Final Results - Part 1

Burberry Group PLC 24 May 2005 PART 1 Burberry Group plc 2004/05 Preliminary Results 24 May 2005. Burberry Group plc reports preliminary results for its financial year to 31 March 2005. Financial Highlights â€¢ Total revenues increased 10% on an underlying(1) basis, 6% reported - Retail sales increased 8% underlying, 3% reported - Wholesale sales increased 9% underlying, 6% reported - Licensing revenue increased 19% underlying, 17% reported â€¢ Gross profit margin increased from 57.9% to 59.3% â€¢ EBITA(2) margin expanded from 21.1% to 23.1% â€¢ EBITA increased by 16% to Â£165.5 million â€¢ 19% increase in diluted EPS (before goodwill amortisation and exceptional gain) to 23.0p â€¢ 50% increase in final dividend to 4.5p per ordinary share (6.5p for full year) â€¢ Commenced Â£250 million share repurchase programme with Â£58 million completed as of 31 March 2005 Strategic and Operating Highlights â€¢ Launched major infrastructure redesign initiative - Â£18 million investment in year one - Â£50 million aggregate investment over three years - Â£20 million annual benefits by year three â€¢ Enhanced design authority and brand presence through critically acclaimed Prorsum collections â€¢ Opened 12 directly operated retail locations and completed important store renovations â€¢ Extended presence in China and other emerging markets with 10 franchise store additions â€¢ Finalised plans with respect to non-apparel licences in Japan â€¢ Launched highly successful Burberry Brit for Men and Burberry Brit Red fragrances under attractive new licensing agreement Summary of Results Year to 31 March ----------------------------- 2005 2004 (Restated(3)) Â£m Â£m ------- -------- Turnover 715.5 675.8 Operating profit before goodwill amortisation and exceptional gain (EBITA) 165.5 142.6 Exceptional gain (4) 0.8 2.2 Profit before taxation 164.4 140.3 Profit after taxation 109.9 93.0 Diluted EPS before goodwill amortisation and 23.0p 19.4p exceptional gain Diluted EPS 21.8p 18.4p ------------------------ ------- -------- NOTES: (1) Underlying figures are calculated at constant exchange rates (2) EBITA represents operating profit before interest, taxation, exceptional gain and goodwill amortisation (3) The results for 2003/04 have been restated following the adoption of FRS 17, 'Retirement Benefits' relating to pensions accounting (4) The Â£0.8 million pre-tax exceptional gain in the year ended 31 March 2005 relates to lapsed awards under the IPO Senior Executive Restricted Share Plan (2003/04: Â£2.2 million) John Peace, Chairman of Burberry, commenting on the preliminary results: 'This marks another successful year for Burberry. Over Burberry's almost three years as a public company, revenue has grown over 40% while EBITA increased in excess of 80%.' Rose Marie Bravo, Chief Executive, stated: 'Burberry and its management team succeeded across a broad range of strategic and financial objectives during 2004/05. Together, we look forward to the current year with confidence while continuing to execute our growth strategies and launching a major infrastructure redesign initiative in order to generate value for shareholders over the long term.' Management will discuss these results during a presentation to analysts and institutional investors at 1:00pm today in London at the Merrill Lynch Financial Centre, The Auditorium. The presentation will also be broadcast live on the Internet at www.burberryplc.com and can be accessed by telephone at 020 7081 7194 (UK) and 866 432 7186 (US). The webcast and telephone call will be available for replay. Telephone replay: +44 (0) 20 7081 9440, replay access number 299766. Enquiries: Burberry 020 7968 0577 Stacey Cartwright CFO Matt McEvoy Strategy and IR John Scaramuzza Strategy and IR Brunswick 020 7404 5959 Susan Gilchrist Laura Cummings Robert Gardener Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward looking statements. This announcement does not constitute an invitation to underwrite, subscribe for or otherwise acquire or dispose of any Burberry Group plc shares. Past performance is not a guide to future performance and persons needing advice should consult an independent financial adviser. Chief Executive's Review Burberry delivered a strong performance for the year to 31 March 2005. The Group increased diluted EPS (before goodwill amortisation and exceptional gain) by 19% on a 10% gain in underlying revenues (ie. at constant exchange rates). While progressing its strategic and operational priorities, the Group continued to enhance profitability through close attention to margin. These results reflect the sustained efforts of Burberry's management team and the balance and diversity of the Group's business across products, channels and regions. Strategic and Operating Progress Key strategic highlights include: Products. Burberry's product design, development and merchandising teams produced notable achievements during the year. â€¢ Womenswear. The Prorsum collection was the highlight of the year in Burberry's womenswear business. Both the Spring and Autumn 2005 Collections won outstanding critical acclaim - both rated among the top ten collections of the season by Women's Wear Daily, a leading fashion industry publication. Prorsum's distinctive style statement and the substantial editorial presence it generates assert Burberry's design authority and strengthen the brand's presence among luxury consumers. In the core London collection, the Group continued to refine the balance among classic and fashion styles and develop greater product depth to serve Burberry's expansion in warm-weather regions of the world. Responding to the strong consumer appetite for a continuous selection of new merchandise, the womenswear team further structured the collections to increase the frequency of fresh product flowing to retail selling floors. Womenswear revenue increased 11% underlying during the year and comprised 34% of revenue. â€¢ Accessories. New styles drove the 8% underlying growth in accessories for the year. New contemporary handbag designs, including the highly successful Prorsum Cinda bag, led growth in this category. Updated styling, including the Candy and Blue Bell adaptations of Burberry's iconic check pattern, refreshed Burberry's classic handbag collection. Efforts to expand and update small leather goods and gift categories produced strong sales gains in the year. The Group increased its investment in shoe design and technical resources, and is excited about the sizeable opportunity the women's shoe category presents for Burberry. Accessories comprised 26% of revenue for the period. â€¢ Menswear. Consistent with Burberry's research on shopping patterns within its stores, menswear product design and development concentrated on intensification of key merchandise classifications during the year. The team added options in colour, pattern, silhouette and fabric in core menswear categories, including jersey and knitwear. Similarly, in line with the brand's heritage, the menswear team upgraded and expanded the selection of performance and technical outerwear through the development of new fabrics and broader selections of styles and colours. The Group is adjusting its in-store merchandise presentation to reflect these classification intensification strategies. Menswear sales also benefited from the broad trend toward more sartorial dressing. Menswear revenue increased 6% underlying during the year and comprised 27% of revenue. Channels. The Group continued to execute its core retail, wholesale and licensing strategies. â€¢ Retail. Investment in retail growth continued on plan. The Group opened five Burberry stores in the year, including stores in the US (4), Europe (1), and seven concessions. The opening of the Rome location, on Via Condotti, in autumn 2004 was a highlight. In combination with the Milan store, Burberry now has an excellent retail presence in the important Italian market. Several key stores underwent refurbishment during the year, including the San Francisco, Boston and Paris stores. Three additional US stores commenced refurbishment activity in January and are scheduled to reopen by June 2005. At March 31 2005, approximately 80% of Burberry's retail selling space had either been newly added or refurbished in the past four years. This global network of 157 directly operated retail locations provides a powerful platform to showcase the depth of Burberry's luxury offering, respond quickly to consumer demand trends and gain market intelligence through testing and customer interaction. On a year on year basis, total selling space increased approximately 7%, 9% on average. â€¢ Wholesale. Through Burberry's wholesale operations, the Group extended its presence in both emerging and developed markets. In China, among Burberry's most dynamic markets, the Group in conjunction with its local partner added six franchise stores in the year, including a 6,200 square foot flagship store in Beijing's Oriental Plaza. At 31 March 2005, 35 franchise stores, spanning 22 cities were operating in China. Outside Asia, four franchise stores were added across developing regions, including Russia, Latin America and the Middle East. In developed markets, Burberry continued to concentrate on its key accounts and selectively to add fashion retailers consistent with the brand's increasing visibility. Going forward, in light of ongoing retail expansion, the Group will continue to evaluate wholesale distribution with the objective of maintaining an optimal balance with Burberry's retail network. â€¢ Licensing. The Group works closely with its licence partners to facilitate the coherent expression of the Burberry brand across product categories. In watches, that collaboration produced excellent results during the year. The iconic charm bracelet watch was a notable success, while the watch line overall achieved strong sales and editorial presence. Fragrance had another successful year. Outstanding response to the launches of Burberry Brit for Men and Burberry Brit Red fragrances, augmented by ongoing strength from existing fragrance lines, drove strong revenue gains. In recognition of these efforts, the Group received six international Fragrance Industry Foundation awards. Also during the year, Burberry entered into a new fragrance licence with its existing partner. The terms of the new agreement provide for a substantially enhanced royalty rate and an increased marketing commitment on the part of the partner relative to the previous agreement. The new agreement also defines an organisational structure more aligned with Burberry's requirements, which will enable future development of this successful business. Regions. Burberry continued to extend its global reach and achieved strong results across its trading regions during the year. â€¢ US. US revenues increased 11% underlying, fuelled by the addition of four stores in Charlotte, North Carolina; King of Prussia, Pennsylvania; Scottsdale, Arizona; and Boca Raton, Florida. Wholesale sales growth resulted primarily from continued intensification with Burberry's key accounts. The launch of Burberry's ecommerce site in the lead up to the holiday season experienced a favourable response, with iconic products and gift categories proving popular. This new channel extends Burberry's reach into smaller markets and broadens the brand's customer base. â€¢ Europe. Growing 4% underlying, Europe's revenue performance varied by market. Strong gains in Continental European markets were balanced by softer sales in the more developed markets of Spain and the UK. Italy, a large market for the Group, benefited from the recently opened Burberry stores in Milan and Rome. In Spain, the management team undertook several key initiatives designed to strengthen brand positioning in the domestic market. The team reorganised the sales function and opened new and expanded showrooms to improve service to wholesale customers. The team also opened five accessory concessions in the department stores of its core customer. Response to these concessions is encouraging, and the Group plans to open additional locations in 2005/06. In the ongoing evolution of its relationship with this primary customer, the Group will also explore opening apparel concessions in the future. â€¢ Asia. Growing 19% underlying, sales in Asia benefited from recent store openings, including partner operated franchise stores, and strong demand from Chinese consumers. Greater China, comprising China and Hong Kong achieved strong gains, accounting for approximately 6% of Burberry's revenues for the year. In Korea, newly opened Burberry children's (3) and golf (1) concessions performed well, and the Group plans to open a similar number of concessions in this market in 2005/06. â€¢ Japan. Burberry achieved good progress in Japan during the year. Recent efforts to upgrade brand positioning have demonstrated tangible results in terms of enhanced product design and quality and improved distribution. This work is ongoing, particularly with respect to distribution. Licence transitions initiated previously are beginning to gain momentum. In watches, for example, products from Burberry's global partner replaced local products. At the same time, Burberry finalised plans with respect to its non-apparel licenses in this market. The Group renewed licenses in domestically oriented categories, including home products and hosiery, often on improved terms. Burberry is also looking forward to its plans to launch direct distribution of imported accessories in Japan. In autumn 2006, Burberry plans to distribute selectively a limited range of accessories from its international collection, including women's handbags, small leather goods and silks. This strategy offers attractive opportunities for Burberry over the long-term in Japan's substantial luxury market. Financial Highlights Burberry achieved strong financial performance during the year. Turnover increased 6%, 10% at constant exchange rates, to Â£715.5 million. Gross margin expanded from 57.9% to 59.3%. This gross margin increase coupled with expense leverage resulted in EBITA* margin expansion from 21.1% to 23.1%. EBITA before exceptional gain increased 16% to Â£165.5 million and diluted EPS (before goodwill and exceptional gain) grew 19% to 23.0p. The directors have proposed a 50% increase in the final dividend to 4.5p, resulting in a total dividend for 2004/05 of 6.5p, a 44% increase. Plans for 2005/06 In line with the ongoing execution of its core growth strategies, Burberry's plans for the 2005/06 financial year include: â€¢ An approximate 8% increase in net retail selling area through the addition of new stores and concessions and expansion of existing stores. In the first quarter to date, consumer response to spring collections continues to be muted in certain markets. â€¢ First half wholesale sales broadly flat relative to the previous year based upon orders received to date for the Autumn/Winter 2005 season. â€¢ More moderate licensing revenue growth relative to the second half of 2004/05. Revenues from Japan are expected to decline moderately for the year as a result of Burberry's programme to reduce selectively the distribution of certain products in this market, a soft apparel environment and planned licensee cancellations/transitions. Global licensees are expected to continue to produce strong gains. â€¢ Capital expenditures are planned to total between Â£35 and Â£40 million. Infrastructure Redesign Moving into 2005/06 and beyond, Burberry is launching a major programme to redesign its business processes and systems, creating a substantially stronger platform to support the long-term operation and growth of the Group. Scheduled to span five years, the project is designed to address key support areas of the business which have become inconsistent with the substantial expansion of its size and scope across product areas, regions of the world and channels of distribution during the past several years. Areas targeted for upgrading include: â€¢ Supply chain. Improving Burberry's supply chain is a key objective of the programme. Burberry sees substantial benefits from