Final Results - Part 2

Burberry Group PLC 24 May 2004 PART 2 Notes to the financial statements 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. Prior to the completion of the initial public offering in July 2002, ownership of these companies was transferred to Burberry Group plc (formerly Burberry Group Limited), which was incorporated on 30 October 1997 in England and Wales. 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 ended 31 March 2004 and 2003. Prior to flotation, on 17 July 2002, the net assets of Burberry Group were represented by the cumulative investment of GUS group in Burberry Group (shown as 'GUS investment in Burberry Group'). All non-trading transactions between Burberry Group and GUS group were reflected as movements in 'GUS investment in Burberry Group', which was comprised of: a) Assets and liabilities not forming part of Burberry Group after flotation. These assets and liabilities were transferred on or before flotation to GUS group companies in part settlement of the loans outstanding between GUS group and Burberry Group; b) Loans due to and from GUS group companies. These amounts were settled fully either as part of the Burberry Group reorganisation with shares issued to GUS group and loan repayments, or by the waiver of such loans by GUS group; and c) Share capital and reserves of Burberry Group companies. The balances in (a) and (b) above are referred to as 'GUS group balances' in the 'Reconciliation of movement in Group Shareholders' Funds', the 'Group cash flow statement' and the 'Reconciliation of net cash flow to movement in net funds'. Burberry Group Reorganisation Immediately prior to the flotation on the London Stock Exchange, 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 FRS 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 (Â£486.7m), by loan repayment out of the proceeds of the Company's flotation on the London Stock Exchange (Â£250.5m) and by the waiver of the remaining debt (Â£37.6m) 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 arises 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. A capital reserve of Â£6.6m was also created as part of the reorganisation. 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. The principal accounting policies 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, in the case of Japanese licenses, is on the basis of production volumes. The Group has complied with Financial Reporting Standard 5 Application Note G - 'Revenue Recognition' published during the year. There has been no material impact as a consequence of adopting this standard in the year ended 31 March 2004. 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. 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. Leasehold properties are carried at original cost and are amortised over the remainder of the lease term on a straight line basis. 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. 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 Statement of Standard Accounting Practice 24 'Accounting for pension costs' ('SSAP 24'). The transitional disclosure requirements required by Financial Reporting Standard 17 'Retirement benefits' ('FRS 17') are set out in note 32. 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. 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. h) Share schemes Incentive plans The cost of shares acquired by the Burberry Group Employee Share Ownership Trusts ('ESOTs') or 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 made use of the exemption under UITF Abstract 17 'Employee Share Schemes' not to recognise any compensation charge in respect of this scheme. 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 Year to 31 As at 31 As at 31 March 2004 March 2003 March 2004 March 2003 ______________________________________________________________________________________ ______________________ Euro 1.44 1.55 1.50 1.45 US dollar 1.70 1.55 1.84 1.58 Hong Kong dollar 13.20 12.05 14.31 12.33 Korean won 2,016 1,880 2,106 1,981 ______________________________________________________________________________________ ______________________ 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 182.3: Â£1 in the year to 31 March 2004 (2003: Yen 174.2: 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 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. 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 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 Segmental analysis (i) Geographical analysis - analysis by origin (a) Turnover - analysis by origin Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Europe 498.9 429.9 Less: European inter-segment turnover to other regions (78.5) (57.5) ___________________________________________________________________________________________________________________ 420.4 372.4 North America 156.2 133.8 ___________________________________________________________________________________________________________________ Asia Pacific 99.9 88.1 Less: Asia Pacific inter-segment turnover to Europe (0.7) (0.7) ___________________________________________________________________________________________________________________ 99.2 87.4 ___________________________________________________________________________________________________________________ Total 675.8 593.6 ___________________________________________________________________________________________________________________ (b) Profit before taxation - analysis by origin Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Europe 112.7 92.6 North America 15.6 8.4 Asia Pacific 12.9 15.7 ___________________________________________________________________________________________________________________ 141.2 116.7 Net interest income/(expense) 2.2 (0.9) Foreign currency loss on loans with GUS group (pre-flotation) - (2.3) ___________________________________________________________________________________________________________________ Profit before goodwill amortisation, exceptional items and taxation 143.4 113.5 Goodwill amortisation - Europe (5.5) (5.1) - Asia Pacific (1.3) (1.3) Exceptional items - Europe 2.1 (20.3) - North America 0.1 (1.6) - Asia Pacific - (0.1) ___________________________________________________________________________________________________________________ Profit before taxation 138.8 85.1 ___________________________________________________________________________________________________________________ The results above are stated after the allocation of costs of a group-wide nature. (c) Net assets - analysis by origin As at 31 As at 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Europe 118.9 129.1 North America 82.7 93.4 Asia Pacific 3.9 3.1 ___________________________________________________________________________________________________________________ Net operating assets 205.5 225.6 Goodwill - Europe 85.4 94.2 - Asia Pacific 25.2 28.6 Deferred consideration for acquisitions - Europe (21.7) (19.2) - Asia Pacific (10.0) (12.5) Cash at bank, short term deposits, less bank overdrafts 157.9 79.6 Investment in own shares 8.7 3.3 Taxation (including deferred taxation) 1.0 0.4 Dividends payable - GUS group companies (9.9) (7.8) Dividends payable - other shareholders (5.0) (2.2) ___________________________________________________________________________________________________________________ Net assets 437.1 390.0 ___________________________________________________________________________________________________________________ (ii) Geographical analysis - turnover by destination Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Europe 346.8 302.7 North America 162.4 140.5 Asia Pacific 162.6 147.0 Other 4.0 3.4 ___________________________________________________________________________________________________________________ Total 675.8 593.6 ___________________________________________________________________________________________________________________ (iii) Analysis by class of business (a) Turnover - analysis by class of business Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Wholesale 351.4 306.9 Retail 257.4 228.4 ___________________________________________________________________________________________________________________ Wholesale and Retail 608.8 535.3 Licence 67.0 58.3 ___________________________________________________________________________________________________________________ Total 675.8 593.6 ___________________________________________________________________________________________________________________ An analysis of turnover by product category is shown below: Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Womenswear 225.7 197.9 Menswear 190.1 162.8 Accessories (including Childrens) 189.0 169.5 Other 4.0 5.1 ___________________________________________________________________________________________________________________ Wholesale and Retail 608.8 535.3 Licence 67.0 58.3 ___________________________________________________________________________________________________________________ Total 675.8 593.6 ___________________________________________________________________________________________________________________ Number of directly operated stores, concessions and outlets open at 31 March 145 132 ___________________________________________________________________________________________________________________ (b) Profit before taxation - analysis by class of business Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Wholesale and Retail 85.2 64.3 Licence 56.0 52.4 ___________________________________________________________________________________________________________________ 141.2 116.7 Net interest income/(expense) 2.2 (0.9) Foreign currency loss on loans with GUS group (pre-flotation) - (2.3) ___________________________________________________________________________________________________________________ Profit before goodwill amortisation, exceptional items and taxation 143.4 113.5 Goodwill amortisation - Wholesale and Retail (6.8) (6.4) Exceptional items - Wholesale and Retail 1.6 (18.3) - Licence 0.6 (3.7) ___________________________________________________________________________________________________________________ Profit before taxation 138.8 85.1 ___________________________________________________________________________________________________________________ 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 As at 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Wholesale and Retail 211.1 222.1 Licence (5.6) 3.5 ___________________________________________________________________________________________________________________ Net operating assets 205.5 225.6 Goodwill - Wholesale and Retail 110.6 122.8 Deferred consideration for acquisitions - Wholesale and Retail (31.7) (31.7) Cash at bank, short term deposits, less bank overdrafts 157.9 79.6 Investment in own shares 8.7 3.3 Taxation (including deferred taxation) 1.0 0.4 Dividends payable - GUS group companies (9.9) (7.8) Dividends payable - other shareholders (5.0) (2.2) ___________________________________________________________________________________________________________________ Net assets 437.1 390.0 ___________________________________________________________________________________________________________________ 4 Turnover and operating profit Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Turnover 675.8 593.6 Cost of sales (284.2) (261.3) ___________________________________________________________________________________________________________________ Gross profit 391.6 332.3 Distribution costs (note 1) (102.5) (98.0) Administrative - expenses (note 2) (147.0) (140.8) - goodwill amortisation (6.8) (6.4) Other operating income 1.3 1.2 ___________________________________________________________________________________________________________________ Operating profit 136.6 88.3 ___________________________________________________________________________________________________________________ Note 1: Distribution costs include exceptional charges of Â£nil (2003: Â£3.7m); see note 6. Note 2: Administrative expenses include exceptional income of Â£2.2m (2003: charge of Â£18.3m); see note 6. Other operating income arises from sub-letting certain surplus leasehold properties. Burberry Group's right to sub-let these properties has expired or will expire at various dates up to 2 January 2005, mainly due to the reversion of headlease interests. 