Final Results - Part 2

Burberry Group PLC 24 May 2005 PART 2 33 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 31 March ------------ 2005 2004 (Restated) £m £m -------------------------------------- ------- ------- Defined benefit schemes GUS defined benefit pension scheme UK 0.9 0.9 Supplemental executive retirement plan US* 0.3 0.4 Defined contribution schemes GUS money purchase pension plan UK 0.7 0.6 Burberry money purchase plan US 0.6 0.5 Other Burberry pension schemes 0.1 0.2 -------------------------------------- ------- ------- Total pension costs 2.6 2.6 -------------------------------------- ------- ------- *The plans in the US are classified as defined benefit schemes under FRS 17 because their exact cost cannot be quantified as the funds are subject to notional indexation according to specified investment return indices. 33 Post-retirement benefits (continued) (a) Accounting for pension costs (continued) Movements in pensions obligations during the year were as follows: ---------------------------- ------- ------- ------ ------- GUS defined Supplemental Other Total benefit executive pension scheme retirement plan UK US £m £m £m £m ---------------------------- ------- ------- ------ ------- As at 1 April 2004 as previously reported - 0.7 0.2 0.9 Impact of adopting FRS 17 (see note 3) 1.1 - - 1.1 ---------------------------- ------- ------- ------ ------- As at 1 April 2004 as restated 1.1 0.7 0.2 2.0 Effect of foreign exchange rate changes - (0.1) - (0.1) Charged to the profit and loss account 0.9 0.3 - 1.2 Other finance income (0.2) - - (0.2) Contributions paid during the year (2.7) - - (2.7) Actuarial gain 1.5 - - 1.5 Other movements 0.1 - - 0.1 ---------------------------- ------- ------- ------ ------- As at 31 March 2005 0.7 0.9 0.2 1.8 ---------------------------- ------- ------- ------ ------- (b) Defined benefit schemes GUS defined benefit scheme UK Burberry Group companies participate in the GUS defined benefit pension scheme, which offers defined benefits based on service and salary at retirement. Currently, Burberry Group is not permitting new entrants to the GUS defined benefit pension 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 scheme was carried out at 31 March 2004 by independent qualified actuaries, Watson Wyatt LLP, using the projected unit method. As a result of the 31 March 2004 valuation it has become possible to separately identify the underlying assets and liabilities which relate to the Burberry Group and so FRS 17 'Retirement Benefits' has been adopted during the year with comparative data restated accordingly, see note 3. As at 31 March 2005 there were 64 (2004: 80) Burberry Group employees in the scheme and Burberry Group contributions represented approximately 7.7% (2004: 7.2%) of total employer contributions to the scheme. Burberry has been contributing 17.9% (2004: 17.9%) in respect of members in the main benefit section. During the year to 31 March 2005 GUS made a special contribution to the scheme of £26.2m (2004: £30.0m) in order to fund the shortfall disclosed by the interim valuation on the ongoing actuarial assumptions used for funding purposes. Burberry Group's share of this contribution is estimated at £2.0m (2004: £2.3m). The deficit for the GUS group defined benefit pension scheme as a whole, on the basis set out below, was approximately £6.6m as at 31 March 2005 (2004: £47.9m), after allowing for the £26m (2004: £30m) special contribution paid in March 2005 and before allowing for deferred tax. 33 Post-retirement benefits (continued) (b) Defined benefit schemes (continued) The principal actuarial assumptions used in the valuation of the Burberry Group portion of the GUS group defined benefit pension scheme are the same as these used for the whole GUS group defined benefit pension scheme and are: As at 31 March ----------------- 2005 2004 2003 ------------------------------------ ------- ------- ------- Rate of inflation 2.9% 2.8% 2.5% Rate of salary increases 4.7% 4.6% 4.3% Rate of increase for pensions in payment and deferred pensions 2.9% 2.8% 2.5% Discount rate 5.4% 5.5% 5.5% ------------------------------------ ------- ------- ------- (i) Market value of scheme's assets The assets of the Burberry Group's portion of the GUS defined benefit scheme and the expected rates of return are summarised as follows: As at 31 March ------------------------ ----------------------------- Fair value Expected Fair value Expected Fair value Expected 2005 long 2004 long 2003 long £m term rate £m term rate £m term rate of return of return of return 2005 2004 2003 %pa %pa %pa ------------------------ ------- ------- ------- ------- ------ ------- Market value of schemes' assets: Equities 22.7 8.0% 19.5 8.0% 13.4 8.5% Fixed interest securities 10.4 5.1% 8.8 5.1% 7.6 5.0% Other 0.9 3.7% 1.1 3.8% 1.2 4.0% ------------------------ ------- ------- ------- ------- ------ ------- 34.0 7.0% 29.4 7.0% 22.2 7.1% ------------------------ ------- ------- ------- ------- ------ ------- The following amounts were measured in accordance with the requirements of FRS 17: As at 31 March ------------------------------------- ---------------- 2005 2004 2003 £m £m £m ------------------------------------- ------- ------- ------- Market value of schemes' assets 34.0 29.4 22.2 Present value of funded schemes' liabilities (35.0) (30.9) (27.8) ------------------------------------- ------- ------- ------- Deficit