upgrading and integrating its spectrum of functions: from raw material procurement, to sourcing of finished goods, to distribution of products to own stores and wholesale customers. â€¢ Information integration and transparency. The project involves the installation of a company-wide ERP (enterprise resource planning) system as well as the implementation of a consistent and updated retail information system across Burberry's global store network, replacing a variety of non-integrated information systems today. As a result of these upgrades, employees throughout the organisation will have access to more timely and comprehensive information with which to operate the business. *EBITA represents operating profit before interest, taxation, exceptional items and goodwill amortisation. â€¢ Support services. The programme is also structured to develop more effective tools and organisation structures across the Group's broad range of global support services. The large majority of required capital is scheduled to be invested during the initial three years of the project. Over that period, the Group expects to invest approximately Â£50 million in associated expenses and capital expenditures, with approximately Â£18 million invested in 2005/06. Key areas of investment include hardware and software purchases and related implementation expenses and the addition of people to manage and execute the process and organisation changes. Approximately 85% of the investment is expected to be directly expensed, with the remaining 15% capitalised. In its third year (2007/ 08), the programme is expected to generate over Â£20 million annually in direct expense savings across the supply chain and general and administrative costs. These benefits are expected to be greater in future years. Key sources of expense savings include improved supplier management, improved product development processes and more efficient non-stock procurement procedures. Beyond costs, through enhanced decision-making and improved ability to respond to market dynamics, the project is expected to produce substantial revenue and margin benefits. Costs associated with investment in new business processes and systems will affect reported earnings per share over the next three years. However, existing revenue growth and profitability enhancement initiatives, combined with the impact of the share repurchase programme should allow the Group to continue to deliver strong underlying growth in EPS over the three year period. Conclusion Burberry's strong performance in the year reflects the dedication of our management and employees who share a passion for the Burberry brand and its unique position in the luxury goods market, the commitment of licensing partners and the support of wholesale customers. Together, we look forward to the current year with confidence, continuing to execute our growth strategies while investing in business infrastructure in order to generate value for shareholders over the long term. Financial Review Group Results Year to Percentage Year to Percentage 31 March 2005 of turnover 31 March 2004 of turnover (Restated(1)) Â£m % Â£m % ---------------------- ------- -------- -------- -------- Turnover Wholesale 371.9 52.0% 351.4 52.0% Retail 265.2 37.1% 257.4 38.1% Licence 78.4 11.0% 67.0 9.9% ---------------------- ------- -------- -------- -------- Total turnover 715.5 100.0% 675.8 100.0% Cost of sales (291.3) (40.7%) (284.2) 42.1% ---------------------- ------- -------- -------- -------- Gross profit 424.2 59.3% 391.6 57.9% Net operating expenses before goodwill amortisation and exceptional gain (258.7) (36.2%) (249.0) (36.8%) ---------------------- ------- -------- -------- -------- EBITA 165.5 23.1% 142.6 21.1% Goodwill amortisation (6.8) (1.0%) (6.8) (1.0%) Exceptional gain (2) 0.8 0.1% 2.2 0.3% ---------------------- ------- -------- -------- -------- Profit before interest and taxation 159.5 22.3% 138.0 20.4% Net interest income 4.9 0.7% 2.3 0.3% ---------------------- ------- -------- -------- -------- Profit on ordinary activities before taxation 164.4 23.0% 140.3 20.8% Tax on profit on ordinary activities (54.5) - (47.3) - ---------------------- ------- -------- -------- -------- Profit on ordinary activities after taxation 109.9 15.4% 93.0 13.8% ---------------------- ------- -------- -------- -------- Diluted EPS before goodwill amortisation and exceptional gain 23.0p 19.4p Diluted EPS 21.8p 18.4p Basic EPS 22.2p 18.8p ---------------------- ------- -------- -------- -------- Diluted weighted average number of Ordinary Shares (millions) 504.6 505.9 ---------------------- ------- -------- -------- -------- NOTES: (1) The results for 2003/04 have been restated following the adoption of FRS 17, 'Retirement Benefits' relating to pensions accounting (2) The Â£0.8 million pre-tax exceptional gain in the year ended 31 March 2005 relates to lapsed awards under the IPO Senior Executive Restricted Share Plan (2003/04: Â£2.2 million) Burberry Group turnover is composed of revenue from three channels of distribution: wholesale, retail and licensing operations. Wholesale revenue arises from the sale of men's and women's apparel and accessories to wholesale customers worldwide, principally leading and prestige department stores and speciality retailers. Retail revenue is derived from sales through the Group's directly operated store network. At 31 March 2005, the Group operated 157 retail locations consisting of 59 Burberry stores, 74 concessions and 24 outlet stores. Licence revenue consists of royalties receivable from Japanese and product licensing partners. Comparison of the year ended 31 March 2005 to the year ended 31 March 2004 Turnover Total turnover advanced to Â£715.5 million from Â£675.8 million in the comparative period, an increase of 6%, or 10% underlying (ie. at constant exchange rates). Total retail sales increased 3% (8% underlying) to Â£265.2 million, driven by contributions from newly opened stores. During the year, the Group opened four stores in the US, one in Europe and seven concessions. Sales growth varied by market. As the result of a muted initial response to seasonal collections, particularly outerwear, deliberately restrained outlet stores sales and renovation activity in a number of key stores, sales growth in the US was driven by an increase in retail space. In Europe, Continental markets generally performed well, while the UK was soft. In Asia, Korea posted a modest gain notwithstanding a volatile retail environment. Hong Kong experienced vigorous growth throughout the year, while Southeast Asia, boosted by new stores, achieved strong gains. Total wholesale sales advanced 6% (9% underlying) to Â£371.9 million during the year, resulting from the contribution of double digit revenue gains for the Autumn/Winter 2004 season and mid single digit gains for the Spring/Summer 2005 season. The US achieved solid growth, driven by ongoing intensification of key accounts. In Europe, strong gains in the under-penetrated markets of Italy, France, Benelux and Germany were balanced by softer sales in the more developed markets of Spain and the UK, resulting in an overall flat performance for the year. Asia, fuelled by the addition of six new franchise stores in China and strong demand from Chinese travellers, achieved substantial gains. Sales to other emerging markets achieved strong gains, partially driven by the addition of four franchise stores in new and existing markets. Licensing revenues in the year increased 17% (19% underlying) to Â£78.4 million, driven by strong gains from global licenses. Fragrance related revenues increased substantially in the period with growth driven primarily by successful new fragrance launches and improved terms under the new licence agreement. In Japan, a decline in volumes arising from the soft apparel spending environment, licensee cancellations/transitions and Burberry's programme to reduce selectively the distribution of certain products was offset by an increase in certain royalty rates and the reduction in management fees payable with respect to specific licenses. Operating profit Gross profit as a percentage of turnover expanded to 59.3% in the year from 57.9% in the comparative period. This increase was driven primarily by pricing and sourcing gains and an increase in licensing's share of the revenue mix. Operating expenses as a percentage of turnover improved to 36.2% from 36.8% in the comparative period. This decrease primarily results from a one-time accelerated depreciation charge in the previous year; in the current year, the Group returned to a more normalised level of depreciation. Burberry also benefited from operating leverage as a result of the Group's expanded and diversified revenue base, partially offset by additional investment in infrastructure and marketing to support growth of the business. Following the adoption of FRS 17, 'Retirement benefits', the Group now accounts for its pensions on a defined benefit basis. Previously the charge to operating expenses was based on contributions made in the various schemes. The impact on 2003/04 is to reduce net operating expenses by Â£1.4 million. As a result of these factors, EBITA increased by 16% to Â£165.5 million, or 23.1% of turnover relative to 21.1% in the previous period. Exchange rate movements reduced reported EBITA by Â£4.9 million. Goodwill amortisation was Â£6.8 million, in line with the comparative period. In 2004/05, the Group recorded a Â£0.8 million exceptional gain on the lapsing of share awards under the IPO Senior Executive Restricted Share Plan and employers' National Insurance liability arising on the awards. An equivalent gain of Â£2.2 million was recorded in the comparative period. Profit before interest and taxation increased 16% to Â£159.5 million, or 22.3% of turnover from 20.4% in the comparative period. Net interest income Net interest income was Â£4.9 million in the year to March 2005 compared to Â£2.3 million in the prior period, as a result of larger cash balances throughout the current year. Profit before taxation As a result of the above factors, Burberry reported profit before taxation of Â£164.4 million in the year to March 2005 compared to Â£140.3 million in the prior period. Profit after taxation The Group reported a 32.0% tax rate (2003/04: 32.3%) on profit before goodwill amortisation and exceptional gain for the full financial year resulting in a Â£54.5 million tax charge. The rate continues to be above the UK statutory tax rate primarily as a result of the Group's operations in higher tax rate jurisdictions. Profit after tax for the period increased 18% to Â£109.9 million. Diluted earnings per share before goodwill amortisation and exceptional gain increased 19% to 23.0p in the year compared to 19.4p in the prior period. In the year to March 2005, the Group had 494.1 million (2003/04: 495.6 million) Ordinary Shares in issue on average for the purposes of calculating basic earnings per share and 504.6 million (2003/04: 505.9 million) Ordinary Shares in issue on average for the purposes of calculating diluted earnings per share. An average of 6.2 million (2003/04: 4.6 million) Ordinary Shares held by the Group's Employee Share Ownership Trusts are excluded for the purposes of earnings per share calculations. Liquidity and Capital Resources Summary Group Balance Sheet As at 31 March As at 31 March 2005 2004 (Restated)(1) Â£m Â£m ----------------------------- ------------ ------------ Fixed assets Intangible fixed assets 107.9 111.4 Tangible fixed assets 166.1 149.8 Fixed asset investments 0.1 0.1 ----------------------------- ------------ ------------ 274.1 261.3 Current assets Stock 102.5 89.5 Debtors 135.7 126.2 Cash and short term deposits 169.9 158.7 ----------------------------- ------------ ------------ 408.1 374.4 Creditors - amounts falling due within one year (207.8) (163.8) ----------------------------- ------------ ------------ Net current assets 200.3 210.6 ----------------------------- ------------ ------------ Total assets less current liabilities 474.4 471.9 Creditors - amounts falling due after more than one year (14.8) (35.4) Provisions for liabilities and charges (3.2) (5.1) Pension obligations (1.8) (2.0) ----------------------------- ------------ ------------ Net assets 454.6 429.4 ----------------------------- ------------ ------------ Total Shareholders' Funds 454.6 429.4 ----------------------------- ------------ ------------ NOTES: (1) The results for 2003/04 have been restated following the adoption of FRS 17, 'Retirement Benefits' relating to pensions accounting and for UITF38, 'Accounting for ESOP Trusts.' Cash Flow and Net Funds Historically, Burberry's principal uses of funds have been to support acquisitions, capital expenditures and working capital growth in connection with the expansion of its business. Principal sources of funds have been cash flow from operations and financing from the Group's former 100% owner, GUS. Burberry expects to finance the expansion of it business, capital expenditures including strategic infrastructure investments and share repurchases with existing cash balances, cash generated from operating activities, and where necessary, the use of its credit facilities. The table below sets out the principal components of cash flow for the years to 31 March 2005 and 31 March 2004 and net funds at the period end: Year to 31 Year to 31 March 2005 March 2004 (Restated) Â£m Â£m ----------------------------- ------------ ------------ Operating profit before interest, taxation, goodwill amortisation and exceptional gain 165.5 142.6 Depreciation and related charges 24.4 28.5 (Profit)/loss on disposal of fixed assets and similar items (1.1) 1.7 Charges in respect of employee share incentive schemes 5.3 3.6 Increase in stocks (12.8) (7.5) Increase in debtors (7.3) (1.5) Increase in creditors 1.5 18.2 ----------------------------- ------------ ------------ Net cash inflow from operating activities 175.5 185.6 ----------------------------- ------------ ------------ Net interest income 4.7 2.2 Taxation paid (49.5) (49.5) Net purchase of fixed assets (34.1) (28.8) Acquisition related payments - (2.5) Net purchase of own shares (65.3) (6.6) Issue of Ordinary Share capital 4.4 0.9 Equity dividends paid (24.9) (17.3) ----------------------------- ------------ ------------ Movement in net funds resulting from cash flows 10.8 84.0 ----------------------------- ------------ ------------ Exchange gains/(losses) 1.2 (5.7) ----------------------------- ------------ ------------ Movement in net funds 12.0 78.3 ----------------------------- ------------ ------------ Net funds at end of year 169.9 157.9 ----------------------------- ------------ ------------ Cash Flows Net cash inflow from operating activities was Â£175.5 million in the year to 31 March 2005 compared to Â£185.6 million in the previous period. Stock levels grew by Â£12.8 million, resulting from growth of the business. The Â£7.3 million increase in debtors was driven by seasonal growth of trade receivables and timing of prepayments. Depreciation, impairment and related trademark amortisation charges amounted to Â£24.4 million in 2004/05 compared to Â£28.5 million in the previous period. Contributing to this decrease, was an accelerated depreciation charge with respect to certain assets incurred in 2003/04; the Group returned to a more normalised level of depreciation in 2004/05. Net fixed asset purchases of Â£34.1 million (2003/04: Â£28.8 million) primarily reflect continued investment in the Group's retail and wholesale operations including the opening of new stores and refurbishment activity. While the Group maintained the pace of store openings as in the comparative period, the increase largely reflects differences in the actual timing of cash outlays and types of retail investments between the two periods. Capital expenditures are expected to total between Â£35 and Â£40 million in 2005/06. In line with its risk management policy, Burberry has continued to hedge its principal foreign currency transaction exposures arising in respect of Yen denominated royalty revenue and Euro denominated product purchases and