5 Profit on ordinary activities before taxation Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m _________________________________________________________________________________________________________________ Profit before taxation is stated after charging/(crediting): Depreciation of tangible fixed assets 25.6 16.8 Fixed asset impairment charge relating to certain retail assets 2.8 2.1 Amortisation of goodwill 6.8 6.4 Amortisation of trademarks and other intellectual property 0.1 0.1 Employee costs (see note 7) 112.1 100.2 Loss on disposal of fixed assets 0.1 0.3 Property rental income under operating leases (see note 4) (1.3) (1.2) Operating lease rentals - land and buildings* 33.5 30.5 Operating lease rentals - other 0.8 - Auditors' remuneration - audit services (including Â£3,100 for the Company, 2003: Â£3,000) 0.8 0.8 - non-audit services 1.1 0.8 Net exchange loss/(gain) on trading items 0.7 (1.3) Exchange loss on loans with GUS group (pre-flotation) (see note 9) - 2.3 _________________________________________________________________________________________________________________ *The amount disclosed as operating lease rentals in the year to 31 March 2003 has been restated as a result of a reclassification of charges. Auditor's remuneration for non-audit services in 2004 included Â£1.0m (2003: Â£0.6m) for tax related services and Â£0.1m (2003: Â£0.2m) for other matters. Tax related services includes compliance activities, transfer pricing enquiries and other activities where tax advice has been provided. No fees were capitalised in 2004 (2003: Â£0.1m) in relation to acquisitions. 6 Exceptional items The exceptional credit arising in the year ended 31 March 2004 (2003: charge) consisted of the following amounts: Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Lapse/(grant) of awards under the Senior Executive Restricted Share Plan (the 'RSP') 0.8 (18.5) Credit/(charge) in respect of employers' National Insurance liability arising on the RSP 1.4 (2.1) awards Shares gifted to employees under the All Employee Share Plan - (1.0) Other costs relating to the Initial Public Offer - (0.4) ___________________________________________________________________________________________________________________ Total 2.2 (22.0) ___________________________________________________________________________________________________________________ Awards were made under the Restricted Share Plan ('RSP') to the executive directors and other senior management of Burberry Group in respect of services provided prior to flotation. No previous awards had been made, and no further awards will be made, under the RSP. An exceptional credit of Â£0.8m arose in the year to 31 March 2004 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£1.4m relating to National Insurance, arose in the year to 31 March 2004 from the lapse of awards and confirmation of the tax jurisdiction in which certain employees will be taxed when the RSP awards vest. The associated tax charge relating to these exceptional items was Â£0.7m in the year (2003: credit Â£6.3m) and the cash outflow during the year in relation to these items was Â£nil (2003: Â£0.3m). 7 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 includes gains arising on the exercise of share options. Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m* ___________________________________________________________________________________________________________________ Wages and salaries 97.3 88.3 Social security costs 10.8 9.0 Other pension costs (see note 32) 4.0 2.9 ___________________________________________________________________________________________________________________ Total 112.1 100.2 ___________________________________________________________________________________________________________________ *Costs have been restated to include certain employee costs that had previously been omitted from this disclosure. The average number of full time equivalent employees (including directors) during the year were as follows: Year to 31 Year to 31 March 2004 March 2003 Number of Number of employees employees* ___________________________________________________________________________________________________________________ Europe 2,657 2,594 North America 747 669 Asia Pacific 465 394 ___________________________________________________________________________________________________________________ Total 3,869 3,657 ___________________________________________________________________________________________________________________ * Numbers have been restated to include additional employees that had previously been omitted from this disclosure. 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 ended 31 March 2001, with a further option scheme offered to all UK employees of GUS plc in the year ended 31 March 2003. The number of GUS plc ordinary shares subject to option held by Burberry Group employees as at 31 March 2004 were as follows: Number of Number of shares under shares under option as at option as at Exercise 31 March 31 March Period to exercise price 2004 2003 ___________________________________________________________________________________________________________________ From 01.05.2004 to 31.10.2004 384.0p 191,415 210,549 From 01.05.2006 to 31.10.2006 384.0p 142,260 151,833 From 01.09.2005 to 28.02.2006 523.0p 39,512 51,127 From 01.09.2007 to 29.02.2008 523.0p 31,071 34,485 ___________________________________________________________________________________________________________________ Total 404,258 447,994 ___________________________________________________________________________________________________________________ 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 1998 Approved and Non-Approved Executive Share Option Schemes during the years ended 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 Number of share options share options Exercise as at 31 as at 31 Period of exercise price March 2004 March 2003 _____________________________________________________________________________________________________________________ From 07.04.2003 to 07.04.2010 375.7p 40,458 172,612 From 11.06.2004 to 11.06.2011 612.7p 1,107,845 1,175,381 From 17.12.2004 to 17.12.2011 635.0p 180,526 180,526 _____________________________________________________________________________________________________________________ Total 1,328,829 1,528,519 _____________________________________________________________________________________________________________________ ii) The Burberry Senior Executive Restricted Share Plan (the '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 RSP. As at 31 March 2004 awards in respect of a total of 7,718,894 (2003: 8,055,198) Ordinary Shares remained outstanding. The cost of the RSP shares has been provided for as an exceptional item in the year to 31 March 2003. No Ordinary Shares were issued during the year in respect of the RSP. Participants' awards were made in the form of options with an exercise price of nil. The unexercised awards 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 Number of Ordinary Ordinary Exercise Shares as at Shares as at price 31 March 31 March 2004 2003 ___________________________________________________________________________________________________________________ From 11.07.2005 to 11.07.2012 nil 3,859,446 4,027,600 From 11.07.2006 to 11.07.2012 nil 1,929,724 2,013,799 From 11.07.2007 to 11.07.2012 nil 1,929,724 2,013,799 ___________________________________________________________________________________________________________________ Total 7,718,894 8,055,198 ___________________________________________________________________________________________________________________ Ordinary Shares were purchased at the IPO to cover the Employer's National Insurance liability (or overseas equivalent) arising on these awards. During the year to 31 March 2004 the shares held have been redesignated and are now held to cover future share awards. On 31 March 2004 equity swaps were entered into to cover future Employer's National Insurance liability (or overseas equivalent) that may arise in respect of this scheme. iii) The Burberry Senior Executive IPO Share Option Scheme ('the IPO Option Scheme') On 11 July 2002 awards in respect of a total of 5,955,198 Ordinary Shares were made to directors and senior management under the IPO Option Scheme. As at 31 March 2004 awards in respect of a total of 4,465,998 (2003: 5,830,198) Ordinary Shares remained outstanding. During the year to 31 March 2004 691,166 (2003: nil) Ordinary Shares were issued following the exercise of options under the IPO Option Scheme. Participants' awards were made in the form of options with an exercise price equal to the price on flotation, Â£2.30 per Ordinary Share. The unexercised awards 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 Number of Ordinary Ordinary Shares as at Shares as at Exercise 31 March 31 March Period of exercise price 2004 2003 ___________________________________________________________________________________________________________________ From 11.07.2003 to 11.07.2012 230.0p 706,301 1,943,399 From 11.07.2004 to 11.07.2012 230.0p 1,928,399 1,943,399 From 11.07.2005 to 11.07.2012 230.0p 1,831,298 1,943,400 ___________________________________________________________________________________________________________________ Total 4,465,998 5,830,198 ___________________________________________________________________________________________________________________ Ordinary Shares were purchased at the IPO to cover the Employer's National Insurance liability (or overseas equivalent) arising on these awards. During the year to 31 March 2004 the shares held have been redesignated and are now held to cover future share awards. On 31 March 2004 equity swaps were entered into to cover future Employer's National Insurance liability (or overseas equivalent) that may arise in respect of this scheme. iv) Awards under the Approved and Non-Approved Executive Share Option Scheme 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 Approved and Non-Approved Executive Share Option Scheme. No Ordinary Shares were issued during the year in respect of the awards granted. The unexercised awards granted to Burberry employees under this scheme (including those granted to directors of the Company) were as follows: Number of Number of Ordinary Ordinary Shares as at Shares as at Exercise 31 March 31 March Period of exercise price 2004 2003 ___________________________________________________________________________________________________________________ From 12.06.2004 to 12.06.2013 258.0p 1,000,345 - From 12.06.2005 to 12.06.2013 258.0p 969,344 - From 12.06.2006 to 12.06.2013 258.0p 969,344 - ___________________________________________________________________________________________________________________ Total 2,939,033 - ___________________________________________________________________________________________________________________ Equity swaps were entered into on 31 March 2004 to cover future Employer's National Insurance liability (or overseas equivalent) that may arise in respect of this scheme. v) All Employee Share Plan On flotation all employees were offered shares in the Company under an All Employee Share Plan. A total of 413,700 Ordinary Shares with a value of Â£1.0m were awarded to employees, and the options over the awards have an exercise price of nil. On flotation the Company purchased 421,450 shares at an aggregate cost of Â£969,335 in respect of these awards. During the year to 31 March 2004 all employees were offered a total of 412,400 Ordinary Shares with options over the awards at a nil exercise price under an all Employee Share Plan. In March 2003 the Company purchased 500,000 shares at an aggregate cost of Â£1,224,550 in respect of these awards. These Ordinary Shares are held in two trusts, being the Burberry Group Share Incentive Plan and the Burberry Group plc ESOP Trust. The Ordinary Shares must be held in trust between three and five years. The awards granted and remaining outstanding under this scheme as at 31 March 2004 (nil in respect of the directors of the Company) in respect of Ordinary Shares in the Company were as follows: Number of Number of Ordinary Ordinary Shares as at Shares as at Exercise 31 March 31 March Period of exercise price 2004 2003 ___________________________________________________________________________________________________________________ From 19.07.2005 to 19.10.2005 nil 208,300 241,700 From 25.10.2005 to 18.07.2082* nil 128,291 158,600 From 07.07.2006 to 07.10.2006 nil 148,500 - From 18.07.2006 to 18.10.2006 nil 85,350 - From 05.08.2006 to 18.07.2082* nil 147,350 - ___________________________________________________________________________________________________________________ Total 717,791 400,300 ___________________________________________________________________________________________________________________ * 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 Interest and similar income Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Dividend income from trade investment - 0.1 ___________________________________________________________________________________________________________________ Bank interest income 2.0 0.8 Interest income receivable from GUS group companies 0.3 0.9 ___________________________________________________________________________________________________________________ Interest receivable and similar income 2.3 1.7 ___________________________________________________________________________________________________________________ Total 2.3 1.8 ___________________________________________________________________________________________________________________ 9 Interest expense and similar charges Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ On bank loans and overdrafts - 1.2 Interest expense payable to GUS group companies 0.1 1.5 ___________________________________________________________________________________________________________________ 0.1 2.7 Foreign exchange loss on loans to GUS group companies (pre-flotation) - 2.3 ___________________________________________________________________________________________________________________ Total 0.1 5.0 ___________________________________________________________________________________________________________________ In the year to 31 March 2003 the foreign exchange losses on loans to GUS group companies were recorded in the profit and loss account of Burberry Group as loans were made by Burberry Group companies to hedge the net assets of other GUS group companies. These losses related to loans that existed prior to flotation and which were settled before or on flotation. 10 Taxation Year to 31 Year to 31 March 2004 March 2003 Analysis of charge for the year Â£m Â£m ____________________________________________________________________________________________________________________ Current tax UK corporation tax Current tax on income for the year ended 31 March 2004 at 30% (2003: 30%) 29.2 23.3 Double taxation relief (7.0) (6.5) Adjustment in respect of prior years 1.1 3.0 ____________________________________________________________________________________________________________________ 23.3 19.8 Foreign tax Current tax on income for the year 24.4 22.4 Adjustments in respect of prior years (2.7) - ____________________________________________________________________________________________________________________ Total current tax 45.0 42.2 Deferred tax UK deferred tax Origination and reversal of timing differences 3.1 (4.1) Adjustments in respect of prior years (1.3) (3.0) ____________________________________________________________________________________________________________________ 1.8 (7.1) Foreign deferred tax Origination and reversal of timing differences (2.2) (3.0) Adjustments in respect of prior years 2.7 0.8 ____________________________________________________________________________________________________________________ Total deferred tax 2.3 (9.3) ____________________________________________________________________________________________________________________ Tax on profit on ordinary activities 47.3 32.9 ____________________________________________________________________________________________________________________ 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 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Tax at 30% on profit before taxation 41.6 25.5 Rate adjustments relating to overseas profits 0.2 (0.9) Permanent disallowables 1.6 1.3 Tax losses utilised - (0.2) Tax losses not utilised 0.5 2.8 Goodwill amortisation not deductible 2.0 2.0 Tax arising on exceptional items - 0.2 Adjustments in respect of prior years (1.6) 3.0 Timing differences (0.9) 7.1 Other 1.6 1.4 ___________________________________________________________________________________________________________________ Total current tax 45.0 42.2 ___________________________________________________________________________________________________________________ Burberry has commenced a review with the Competent Authorities with regard to resolving transfer pricing of internal sales between the UK and USA. 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 proceedings as none is anticipated overall. 11 Profit on ordinary activities after taxation Profit on ordinary activities after taxation but before dividends payable includes a loss of Â£4.9m (2003: profit Â£28.5m) which is dealt with in 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. 12 Dividends Ordinary dividends (Equity) Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Dividend paid to GUS group (pre-flotation) - 219.0 ___________________________________________________________________________________________________________________ Interim dividend paid (1.5p per share, (2003: 1.0p)) - GUS group 5.0 3.9 - other shareholders 2.4 1.1 Final dividend proposed (3.0p per share, (2003: 2.0p)) - GUS group 9.9 7.8 - other shareholders 5.0 2.2 ___________________________________________________________________________________________________________________ Total dividend - 4.5p per share (2003: 3.0p) 22.3 15.0 ___________________________________________________________________________________________________________________ Total 22.3 234.0 ___________________________________________________________________________________________________________________ Preference dividends (Non-Equity) During the year Burberry Group paid a total preference dividend of Â£21,450 (0.001p per preference share) (2003: Â£18,454 (0.001p per preference share)) to GUS group on the redeemable preference shares issued prior to flotation (see note 23 for further details). 13 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 (2003: during the period from flotation to 31 March 2003). Basic earnings per share before amortisation of goodwill and exceptional items is disclosed to indicate the underlying profitability of the Group. The calculation of diluted earnings per share reflects the prospective dilutive effect of the Restricted Share Plan ('RSP') and share option schemes. Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Profit on ordinary activities after taxation, but before goodwill amortisation 96.6 74.1 and exceptional items Effect of goodwill amortisation (net of attributable taxation) (6.6) (6.2) Effect of exceptional items (net of attributable taxation) 1.5 (15.7) ___________________________________________________________________________________________________________________ Profit on ordinary activities after taxation 91.5 52.2 ___________________________________________________________________________________________________________________ The weighted average number of Ordinary Shares as at 31 March 2004 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 ESOTs. The weighted average number of Ordinary Shares at 31 March 2003 represents the number of Burberry Group plc Ordinary Shares in issue at flotation through to 31 March 2003 excluding Ordinary Shares held in Burberry Group's ESOTs. Diluted earnings per share for the relevant financial period is based on the weighted average number of Ordinary Shares in issue throughout the period (or for the year to 31 March 2003 at flotation through to 31 March 2003) excluding any Ordinary Shares held in Burberry Group's ESOTs. In addition account is taken of any awards made under the RSP and share option schemes which will have a dilutive effect when exercised (full vesting of all outstanding awards is assumed). Year to 31 Year to 31 March 2004 March 2003 Million Million ___________________________________________________________________________________________________________________ Weighted average number of Ordinary Shares in issue during the year 495.6 498.1 Dilutive effect of the RSP and share options schemes 10.3 8.1 ___________________________________________________________________________________________________________________ Diluted weighted average number of Ordinary Shares in issue during the year 505.9 506.2 ___________________________________________________________________________________________________________________ Year to 31 Year to 31 March 2004 March 2003 Basic earnings per share Pence Pence ___________________________________________________________________________________________________________________ Basic earnings per share before goodwill amortisation and exceptional items 19.5 14.9 Effect of goodwill amortisation (1.3) (1.2) Effect of exceptional items 0.3 (3.2) ___________________________________________________________________________________________________________________ Basic earnings per share 18.5 10.5 ___________________________________________________________________________________________________________________ Year to 31 Year to 31 March 2004 March 2003 Diluted earnings per share Pence Pence ___________________________________________________________________________________________________________________ Diluted earnings per share before goodwill amortisation and exceptional items 19.1 14.6 Effect of goodwill amortisation (1.3) (1.2) Effect of exceptional items 0.3 (3.1) ___________________________________________________________________________________________________________________ Diluted earnings per share 18.1 10.3 ___________________________________________________________________________________________________________________ 14 Intangible assets Trademarks and other intellectual Goodwill property Total Cost Â£m Â£m Â£m _____________________________________________________________________________________________________________________ As at 1 April 2003 138.9 1.2 140.1 Effect of foreign exchange rate changes (5.5) - (5.5) Revaluation - relating to the acquisition of the Korean business (0.8) - (0.8) _____________________________________________________________________________________________________________________ As at 31 March 2004 132.6 1.2 133.8 _____________________________________________________________________________________________________________________ Amortisation As at 1 April 2003 16.1 0.3 16.4 Effect of foreign exchange rate changes (0.9) - (0.9) Charge for the year 6.8 0.1 6.9 _____________________________________________________________________________________________________________________ As at 31 March 2004 22.0 0.4 22.4 _____________________________________________________________________________________________________________________ Net book value As at 31 March 2004 110.6 0.8 111.4 As at 31 March 2003 122.8 0.9 123.7 _____________________________________________________________________________________________________________________ During the year to 31 March 2004, fair value adjustments relating to the acquisition of the trade and assets of the Korean business acquired on 1 July 2002 were finalised. This has resulted in an increase in the valuation of the assets acquired and a subsequent reduction in the initial cost of goodwill recorded at the time of the acquisition. 15 Tangible fixed assets Leasehold land and Freehold buildings Fixtures, Assets in the land and less than fittings and course of buildings 50 years equipment construction Total Cost or valuation Â£m Â£m Â£m Â£m Â£m _____________________________________________________________________________________________________________________ As at 1 April 2003 91.2 60.2 85.4 1.0 237.8 Effect of foreign exchange rate changes (7.7) (5.9) (3.8) (0.1) (17.5) Additions 0.6 7.4 20.0 1.8 29.8 Reclassifications - 0.6 0.9 (1.5) - Disposals - (4.6) (21.0) - (25.6) _____________________________________________________________________________________________________________________ As at 31 March 2004 84.1 57.7 81.5 1.2 224.5 Depreciation _____________________________________________________________________________________________________________________ At 1 April 2003 13.7 13.8 48.9 - 76.4 Effect of foreign exchange rate changes (1.1) (1.6) (1.9) - (4.6) Provided in year 2.5 5.8 17.3 - 25.6 Impairment charge on certain retail assets - 1.4 1.4 - 2.8 Disposals - (4.5) (21.0) - (25.5) _____________________________________________________________________________________________________________________ As at 31 March 2004 15.1 14.9 44.7 - 74.7 Net book value As at 31 March 2004 69.0 42.8 36.8 1.2 149.8 As at 31 March 2003 77.5 46.4 36.5 1.0 161.4 _____________________________________________________________________________________________________________________ During the year ended 31 March 2004 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. The discount rate used in these calculations was 15% and applied to the pre-tax cash flows attributable to these assets. 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 As at 31 March 2004 March 2003 Freehold and leasehold land and buildings held at revalued amount Â£m Â£m ___________________________________________________________________________________________________________________ Revalued amount 27.7 29.4 Aggregate depreciation (5.3) (5.3) ___________________________________________________________________________________________________________________ Net book value 22.4 24.1 ___________________________________________________________________________________________________________________ If the revalued assets were stated on the historical cost basis, the amounts would be: As at 31 As at 31 March 2004 March 2003 Freehold and leasehold land and buildings at historical cost Â£m Â£m ___________________________________________________________________________________________________________________ Historical cost 8.1 8.6 Aggregate depreciation (4.5) (5.1) ___________________________________________________________________________________________________________________ Net book value based on historical cost 3.6 3.5 ___________________________________________________________________________________________________________________ 16 Investments Group Interest in own shares ______________________ Trade investment Number of cost and Ordinary Net book net Shares value book value Total Million Â£m Â£m Â£m ___________________________________________________________________________________________________________________ As at 1 April 2003 2.3 3.3 0.1 3.4 Additions 2.7 7.0 - 7.0 Disposals (0.1) (0.4) - (0.4) Shares written off (All Employee Share Plan) - (1.2) - (1.2) ___________________________________________________________________________________________________________________ As at 31 March 2004 4.9 8.7 0.1 8.8 ___________________________________________________________________________________________________________________ Company Interest in own shares ______________________ Group undertakings Number of cost and Ordinary Net book net book Shares value value Total Million Â£m Â£m Â£m ___________________________________________________________________________________________________________________ As at 1 April 2003 2.3 3.3 968.0 971.3 Effect of foreign exchange rate changes - - 0.2 0.2 Additions 2.7 7.0 796.1 803.1 Disposals (0.1) (0.4) - (0.4) Shares written off (All Employee Share Plan) - (1.2) - (1.2) Write down of investment in Group undertakings - - (717.0) (717.0) ___________________________________________________________________________________________________________________ As at 31 March 2004 4.9 8.7 1,047.3 1056.0 ___________________________________________________________________________________________________________________ Group and Company The Company purchased 2,700,000 shares in the year ended 31 March 2004 (2003: 921,450), for a total cost of Â£7,002,337 (2003: Â£2,193,885), to meet its obligations in respect of awards granted during the year to 31 March 2004 under the Approved and Non-Approved Executive Share Option Scheme. These shares were acquired by the Burberry Group plc ESOP Trust in the open market using funds provided by Burberry Group companies. As at 31 March 2004 investment in own shares represents the cost of 3,438,949 (2003: 1,413,333) of the Company's Ordinary Shares (nominal value of Â£1,719 (2003: Â£707)) which amounts to 0.7% (2003: 0.3%) of the called up share capital. These shares have been acquired by the Burberry Group plc ESOP Trust in the open market using funds provided by Burberry Group companies to meet the share option award obligations arising on the RSP and the share option schemes. In the year ended 31 March 2004 the Burberry Group plc ESOP Trust has waived its entitlement to dividends of Â£167,998 (2003: Â£16,741). In addition shares are held by the Burberry Group plc ESOP Trust and the Burberry Group Share Incentive Plan to meet the company's obligations in respect of awards made under an All Employee Share Plan. The total number of shares held for these purposes at 31 March 2004 is 1,456,524 (2003: 921,450). The cost of these shares has been written off as they have been or will be gifted unconditionally to employees. 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 (2003: Â£0.1m). The market value of all own shares held at 31 March 2004 was Â£17.5m (2003: Â£5.5m). 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 any significant influence on the financial and operating decisions of the company. Company In the year ended 31 March 2004 some of the Burberry Group companies were reorganised resulting in an overall net increase in the cost of investments in subsidiary undertakings held by the Company. 17 Stock As at 31 As at 31 March 2004 March 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Raw materials 14.6 13.6 Work in progress 7.6 7.2 Finished goods 67.3 63.0 ___________________________________________________________________________________________________________________ Total 89.5 83.8 ___________________________________________________________________________________________________________________ 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. 