in the funded schemes before impact of taxation (1.0) (1.5) (5.6) Related deferred tax asset 0.3 0.5 1.7 ------------------------------------- ------- ------- ------- Net pension liability (0.7) (1.0) (3.9) ------------------------------------- ------- ------- ------- Movement in deficit during the year can be analysed below: 2005 2004 £m £m ----------------------------------------- ------- ------- Deficit at start of year (1.5) (5.6) Movement: Current service cost (0.9) (0.9) Contributions 2.7 3.1 Other finance income 0.2 0.1 Actuarial (loss)/gain recognised (1.5) 1.8 ----------------------------------------- ------- ------- Deficit in the funded schemes at end of year before impact of taxation (1.0) (1.5) ----------------------------------------- ------- ------- 33 Post-retirement benefits (continued) (b) Defined benefit schemes (continued) (ii) Profit and loss account The amounts charged in the profit and loss account comprises of the following: ------------------------------------------ ------- ------- 2005 2004 £m £m ------------------------------------------ ------- ------- Amount charged to operating profit in respect of defined benefit schemes: Current service cost (0.9) (0.9) ------------------------------------------ ------- ------- Amount credited/(charged) to net interest: Expected return on schemes' asset 1.9 1.6 Interest on schemes' liabilities (1.7) (1.5) ------------------------------------------ ------- ------- Amount credited as other finance income 0.2 0.1 ------------------------------------------ ------- ------- Total charge to profit and loss account (before impact of taxation) (0.7) (0.8) ------------------------------------------ ------- ------- (iii) Statement of total recognised gains and losses The amount recognised in the statement of total recognised gains and losses comprises the following: ----------------------------------------- ------- ------- 2005 2004 £m £m ----------------------------------------- ------- ------- Actual return less expected return on schemes' assets (see note (iv)) 1.4 3.8 Experience losses arising on the schemes' liabilities (see note (iv)) (0.4) (0.5) Losses resulting in changes in the assumptions underlying the present value of the schemes' liabilities (2.5) (1.5) ----------------------------------------- ------- ------- Actuarial (loss)/gain recognised in the statement of total recognised gains and losses (1.5) 1.8 Movement in deferred tax relating to pension scheme (0.3) (1.2) ----------------------------------------- ------- ------- Net impact in statement of total recognised gains and losses (1.8) 0.6 ----------------------------------------- ------- ------- (iv) History of experience gains and (losses) 2005 2004 ----------------------------------------- ------- ------- Difference between the actual and expected return on schemes' assets: Amount (£m) 1.4 3.8 Percentage of the schemes' assets which relate to the Burberry Group 4.1% 11.9% Experience losses on schemes' liabilities Amount (£m) (0.4) (0.5) Percentage of the present value of liabilities which relate to the Burberry Group 1.1% 1.6% Total amount recognised in the statement of total recognised gains and losses: Amount (£m) (1.5) 1.8 Percentage of the present value of schemes' liabilities which relate to the Burberry Group 4.3% 4.9% ----------------------------------------- ------- ------- 33 Post-retirement benefits (continued) (b) Defined benefit schemes (continued) Supplemental executive retirement plan US Rose Marie Bravo is entitled to these plans as explained in the Report on directors' remuneration and related matters. The adoption of FRS 17, see note 3, 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 2005 was £0.2m (2004: £0.2m). The adoption of FRS 17, see note 3, does not have a material impact on the reported obligation. There are no assets held by Burberry Group companies in relation to this commitment. (c) Defined contribution schemes The GUS Money Purchase Pension Plan UK This scheme was introduced during the year to 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 2005, there were no prepayments or arrears in Burberry Group contributions (2004: £nil). The Burberry Money Purchase Plan US Burberry Group administers a Money Purchase Plan in the US (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 2005 there were no Burberry Group contributions in arrears (2004: £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 2005 there were no Burberry Group contributions in arrears (2004: £nil). 34 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 purchases and balances have arisen from transactions between Burberry Group and other GUS group companies including 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 cash management, tax management, insurance and insurance management, pension, human resources, employee benefit administration, vehicle hire, property advice, marketing services, credit references, distribution and warehouse facilities, and certain internal audit support. Purchases from GUS group companies for the year to 31 March ---------------------------------------------- Related party Related party's 2005 2004 relationship £m £m ------------------- ----------------------- ------- ------ Purchases from Ultimate parent company related parties or 100% subsidiary of GUS plc and GUS plc 2.4 3.3 other GUS group companies ------------------- ----------------------- ------- ------ Amounts due to GUS group companies as at 31 March ----------- Related party Related party's 2005 2004 relationship £m £m ------------------- ----------------------- ------- ------ Related party Ultimate parent company creditors or 100% subsidiary of GUS plc and GUS plc 6.8 6.8 other GUS group companies ------------------- ----------------------- ------- ------ (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 £18.3m was deposited with GUS at 31 March 2005 (2004: £15.8m). These deposits have been made on standard commercial terms and were repaid in cash by 29 April 2005. 