sales. During 2004/05, Burberry invested Â£65.3 million in its own shares, comprising Â£58.4 million for the purchase of shares under the share repurchase programme, and net Â£6.9 million in its own shares as a contribution to funding the Group's Employee Share Ownership Trusts (2003/04: net Â£6.6 million). Consistent with the share repurchase programme announced in November 2004, Burberry commenced the repurchase of shares in January 2005. By 31 March 2005 the Group repurchased 14.7 million shares for a total cost of Â£58.4 million. Burberry is targeting a broadly cash neutral position by March 2006. Based upon shares repurchased to date, existing cash resources, operating trends and foreseeable capital requirements, Burberry expects to repurchase shares with a total aggregate value of approximately Â£250 million by that date. Burberry entered into a new Â£200 million five year multi currency revolving facility with a syndicate of banks on 30 March 2005. This facility replaces the previous Â£75 million facility with GUS plc. Dividends The Group paid an interim dividend of 2.0p per share on 2 February 2005. A final dividend of 4.5p per share is proposed and would be payable in August 2005. As a result, the total dividend for 2004/05 would increase by 44% to 6.5p per share (Â£31.7 million aggregate amount), and represent a payout ratio of 27%. As previously stated, the Group plans to maintain a progressive dividend policy, increasing the payout ratio to approximately 30% over time. International Financial Reporting Standards For periods commencing on or after 1 January 2005, the consolidated financial statements of all European Union listed companies are required to be reported in accordance with International Financial Reporting Standards (IFRS). The application of IFRS will not change management's approach to operations and will have no impact on cash flow. It will, however, be likely to lead to increased volatility in the profit and loss account and balance sheet, with the presentation of the financial statements also affected. Burberry has largely completed its preparations for the adoption of IFRS. The most significant impact on net assets and profit is likely to result from changes to the accounting treatment of goodwill amortisation and impairment, share based remuneration, financial instruments, lease incentives, proposed dividends, tax and deferred tax. Burberry will publish unaudited results for the year to 31 March 2005 restated under IFRS on 10 June 2005. The financial statements for the year to 31 March 2006 will be reported under IFRS, as will the interim results for the six months to 30 September 2005. Group profit and loss account Year to 31 March ------------------------------ 2005 2004 --------------------------------- ------- ------- ------- (Restated)* Note Â£m Â£m --------------------------------- ------- ------- ------- Turnover 4 715.5 675.8 Cost of sales (291.3) (284.2) --------------------------------- ------- ------- ------- Gross profit 424.2 391.6 Net operating expenses (264.7) (253.6) --------------------------------- ------- ------- ------- Operating profit 5 159.5 138.0 --------------------------------- ------- ------- ------- Operating profit before goodwill amortisation and exceptional items 165.5 142.6 - goodwill amortisation 6 (6.8) (6.8) - exceptional credit relating to IPO Employee 7 0.8 2.2 Share Plans --------------------------------- ------- ------- ------- Interest and similar income 9 5.5 2.4 Interest expense and similar charges 10 (0.6) (0.1) --------------------------------- ------- ------- ------- Profit on ordinary activities before taxation 4,6 164.4 140.3 Tax on profit on ordinary activities** 11 (54.5) (47.3) --------------------------------- ------- ------- ------- Profit on ordinary activities after taxation 109.9 93.0 Dividend - interim 13 (10.0) (7.4) Dividend - final 13 (21.7) (14.9) --------------------------------- ------- ------- ------- Retained profit for the year 25 78.2 70.7 --------------------------------- ------- ------- ------- Pence per share Earnings - basic 14 22.2p 18.8p - diluted 14 21.8p 18.4p Earnings before goodwill amortisation and exceptional items - basic 14 23.4p 19.8p - diluted 14 23.0p 19.4p Dividends - dividend per share - interim 13 2.0p 1.5p - dividend per share - final 13 4.5p 3.0p --------------------------------- ------- ------- ------- All the Group's operations in both years are continuing. *Restated to reflect prior period adjustments, see note 3. **Tax on profit on ordinary activities includes tax credited on goodwill amortisation and exceptional items of Â£0.1m in the year to 31 March 2005 (2004: charged Â£0.5m). Statement of total recognised gains and losses Year to 31 March ----------------------- 2005 2004 (Restated)* Note Â£m Â£m --------------------------------- ------- ------- ------- Retained profit for the year 25 78.2 70.7 --------------------------------- ------- ------- ------- Currency translation differences 5.3 (22.4) Tax impact of currency translation differences (0.1) (1.4) --------------------------------- ------- ------- ------- Net impact of currency translation differences 25 5.2 (23.8) Actuarial (loss)/gain recognised in the pension 33 (1.5) 1.8 scheme Movement in deferred tax relating to pension 33 (0.3) (1.2) scheme --------------------------------- ------- ------- ------- Total recognised gains and losses for the year 81.6 47.5 Prior year adjustments (see note 3) (1.4) --------------------------------- ------- ------- Total gains since last annual report 80.2 --------------------------------- ------- ------- *Restated to reflect prior period adjustments, see note 3. Note of historical cost profits and losses Year to 31 March -------------------- 2005 2004 (Restated)* Â£m Â£m ------------------------------------- ------ ------- Reported profit on ordinary activities before taxation 164.4 140.3 Difference between actual and historical cost depreciation charge 0.5 0.6 ------------------------------------- ------ ------- Historical cost profit on ordinary activities before taxation 164.9 140.9 Tax on profit on ordinary activities (54.5) (47.3) Dividend - interim (10.0) (7.4) Dividend - final (21.7) (14.9) ------------------------------------- ------ ------- Historical cost retained profit for the year after taxation and dividends 78.7 71.3 ------------------------------------- ------ ------- *Restated to reflect prior period adjustments, see note 3. Reconciliation of movement in Group Shareholders' Funds Year to 31 March -------------------- 2005 2004 (Restated)* Â£m Â£m ------------------------------------- ------ ------- Profit on ordinary activities after taxation 109.9 93.0 Dividend - interim (10.0) (7.4) Dividend - final (21.7) (14.9) ------------------------------------- ------ ------- Retained profit for the year 78.2 70.7 Shares issued under Burberry share incentive schemes 11.4 2.5 Exercise of IPO Restricted Share Plan and IPO share option awards (7.0) - Lapse of IPO Restricted Share Plan awards (0.8) (0.8) Net purchase of own shares by ESOPs (6.9) (6.6) Charges in respect of employee share incentive schemes 5.3 3.6 Purchase of own shares under share buy back programme (58.4) - Movement in pension scheme obligations (1.8) 0.6 Net impact of currency translation differences 5.2 (23.8) ------------------------------------- ------ ------- Net addition to Shareholders' Funds 25.2 46.2 ------------------------------------- ------ ------- Opening Shareholders' Funds - as previously reported 437.1 390.0 Prior period adjustments (7.7) (6.8) ------------------------------------- ------ ------- Opening Shareholders' Funds - as restated 429.4 383.2 ------------------------------------- ------ ------- Closing Shareholders' Funds 454.6 429.4 ------------------------------------- ------ ------- *Restated to reflect prior period adjustments, see note 3. Balance sheets Group Company ----------- ------------ As at 31 March As at 31 March 2005 2004 2005 2004 ----------------------- ----- ------ (Restated)* --- ------- (Restated)* Note Â£m Â£m Â£m Â£m ----------------------- ----- ------ ------- ------- ------- Fixed assets Intangible fixed assets 15 107.9 111.4 - - Tangible fixed assets 16 166.1 149.8 - - Fixed asset investments 17 0.1 0.1 1,047.2 1,047.3 ----------------------- ----- ------ ------- ------- ------- 274.1 261.3 1,047.2 1,047.3 Current assets Stock 18 102.5 89.5 - - Debtors 19 135.7 126.2 668.9 668.0 Cash and short term deposits 20 169.9 158.7 0.7 0.1 ----------------------- ----- ------ ------- ------- ------- 408.1 374.4 669.6 668.1 Creditors - amounts falling due within one year 21 (207.8) (163.8) (172.4) (56.3) ----------------------- ----- ------ ------- ------- ------- Net current assets 200.3 210.6 497.2 611.8 ----------------------- ----- ------ ------- ------- ------- Total assets less current liabilities 474.4 471.9 1,544.4 1,659.1 Creditors - amounts falling due after more than one year 22 (14.8) (35.4) (686.1) (713.4) Provisions for liabilities and charges 23 (3.2) (5.1) - - Pension obligations 33 (1.8) (2.0) - - ----------------------- ----- ------ ------- ------- ------- Net assets 454.6 429.4 858.3 945.7 ----------------------- ----- ------ ------- ------- ------- Capital and reserves Called up share capital 24 1.1 1.1 1.1 1.1 Share premium account 25 136.1 124.7 136.1 124.7 Revaluation reserve 25 23.4 23.5 - - Capital reserve 25 39.4 42.9 - - Profit and loss account 25 254.6 237.2 721.1 819.9 ----------------------- ----- ------ ------- ------- ------- Equity Shareholders' Funds 453.8 428.6 857.5 944.9 Non-equity Shareholders' Funds 24 0.8 0.8 0.8 0.8 ----------------------- ----- ------ ------- ------- ------- Total Shareholders' Funds 454.6 429.4 858.3 945.7 ----------------------- ----- ------ ------- ------- ------- *Restated to reflect prior period adjustments, see note 3. Approved by the Board on 23 May 2005 and signed on its behalf by: John Peace Stacey Cartwright Chairman Chief Financial Officer Group cash flow statement Year to 31 March ------------ 2005 2004 (Restated)* Note Â£m Â£m ---------------------------------- ----- ------- ------- Operating activities Operating profit after goodwill amortisation and exceptional items 159.5 138.0 Exceptional credit (0.8) (2.2) Goodwill amortisation 6.8 6.8 ---------------------------------- ----- ------- ------- Operating profit before goodwill amortisation and exceptional items 165.5 142.6 Depreciation, impairment and trademark amortisation charges 24.4 28.5 (Profit)/loss on disposal of fixed assets and similar non-cash charges (1.1) 1.7 Charges in respect of employee share incentive schemes 5.3 3.6 Increase in stocks (12.8) (7.5) Increase in debtors (7.3) (1.5) Increase in creditors 1.5 18.2 ---------------------------------- ----- ------- ------- Net cash inflow from operating activities 175.5 185.6 ---------------------------------- ----- ------- ------- Returns on investments and servicing of finance Interest received 5.3 2.3 Interest paid (0.6) (0.1) ---------------------------------- ----- ------- ------- Net cash inflow from returns on investments and servicing of finance 4.7 2.2 ---------------------------------- ----- ------- ------- Taxation paid (49.5) (49.5) ---------------------------------- ----- ------- ------- Capital expenditure and financial investment Purchase of tangible and intangible fixed assets (37.2) (28.8) Sale of tangible fixed assets 3.1 - ---------------------------------- ----- ------- ------- Net cash outflow from capital expenditure and financial investment (34.1) (28.8) ---------------------------------- ----- ------- ------- Acquisitions Deferred consideration for purchase of businesses - (2.5) ---------------------------------- ----- ------- ------- Net cash outflow from acquisitions - (2.5) ---------------------------------- ----- ------- ------- Net cash inflow before dividends and financing activities 96.6 107.0 Dividends Equity dividends paid (24.9) (17.3) ---------------------------------- ----- ------- ------- Net cash inflow before management of liquid resources and financing 71.7 89.7 ---------------------------------- ----- ------- ------- Management of liquid resources Decrease/(increase) in short term deposits** 26,27 9.9 (69.2) ---------------------------------- ----- ------- ------- Financing Issue of Ordinary Share capital 4.4 0.9 Receipts from sale of own shares by ESOPs 1.8 0.4 Purchase of shares through share buy back 25 (58.4) - Purchase of own shares by ESOPs (8.7) (7.0) ---------------------------------- ----- ------- ------- Net cash outflow from financing (60.9) (5.7) ---------------------------------- ----- ------- ------- Increase in cash during the year 26,27 20.7 14.8 ---------------------------------- ----- ------- ------- *Restated to reflect prior period adjustments, see note 3. **Increase in short term deposits has been restated to include movements in net balances due from GUS group (2004: Â£15.8m). 1 Basis of preparation Burberry Group is a luxury goods manufacturer, wholesaler and retailer in Europe, North America and Asia Pacific; licensing activity is also carried out, principally in Japan. All of the companies, which comprise the Burberry Group, are owned by Burberry Group plc ('the Company') directly or indirectly. The financial information has been prepared by consolidating the historical financial information for each of the companies that comprise Burberry Group from applicable individual financial returns of these companies for the years to 31 March 2005 and 2004. Burberry Group Reorganisation Immediately prior to the flotation on the London Stock Exchange in July 2002, a reorganisation of Burberry Group took place resulting in Burberry Group directly owning all Burberry Group companies. Prior to this, a number of Burberry Group entities and certain Burberry-related assets and liabilities (together 'the Net Assets') were held underneath GUS group companies although Burberry Group indirectly controlled them and had the economic rights to, and was exposed to the risks in, the Net Assets. The Net Assets were accounted for as quasi-subsidiaries in accordance with Financial Reporting Standard 5, 'Reporting the substance of transactions' and were thus consolidated as if their legal ownership rested with Burberry Group. The reorganisation involved the acquisition by Burberry Group of the legal ownership of the Net Assets and the disposal to GUS group of those assets and liabilities which did not form part of the Burberry Group post-flotation. Burberry Group financed this reorganisation using loans from GUS group; such loans were repaid by a rights issue of Ordinary Share capital to GUS group, by loan repayment out of the proceeds of the Company's flotation on the London Stock Exchange and by the waiver of the remaining debt by GUS group. These transactions created a premium on the legal acquisition of the Net Assets of Â£704.1m ('the Premium'). The accounting treatment required by Schedule 4A to the Companies Act 1985 would recognise the Premium as goodwill. However, the directors consider that, in substance, the Premium represents the value that has been transferred outside of Burberry Group as a result of these transactions. In effect, Burberry Group made a payment to GUS group for assets that it already controlled prior to the reorganisation. Consequently, in order to meet the overriding requirement of the Companies Act 1985 to show a true and fair view, the Premium has been treated as a distribution to GUS group out of the consolidated reserves of Burberry Group ('the Deemed Distribution'). The directors consider that it is not meaningful to quantify the effects of this departure from the requirements of the Companies Act 1985. As a result of the Deemed Distribution, a net deficit arose on the accumulated profit and loss account in the Burberry Group consolidated balance sheet. In order to eliminate this deficit on consolidation an other reserve of Â£704.1m was created in the Company's own balance sheet by the transfer of this sum from the share premium account, following High Court approval of the capital reduction, shortly before the admission of the Company's Ordinary Shares to trading by the London Stock Exchange. This other reserve was reclassified as distributable, and included in the profit and loss account reserve, when all the Company's creditors in existence on 17 July 2002 (the date of approval of the capital reduction) were settled in full, on 31 December 2003. 