18 Debtors Group Company _____________________ _____________________ As at 31 As at 31 As at 31 As at 31 March 2004 March 2003 March 2004 March 2003 Â£m Â£m Â£m Â£m _____________________________________________________________________________________________________________________ Amounts falling due within one year Trade debtors 86.1 86.1 - - Other debtors 0.9 1.1 - - Prepayments and accrued income 12.0 11.3 1.2 - Corporation tax 2.8 3.4 2.4 2.1 Trading balances owed by GUS group companies - 0.2 - - Amounts receivable from subsidiary companies* - - 15.5 15.5 _____________________________________________________________________________________________________________________ 101.8 102.1 19.1 17.6 Amounts falling due after more than one year Other debtors 1.5 0.8 - - Deferred tax assets 16.7 18.3 - - Corporation tax 0.8 0.8 - - Amounts receivable from subsidiary companies* - - 648.9 151.6 _____________________________________________________________________________________________________________________ Total 120.8 122.0 668.0 169.2 _____________________________________________________________________________________________________________________ *Amounts have been reclassified from within one year to after more than one year. Deferred tax assets Â£m ___________________________________________________________________________________________________________________ As at 1 April 2003 18.3 Effect of foreign exchange rate changes (0.5) Charge to the profit and loss account (2.3) Other movements 1.2 ___________________________________________________________________________________________________________________ As at 31 March 2004 16.7 ___________________________________________________________________________________________________________________ The analysis of the deferred tax assets is shown below: As at 31 As at 31 March March 2004 2003 Â£m Â£m ___________________________________________________________________________________________________________________ Accelerated capital allowances (0.4) 0.4 Unrealised stock profit and other stock provisions 8.9 8.2 Share schemes 2.9 6.3 Net operating losses 0.3 0.3 Other short term timing differences 5.0 3.1 ___________________________________________________________________________________________________________________ Undiscounted deferred tax assets 16.7 18.3 ___________________________________________________________________________________________________________________ The deferred tax assets recorded in each year arise from timing differences, which are expected to reverse in the foreseeable future. 19 Cash and short term deposits Group Company ______________________ ______________________ As at 31 As at 31 As at 31 As at 31 March 2004 March 2003 March 2004 March 2003 Â£m Â£m Â£m Â£m ______________________________________________________________________________________ ______________________ Cash 42.6 37.2 0.1 - Short term deposits (see note 31) 116.1 49.4 - - ______________________________________________________________________________________ ______________________ Total 158.7 86.6 0.1 - ______________________________________________________________________________________ ______________________ Short term deposits includes Â£15.8m as at 31 March 2004 (2003: Â£nil) deposited with GUS group companies on standard commercial terms. These deposits were repaid in cash on 1 April 2004. 20 Creditors - amounts falling due within one year Group Company ______________________ ______________________ As at 31 As at 31 As at 31 As at 31 March 2004 March 2003 March 2004 March 2003 Â£m Â£m Â£m Â£m ___________________________________________________________________________________________________________________ Unsecured: Overdrafts (see note 27, 31) 0.8 7.0 - - Trade creditors 31.2 26.9 - - Trading balances owed to GUS group companies 6.8 5.1 - - Corporation tax (UK and overseas) 19.3 22.1 - - Other taxes and social security costs 4.2 4.6 - - Other creditors 18.7 18.4 - - Accruals and deferred income 65.3 54.5 0.1 0.4 Deferred consideration for acquisitions - 2.5 - - Dividends payable - GUS group 9.9 7.8 9.9 7.8 Dividends payable - other shareholders 5.0 2.2 5.0 2.2 Amounts due to subsidiary companies - - 41.3 52.4 ___________________________________________________________________________________________________________________ Total 161.2 151.1 56.3 62.8 ___________________________________________________________________________________________________________________ Overdrafts as at 31 March 2004 and 2003 represent unpresented cheques. 21 Creditors - amounts falling due after more than one year Group Company __________________________ ________________________ As at 31 As at 31 As at 31 As at 31 March 2004 March 2003 March 2004 March 2003 Â£m Â£m Â£m Â£m ____________________________________________________________________________________ ________________________ Unsecured: Other creditors, accruals and deferred income 3.7 6.0 - - Deferred consideration for acquisitions 31.7 29.2 - - Amounts due to subsidiary companies - - 713.4 98.6 ___________________________________________________________________________________________________________________ Total 35.4 35.2 713.4 98.6 ___________________________________________________________________________________________________________________ Deferred consideration due after more than one year arises from the acquisitions of two businesses, Burberry (Spain) S.A. and Mercader y Casadevall S.A., and the trade and certain assets of the Burberry business in Korea. 22 Provisions for liabilities and charges Pension Property obligations obligations Other Total Â£m Â£m Â£m Â£m ___________________________________________________________________________________________________________________ As at 1 April 2003 0.4 4.0 0.2 4.6 Effect of foreign exchange rate changes - (0.2) - (0.2) Utilised in the year - (1.4) - (1.4) (Credited)/charged to the profit and loss account (0.2) 2.1 0.4 2.3 ___________________________________________________________________________________________________________________ As at 31 March 2004 0.2 4.5 0.6 5.3 Information on pension obligations is set out in note 32 and relates to retirement indemnities. Property obligations arise from the portfolio of leasehold obligations which the Group maintains and are expected to be utilised over a three year period. Other provisions primarily relate to amounts payable in respect of redundancies, which are expected to be paid within one year. 23 Called up share capital Group and Company 2004 2003 Authorised share capital Â£m Â£m __________________________________________________________________________________________________________________ 1,999,999,998,000 (2003: 1,999,999,998,000) Ordinary Shares of 0.05p (2003: 0.05p) each 1,000.0 1,000.0 1,600,000,000 redeemable preference shares of 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 (2003: 0.05p) each As at 1 April 2003 500,000,000 0.3 Allotted on exercise of IPO Option Scheme awards during the year 691,166 - __________________________________________________________________________________________________________________ As at 31 March 2004 500,691,166 0.3 __________________________________________________________________________________________________________________ Redeemable preference shares of 0.05p each __________________________________________________________________________________________________________________ As at 1 April 2003 and 31 March 2004 1,600,000,000 0.8 __________________________________________________________________________________________________________________ Total called up Ordinary and preference share capital 1.1 __________________________________________________________________________________________________________________ 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. The redeemable preference shares have the right to a non-cumulative dividend at the rate per annum of six-monthly LIBOR minus one percent 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. 24 Reserves Group Share Profit and premium Revaluation Capital Other loss account reserve reserve reserve account Â£m Â£m Â£m Â£m Â£m __________________________________________________________________________________________________________________ As at 1 April 2003 122.2 25.2 47.1 704.1 (509.7) Effect of foreign exchange rate changes - (1.7) (3.4) - (18.7) Share premium arising in the year 2.5 - - - - Retained profit for the year - - - - 69.2 Capital reserve reduction on lapse of RSP awards - - (0.8) - - Reclassification of reserves - - - (704.1) 704.1 __________________________________________________________________________________________________________________ As at 31 March 2004 124.7 23.5 42.9 - 244.9 __________________________________________________________________________________________________________________ Company Share Profit and premium Other loss account reserve account Â£m Â£m Â£m __________________________________________________________________________________________________________________ As at 1 April 2003 122.2 704.1 151.7 Share premium arising in the year 2.5 - - Loss for the year - - (27.2) Reclassification of reserves - (704.1) 704.1 __________________________________________________________________________________________________________________ As at 31 March 2004 124.7 - 828.6 __________________________________________________________________________________________________________________ The other reserve represents the amounts transferred from the share premium account within Burberry Group plc as a result of the capital reduction carried out immediately prior to flotation. This reserve was reclassified as distributable, and included in the profit and loss account reserve, when the creditors of the Company as at the date of the capital reduction were settled in full, on 31 December 2003. 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£15.7m (2003: Â£0.8m) 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 (2003: Â£0.1m). 25 Analysis of movement in net funds As at 1 Exchange As at 31 April 2003 Cash flow movements March 2004 Â£m Â£m Â£m Â£m ____________________________________________________________________________________________________________________ Cash balances 37.2 8.6 (3.2) 42.6 Overdrafts (7.0) 6.2 - (0.8) ____________________________________________________________________________________________________________________ 30.2 14.8 (3.2) 41.8 Liquid resources: 49.4 69.2 (2.5) 116.1 Short term deposits ____________________________________________________________________________________________________________________ Total 79.6 84.0 (5.7) 157.9 ____________________________________________________________________________________________________________________ Liquid resources as at 31 March 2004 and 31 March 2003 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. 