failure to implement appropriate brand protection controls in connection with our commitment to stop the destruction of unsaleable finished products could negatively impact the integrity and the sustained luxury positioning of the brand. Risk movement and outlook Management of this risk remains a key area of activity as our creative innovation generates new designs and motifs and the potential increase of counterfeit sales. The likelihood of this risk has been assessed to be the same level as last year.
Link to Strategy	Actions Taken by Management
Protecting the integrity of the brand, safeguarding and elevating its luxury position and complying with applicable laws and regulations underpin all our strategic pillars.	· The Group's Brand Protection team is responsible for brand protection efforts globally, online and offline. Where infringements are identified, these are addressed through a mixture of criminal, civil and administrative legal action and negotiated settlements · Trademarks, copyrights and designs are registered globally across all appropriate categories · The Brand Protection team partners with the design teams to ensure that our products do not infringe the rights of third parties and to ensure that we have adequate protections in place prior to market entry · The team explores new and emerging threats and ways to combat threats · The team partners regionally with enforcement agencies and digital platforms to minimise the visibility of counterfeit and infringing products both online and offline · We aim to disrupt the flow of counterfeit products by enforcing at source level · Brand protection controls have been implemented to safeguard the brand in connection with our commitment to stop destroying unsaleable finished products
Risk Tolerance
We have a low tolerance for risk in protecting the integrity of the brand, asserting our IP rights and ensuring due respect is given to the IP rights of others.
Examples of Risks
· Counterfeiting, copyright, trademark and design infringement in the marketplace can reduce the demand for genuine Burberry merchandise and impact revenues · Unauthorised use of trademarks and other IP, as well as the unauthorised sale of Burberry products and distribution of counterfeit products, damages Burberry's brand image and profits · Sophistication in counterfeiters' ability to manufacture at pace has increased infringements and counterfeiting of our brand · New branding may not immediately be protected, and we rely on national laws to secure IP rights, which afford varying degrees of protection and enforcement opportunities depending on the country · Increased cancellation actions by third parties in response to claims of infringement as well as an increase in bad faith filings · Allegations from third parties of IP infringement by Burberry could negatively impact Burberry's reputation, result in claims and financial loss through withdrawing infringing products · Distribution outside of our authorised network and parallel trade could negatively impact demand for Burberry products and negatively impact our luxury reputation