2 Accounting policies The consolidated financial information has been prepared under the historical cost convention, modified by the revaluation of certain fixed assets, and in accordance with applicable accounting standards in the UK and the Companies Act 1985. The principal accounting policies, which have been consistently applied, are: a) Turnover Turnover, which is stated excluding VAT and other sales taxes, is the amount receivable for goods supplied (less returns, trade discounts and allowances) and royalties receivable. Wholesale sales are recognised when goods are despatched to trade customers, with provisions made for expected returns and allowances as necessary. Retail sales, returns and allowances are reflected at the dates of transactions with consumers, in addition provisions are made for expected returns as necessary. Royalty receivable from licensees is accrued as earned on the basis of the terms of the relevant royalty agreement, which is typically on the basis of production volumes. b) Intangible fixed assets Goodwill For acquisitions of companies or businesses made on or after 1 April 1998, goodwill (being the excess of purchase consideration over the fair value of net assets acquired) is capitalised as an intangible fixed asset. Fair values are attributed to the identifiable assets and liabilities that existed at the date of acquisition, reflecting their condition at that date. Adjustments are also made to bring the accounting policies of acquired businesses into alignment with those of Burberry Group. Goodwill on acquisitions prior to 1 April 1998 was written off to reserves in the year of acquisition. On the disposal of a business, any goodwill previously written off against reserves in Burberry Group is included in the profit or loss on disposal. Goodwill on acquisitions after 1 April 1998 is capitalised and amortised by equal annual instalments over its estimated useful economic life, not exceeding 20 years, taking into account the nature of the business acquired and other competitive considerations. The useful economic life of goodwill arising is determined on a case-by-case basis. Impairment reviews are performed if events or changes in circumstances indicate that the carrying value may not be recoverable. Trademarks and other intellectual property The cost of securing and renewing trademarks and other intellectual property is capitalised as an intangible fixed asset and amortised by equal annual instalments over its useful economic life, typically 10 years. The useful economic life of trademarks and other intellectual property is determined on a case-by-case basis, in accordance with the terms of the underlying agreement. Impairment reviews are performed if events or changes in circumstances indicate that the carrying value may not be recoverable. 2 Accounting policies (continued) c) Tangible fixed assets and depreciation Tangible fixed assets are stated at cost or revalued amount where relevant, less depreciation. Depreciation Depreciation of tangible fixed assets is calculated to write off the cost or revalued amount, less residual value, of the assets in equal annual instalments over their estimated useful lives at the following rates: Land Not depreciated Freehold buildings Up to 50 years Leaseholds - less than 50 years expired Over the unexpired term of the lease Plant, machinery, fixtures and fittings 3 - 8 years Retail fixtures and fittings 2 - 5 years Office equipment 5 years Computer software and equipment 3 - 5 years ------------------------------ -------------------- Lease premiums Amounts paid to acquire the rights to a lease ('Lease Premiums') are written off in equal annual instalments over the life of the lease or to the next rental review. Valuations Burberry Group has adopted a policy of not revaluing properties as permitted under Financial Reporting Standard 15 'Tangible Fixed Assets'. Previously revalued properties are included at their valuation at 31 March 1996, less depreciation. Impairment Impairment reviews are undertaken when performance trends or changes in circumstances suggest that the net book value of a fixed asset is not fully recoverable. Profit/loss on disposal of fixed assets Profits and losses on disposal of tangible fixed assets represent the difference between the net proceeds and net book value at the date of sale. Disposals are accounted for when the relevant transaction becomes unconditional. d) Investments in group companies Investments held by the Company are carried at cost less amounts written off in respect of impairment. When investments are fully or partially hedged by means of foreign currency borrowings, the hedged proportion of those investments is retranslated at the relevant exchange rate and the resulting exchange difference taken to reserves along with the matching exchange difference on the foreign currency borrowings. e) Stock Stock and work in progress are valued on a first-in-first-out basis at the lower of cost (including an appropriate proportion of production overhead) and net realisable value. Provision is made to reduce cost to no more than net realisable value having regard to the age and condition of stock, as well as its anticipated saleability. 2 Accounting policies (continued) f) Deferred tax Deferred taxation is recognised as a liability or asset if transactions have occurred at the balance sheet date that give rise to an obligation to pay more taxation in future, or a right to pay less taxation in future. An asset is not recognised to the extent that the realisation of economic benefits in the future is uncertain. Deferred tax assets and liabilities are not discounted. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries. Deferred tax would be provided where remittance is anticipated and is expected to result in a charge to taxation. g) Pension costs The pension costs in the consolidated financial statements are determined in accordance with Financial Reporting Standard 17 'Retirement Benefits' ('FRS 17'). GUS defined benefit schemes Eligible employees of Burberry Group participate in a number of GUS defined benefit schemes throughout the world; the principal defined benefit schemes are in the UK. The assets covering these arrangements are held in independently administered funds. The cost of providing defined pension benefits to participating Burberry employees is charged to the profit and loss account of Burberry Group over the anticipated period of employment, in accordance with recommendations made by independent qualified actuaries. Variation from regular cost is allocated over the expected remaining service lines of current scheme members. Any difference between the cumulative amounts charged against profit and contributions paid is included as an asset or liability as appropriate in the balance sheet. The asset or liability recognised in the balance sheet in respect of defined benefit schemes represents Burberry's share of the present value of the defined benefit obligation at the balance sheet date, less the fair value of plan assets, together with adjustments for unrecognised actuarial gains and losses and part service costs. A full actuarial valuation of the scheme is carried out every 3 years with interim reviews in intervening years. The latest full actuarial valuation of the scheme was carried out as at 31 March 2004 by independent, qualified actuaries, using the projected unit method. Actuarial gains and losses are recognised directly to equity through the statement of total recognised gains and losses. Defined contribution schemes Burberry Group eligible employees also participate in GUS group defined contribution pension schemes, the principal one being in the UK with its assets held in an independently administered fund. The cost of providing these benefits to participating Burberry employees is recognised in the profit and loss account of Burberry Group and comprises the amount of contributions payable to the schemes in respect of the year. 2 Accounting policies (continued) h) Share schemes Incentive plans The fair market value of the shares at the date of the grant, less any consideration receivable from the participating Burberry employee, is charged to the profit and loss account. Where awards are contingent upon future events (other than continued employment), an assessment of the likelihood of these conditions being achieved is made at the end of each reporting period and an appropriate accrual made over the period to which the participating Burberry employee's performance relates. Where awards are not contingent upon future events a full accrual is made immediately in the profit and loss account. Save As You Earn scheme GUS plc operates a Save As You Earn scheme (in which certain UK employees of Burberry Group participate) that allows for the grant of GUS plc ordinary shares at a discount to the market price at the date of the grant. Burberry Group has adopted the provision of the revised UITF Abstract 17 'Employee Share Schemes' concerning the recognition of the cost of employee share incentive schemes. The cost of Employee Share Schemes is charged to the profit and loss account using the quoted market price of the shares at the date of the grant less the exercise price of the share options granted. The charge is accrued over the performance period of the awards. i) Foreign currency translation Translation of the results of overseas businesses The results of overseas subsidiaries are translated at the average exchange rate for the year. The assets and liabilities of such undertakings are translated at year end exchange rates. Differences arising on the retranslation of the opening net investment in subsidiary companies, and on the translation of their results, are taken to reserves and are reported in the statement of total recognised gains and losses. The principal exchange rates used were as follows: Average Closing ------------ ------------ Year to 31 March As at 31 March 2005 2004 2005 2004 -------------------------- ------- ------- ------- ------- Euro 1.47 1.44 1.45 1.50 US dollar 1.85 1.70 1.88 1.84 Hong Kong dollar 14.40 13.20 14.69 14.31 Korean won 2,041 2,016 1,920 2,106 -------------------------- ------- ------- ------- ------- The average exchange rate achieved by Burberry Group on its Yen royalty income, taking into account its use of Yen forward sale contracts on a monthly basis approximately 12 months in advance of royalty receipts, was Yen 184.3: Â£1 in the year to 31 March 2005 (2004: Yen 182.3: Â£1). Transactions in foreign currencies Transactions denominated in foreign currencies are translated into Sterling at the exchange rate ruling at the date of the transaction or at the forward contract rate where hedged. Monetary assets and liabilities denominated in foreign currencies which are held at year end are translated into Sterling at the exchange rate ruling at the balance sheet date or at the forward contract rate where specifically hedged. Exchange differences on monetary items are taken to the profit and loss account except where they relate to intercompany loans hedging investments in overseas subsidiaries of Burberry Group, in which case such differences (including attributable taxation) are taken directly to reserves and limited to the foreign currency movement on the underlying investment. 2 Accounting policies (continued) j) Financial instruments Burberry Group uses derivative financial instruments to hedge its exposure to fluctuations in foreign exchange rates arising on certain trading transactions. The principal derivative instruments used are forward currency contracts taken out to hedge certain future royalty receivables and product purchases. Gains and losses on such forward currency contracts are recognised in the profit and loss account at the same date as the underlying transaction. The financial instruments used and managed by Burberry Group consist primarily of cash and forward currency contracts used to hedge currency exposures on trading transactions. Burberry Group has taken advantage of the exemption available under Financial Reporting Standard 13 'Derivatives and Financial Instruments', in respect of short term debtors and creditors, and details in respect of these balances are excluded from the required disclosures, other than within the currency risk disclosure. k) Operating leases The Burberry Group is both a lessee and lessor of property. Gross rental income and expenditure in respect of operating leases are recognised on a straight line basis over the period of the leases. Certain rental expense is determined on the basis of turnover achieved in specific retail locations and is accrued for on that basis. l) Related party transactions Financial Reporting Standard 8 'Related Party Disclosures' ('FRS 8'), requires the disclosure of the details of material transactions between the reporting entity and related parties. Burberry Group has taken advantage of an exemption under FRS 8 not to disclose transactions between Burberry Group companies, which eliminate on consolidation. 3 Changes in accounting policy and presentation The results for the year to 31 March 2004 have been restated following the adoption of FRS 17 'Retirement Benefits', UITF Abstract 38 'Accounting for ESOP Trusts' and UITF Abstract 17 'Employee Share Schemes'. Impact of adopting FRS 17 'Retirement Benefits' Following the actuarial valuation of the GUS defined benefit pension scheme as at 31 March 2004 it has become possible to identify the liabilities that arise from Burberry employees who participate in the scheme. This valuation was completed in January 2005 and Burberry Group has decided to adopt FRS 17. The allocation of assets held, in an independently administered fund, have been allocated in proportion to the liabilities arising and the net impact is recorded in pension obligations. The impact of adopting FRS 17 on the profit and loss account for the year to 31 March 2005 is not material. Previously the Group accounted for pension costs under SSAP 24 'Accounting for Pension Costs'. The impact of the above treatment is to: a) Reduce accruals and provisions by Â£0.9m as at 31 March 2004; b) Increase pension obligations by Â£2.0m as at 31 March 2004; c) Increase operating profit by Â£1.4m for the year to 31 March 2004; d) Increase interest and similar income by Â£0.1m for the year to 31 March 2004; and e) Reduce the profit and loss reserve account by Â£1.4m as at 31 March 2004. 3 Changes in accounting policy and presentation (continued) Impact of adopting UITF Abstract 38 'Accounting for ESOP Trusts' Shares held by the Burberry Group plc ESOP Trust and the Burberry Group Share Incentive Plan ('the Burberry Group ESOPs'), previously shown in the balance sheet as fixed asset investments, are now required to be shown as a deduction from Shareholders' Funds. The consideration paid and the related allocations of these shares to employees, are included as an adjustment to the profit and loss reserve account. The impact of the treatment above is to: a) Reduce fixed asset investments by Â£8.7m as at 31 March 2004; b) Reduce accruals and deferred income by Â£2.4m as at 31 March 2004; and c) Reduce the profit and loss reserve account by Â£6.3m as at 31 March 2004. There is no impact on the profit and loss account as a result of adopting UITF 38 in either the current or comparative year. The consolidated cash flow statement has been restated to reflect the reallocation of the cash payments relating to the purchase of shares from 'Capital expenditure and financial investment' to 'Financing'. The impact of the treatment for the Company is to: a) Reduce fixed asset investments by Â£8.7m as at 31 March 2004; and b) Reduce the profit and loss reserve account by Â£8.7m as at 31 March 2004. The impact of adopting UITF Abstract 17 'Employee Share Schemes' The Group has also adopted the provision of the revised UITF Abstract 17 'Employee Share Schemes' concerning the recognition of the cost of employee share incentive schemes. The cost of Employee Share Schemes is now charged to the profit and loss account using the quoted market price of the shares at the date of the grant less the exercise price of the share options granted. Previously the amount charged was calculated with reference to the cost of own shares. The charge is accrued over the performance period of the awards. There is no material effect on profit before taxation in either the current or the prior periods. 