26 Reconciliation of net cash flow to movement in net funds Year to 31 Year to 31 March 2004 March 2003 Â£m Â£m ____________________________________________________________________________________________________________________ Increase in cash (see note 25) 14.8 3.0 Cash outflow from movement in external borrowings - 7.9 Cash outflow from movement in liquid resources 53.4 47.3 Cash outflow/(inflow) arising from increase/(decrease) in GUS group balances 15.8 (195.6) ____________________________________________________________________________________________________________________ Movement in net funds resulting from cash flows 84.0 (137.4) Non-cash movements on GUS group balances - tax and interest - (24.8) - waiver of balances by GUS group - 37.6 Exchange movements (5.7) (9.4) ____________________________________________________________________________________________________________________ Movement in net funds 78.3 (134.0) Net funds at beginning of year 79.6 213.6 ____________________________________________________________________________________________________________________ Net funds at end of year (see note 25) 157.9 79.6 ____________________________________________________________________________________________________________________ 27 Analysis of net funds As at 31 As at 31 March 2004 March 2003 Â£m Â£m ____________________________________________________________________________________________________________________ Cash and short term deposits 158.7 86.6 Overdrafts* (0.8) (7.0) ____________________________________________________________________________________________________________________ Net funds at end of year (see note 25) 157.9 79.6 ____________________________________________________________________________________________________________________ *Overdrafts at 31 March 2004 and 2003 represent unpresented cheques. 28 Financial commitments Burberry Group had annual commitments under non-cancellable operating leases as follows: As at 31 March 2004 As at 31 March 2003 __________________________________ __________________________________ Land and Land and buildings Other Total buildings Other Total Â£m Â£m Â£m Â£m Â£m Â£m ____________________________________________________________________________________________________________________ Expiry date: Within one year 2.3 0.5 2.8 1.9 - 1.9 Between two and five years 6.7 0.2 6.9 6.3 - 6.3 After five years 12.5 - 12.5 9.4 - 9.4 ____________________________________________________________________________________________________________________ Total 21.5 0.7 22.2 17.6 - 17.6 ____________________________________________________________________________________________________________________ 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. 29 Capital commitments Capital commitments contracted but not provided for by Burberry Group as at 31 March 2004 amounted to Â£14.2m (2003: Â£6.9m). Contracted capital commitments represent contracts entered into by the year end and major capital expenditure projects where activity has commenced by the year end. 30 Contingent liabilities Since 31 March 2003 the following changes to contingent liabilities have occurred: The claim for Â£2.4m received from a number of the vendors of the Asian distribution businesses acquired on 31 December 2001 was settled in October 2003. The settlement was fully provided for as at 31 March 2003. 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 intends to vigorously defend itself. 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 is in the course of being settled for an amount that is not anticipated to be material. Other contingent liabilities reported at 31 March 2003 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 sub-contracting 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. In the year ended 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 has notified the other party that it is seeking recovery of certain costs incurred because of the late delivery of the store structure. The Burberry Group has now received a formal claim, for this amount, plus interest, and intends to defend its position. 31 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. 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: As at 31 As at 31 March 2004 March 2003 Book and Book and Fair value Fair value 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 42.6 37.2 Short term deposits 116.1 49.4 ____________________________________________________________________________________________________________________ Total financial assets 158.8 86.7 Overdrafts (0.8) (7.0) Other financial liabilities (39.6) (40.2) ____________________________________________________________________________________________________________________ Total financial liabilities (40.4) (47.2) ____________________________________________________________________________________________________________________ Total net financial investments 118.4 39.5 2004 2003 Â£m Â£m ____________________________________________________________________________________________________________________ Derivative financial instruments held to manage the currency profile: Forward foreign currency contracts - Book value - - - Fair value 3.6 5.5 ____________________________________________________________________________________________________________________ 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 Short bank and term in hand deposits Total Currency Â£m Â£m Â£m __________________________________________________________________________________________________________________ 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 __________________________________________________________________________________________________________________ As at 31 March 2003 Sterling 5.7 21.8 27.5 US dollar 3.7 7.9 11.6 Euro 20.2 14.3 34.5 Other currencies 7.6 5.4 13.0 __________________________________________________________________________________________________________________ Total 37.2 49.4 86.6 __________________________________________________________________________________________________________________ Floating rate assets 36.3 49.4 85.7 Balances for which no interest is paid 0.9 - 0.9 __________________________________________________________________________________________________________________ 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£0.1m, 2003: Â£0.7m), Euros (Â£0.1m, 2003: Â£0.2m) and Hong Kong dollars (Â£0.9m, 2003: Â£nil). In addition to the above, the investment of Â£0.1m at 31 March 2004 (2003: Â£0.1m) meets the definition of a financial asset. No interest is receivable on this Euro denominated financial asset. Financial liabilities The interest rate risk profile of Burberry Group's financial liabilities by currency at 31 March is as follows: Financial Floating liabilities rate on which financial no interest liabilities is payable Total Currency Â£m Â£m Â£m ___________________________________________________________________________________________________________________ As at 31 March 2004 Sterling 1.6 10.0 11.6 US dollar - 2.4 2.4 Euro - 26.4 26.4 ___________________________________________________________________________________________________________________ Total 1.6 38.8 40.4 ___________________________________________________________________________________________________________________ As at 31 March 2003 Sterling 3.1 7.2 10.3 US dollar 0.3 2.4 2.7 Euro 4.4 29.6 34.0 Other currencies - 0.2 0.2 ___________________________________________________________________________________________________________________ Total 7.8 39.4 47.2 ___________________________________________________________________________________________________________________ The floating rate financial liabilities at 31 March 2004 and 2003 incurred interest based on relevant national LIBOR equivalents. The floating rate financial liabilities at 31 March 2004 and 2003 include preference shares of a total value of Â£0.8m and overdraft balances at 31 March 2004 of Â£0.8m (2003: Â£7.0m). See note 23 for further details regarding the preference shares. (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) ___________________________________________________________ Other Sterling US dollar Euro currencies Total ___________________________________________________________ Functional currency of operation: Â£m Â£m Â£m Â£m Â£m __________________________________________________________________________________________________________________ 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 __________________________________________________________________________________________________________________ As at 31 March 2003 Sterling - (2.2) 29.0 4.7 31.5 US dollar (0.7) - (0.7) - (1.4) Euro (2.9) 0.1 - (0.1) (2.9) Other currencies 8.0 3.9 (0.1) - 11.8 __________________________________________________________________________________________________________________ Total 4.4 1.8 28.2 4.6 39.0 __________________________________________________________________________________________________________________ (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: Other Non-equity Deferred financial Debt* shares consideration liabilities Total As at 31 March 2004 Â£m Â£m Â£m Â£m Â£m _______________________________________________________________________________________________________________________ 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 _______________________________________________________________________________________________________________________ Other Debt* Non-equity Deferred financial shares consideration liabilities Total As at 31 March 2003 Â£m Â£m Â£m Â£m Â£m ________________________________________________________________________________________________________________________ In one year or less, or on demand 7.0 - 2.5 1.3 10.8 In more than one year but not more than two years - - - 1.7 1.7 In more than two years but not more than five - 0.8 29.2 3.3 33.3 years In more than five years - - - 1.4 1.4 ________________________________________________________________________________________________________________________ Total 7.0 0.8 31.7 7.7 47.2 ________________________________________________________________________________________________________________________ *Debt balances as at 31 March 2004 and 2003 relate to unpresented cheques. Non-equity shares relate to redeemable preference shares, on which a non-cumulative dividend is paid (see note 23 for further details). All deferred consideration is payable in cash. Other financial liabilities principally relate to accrued lease liabilities Â£2.6m (2003: (Â£2.4m)), which is included in other creditors falling due after one year, and provisions for certain property obligations Â£4.5m (2003: (Â£4.0m)), which are included in provisions. (e) Borrowing facilities A committed unsecured facility of Â£150m was agreed with GUS plc commencing on 11 July 2002. This facility has been revised during the year to 31 March 2004, with its amount reduced to Â£75m, and its committed term extended to July 2006. (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. 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: Total net Unrecognised Unrecognised unrecognised gains losses gains/(losses) Â£m Â£m Â£m ____________________________________________________________________________________________________________________ Gains and losses on hedges at 1 April 2003 5.4 (0.2) 5.2 Arising before 1 April 2003 included in current year income (5.2) 0.2 (5.0) Arising before 1 April 2003 and not included in current year income (0.1) - (0.1) Arising during the year and not included in current year income 4.9 (1.4) 3.5 ____________________________________________________________________________________________________________________ Gains and losses on hedges as at 31 March 2004* 5.0 (1.4) 3.6 ____________________________________________________________________________________________________________________ *All gains and losses on hedges are expected to be recognised in 2004/05. There are no material deferred gains or losses. 