Climate change

The success of our business over the long term will depend on the social and environmental sustainability of our operations, the resilience of our supply chain and our ability to manage any potential climate change impacts on our business model and performance. As the global climate crisis becomes more critical, we recognise the importance of addressing long-term sustainability challenges and potential impacts of climate change on our business in reputational, operational and financial terms. Failure to implement appropriate cross-functional action plans and strategies, such as incorporating the recommendations of TCFD and our Climate Positive by 2040 ambition, could hinder mitigation of long-term climate risks and our ability to future-proof our business. Risk movement and outlook The risk of climate change continues to be an increasing area of scrutiny globally. Without significant science-based global mitigation efforts from government and business and their value chains alongside collaboration from wider industry and civil society, the effects will continue to increase year on year and cause irreversible impacts. The risk has increased since last year.
Link to Strategy	Actions Taken by Management
Our commitment to being an industry leader in responsible and sustainable luxury underpins our vision to establish ourselves firmly in luxury fashion and deliver sustainable, long-term value. In FY 2021/22 we became the first luxury brand to pledge to being Climate Positive by 2040. To achieve this, we have committed to accelerate emissions reductions across our extended supply chain; become net zero by 2040, 10 years ahead of the 1.5°C pathway set out in the Paris Agreement, and invest in nature-based projects with carbon benefits that restore and protect natural ecosystems and enhance the livelihoods of global communities.	Physical risks · Building on the assessment of climate-related risks which was disclosed in FY 2020/21, the cross-functional TCFD working group, in partnership with the University of Cambridge's Centre for Risk Studies, developed and expanded its scenario analysis in FY 2021/22 to include a wider range of potential physical and transitional risk impacts. The scope of our scenario analysis was also expanded to include three emissions pathways, including a 1.5°C Paris Agreement aspiration scenario. Further details of this can be seen on pages 130 to 143 · This included specific analysis around the impact of physical climate-related risks on our key facilities, operations and supply chain · Our Internal Audit and Risk teams were involved in our climate scenario modelling and oversight of TCFD disclosures · In our own operations and supply chain, we continue to use the WWF water risk assessment tool and the Aqueduct Water Risk Atlas to identify current risks, anticipate potential future strains on water resources and understand emerging long-term risks, as well as point out water efficiency and management opportunities · Burberry is committed to reducing its GHG emissions as set out in our Climate Positive by 2040 commitment. Our GHG emissions targets across all scopes are recognised as science-based aligned to the 1.5°C pathway and we will disclose our progress towards these on an annual basis to ensure full transparency to stakeholders, including our customers · In FY 2021/22 we announced our biodiversity strategy through which we will take action to protect, restore and regenerate nature in our own value chain and in areas of greatest need beyond our operations · Supporting our biodiversity strategy, we are a member of the global multi-disciplinary Taskforce on Nature-related Financial Disclosures (TNFD) Forum and contribute to the development of the TNFD framework · We support a number of industry initiatives that address climate change impacts, including the British Retail Consortium's Net Zero commitment, RE100, Race to Zero, the UN Fashion Industry Charter for Climate Change, The Fashion Pact, Lowering Emissions by Accelerating Forest finance (LEAF), and Accounting for Sustainability · The Burberry Regeneration Fund was established in 2020 to support a portfolio of verified carbon projects, which enable Burberry to compensate and store carbon, promote biodiversity, facilitate the restoration of ecosystems and support the livelihoods of local communities · We invest in programmes that help to sustain our industry and supplier communities, specifically initiatives that support social economic development in remote communities and promote more sustainable herding practices in the cashmere industry · We continuously engage and educate employees on the topic of climate change through focused events, strategic communications, volunteering opportunities and through our network of Responsibility Champions Transitional risks · As part of the quantitative scenario-based analysis of climate-related risks conducted in FY 2021/22, we modelled the impact of transitional risks including policy, market, reputation, technology and liability risks · Our Climate Positive ambition not only sets our strategic direction but also mitigates the impact of transitional risks on the business. For example, our sustainable raw material and traceability targets feed into our Climate Positive ambition and will significantly contribute to lowering our scope 3 emissions. This will enhance the sustainability of our products and will be communicated to our customers and stakeholders · Through our memberships with various industry bodies, associations and external assurance partners, we contribute to consultations and stay informed of upcoming environmental legislative changes · Environmental sustainability matters are reported to the Sustainability Committee, the Ethics Committee, the Risk Committee and the Board · Our longstanding Responsibility programmes, coupled with our Responsibility goals, are driving continuous improvements in moving beyond social and environmental compliance · We are committed to shifting to more sustainable, low-impact materials, and using our brand to influence consumers and our industry peers to reduce their impacts. We have a series of ambitious targets to achieve this aim, full details of which can be found on pages 92 to 95 · We are mitigating transitional risks by focusing on initiating circular concepts and business models and continuing our commitment to a zero-waste mindset across the business. We have a clearly defined waste hierarchy and set targets and KPIs that cover operational, manufacturing and finished goods waste as well as packaging. These targets and KPIs are a key component of our Climate Positive ambition and roadmap For more details on how we are monitoring climate risks and opportunities and our strategic response, please see our TCFD report on pages 130 to 143.
Risk Tolerance
We have a low tolerance for risk when it comes to protecting the human and environmental resources on which we all depend. However, given the long-term nature of some sustainability risks and the level of uncertainty associated with their occurrence and impact, we accept that some level of risk is inevitable. We therefore focus on helping to minimise global risks while building resilience in our operations and supply chain.
Examples of Risks
Physical risks : Acute · Increased severity of extreme weather events, from floods to droughts, could cause disruption to our operations and supply chain, impact our business model and affect the sourcing of raw materials, as well as the distribution of our products Chronic · Our industry is sustained by many agricultural and manufacturing communities around the world. Longer-term shifts in climate patterns and loss of biodiversity caused by changes in precipitation patterns, rising mean temperatures and rising sea levels could cause social, economic and operational challenges · Failure to address and mitigate these risks could result in resource availability limitations (for example, cotton, leather and cashmere) and disruptions to key business and supply chain operations Transitional risks Policy · Increased regulation and more stringent environmental standards, such as national or international carbon pricing mechanisms, could impact our business by affecting operational and production costs and the flexibility of our operations Market · Consumer perception of the sustainability of luxury fashion products, their materials and associated GHG emissions may have an impact on consumer behaviours and their purchasing decisions. Failure to meet consumer demand for more sustainable products and services could threaten our relationship with consumers and may result in a loss of Group revenues Reputation · Failure of the luxury fashion industry to meet expectations around sustainability could lead to climate activism and threaten relationships with employees, investors, regulators and interest groups, which may result in a loss of Group revenues Liability · Litigation against activities which drive climate change, resulting in potential operating expenses arising from fines, settlement and legal costs

Gemma Parsons
Company Secretary
Burberry Group plc

 

END

 

 

ACSUKVORURUNRAR