4 Segmental analysis (i) Geographical analysis - analysis by origin (a) Turnover - analysis by origin Year to 31 March ------------ 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Europe 535.6 498.9 Less: European inter-segment turnover to other regions (126.4) (78.5) -------------------------------------- ------- ------- 409.2 420.4 North America 157.8 156.2 -------------------------------------- ------- ------- Asia Pacific 149.1 99.9 Less: Asia Pacific inter-segment turnover to Europe (0.6) (0.7) -------------------------------------- ------- ------- 148.5 99.2 -------------------------------------- ------- ------- Total 715.5 675.8 -------------------------------------- ------- ------- 4 Segmental analysis (continued) (i) Geographical analysis - analysis by origin (continued) (b) Profit before taxation - analysis by origin Year to 31 March ------------ 2005 2004 (Restated) Â£m Â£m -------------------------------------- ------- ------- Europe 140.5 114.1 North America 7.0 15.6 Asia Pacific 18.0 12.9 -------------------------------------- ------- ------- 165.5 142.6 Net interest income 4.9 2.3 -------------------------------------- ------- ------- Profit before goodwill amortisation, exceptional items and taxation 170.4 144.9 Goodwill amortisation - Europe (5.4) (5.5) - Asia Pacific (1.4) (1.3) Exceptional items - Europe 0.8 2.1 - North America - 0.1 -------------------------------------- ------- ------- Profit before taxation 164.4 140.3 -------------------------------------- ------- ------- The results above are stated after the allocation of costs of a group-wide nature. (c) Net assets - analysis by origin As at 31 March ------------ 2005 2004 (Restated) Â£m Â£m -------------------------------------- ------- ------- Europe 136.0 119.9 North America 95.7 82.7 Asia Pacific 3.2 3.9 -------------------------------------- ------- ------- Net operating assets 234.9 206.5 Goodwill - Europe 82.4 85.4 - Asia Pacific 24.7 25.2 Deferred consideration for acquisitions - Europe (22.7) (21.7) - Asia Pacific (10.0) (10.0) Cash at bank, short term deposits, less bank overdrafts 169.9 157.9 Taxation (including deferred taxation) (2.9) 1.0 Dividends payable - GUS group (14.4) (9.9) Dividends payable - other shareholders (7.3) (5.0) -------------------------------------- ------- ------- Net assets 454.6 429.4 -------------------------------------- ------- ------- 4 Segmental analysis (continued) (ii) Geographical analysis - turnover by destination Year to 31 March ------------ 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Europe 356.4 346.8 North America 165.9 162.4 Asia Pacific 186.6 162.6 Other 6.6 4.0 -------------------------------------- ------- ------- Total 715.5 675.8 -------------------------------------- ------- ------- (iii) Analysis by class of business (a) Turnover - analysis by class of business Year to 31 March ------------ 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Wholesale 371.9 351.4 Retail 265.2 257.4 -------------------------------------- ------- ------- Wholesale and Retail 637.1 608.8 Licence 78.4 67.0 -------------------------------------- ------- ------- Total 715.5 675.8 -------------------------------------- ------- ------- An analysis of turnover by product category is shown below: Year to 31 March ------------ 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Womenswear 242.1 225.7 Menswear 194.5 190.1 Accessories (including childrens) 197.6 189.0 Other 2.9 4.0 -------------------------------------- ------- ------- Wholesale and Retail 637.1 608.8 Licence 78.4 67.0 -------------------------------------- ------- ------- Total 715.5 675.8 -------------------------------------- ------- ------- Number of directly operated stores, concessions and outlets open at 31 March 157 145 -------------------------------------- ------- ------- 4 Segmental analysis (continued) (iii) Analysis by class of business (continued) (b) Profit before taxation - analysis by class of business Year to 31 March ------------ 2005 2004 (Restated) Â£m Â£m -------------------------------------- ------- ------- Wholesale and Retail 98.5 86.6 Licence 67.0 56.0 -------------------------------------- ------- ------- 165.5 142.6 Net interest income 4.9 2.3 -------------------------------------- ------- ------- Profit before goodwill amortisation, exceptional items and taxation 170.4 144.9 Goodwill amortisation - Wholesale and Retail (6.8) (6.8) Exceptional items - Wholesale and Retail 0.6 1.6 - Licence 0.2 0.6 -------------------------------------- ------- ------- Profit before taxation 164.4 140.3 -------------------------------------- ------- ------- The results above are stated after the allocation of costs of a group-wide nature. The Wholesale and Retail business is managed in an integrated manner and therefore internal trading between these operations is not on a third party basis in certain respects. Accordingly, the directors do not consider that an analysis of the profit and loss account within the Wholesale and Retail business would be meaningful. (c) Net assets - analysis by class of business As at 31 March ------------ 2005 2004 (Restated) Â£m Â£m -------------------------------------- ------- ------- Wholesale and Retail 240.9 212.1 Licence (6.0) (5.6) -------------------------------------- ------- ------- Net operating assets 234.9 206.5 Goodwill - Wholesale and Retail 107.1 110.6 Deferred consideration for acquisitions - Wholesale and (32.7) (31.7) Retail Cash at bank, short term deposits, less bank overdrafts 169.9 157.9 Taxation (including deferred taxation) (2.9) 1.0 Dividends payable - GUS group (14.4) (9.9) Dividends payable - other shareholders (7.3) (5.0) -------------------------------------- ------- ------- Net assets 454.6 429.4 -------------------------------------- ------- ------- 5 Turnover and operating profit Year to 31 March ------------ 2005 2004 (Restated) Â£m Â£m -------------------------------------- ------- ------- Turnover 715.5 675.8 Cost of sales (291.3) (284.2) -------------------------------------- ------- ------- Gross profit 424.2 391.6 Distribution costs (111.2) (102.5) Administrative - expenses* (148.9) (145.5) - goodwill amortisation (6.8) (6.8) Property rental income under operating leases 1.1 1.3 Profit/(loss) on disposal of fixed assets 1.1 (0.1) -------------------------------------- ------- ------- Operating profit 159.5 138.0 -------------------------------------- ------- ------- *Administrative expenses include exceptional credit of Â£0.8m (2004: credit of Â£2.2m), see note 7. Property rental income arises from subletting certain surplus leasehold properties. Burberry Group's right to sublet these properties expired at various dates up to 2 January 2005, mainly due to the reversion of headlease interests. 6 Profit on ordinary activities before taxation Year to 31 March ------------ 2005 2004 (Restated) Â£m Â£m -------------------------------------- ------- ------- Profit before taxation is stated after charging/ (crediting): Depreciation of tangible fixed assets 21.1 25.6 Fixed asset impairment charge relating to certain retail assets 3.2 2.8 Amortisation of goodwill 6.8 6.8 Amortisation of trademarks and other intellectual property 0.1 0.1 Employee costs (see note 8) 127.7 115.6 (Profit)/loss on disposal of fixed assets (1.1) 0.1 Operating lease rentals - land and buildings 38.4 33.5 Operating lease rentals - other 0.6 0.8 Auditors' remuneration (including Â£3,255 for the Company, 2004: Â£3,100) 2.1 1.9 Net exchange (gain)/loss on trading items (0.7) 0.7 -------------------------------------- ------- ------- Auditor's remuneration is further analysed as follows: Year to 31 March ------------ 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Audit services - statutory audit 0.8 0.8 - audit related services 0.3 0.1 Further assurance services 0.3 0.1 Tax services - compliance services 0.2 0.2 - advisory services 0.5 0.7 -------------------------------------- ------- ------- Total 2.1 1.9 -------------------------------------- ------- ------- 7 Exceptional items The exceptional credit arising in the year to 31 March 2005 and 2004 consisted of the following amounts: Year to 31 March ------------ 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Lapse of awards under the IPO Senior Executive Restricted Share Plan (the 'IPO RSP') 0.7 0.8 Credit in respect of employers' National Insurance liability arising on the IPO RSP awards 0.1 1.4 -------------------------------------- ------- ------- Total 0.8 2.2 -------------------------------------- ------- ------- An exceptional credit of Â£0.7m arose in the year to 31 March 2005 (2004: Â£0.8m) on the lapsing of share awards, which had previously been granted to individuals in the year to 31 March 2003. A further credit of Â£0.1m relating to National Insurance, arose in the year to 31 March 2005 (2004: Â£1.4m) from the lapse of awards and in the year to 31 March 2004 the confirmation of the tax jurisdiction in which certain employees will be taxed when the IPO RSP awards vest. The associated tax charge relating to these exceptional items was Â£0.2m in the year (2004: charge Â£0.7m) and there was no cash outflow during the year in relation to these items (2004: Â£nil). 8 Employee costs Staff costs, including directors' emoluments, during the year were as shown below. The directors' emoluments are separately disclosed in the Report on directors' remuneration and related matters, this does not include gains arising on the exercise of share options. Year to 31 March ------------ 2005 2004 (Restated)* Â£m Â£m -------------------------------------- ------- ------- Wages and salaries 112.7 100.9 Social security costs 12.4 12.1 Other pension costs (see note 33) 2.6 2.6 -------------------------------------- ------- ------- Total 127.7 115.6 -------------------------------------- ------- ------- *Comparative amounts have been restated to include share scheme and related social security costs of Â£3.6m and Â£1.3m respectively. The average number of full time equivalent employees (including directors) during the year were as follows: Year to 31 March ------------ 2005 2004 Number of Number of employees employees -------------------------------------- ------- ------- Europe 2,788 2,657 North America 837 747 Asia Pacific 506 465 -------------------------------------- ------- ------- Total 4,131 3,869 -------------------------------------- ------- ------- 8 Employee costs (continued) SAYE Share Option Scheme A Save As You Earn (SAYE) share option scheme offering GUS plc ordinary shares was introduced for employees in the UK by GUS plc in the year to 31 March 2001, with a further option scheme offered to all UK employees of GUS plc in the year to 31 March 2003. The number of GUS plc ordinary shares subject to option held by Burberry Group employees as at 31 March 2005 were as follows: Number of shares under option as at 31 March -------------------------- Period to exercise Exercise price 2005 2004 -------------------------------- -------- ------- ------- From 01/05/2004 to 31/10/2004 384.0p - 191,415 From 01/05/2006 to 31/10/2006 384.0p 122,406 142,260 From 01/09/2005 to 28/02/2006 523.0p 36,184 39,512 From 01/09/2007 to 29/02/2008 523.0p 29,301 31,071 -------------------------------- -------- ------- ------- Total 187,891 404,258 -------------------------------- -------- ------- ------- John Peace and David Tyler are employed by GUS plc and their interests are disclosed in the GUS Annual Report. The administrative costs of this scheme have not been borne by Burberry Group and are not considered to be material. Share options and awards i) GUS schemes Share options have been granted to Burberry employees under the GUS plc 1998 Approved and Non-Approved Executive Share Option Schemes during the years to 31 March 2001 and 2002 in respect of the ordinary shares of GUS plc. The unexercised options granted to Burberry employees (including those granted to directors of the Company) under these schemes were as follows: --------------- Number of shares under option as at 31 March --------------- Period of exercise Exercise price 2005 2004 ------------------------------ -------- -------- -------- From 07/04/2003 to 07/04/2010 375.7p 40,458 40,458 From 11/06/2004 to 11/06/2011 612.7p 421,717 1,107,845 From 17/12/2004 to 17/12/2011 635.0p 37,832 180,526 ------------------------------ -------- -------- -------- Total 500,007 1,328,829 ------------------------------ -------- -------- -------- John Peace and David Tyler are employed by GUS plc and their interests are disclosed in the GUS Annual Report. 8 Employee costs (continued) Share options and awards (continued) ii) The Burberry IPO Senior Executive Restricted Share Plan (the 'IPO RSP') On 11 July 2002 awards in respect of a total of 8,100,198 Ordinary Shares were made to directors and senior management under the IPO RSP. During the year to 31 March 2005 1,035,000 Ordinary Shares were issued in respect of IPO RSP awards. The outstanding awards granted under this plan (including those granted to directors of the Company), in respect of Ordinary Shares of the Company were as follows: --------------- Number of shares awarded as at 31 March --------------- Period of exercise Exercise price 2005 2004 ------------------------------ -------- -------- -------- From 11/07/2005 to 11/07/2012 nil 2,687,499 3,859,446 From 11/07/2006 to 11/07/2012 nil 1,826,251 1,929,724 From 11/07/2007 to 11/07/2012 nil 1,826,250 1,929,724 ------------------------------ -------- -------- -------- Total 6,340,000 7,718,894 ------------------------------ -------- -------- -------- Obligations under this plan may be met by the issue of Ordinary Shares of the Company. Equity swaps have been entered into to cover future employer's National Insurance liability (or overseas equivalent) that may arise in respect of this plan. On 2 August 2004 Brian Blake was granted a nil-cost option to acquire 231,640 shares with an exercise price of nil on the same terms as those under the IPO RSP except that this option will be satisfied by shares held in the Burberry Group plc ESOP Trust. iii) The Burberry 2004 Senior Executive Restricted Share Plan (the '2004 RSP') On 2 August 2004 awards in respect of a total of 1,367,592 Ordinary Shares where made to directors and senior management under the 2004 RSP. Shares have been purchased by the Burberry Group plc ESOP Trust to meet obligations under this plan. No Ordinary Shares have been transferred to employees during the year to 31 March 2005 in respect of the 2004 RSP. The outstanding awards granted under this plan (including those granted to directors of the Company), in respect of Ordinary Shares of the Company were as follows: ------------- Number of shares awarded as at 31 March ------------- Period of exercise Exercise price 2005 2004 ------------------------------ ---------- ------- ------- From 02/08/2007 to 02/08/2014 nil 671,296 - From 02/08/2008 to 02/08/2014 nil 335,648 - From 02/08/2009 to 02/08/2014 nil 335,648 - ------------------------------ ---------- ------- ------- Total 1,342,592 - ------------------------------ ---------- ------- ------- Equity swaps have been entered into to cover future employer's National Insurance liability (or overseas equivalent) that may arise in respect of this plan. 8 Employee costs (continued) Share options and awards (continued) iv) The Burberry Senior Executive IPO Share Option Scheme ('the IPO Option Scheme') On 11 July 2002 options in respect of a total of 5,955,198 Ordinary Shares were granted to directors and senior management under the IPO Option