32 Post-retirement benefits (a) Accounting for pension costs Burberry Group provides post retirement arrangements for its employees in the UK and its overseas operations which are both defined benefit and defined contribution in nature. Where arrangements are funded, assets are held in independently administered trusts. The pension costs charged to the profit and loss account in respect of the main plans were: Year to Year to 31 31 March March 2004 2003 Â£m Â£m ____________________________________________________________________________________________________________________ Defined benefit schemes GUS defined benefit scheme UK (including special contribution of Â£1.5m 2.3 1.4 (2003: 0.5m)) Unfunded retirement benefit plans USA* 0.4 0.4 Defined contribution schemes GUS money purchase pension plan UK 0.6 0.5 Burberry money purchase plan USA 0.5 0.5 Other Burberry pension schemes** 0.2 0.1 ____________________________________________________________________________________________________________________ Total pension costs 4.0 2.9 ____________________________________________________________________________________________________________________ *The unfunded retirement benefit plans in the USA are classified as defined benefit schemes under SSAP 24 and FRS 17 because their exact cost cannot be quantified as the funds are subject to notional indexation according to specified investment return indices. **Costs have been restated to include the pension costs of this scheme in the prior year that had been previously omitted from this disclosure. Defined benefit schemes GUS defined benefit scheme UK Burberry Group companies participate in the GUS defined benefit scheme, which offers benefits based on service and salary at retirement. Currently, Burberry Group is not permitting new entrants to the GUS defined benefit scheme. The GUS scheme has rules which specify the benefits to be paid and is financed accordingly, with assets being held in independently administered funds. A full actuarial valuation of the GUS scheme is carried out every three years with interim reviews in the intervening years. A full actuarial valuation of the GUS defined benefits scheme was carried out at 31 March 2001 by independent, qualified actuaries, Mercer Human Resource Consulting Limited, using the projected unit method. The principal actuarial assumptions used in that valuation for SSAP 24 purposes were as follows: Valuation at 31 March 2001 ____________________________________________________________________________________________________________________ Valuation rate of interest - Pre-retirement 6.0% per annum - Post-retirement 6.0% per annum Rate of future earnings growth 4.3% per annum Pension and inflation increases 2.5% per annum ____________________________________________________________________________________________________________________ As at 31 March 2001 the market value of the GUS scheme's assets was Â£327m. On the above assumptions, this represented 100% of the value of benefits that had accrued to members. Burberry Group's pension cost represents contributions payable to the GUS defined benefit scheme. Burberry has been contributing 17.9% (2003: 17.9%) in respect of members in the main benefit section. As at 31 March 2004 there were 80 (2003: 90) Burberry Group employees in the scheme and Burberry Group contributions represented approximately 6.1% (2003: 5.6%) of total employer contributions to the scheme. During the year ended 31 March 2004 GUS made a special contribution to the scheme of Â£30.0m (2003: Â£10.0m) in order to fund shortfalls disclosed by the interim valuation on the ongoing actuarial assumptions used for funding purposes. Burberry Group's share of this contribution is estimated at Â£1.5m (2003: Â£0.5m) and this amount has been charged in the profit and loss account. Unfunded retirement benefit plans USA Rose Marie Bravo and Thomas O'Neill are entitled to unfunded retirement benefit plans as explained in the 'Report on directors' remuneration and related matters '. FRS 17 does not have a material impact on the reported obligation. Retirement indemnities (France) Burberry France S.A. offers lump sum benefits at retirement to all employees that are employed by the company based on the length of service and salary. The balance sheet provision at 31 March 2004 was Â£0.2m (2003: Â£0.4m). FRS 17 does not have a material impact on the reported obligation. There are no assets held by Burberry Group companies in relation to this commitment. Defined contribution schemes The GUS Money Purchase Pension Plan UK This scheme was introduced during the year ended 31 March 1999 with the aim of providing pension benefits for those GUS group employees in the UK who, hitherto, had been ineligible for GUS defined benefit pension scheme membership. The assets of the GUS scheme are held separately from those of GUS plc in an independently administered fund. As at 31 March 2004, there were no prepayments or arrears in Burberry Group contributions (2003: Â£nil). The Burberry Money Purchase Plan USA Burberry Group administers a Money Purchase Plan in the USA (a 401(k) scheme), which covers all eligible full-time employees who have reached the age of 21 and have completed one full year of service. The assets of the scheme are held separately from those of Burberry Group in an independently administered fund. As at 31 March 2004 there were no Burberry Group contributions in arrears (2003: nil). Burberry Asia Limited Retirement Scheme Burberry Group administers a Money Purchase Plan in Hong Kong, which covers all eligible full-time employees. The assets of the scheme are held separately from those of Burberry Group in an independently administered fund. As at 31 March 2004 there were no Burberry Group contributions in arrears (2003: nil). (b) FRS 17 - Retirement benefits GUS defined benefit scheme UK Burberry Group participates in the GUS defined benefit scheme along with other GUS group companies. It is not possible to identify Burberry Group's share of the underlying assets and liabilities in the GUS defined benefit scheme on a consistent and reasonable basis. In accordance with FRS 17 the scheme is accounted for as a multi-employer scheme and from 1 April 2002 the defined benefit costs in respect of the GUS defined benefit pension scheme reflect the cash contribution that Burberry Group pays to the scheme. The principal actuarial assumptions used in the valuation for FRS 17 purposes of the GUS group defined benefit scheme were: As at 31 As at 31 As at 31 March 2004 March 2003 March 2002 _____________________________________________________________________________________________________________________ Rate of inflation 2.8% 2.5% 2.5% Rate of salary increases 4.6% 4.3% 4.3% Rate of increase for pensions in payment and deferred pensions 2.8% 2.5% 2.5% Discount rate 5.5% 5.5% 6.0% _____________________________________________________________________________________________________________________ The deficit for the GUS group defined benefit scheme as a whole, on the above basis, was approximately Â£58m at 31 March 2004 (2003: Â£97m), after allowing for the Â£30m (2003: Â£10m) special contribution paid in March 2004 and before allowing for deferred tax. 33 Related party transactions GUS plc and other GUS group companies are related parties of Burberry Group as GUS plc owns the majority shareholding in Burberry Group plc. (a) Trading transactions and balances arising in the normal course of business The following sales/purchases and balances have arisen from transactions between Burberry Group and other GUS group companies including: the sale of merchandise and fabrics to GUS Home Shopping Limited in the prior year only, recharges made and the purchase of services from other GUS group companies, all of which are wholly owned subsidiaries of GUS plc. The services purchased by Burberry Group include treasury and tax management, cash management, insurance and insurance management, pension, human resources, employee benefit administration, telephone network costs, vehicle hire, property advice, marketing services, credit references, distribution and warehouse facilities, and certain internal audit support. Sales to/(purchases from) GUS group companies for the year to 31 March ___________________________ 2004 2003 Related party Related party's relationship Â£m Â£m _____________________________________________________________________________________________________________________ Sales to related parties GUS plc and other GUS group Ultimate parent company or 100% subsidiary of - 0.3 companies GUS plc _____________________________________________________________________________________________________________________ Purchases from related parties GUS plc and other GUS group Ultimate parent company or 100% subsidiary of (3.3) (4.1) companies GUS plc _____________________________________________________________________________________________________________________ Amounts due from/(to) GUS group companies as at 31 March ______________________________ Related party Related party's relationship 2004 2003 Â£m Â£m _____________________________________________________________________________________________________________________ Related party debtors GUS plc and other GUS group Ultimate parent company or 100% subsidiary of - 0.2 companies GUS plc _____________________________________________________________________________________________________________________ Related party creditors GUS plc and other GUS group Ultimate parent company or 100% subsidiary of (6.8) (5.1) companies GUS plc _____________________________________________________________________________________________________________________ Total (6.8) (4.9) _____________________________________________________________________________________________________________________ (b) Funding transactions and balances arising in the normal course of business Amounts have been deposited with GUS group companies in accordance with Burberry's counterparty risk policy during the year. A total of Â£15.8m was deposited with GUS at 31 March 2004 (2003: nil). These deposits have been made on standard commercial terms and were repaid in cash on 1 April 2004. In addition forward currency contracts have been undertaken with GUS group companies, which have been subject to Burberry's counterparty risk policy. The fair value at 31 March 2004 of such hedges amounted to Â£0.4m (2003: Â£4.3m). Five year summary 2000 2001 2002 (pro forma) (pro forma) (pro forma) 2003 2004 Turnover by product category Â£m Â£m Â£m Â£m Â£m __________________________________________________________________________________________________________________ Womenswear 63.4 134.7 165.2 197.9 225.7 Menswear 73.8 142.4 149.4 162.8 190.1 Accessories (including Childrens) 50.2 98.0 125.8 169.5 189.0 Other 7.5 6.9 5.3 5.1 4.0 Licence 30.8 45.8 53.5 58.3 67.0 __________________________________________________________________________________________________________________ Total 225.7 427.8 499.2 593.6 675.8 __________________________________________________________________________________________________________________ Turnover by destination Â£m Â£m Â£m Â£m Â£m __________________________________________________________________________________________________________________ Europe 115.5 259.0 286.7 302.7 346.8 North America 62.3 90.9 110.5 140.5 162.4 Asia Pacific 40.8 74.6 100.1 147.0 162.6 Other 7.1 3.3 1.9 3.4 4.0 __________________________________________________________________________________________________________________ Total 225.7 427.8 499.2 593.6 675.8 __________________________________________________________________________________________________________________ Turnover by operation Â£m Â£m Â£m Â£m Â£m __________________________________________________________________________________________________________________ Wholesale 95.8 238.8 288.8 306.9 351.4 Retail 99.1 143.2 156.9 228.4 257.4 Licence 30.8 45.8 53.5 58.3 67.0 __________________________________________________________________________________________________________________ 225.7 427.8 499.2 593.6 675.8 Profit by operation Â£m Â£m Â£m Â£m Â£m __________________________________________________________________________________________________________________ Wholesale and Retail (6.6) 29.2 42.7 64.3 85.2 Licence 25.1 39.5 47.6 52.4 56.0 __________________________________________________________________________________________________________________ EBITA* 18.5 68.7 90.3 116.7 141.2 Net interest income/(expense) 2.9 5.7 (0.5) (0.9) 2.2 Foreign currency gain/(loss) on loans with GUS 0.6 6.8 (0.1) (2.3) - group (pre-flotation) Goodwill amortisation - (3.6) (4.9) (6.4) (6.8) Exceptional items - 2.9 - (22.0) 2.2 __________________________________________________________________________________________________________________ Profit on ordinary activities before taxation 22.0 80.5 84.8 85.1 138.8 Tax on profit on ordinary activities (6.6) (26.1) (28.3) (32.9) (47.3) __________________________________________________________________________________________________________________ Profit on ordinary activities after taxation 15.4 54.4 56.5 52.2 91.5 __________________________________________________________________________________________________________________ Margin analysis % % % % % __________________________________________________________________________________________________________________ Gross margin as % of turnover 46.8 47.8 50.3 56.0 57.9 EBITA* as % of turnover 8.2 16.1 18.1 19.7 20.9 __________________________________________________________________________________________________________________ *Earnings before interest, taxation, goodwill amortisation and exceptional items. Pro forma financial information Pro forma financial information has been extracted from the Listing Particulars of the Company, dated 12 July 2002. The pro forma financial information has been prepared by combining the historical financial information for each of the Companies that comprise the Burberry Group. The pro forma information relates to the financial years prior to the flotation of Burberry Group. On flotation the Burberry Group was reorganised and a legal statutory group was formed, as a consequence statutory consolidations have been performed for the years ended 31 March 2003 and 2004. 2000 2001 2002 (pro forma) (pro forma) (pro forma) 2003 2004 Earnings and dividends Pence Pence Pence Pence per Pence per per share per share per share share share ____________________________________________________________________________________________________________________ Basic earnings per share 3.1 10.9 11.3 10.5 18.5 Basic earnings per share before goodwill amortisation and exceptional items 3.1 11.2 12.3 14.9 19.5 Diluted earnings per share 3.0 10.8 11.1 10.3 18.1 Diluted earnings per share before goodwill amortisation and exceptional items 3.0 11.1 12.1 14.6 19.1 Dividend per share (post-flotation only) n/a n/a n/a 3.0 4.5 Dividend cover* n/a n/a n/a 5.0 4.3 ____________________________________________________________________________________________________________________ * Based on profit after taxation before goodwill amortisation and exceptional items. 2000 2004 2002 (pro forma) (pro forma) (pro forma) 2003 2004 Balance sheet Â£m Â£m Â£m Â£m Â£m ____________________________________________________________________________________________________________________ Working capital (excluding cash and borrowings) 42.7 76.1 87.7 73.8 63.8 Fixed assets, investment and other intangible assets 57.5 101.0 125.4 162.4 150.7 Other long term liabilities (14.2) (9.1) (3.9) (10.6) (9.0) ____________________________________________________________________________________________________________________ Net operating assets 86.0 168.0 209.2 225.6 205.5 Cash at bank, net of overdraft and borrowings 12.3 5.4 21.3 79.6 157.9 Taxation (including deferred taxation) 0.1 (10.0) (20.5) 0.4 1.0 Deferred consideration for acquisitions - (12.9) (22.5) (31.7) (31.7) Goodwill - 89.2 94.9 122.8 110.6 Investment in own shares - - - 3.3 8.7 Dividends payable - - - (10.0) (14.9) ____________________________________________________________________________________________________________________ Net assets 98.4 239.7 282.4 390.0 437.1 ____________________________________________________________________________________________________________________ 2000 2001 2002 (pro forma) (pro forma) (pro forma) 2003 2004 Cash flow Â£m Â£m Â£m Â£m Â£m ____________________________________________________________________________________________________________________ Operating profit before goodwill amortisation and exceptional items 18.5 68.7 90.3 116.7 141.2 Depreciation, impairment and trademark amortisation charges 5.6 11.1 14.0 19.0 28.5 Loss on disposal of fixed assets and similar non-cash charges 0.2 - 0.2 1.5 1.7 (Increase)/decrease in stocks (0.4) (11.9) (7.0) 5.2 (7.5) Increase in debtors (0.5) (1.0) (5.2) (2.4) (1.5) Increase/(decrease) in creditors 4.3 22.2 (2.2) 25.0 23.2 ____________________________________________________________________________________________________________________ Net cash inflow from operating activities before capital expenditure and financial investment 27.7 89.1 90.1 165.0 185.6 Purchase of tangible and intangible fixed assets (6.8) (39.3) (39.4) (55.7) (28.8) Sale of tangible fixed assets 0.2 19.1 0.5 0.2 - Purchase of own shares - - - (4.5) (7.0) Sale of own shares by ESOP - - - - 0.4 ____________________________________________________________________________________________________________________ Net cash inflow from operating activities 21.1 68.9 51.2 105.0 150.2 Principal subsidiaries Company Country of Nature of business incorporation ________________________________________________________________________________________________________________ Europe Burberry Limited UK Luxury goods retailer, wholesaler, manufacturer and licensor Burberry Italy Retail Limited UK Luxury goods retailer The Scotch House Limited* UK Luxury goods brand and licensor Woodrow-Universal Limited* UK Textile manufacturer Burberry France S.A. France Luxury goods retailer and wholesaler Burberry (Suisse) S.A.* Switzerland Luxury goods retailer Burberry Italy SRL* Italy Luxury goods wholesaler Burberry (Deutschland) GmbH Germany Luxury goods retailer and wholesaler Burberry (Spain) S.A. Spain Luxury goods wholesaler Mercader y Casadevall S.A. Spain Luxury goods retailer Burberry (Spain) Retail S.L. Spain Luxury goods retailer North America Burberry Limited USA Luxury goods retailer Burberry (Wholesale) Limited USA Luxury goods wholesaler Hampstead Properties Inc. USA Property company Burberry Realty, Inc. USA Property company Asia Pacific Burberry Asia Ltd Hong Kong Luxury goods retailer and wholesaler Burberry (Singapore) Singapore Luxury goods retailer and wholesaler Distribution Company Pte Ltd Burberry Pacific Pty Ltd Australia Luxury goods retailer and wholesaler Burberry Korea Ltd Korea Luxury goods retailer and wholesaler Burberry (Malaysia) Sdn Bhd Malaysia Luxury goods retailer Burberry Japan KK Japan Service company ________________________________________________________________________________________________________________ *Held directly by Burberry Group plc All principal subsidiary undertakings are wholly owned as at 31 March 2004 and operate principally in the country in which they are incorporated with the exception of Burberry Italy Retail Limited, which operates principally in Italy. Non-operating intermediate holding and financing companies are excluded from the above. Burberry Group plc is 65.9% owned by GUS Holdings Limited, a subsidiary of GUS plc, which is registered in England and Wales. The ultimate parent undertaking and controlling party is GUS plc. Copies of GUS plc consolidated financial statements can be obtained from the Company Secretary at GUS plc, Universal House, Devonshire Street, Manchester, M60 1XA, UK. Shareholder information Registrar Enquiries concerning holdings of the Company's shares and notification of the holder's change of address should be referred to Lloyds TSB Registrars, The Causeway, Worthing, West Sussex, BN99 6DA, telephone: 0870 600 3970. In addition, Lloyds TSB Registrars offer a range of shareholder information online at www.shareview.co.uk. A text phone facility for those with hearing difficulties is available by contacting telephone: 0870 600 3950. Share price information The latest Burberry Group plc share price is available on Ceefax and also on the Financial Times Cityline Service on 0906 843 2727 (calls charged at 60p per minute). Internet A full range of investor relations information on Burberry Group plc, including latest share price and dividend history, is available at www.burberry.com Financial calendar ___________________________________________________________________________________________________ First quarter trading update 19 July 2004 Annual General Meeting 20 July 2004 Final dividend record date 23 July 2004 Final dividend to be paid 4 August 2004 First half trading update October 2004 Preliminary announcement of interim results 16 November 2004 Third quarter trading update January 2005 Second half trading update April 2005 Preliminary announcement of annual results May 2005 ___________________________________________________________________________________________________ Registered office Burberry Group plc 18-22 Haymarket London SW1Y 4DQ Telephone: 020 7968 0000 This information is provided by RNS The company news service from the London Stock Exchange

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