Scheme. Obligations under this scheme may be met by the issue of Ordinary Shares of the Company. During the year to 31 March 2005 1,906,349 (2004: 691,166) Ordinary Shares were issued following the exercise of options granted under the IPO Option Scheme. The unexercised options granted under this scheme (including those granted to directors of the Company) in respect of Ordinary Shares of the Company were as follows: --------------- Number of shares under option as at 31 March --------------- Period of exercise Exercise price 2005 2004 ------------------------------ -------- -------- -------- From 11/07/2003 to 11/07/2012 230.0p 245,010 706,301 From 11/07/2004 to 11/07/2012 230.0p 483,341 1,928,399 From 11/07/2005 to 11/07/2012 230.0p 1,728,332 1,831,298 ------------------------------ -------- -------- -------- Total 2,456,683 4,465,998 ------------------------------ -------- -------- -------- Equity swaps have been entered into to cover future employer's National Insurance liability (or overseas equivalent) that may arise in respect of this scheme. v) The Burberry Group plc Executive Share Option Scheme 2002 During the year to 31 March 2004 a total of 3,043,533 options were granted to employees in respect of Ordinary Shares in the Company under the Executive Share Option Scheme. During the year to 31 March 2005 682,813 (2004: nil) Ordinary Shares were transferred to participants following the exercise of options under the scheme. The unexercised options granted under this scheme (including those granted to directors of the Company) in respect of Ordinary Shares of the Company were as follows: --------------- Number of shares under option as at 31 March --------------- Period of exercise Exercise price 2005 2004 ------------------------------ -------- -------- -------- From 12/06/2004 to 12/06/2013 258.0p 334,198 1,000,345 From 12/06/2005 to 12/06/2013 258.0p 931,777 969,344 From 12/06/2006 to 12/06/2013 258.0p 915,113 969,344 ------------------------------ -------- -------- -------- Total 2,181,088 2,939,033 ------------------------------ -------- -------- -------- 8 Employee costs (continued) Share options and awards (continued) During the year to 31 March 2005 a total of 2,002,290 options were granted to employees in respect of Ordinary Shares in the Company under the Executive Share Option Scheme. No Ordinary Shares were transferred to participants during the year in respect of the options granted. The unexercised options granted under this scheme (including those granted to directors of the Company) in respect of Ordinary Shares of the Company were as follows: Number of shares under option as at 31 March ------------------------------ Period of exercise Exercise price 2005 2004 ------------------------------ --------- -------- -------- From 02/08/2005 to 02/08/2014 378.0p 667,430 - From 02/08/2006 to 02/08/2014 378.0p 667,430 - From 02/08/2007 to 02/08/2014 378.0p 667,430 - ------------------------------ --------- -------- -------- Total 2,002,290 - ------------------------------ --------- -------- -------- Shares have been purchased by the Burberry Group plc ESOP Trust to meet obligations under this scheme. Equity swaps have been entered into to cover future employer's National Insurance liability (or overseas equivalent) that may arise in respect of this scheme. vi) The Burberry Group plc Co-investment Plan During the year to 31 March 2005 awards were made under this plan in respect of 221,703 Ordinary Shares in the Company (2004: nil). As at 31 March 2005 a total of 221,703 Ordinary Shares remain outstanding. Shares have been purchased by the Burberry Group plc ESOP Trust to meet obligations under this plan. vii) All Employee Share Plan During the year to 31 March 2005 all employees were offered a total of 471,050 (2004: 412,400) Ordinary Shares at a nil exercise price under an All Employee Share Plan. The Ordinary Shares are held in two trusts, being the Burberry Group plc Share Incentive Plan and the Burberry Group plc ESOP Trust. The Ordinary Shares must be held in trust between three and five years. The Ordinary Shares in the Company granted and remaining outstanding under this plan as at 31 March 2005 (including those granted to directors of the Company) were as follows: --------------- Number of Ordinary Shares as at 31 March --------------- Period of exercise Exercise price 2005 2004 ------------------------------ -------- -------- -------- From 19/07/2005 to 19/10/2005 nil 176,700 208,300 From 25/10/2005 to 18/07/2082* nil 105,850 128,291 From 07/07/2006 to 07/10/2006 nil 121,200 148,500 From 18/07/2006 to 18/10/2006 nil 81,450 85,350 From 05/08/2006 to 18/07/2082* nil 119,750 147,350 From 30/07/2007 to 30/10/2007 nil 252,400 - From 20/08/2007 to 18/07/2082* nil 171,750 - ------------------------------ -------- -------- -------- Total 1,029,100 717,791 ------------------------------ -------- -------- -------- *No date has been specified when awards lapse. The cessation date of the trust in which the awards are held is 18 July 2082. 8 Employee costs (continued) Fair value of awards On the transition to International Financial Reporting Standards (IFRS) it will be necessary to fair value the awards made. In order to recognise the full charge on adoption of IFRS it is necessary to disclose the fair values of the awards at the date of grant prior to the adoption of IFRS. The fair values of the awards made on grant date, determined using the Black-Scholes valuation model, are: Scheme Grant Date Fair Value The Burberry IPO Senior Executive Restricted Share Plan 11 July 2002 Â£2.18 The Burberry 2004 Senior Executive Restricted Share Plan 2 August 2004 Â£3.11 The Burberry Senior Executive IPO Share Option Scheme 11 July 2002 Â£0.75 The Burberry Group plc Executive Share Option Scheme 2002 12 June 2003 Â£0.87 The Burberry Group plc Executive Share Option Scheme 2002 2 August 2004 Â£1.07 The Burberry Group plc Co-investment Plan 29 July 2004 Â£3.80 All Employee Share Plan July / October Â£2.25 2002 All Employee Share Plan July / August Â£3.25 2003 All Employee Share Plan July / August Â£3.75 2004 9 Interest and similar income Year to 31 March -------------------------------------- -------------- 2005 2004 Â£m (Restated) Â£m -------------------------------------- ------- ------- Bank interest income 4.4 2.0 Interest income receivable from GUS group 0.9 0.3 Other interest income 0.2 0.1 -------------------------------------- ------- ------- Total 5.5 2.4 -------------------------------------- ------- ------- 10 Interest expense and similar charges Year to 31 March -------------------------------------- -------------- 2005 2004 Â£m Â£m -------------------------------------- ------- ------- On bank loans and overdrafts 0.4 - Interest expense payable to GUS group 0.2 0.1 -------------------------------------- ------- ------- Total 0.6 0.1 -------------------------------------- ------- ------- 11 Taxation Analysis of charge for the year Year to 31 March ------------ 2005 2004 (Restated)* Â£m Â£m -------------------------------------- ------- ------- Current tax UK corporation tax Current tax on income for the year to 31 March 2005 at 30% (2004: 30%) 37.3 32.6 Double taxation relief (7.4) (7.0) Adjustments in respect of prior years 1.2 1.1 -------------------------------------- ------- ------- 31.1 26.7 Foreign tax Current tax on income for the year 21.0 24.4 Adjustments in respect of prior years (1.1) (2.7) -------------------------------------- ------- ------- Total current tax 51.0 48.4 -------------------------------------- ------- ------- Deferred tax UK deferred tax Origination and reversal of timing differences 1.4 (0.3) Adjustments in respect of prior years (0.4) (1.3) -------------------------------------- ------- ------- 1.0 (1.6) Foreign deferred tax Origination and reversal of timing differences 1.5 (2.2) Adjustments in respect of prior years 1.0 2.7 -------------------------------------- ------- ------- Total deferred tax 3.5 (1.1) -------------------------------------- ------- ------- Tax on profit on ordinary activities 54.5 47.3 -------------------------------------- ------- ------- *Prior year amounts have been restated to include amounts in corporation tax. The tax rate applicable on profit on ordinary activities varied from the standard rate of corporation tax in the UK due to the following factors: Year to 31 March ----------- 2005 2004 (Restated) Â£m Â£m -------------------------------------- ------- ------- Tax at 30% on profit before taxation 49.3 42.1 Rate adjustments relating to overseas profits (1.4) 0.2 Permanent disallowables 2.7 1.6 Tax losses not utilised - 0.5 Goodwill amortisation not deductible 2.0 2.0 Adjustments in respect of prior years 0.1 (1.6) Timing differences (2.9) 2.5 Other 1.2 1.1 -------------------------------------- ------- ------- Total current tax 51.0 48.4 -------------------------------------- ------- ------- Burberry has commenced a review with the Competent Authorities with regard to resolving transfer pricing of internal sales between the UK and US. As part of the agreements with GUS, certain tax liabilities, which arise and relate to matters prior to 31 March 2002, will be met by GUS. From 1 April 2002 any liability will be due from the Burberry Group. No corporation tax provision has been made for additional taxation arising for these matters as none is anticipated overall. 12 Profit on ordinary activities after taxation Profit on ordinary activities after taxation but before dividends payable includes a loss of Â£1.8m (2004: loss Â£4.9m) which is dealt within the financial statements of the Company. As permitted by section 230 of the Companies Act 1985, the Company has not presented its own profit and loss account. 13 Dividends Ordinary dividends (Equity) Year to 31 March ------------ 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Interim dividend paid (2.0p per share, (2004: 1.5p)) - GUS group 6.6 5.0 - other shareholders 3.4 2.4 Final dividend proposed (4.5p per share, (2004: 3.0p)) - GUS group 14.4 9.9 - other shareholders 7.3 5.0 -------------------------------------- ------- ------- Total dividend - 6.5p per share (2004: 4.5p) 31.7 22.3 -------------------------------------- ------- ------- Preference dividends (Non-Equity) During the year Burberry Group paid a total preference dividend of Â£30,070 (0.001p per preference share) (2004: Â£21,450 (0.001p per preference share)) to GUS group on the redeemable preference shares issued prior to flotation (see note 24 for further details). 14 Earnings per share The calculation of basic earnings per share is based on profit after taxation divided by the weighted average number of Ordinary Shares in issue during the year. Basic earnings per share before amortisation of goodwill and exceptional items is disclosed to indicate the underlying profitability of the Group. Diluted earnings per share is based on the weighted average number of Ordinary Shares in issue during the year. In addition, account is taken of any awards made under the RSP and share option schemes which will have dilutive effects when exercised (full vesting of all outstanding awards is assumed). Supplementary earnings per share figures are presented. These exclude the effects of exceptional items and goodwill amortisation to allow comparison of underlying trading performance on a consistent basis. Year to 31 March ------------ 2005 2004 (Restated) Â£m Â£m -------------------------------------- ------- ------- Profit on ordinary activities after taxation, but before goodwill amortisation and exceptional items 115.8 98.1 Effect of goodwill amortisation (net of attributable taxation) (6.5) (6.6) Effect of exceptional items (net of attributable taxation) 0.6 1.5 -------------------------------------- ------- ------- Profit on ordinary activities after taxation 109.9 93.0 -------------------------------------- ------- ------- 14 Earnings per share (continued) The weighted average number of Ordinary Shares represents the weighted average number of Burberry Group plc Ordinary Shares in issue throughout the period, excluding Ordinary Shares held in the Burberry Group's ESOPs. Year to 31 March ------------ 2005 2004 Million Million -------------------------------------- ------- ------- Weighted average number of Ordinary Shares in issue during the year 494.1 495.6 Dilutive effect of the RSP and share options schemes 10.5 10.3 -------------------------------------- ------- ------- Diluted weighted average number of Ordinary Shares in issue during the year 504.6 505.9 -------------------------------------- ------- ------- Year to 31 March ------------ 2005 2004 (Restated) Basic earnings per share Pence Pence -------------------------------------- ------- ------- Basic earnings per share before goodwill amortisation and exceptional items 23.4 19.8 Effect of goodwill amortisation (1.3) (1.3) Effect of exceptional items 0.1 0.3 -------------------------------------- ------- ------- Basic earnings per share 22.2 18.8 -------------------------------------- ------- ------- Year to 31 March ------------ 2005 2004 (Restated) Diluted earnings per share Pence Pence -------------------------------------- ------- ------- Diluted earnings per share before goodwill amortisation and exceptional items 23.0 19.4 Effect of goodwill amortisation (1.3) (1.3) Effect of exceptional items 0.1 0.3 -------------------------------------- ------- ------- Diluted earnings per share 21.8 18.4 -------------------------------------- ------- ------- 15 Intangible fixed assets Goodwill Trademarks and Total other intellectual property Cost Â£m Â£m Â£m -------------------------------- ------- --------- ------ As at 1 April 2004 132.6 1.2 133.8 Effect of foreign exchange rate changes 4.2 - 4.2 Additions - 0.1 0.1 -------------------------------- ------- --------- ------ As at 31 March 2005 136.8 1.3 138.1 -------------------------------- ------- --------- ------ Amortisation -------------------------------- ------- --------- ------ As at 1 April 2004 22.0 0.4 22.4 Effect of foreign exchange rate changes 0.9 - 0.9 Charge for the year 6.8 0.1 6.9 -------------------------------- ------- --------- ------ As at 31 March 2005 29.7 0.5 30.2 -------------------------------- ------- --------- ------ Net book value -------------------------------- ------- --------- ------ As at 31 March 2005 107.1 0.8 107.9 As at 31 March 2004 110.6 0.8 111.4 -------------------------------- ------- --------- ------ 16 Tangible fixed assets Freehold land Leasehold land Fixtures, Assets in the Total and buildings and buildings fittings and course of less than 50 equipment construction years Cost or valuation Â£m Â£m Â£m Â£m Â£m ----------------------- ------- ------- ------- ------- ------- As at 1 April 2004 84.1 57.7 81.5 1.2 224.5 Effect of foreign exchange rate changes 0.1 (0.4) 0.7 (0.1) 0.3 Additions 1.2 12.3 24.6 4.7 42.8 Reclassifications - 1.0 0.2 (1.2) - Disposals (1.8) (4.6) (8.1) - (14.5) ----------------------- ------- ------- ------- ------- ------- As at 31 March 2005 83.6 66.0 98.9 4.6 253.1 ----------------------- ------- ------- ------- ------- ------- Depreciation ----------------------- ------- ------- ------- ------- ------- At 1 April 2004 15.1 14.9 44.7 - 74.7 Effect of foreign exchange rate changes 0.1 (0.1) 0.5 - 0.5 Provided in year 2.6 4.8 13.7 - 21.1 Impairment charge on certain retail assets - 2.2 1.0 - 3.2 Disposals (0.2) (4.6) (7.7) - (12.5) ----------------------- ------- ------- ------- ------- ------- As at 31 March 2005 17.6 17.2 52.2 - 87.0 ----------------------- ------- ------- ------- ------- ------- Net book value ----------------------- ------- ------- ------- ------- ------- As at 31 March 2005 66.0 48.8 46.7 4.6 166.1 As at 31 March 2004 69.0 42.8 36.8 1.2 149.8 ----------------------- ------- ------- ------- ------- ------- During the year to 31 March 2005 certain retail assets became impaired and the cost of these assets were written down. The impairment charge was based on a review of the value of the assets in use and was determined in accordance with Financial Reporting Standard 11 'Impairment of Fixed Assets and Goodwill'. The discount rate used in these calculations was 15% and applied to the pre-tax cash flows attributable to these assets. 16 Tangible fixed assets (continued) Certain properties were revalued at 31 March 1996 and are included at their valuation at this date less depreciation. Other properties are included at cost. The revaluations performed at 31 March 1996 were carried out by external valuers, Colliers Conrad Ritblat Erdman Limited, Chartered Surveyors, on an open market basis for existing use. This valuation was carried out in accordance with the Royal Institution of Chartered Surveyors Appraisal and Valuation Manual. As at 31 March ------------ 2005 2004 Freehold and leasehold land and buildings held at revalued Â£m Â£m amount ------- ------- -------------------------------------- Revalued amount 28.8 27.7 Aggregate depreciation (5.8) (5.3) -------------------------------------- ------- ------- Net book value 23.0 22.4 -------------------------------------- ------- ------- If the revalued assets were stated on the historical cost basis, the amounts would be: As at 31 March ------------ 2005 2004 Freehold and leasehold land and buildings at historical cost Â£m Â£m -------------------------------------- ------- ------- Historical cost 9.2 8.1 Aggregate depreciation (4.5) (4.5) -------------------------------------- ------- ------- Net book value based on historical cost 4.7 3.6 -------------------------------------- ------- ------- 17 Fixed asset investments Group Company Trade Subsidiary investment companies Â£m Â£m ------------------------------------ ------- ------- Cost ------------------------------------ ------- ------- As at 1 April 2004 and 31 March 2005 0.1 1,766.0 ------------------------------------ ------- ------- Write down in investments ------------------------------------ ------- ------- As at 1 April 2004 - 718.7 Write down in investment in Group undertakings 0.1 ------------------------------------ ------- ------- As at 31 March 2005 - 718.8 ------------------------------------ ------- ------- Net book value ------------------------------------ ------- ------- As at 31 March 2005 0.1 1,047.2 As at 31 March 2004 0.1 1,047.3 ------------------------------------ ------- ------- The trade investment represents an investment in Suit Spain S.L, a clothing manufacturing company incorporated in Spain in which Burberry Group holds a 21.5% share of the ordinary share capital. Burberry Group does not exercise significant influence on the financial and operating decisions of the company. 18 Stock As at 31 March ------------ 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Raw materials 13.5 14.6 Work in progress 6.7 7.6 Finished goods 82.3 67.3 -------------------------------------- ------- ------- Total 102.5 89.5 -------------------------------------- ------- ------- 18 Stock (continued) There is no significant difference between the replacement cost of stock and the amounts shown above, on the basis that stock subject to provisioning would not be replaced, and is therefore excluded from this calculation. 19 Debtors Group Company ------------ ------------ As at 31 March As at 31 March 2005 2004 2005 2004 (Restated)* Â£m Â£m Â£m Â£m ---------------------------- ------- ------- --- ------- ------- Amounts falling due within one year Trade debtors 91.6 86.1 - - Other debtors 1.5 0.9 - - Prepayments and accrued income 19.1 12.0 5.2 1.2 Corporation tax 3.1 2.8 0.2 2.4 Amounts receivable from subsidiary companies - - 156.5 15.5 ---------------------------- ------- ------- --- ------- ------- 115.3 101.8 161.9 19.1 Amounts falling due after more than one year Other debtors 1.2 1.5 - - Deferred tax assets 18.4 22.1 - - Corporation tax 0.8 0.8 - - Amounts receivable from subsidiary companies - - 507.0 648.9 ---------------------------- ------- ------- --- ------- ------- Total 135.7 126.2 668.9 668.0 ---------------------------- ------- ------- --- ------- ------- *Prior period amounts have been reclassified to gross up certain corporation tax balances. The movement of the deferred tax balance is shown below: Â£m -------------------------------------- ------------ As at 1 April 2004 22.1 Effect of foreign exchange rate changes 0.2 Charge to the profit and loss account (3.5) Other movements (0.4) -------------------------------------- ------------ As at 31 March 2005 18.4 -------------------------------------- ------------ The analysis of the deferred tax assets is shown below: As at 31 March ------------ 2005 2004 (Restated) Â£m Â£m -------------------------------------- ------- ------- Accelerated capital allowances 0.7 (0.4) Unrealised stock profit and other stock provisions 7.7 8.9 Share schemes 8.9 8.3 Net operating losses 0.2 0.3 Other short term timing differences 0.9 5.0 -------------------------------------- ------- ------- Undiscounted deferred tax assets 18.4 22.1 -------------------------------------- ------- ------- The deferred tax assets recorded in each year arise from timing differences, which are expected to reverse in the foreseeable future. 20 Cash and short term deposits Group Company ------------ ------------ As at 31 March As at 31 March ------------ ------------ 2005 2004 2005 2004 Â£m Â£m Â£m Â£m --------------------------- ------- ------- --- ------- ------- Cash 62.4 42.6 0.7 0.1 Short term deposits (see note 32) 107.5 116.1 - - --------------------------- ------- ------- --- ------- ------- Total 169.9 158.7 0.7 0.1 --------------------------- ------- ------- --- ------- ------- Short term deposits includes Â£18.3m as at 31 March 2005 (2004: Â£15.8m) deposited with GUS group companies on standard commercial terms. These deposits were repaid in cash by 29 April 2005. 21 Creditors - amounts falling due within one year Group Company ------------ ------------ As at 31 March As at 31 March ------------ ------------ 2005 2004 2005 2004 (Restated)* Â£m Â£m Â£m Â£m --------------------------- ------- ------- --- ------- ------- Unsecured: Overdrafts (see note 26, 32) - 0.8 - - Trade creditors 27.5 31.2 - - Trading balances owed to GUS group 6.8 6.8 - - Corporation tax (UK and overseas) 25.2 24.7 - - Other taxes and social security costs 6.7 4.2 - - Other creditors 24.6 18.7 0.3 - Accruals and deferred income 72.6 62.5 0.2 0.1 Deferred consideration for acquisitions 22.7 - - - Dividends payable - GUS group 14.4 9.9 14.4 9.9 Dividends payable - other shareholders 7.3 5.0 7.3 5.0 Amounts due to subsidiary companies - - 150.2 41.3 --------------------------- ------- ------- --- ------- ------- Total 207.8 163.8 172.4 56.3 --------------------------- ------- ------- --- ------- ------- *Prior year amounts have been reclassified to gross up certain corporation tax balances. Overdrafts as at 31 March 2004 represent unpresented cheques. Deferred consideration due within one year arises from the acquisition of Burberry (Spain) S.A. and Mercader y Casadevall S.A. and is payable in June 2005. 22 Creditors - amounts falling due after more than one year Group Company ------------- ------------- As at 31 March As at 31 March 2005 2004 2005 2004 Â£m Â£m Â£m Â£m ------------------------ -------- -------- --- -------- ------- Unsecured: Other creditors, accruals and deferred income 4.8 3.7 - - Deferred consideration for acquisitions 10.0 31.7 - - Amounts due to subsidiary companies - - 686.1 713.4 ------------------------ -------- -------- --- -------- ------- Total 14.8 35.4 686.1 713.4 ------------------------ -------- -------- --- -------- ------- At 31 March 2005 deferred consideration due after more than one year arises from the acquisition of the trade and certain assets of the Burberry business in Korea. 23 Provisions for liabilities and charges Pensions Property Other Total obligations obligations Â£m Â£m Â£m Â£m --------------------------- ------- ------- ------- ------- As at 1 April 2004 as previously reported 0.2 4.5 0.6 5.3 Adjustment for FRS 17 (0.2) - - (0.2) --------------------------- ------- ------- ------- ------- As at 1 April 2004 as restated - 4.5 0.6 5.1 Effect of foreign exchange rate changes - 0.1 - 0.1 Utilised in the year - (3.9) (0.2) (4.1) Credited to the profit and loss account - 2.2 (0.1) 2.1 --------------------------- ------- ------- ------- ------- Balance as at 31 March 2005 - 2.9 0.3 3.2 --------------------------- ------- ------- ------- ------- Property obligations arise from the portfolio of leasehold obligations which the Group maintains and are expected to be utilised over a two year period, these obligations are discounted, the effect of which is not material. Other provisions primarily relate to amounts payable in respect of redundancies, which are expected to be paid within one year. 24 Called up share capital Group and Company 2005 2004 Authorised share capital Â£m Â£m ------------------------------------- --------- ------ 1,999,999,998,000 (2004: 1,999,999,998,000) Ordinary Shares of 0.05p (2004: 0.05p) each 1,000.0 1,000.0 1,600,000,000 redeemable preference shares of 0.05p (2004: 0.05p) each 0.8 0.8 ------------------------------------- --------- ------ Total 1,000.8 1,000.8 ------------------------------------- --------- ------ Allotted, called up and fully paid share capital Number Â£m ------------------------------------- --------- ------ Ordinary Shares of 0.05p (2004: 0.05p) each As at 1 April 2004 500,691,166 0.3 Cancellations of purchased Ordinary Shares (14,715,588) - Allotted on exercise of RSP and IPO Option Scheme awards during the year 2,941,349 - ------------------------------------- --------- ------ As at 31 March 2005 488,916,927 0.3 ------------------------------------- --------- ------ Redeemable preference shares of 0.05p each As at 1 April 2004 and 31 March 2005 1,600,000,000 0.8 ------------------------------------- --------- ------ Total called up Ordinary and preference share capital 1.1 ------------------------------------- --------- ------ During the year 15,585,618 Ordinary Shares were purchased by the Company, for a total cost, including expenses, of Â£62.0m. Of the total number of Ordinary Shares purchased, 14,715,588 have been cancelled and the remaining 870,030 Ordinary Shares were cancelled after the year end. The Ordinary Shares cancelled were purchased at a cost, including expenses, of Â£58.4m. The repurchases have been carried out in accordance with the authorisation for on-market purchases granted by Shareholders by the 2004 AGM and, for off-market purchases, by Shareholders at the EGM held on 20 December 2004. Redeemable preference share capital Called up redeemable preference shares, which do not carry any voting rights, were issued prior to flotation and are held by GUS group. 24 Called up share capital (continued) The redeemable preference shares have the right to a non-cumulative dividend at the rate per annum of six-monthly LIBOR minus 1.0% and to a further dividend equal to the dividend per share paid on the Company's Ordinary Shares once the total dividend on those Ordinary Shares that has been paid in any financial year reaches Â£100,000 per Ordinary Share. The Company has the right to redeem the preference shares at any time until 14 June 2007. On this date any preference shares outstanding will be redeemed in full for their face value together with any dividends accruing up to 14 June 2007. On a return of capital on winding-up or otherwise (other than on redemption or purchase of shares), the holders of the preference shares shall be entitled to a sum equal to the nominal capital paid up or credited as paid up on the preference shares held by them respectively. This payment will rank in priority to any payment to the holders of any other class of shares. 25 Reserves Group Share premium Revaluation Capital reserve Profit and loss account reserve account Â£m Â£m Â£m Â£m ---------------------------- ------- ------- ------- ------- As at 1 April 2004 as previously reported 124.7 23.5 42.9 244.9 Prior year adjustments (see note 3) - - - (7.7) ---------------------------- ------- ------- ------- ------- As at 1 April 2004 as restated 124.7 23.5 42.9 237.2 Effect of foreign exchange rate changes - - (0.3) 5.5 Share premium arising in the year 11.4 - - - Retained profit for the year - - - 78.2 Purchase of own shares under share buy back programme - - - (58.4) Net purchase of own shares by ESOPs - - - (6.9) Lapse of IPO RSP awards - - (0.8) - Exercise of IPO RSP and IPO share option awards - - (2.4) (4.6) Charges in respect of employee share incentive schemes - - - 5.3 Movement in pension scheme obligations - - - (1.8) Reclassificati on of reserves - (0.1) - 0.1 ---------------------------- ------- ------- ------- ------- As at 31 March 2005 136.1 23.4 39.4 254.6 ---------------------------- ------- ------- ------- ------- Company Share premium Profit and loss account account Â£m Â£m -------------------------------------- ------- ------- As at 1 April 2004 as previously reported 124.7 828.6 Prior year adjustment (see note 3) - (8.7) -------------------------------------- ------- ------- As at 1 April 2004 as restated 124.7 819.9 Share premium arising in the year 11.4 - Retained loss for the year - (33.5) Purchase of own shares under share buy back programme - (58.4) Net purchase of own shares by ESOPs - (6.9) -------------------------------------- ------- ------- As at 31 March 2005 136.1 721.1 -------------------------------------- ------- ------- 25 Reserves (continued) Based upon the market price for the Company's shares at the year end, the expected cumulative impact on Burberry Group's consolidated profit and loss account of the RSP and IPO Option Scheme is a charge of Â£15.8m (2004: Â£15.7m) which would be taken direct to reserves. However, as this will be offset by an increase in share capital and share premium, there will be no net impact on Burberry Group's consolidated Shareholders' Funds. Cumulative goodwill charged to reserves on acquisition before 1 April 1998 is Â£0.1m (2004: Â£0.1m). Investment in own shares The cost of own shares held in the Burberry Group ESOPs has been offset against the profit and loss reserve account as the amounts paid reduce the profits available for distribution by the Burberry Group and the Company. As at 31 March 2005 the amounts offset against this reserve account are Â£19.0m (2004: Â£12.1m). As at 31 March 2005 investment in own shares represents the cost of 6,480,020 (2004: 4,895,473) of the Company's Ordinary Shares (nominal value Â£3,240 (2004: Â£2,448)) which amounts to 1.3% (2004: 1.0%) of the called up share capital. These shares are held to meet the share option award obligations arising on the 2004 RSP, the Executive Share Option Scheme 2002, the Burberry Group plc Co-investment Plan and the All Employee Share Plans. In the year to 31 March 2005, the Company purchased 2,300,000 shares (2004: 2,700,000), at a cost (excluding expenses) of Â£8.7m (2004: Â£7.0m). These shares were acquired by the Burberry Group plc ESOP Trust in the open market using funds provided by Burberry Group companies. In addition, 715,453 shares were used to satisfy awards granted under the Executive Share Option Scheme 2002 and All Employee Share Plans. In the year to 31 March 2005 the Burberry Group plc ESOP Trust has waived its entitlement to dividends of Â£254,307 (2004: Â£167,998). The costs of funding and administering the trusts of Â£0.1m are charged to the profit and loss account of Burberry Limited in the period to which they relate (2004: Â£0.1m). The market value of all own shares held at 31 March 2005 was Â£26.5m (2004 Â£17.5m) During the year the Company repurchased and subsequently cancelled 14,715,588 Ordinary Shares, representing 3% of the issued share capital, at a total cost of Â£58.4m. The nominal value of the shares was Â£7,358, which was transferred to a capital redemption reserve. Profit and loss reserves were reduced by Â£58.4m. As at 31 March 2005 a further 870,030 Ordinary Shares had been repurchased and were cancelled after 31 March 2005, these Ordinary Shares represent 0.2% of the issued share capital with a nominal value of Â£435 and were repurchased for a total cost of Â£3.6m. 26 Analysis of movement in net funds As at Cash flow Exchange As at 1 April 2004 movements 31 March 2005 Â£m Â£m Â£m Â£m ------------------------ -------- -------- -------- -------- Cash balances 42.6 19.9 (0.1) 62.4 Overdrafts (0.8) 0.8 - - ------------------------ -------- -------- -------- -------- 41.8 20.7 (0.1) 62.4 ------------------------ -------- -------- -------- -------- Liquid resources: 116.1 (9.9) 1.3 107.5 Short term deposits ------------------------ -------- -------- -------- -------- Total 157.9 10.8 1.2 169.9 ------------------------ -------- -------- -------- -------- 26 Analysis of movement in net funds (continued) Liquid resources as at 31 March 2005 and 31 March 2004 comprise short term deposits and cash balances (principally denominated in Sterling, US and Hong Kong dollars) placed with banks, liquidity funds and GUS group companies. 27 Reconciliation of net cash flow to movement in net funds Year to 31 March ------------- 2005 2004 Â£m Â£m ------------------------------------- -------- -------- Increase in cash (see note 26) 20.7 14.8 Cash (inflow)/outflow from movement in liquid resources (9.9) 69.2 ------------------------------------- -------- -------- Movement in net funds resulting from cash flows 10.8 84.0 Exchange gains/(losses) 1.2 (5.7) ------------------------------------- -------- -------- Movement in net funds 12.0 78.3 Net funds at beginning of year 157.9 79.6 ------------------------------------- -------- -------- Net funds at end of year (see note 26) 169.9 157.9 ------------------------------------- -------- -------- 28 Analysis of net funds As at 31 March ------------- 2005 2004 Â£m Â£m ------------------------------------- -------- -------- Cash and short term deposits 169.9 158.7 Overdrafts* - (0.8) ------------------------------------- -------- -------- Net funds at end of year (see note 26) 169.9 157.9 ------------------------------------- -------- -------- *Overdrafts at 31 March 2004 represent unpresented cheques. 29 Financial commitments Burberry Group had annual commitments under non-cancellable operating leases as follows: As at 31 March 2005 As at 31 March 2004 ----------------- ----------------- Land and Other Total Land and Other Total buildings buildings Â£m Â£m Â£m Â£m Â£m Â£m ----------------- ------- ------- ------- --- ------- ------- ------- Expiry date: Within one year 2.5 - 2.5 2.3 0.5 2.8 Between two and five years 8.2 0.4 8.6 6.7 0.2 6.9 After five years 14.8 - 14.8 12.5 - 12.5 ----------------- ------- ------- ------- --- ------- ------- ------- Total 25.5 0.4 25.9 21.5 0.7 22.2 ----------------- ------- ------- ------- --- ------- ------- ------- The financial commitments for operating lease amounts calculated as a percentage of turnover ('turnover leases'), have been based on the minimum payment that is required under the terms of the relevant lease. Under certain turnover leases there are no minimums and therefore no financial commitment is included in the table above. As a result, the amounts charged to the profit and loss account may be materially higher than the financial commitment at the prior year end. 30 Capital commitments Capital commitments contracted but not provided for by Burberry Group as at 31 March 2005 amounted to Â£9.7m (2004: Â£14.2m). Contracted capital commitments represent contracts entered into by the year end and major capital expenditure projects where activity has commenced by the year end. 31 Contingent liabilities Since 31 March 2004 the following changes to contingent liabilities have occurred: In the year to 31 March 2002, the Group received an invoice for Â£0.5m in respect of construction works at the Bond Street site from its former lessor. The Burberry Group notified the other party that it was seeking recovery of certain costs incurred because of the late delivery of the store structure. During the year this matter was settled and the Burberry Group made a payment of Â£0.5m. The Group was named as one of approximately 100 defendants in a class action in California, USA, which alleges that employees' job application processes violated the Californian Labor Code. This action has been settled for less than Â£0.1m. Other contingent liabilities reported at 31 March 2004 remain unchanged and were: Under the GUS group UK tax payment arrangements, the Group is and will remain jointly and severally liable for any GUS liability attributable to the period of Burberry Group's membership of this payment scheme. Burberry Group's membership of this scheme was terminated with effect from 31 March 2002. Burberry (Spain) S.A. is liable for certain salary and social security contributions left unpaid by its sole contractors where the amounts are attributable to the period in which subcontracting activity is undertaken on behalf of Burberry (Spain) S.A. It is not feasible to estimate the amount of contingent liability, but such expense has been minimal in prior years. The Group has received a claim from the liquidator of Creation Cent Mille SA ('CCM') a former licensee of Burberry Group, seeking to set aside the termination of the licence agreement between Burberry Limited and CCM. Burberry Group believes this claim is without merit and has continued to vigorously defend itself. 32 Financial risk management Burberry Group's policies are as follows: Liquidity and treasury management Burberry Group's management seeks to reduce financial risk and to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Burberry Group's treasury function does not operate as a profit centre and transacts only in relation to the underlying business requirements. Currency risk management Burberry Group's management has monitored the desirability of hedging the profits and net assets of overseas subsidiaries when translated into Sterling for reporting purposes. It has not entered into any specific transactions for this purpose. Burberry Group's profit and loss account is affected by transactions denominated in foreign currency. To reduce exposure to currency fluctuations, Burberry Group has a policy of hedging foreign currency denominated transactions by entering into forward exchange contracts where appropriate. Burberry Group's principal foreign currency denominated transactions arise from royalty income and the sale and purchase of overseas sourced products. In the UK, Burberry Group manages these exposures by the use of Yen and Euro forward exchange contracts for a period of 12 months in advance. In addition, Burberry Group's overseas subsidiaries hedge the foreign currency element of their product purchases on a seasonal basis. The hedging activity involves the use of spot and forward currency instruments. (a) Fair values of financial assets and financial liabilities Set out below is a comparison by category of book values and fair values of Burberry Group's financial assets and financial liabilities: ------------ Book and fair value as at 31 March 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Primary financial instruments held or issued to finance the Group's operations: Investment 0.1 0.1 Cash at bank and in hand 62.4 42.6 Short term deposits 107.5 116.1 -------------------------------------- ------- ------- Total financial assets 170.0 158.8 -------------------------------------- ------- ------- Overdrafts - (0.8) Other financial liabilities (see note 32 (d)) (41.0) (39.6) -------------------------------------- ------- ------- Total financial liabilities (41.0) (40.4) -------------------------------------- ------- ------- Total net financial investments 129.0 118.4 -------------------------------------- ------- ------- 2005 2004 Â£m Â£m -------------------------------------- ------- ------- Derivative financial instruments held to manage the currency profile: Forward foreign currency contracts - book value - - - fair value 5.7 3.6 -------------------------------------- ------- ------- 32 Financial risk management (continued) (a) Fair values of financial assets and financial liabilities (continued) Fair value methods and assumptions Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties, other than a forced or liquidation sale and excludes accrued interest. The principal assumptions are: i) The fair value of short term deposits, loans and overdrafts approximates to the carrying amount because of the short maturity of these instruments. ii) The fair value of foreign currency contracts is based on a comparison of the contractual and year end spot exchange rates. (b) Interest rate risk profile Financial assets The interest rate risk profile of Burberry Group's financial assets (excluding investments) by currency is as follows: Cash at bank Short term Total and deposits in hand Currency Â£m Â£m Â£m ---------------------------------- ------- ------- ------- As at 31 March 2005 Sterling 6.4 63.0 69.4 US dollar 14.1 2.4 16.5 Euro 22.0 34.8 56.8 Other currencies 19.9 7.3 27.2 ---------------------------------- ------- ------- ------- Total 62.4 107.5 169.9 ---------------------------------- ------- ------- ------- Floating rate assets 47.7 107.5 155.2 Balances for which no interest is paid 14.7 - 14.7 ---------------------------------- ------- ------- ------- As at 31 March 2004 Sterling 7.0 77.3 84.3 US dollar 20.4 1.2 21.6 Euro 10.4 33.3 43.7 Other currencies 4.8 4.3 9.1 ---------------------------------- ------- ------- ------- Total 42.6 116.1 158.7 ---------------------------------- ------- ------- ------- Floating rate assets 41.5 116.1 157.6 Balances for which no interest is paid 1.1 - 1.1 ---------------------------------- ------- ------- ------- Floating rate assets earn interest based on the relevant national LIBID equivalents. Balances for which no interest is paid is made up of Sterling Â£0.7m, (2004: Â£0.1m), Euros Â£1.8m, (2004: Â£0.1m) Hong Kong dollars Â£5.2m, (2004: Â£0.9m), Singapore dollars Â£1.9m (2004: nil) and Japanese yen Â£5.1m (2004: nil). These amounts arise principally due to the timing of transactions. In addition to the above, the investment of Â£0.1m at 31 March 2005 (2004: Â£0.1m) meets the definition of a financial asset. No interest is receivable on this Euro denominated financial asset. 32 Financial risk management (continued) (b) Interest rate risk profile (continued) Financial liabilities The interest rate risk profile of Burberry Group's financial liabilities by currency as at 31 March is as follows: Floating rate Financial Total Weighted financial liabilities on average period liabilities which no until maturity interest is for financial payable liabilities on which no interest is payable Currency Â£m Â£m Â£m Years ----------------- ---------- ---------- ---------- ---------- As at 31 March 2005 Sterling 0.8 20.4 21.2 1.3 US dollar - 3.8 3.8 4.1 Euro - 15.7 15.7 0.3 Other - 0.3 0.3 1.3 ----------------- ---------- ---------- ---------- ---------- Total 0.8 40.2 41.0 1.2 ----------------- ---------- ---------- ---------- ---------- As at 31 March 2004 Sterling 1.6 17.7 19.3 1.7 US dollar - 2.4 2.4 4.1 Euro - 18.7 18.7 1.4 ----------------- ---------- ---------- ---------- ---------- Total 1.6 38.8 40.4 1.7 ----------------- ---------- ---------- ---------- ---------- The floating rate financial liabilities as at 31 March 2005 and 2004 incurred interest based on relevant national LIBOR equivalents. The floating rate financial liabilities at 31 March 2005 include preference shares of a total value of Â£0.8m (2004: Â£0.8m) and overdraft balances at 31 March 2005 of Â£nil (2004: Â£0.8m). See note 24 for further details regarding the preference shares. 32 Financial risk management (continued) (c) Currency exposures The tables below show the extent to which Burberry Group has monetary assets and liabilities at the year end in currencies other than the local currency of operation, after accounting for the effect of any specific forward contracts used to manage currency exposure. Monetary assets and liabilities refer to cash, deposits, borrowings and amounts to be received or paid in cash. Foreign exchange differences on retranslation of these assets and liabilities are taken to the profit and loss account, except where they hedge an investment in an overseas subsidiary of Burberry Group. Net foreign currency monetary assets/(liabilities) -------------------------------------------------- Sterling US dollar Euro Other Total currencies Functional currency of Â£m Â£m Â£m Â£m Â£m operation: ------------------------ ------- ------- ------- ------- ------ As at 31 March 2005 Sterling - 0.3 - 0.9 1.2 Euro 0.4 0.3 - - 0.7 Other currencies 4.3 2.8 - - 7.1 ------------------------ ------- ------- ------- ------- ------ Total 4.7 3.4 - 0.9 9.0 ------------------------ ------- ------- ------- ------- ------ As at 31 March 2004 Sterling - 0.4 (0.1) 1.8 2.1 US dollar - - (0.3) - (0.3) Euro - 0.2 - - 0.2 Other currencies 0.3 - - - 0.3 ------------------------ ------- ------- ------- ------- ------ Total 0.3 0.6 (0.4) 1.8 2.3 ------------------------ ------- ------- ------- ------- ------ 32 Financial risk management (continued) (d) Maturity of financial liabilities The maturity profile of the carrying amount of Burberry Group's financial liabilities, other than short term trade creditors and accruals at 31 March, was as follows: Debt* Non-equity Deferred Other financial Total shares consideration liabilities Â£m Â£m Â£m Â£m Â£m ------------------------ ------- ------- ------- ------- ------- As at 31 March 2005 In one year or less, or on demand - - 22.7 2.6 25.3 In more than one year but not more than two years - - - 1.5 1.5 In more than two years but not more than five years - 0.8 10.0 1.0 11.8 In more than five years - - - 2.4 2.4 ------------------------ ------- ------- ------- ------- ------- Total - 0.8 32.7 7.5 41.0 ------------------------ ------- ------- ------- ------- ------- As at 31 March 2004 In one year or less, or on demand 0.8 - - 2.0 2.8 In more than one year but not more than two years - - 21.7 1.8 23.5 In more than two years but not more than five years - 0.8 10.0 1.7 12.5 In more than five years - - - 1.6 1.6 ------------------------ ------- ------- ------- ------- ------- Total 0.8 0.8 31.7 7.1 40.4 ------------------------ ------- ------- ------- ------- ------- *Debt balances as at 31 March 2004 are related to unpresented cheques. Non-equity shares relate to redeemable preference shares, on which a non-cumulative dividend are paid (see note 24 for further details). All deferred consideration is payable in cash. For details on deferred consideration, see notes 21 and 22. Other financial liabilities principally relate to accrued lease liabilities Â£4.2m (2004: (Â£2.6m)), which are included in other creditors falling due after more than one year, and provisions for certain property obligations Â£2.9m (2004: (Â£4.5m)), which are included in provisions. 32 Financial risk management (continued) (e) Borrowing facilities A Â£200m five year multi currency revolving facility was agreed with a syndicate of third party banks commencing on 30 March 2005. This facility replaces the previous Â£75m facility with GUS plc. (f) Hedging Under Burberry Group's accounting policy (see note 2), the gains and losses on forward foreign currency contracts are deferred and accounted for when the underlying transaction is recognised. There are no material deferred gains or losses as at 31 March 2005 and 2004. Certain gains and losses on such forward foreign currency contracts will be unrecognised in the financial statements and an analysis of these is shown below: ------- ------- ------- Unrecognised Unrecognised Total net gains losses unrecognised gains/(losses) Â£m Â£m Â£m --------------------------------- ------- ------- ------- Gains and losses on hedges as at 1 April 2004 5.0 (1.4) 3.6 Arising before 1 April 2004 included in current year income (5.0) 1.4 (3.6) Arising during the year and not included in current year income 8.2 (2.4) 5.8 --------------------------------- ------- ------- ------- Gains and losses on hedges as at 31 March 2005 8.2 (2.4) 5.8 --------------------------------- ------- ------- ------- To be recognised in 2005/06 8.1 (2.4) 5.7 To be recognised thereafter 0.1 - 0.1 --------------------------------- ------- ------- ------- This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW FR AJMTTMMBTTFA

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