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 2005 of such hedges amounted to £0.5m (2004: £0.4m). (c) Share repurchase programme As part of the Share repurchase programme, 10,212,035 Ordinary Shares were purchased by the Company from GUS, representing a total cost, including expenses, of £40.6m. Of the total number of Ordinary Shares purchased, 9,642,005 have been cancelled and the remaining 570,030 Ordinary Shares were cancelled after the year end. The repurchases have been carried out in accordance with the authorisation for off-market purchases approved by Shareholders at the EGM held on 20 December 2004. Principal subsidiaries Country of Nature of business Company incorporation --------------- ---------- -------------------------- Europe Burberry Limited England and Luxury goods retailer, wholesaler, Wales manufacturer and licensor Burberry Italy Retail England and Luxury goods retailer Limited Wales The Scotch House Limited* England and Luxury goods brand and licensor Wales Woodrow-Universal Limited* England and Textile manufacturer Wales Burberry France S.A. France Luxury goods retailer and wholesaler Burberry (Suisse) S.A.* Switzerland Luxury goods retailer and wholesaler Burberry Italy SRL* Italy Luxury goods wholesaler Burberry (Deutschland) Germany Luxury goods retailer and GmbH wholesaler Burberry (Spain) S.A. Spain Luxury goods retailer and wholesaler Mercader y Casadevall S.A. Spain Luxury goods retailer Burberry (Spain) Retail Spain Luxury goods retailer S.L. North America Burberry Limited USA Luxury goods retailer Burberry (Wholesale) USA Luxury goods wholesaler Limited 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 Distribution Company Pte wholesaler Ltd Burberry Pacific Pty Ltd Australia Luxury goods retailer and wholesaler Burberry Korea Ltd Korea Luxury goods retailer and wholesaler Burberry (Malaysia) Sdn Malaysia Luxury goods retailer Bhd Burberry Japan KK Japan Service company --------------- ---------- -------------------------- *Held directly by Burberry Group plc All principal subsidiary companies are wholly owned as at 31 March 2005 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 65.5% 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, One Stanhope Gate, London, W1K 1AF. Five year summary 2001* 2002* 2003* 2004 2005 (Pro forma) (Pro forma) (Restated) (Restated) Turnover by product £m £m £m £m £m category ------ ------ ------ ------ ------ --------------------------- Womenswear 134.7 165.2 197.9 225.7 242.1 Menswear 142.4 149.4 162.8 190.1 194.5 Accessories (including childrens) 98.0 125.8 169.5 189.0 197.6 Other 6.9 5.3 5.1 4.0 2.9 Licence 45.8 53.5 58.3 67.0 78.4 --------------------------- ------ ------ ------ ------ ------ Total 427.8 499.2 593.6 675.8 715.5 --------------------------- ------ ------ ------ ------ ------ Turnover by destination £m £m £m £m £m --------------------------- ------ ------ ------ ------ ------ Europe 259.0 286.7 302.7 346.8 356.4 North America 90.9 110.5 140.5 162.4 165.9 Asia Pacific 74.6 100.1 147.0 162.6 186.6 Other 3.3 1.9 3.4 4.0 6.6 --------------------------- ------ ------ ------ ------ ------ Total 427.8 499.2 593.6 675.8 715.5 --------------------------- ------ ------ ------ ------ ------ Turnover by operation £m £m £m £m £m --------------------------- ------ ------ ------ ------ ------ Wholesale 238.8 288.8 306.9 351.4 371.9 Retail 143.2 156.9 228.4 257.4 265.2 Licence 45.8 53.5 58.3 67.0 78.4 --------------------------- ------ ------ ------ ------ ------ Total 427.8 499.2 593.6 675.8 715.5 --------------------------- ------ ------ ------ ------ ------ Profit by operation £m £m £m £m £m --------------------------- ------ ------ ------ ------ ------ Wholesale and Retail 29.2 42.7 64.3 86.6 98.5 Licence 39.5 47.6 52.4 56.0 67.0 --------------------------- ------ ------ ------ ------ ------ EBITA** 68.7 90.3 116.7 142.6 165.5 Net interest income/(expense) 5.7 (0.5) (0.9) 2.3 4.9 Foreign currency gain/(loss) on loans with GUS group (pre-flotation) 6.8 (0.1) (2.3) - - Goodwill amortisation (3.6) (4.9) (6.4) (6.8) (6.8) Exceptional items 2.9 - (22.0) 2.2 0.8 --------------------------- ------ ------ ------ ------ ------ Profit on ordinary activities before taxation 80.5 84.8 85.1 140.3 164.4 Tax on profit on ordinary activities (26.1) (28.3) (32.9) (47.3) (54.5) --------------------------- ------ ------ ------ ------ ------ Profit on ordinary activities after taxation 54.4 56.5 52.2 93.0 109.9 --------------------------- ------ ------ ------ ------ ------ --------------------------- ------ ------ ------ ------ ------ Margin analysis % % % % % --------------------------- ------ ------ ------ ------ ------ Gross margin as % of turnover 47.8 50.3 56.0 57.9 59.3 EBITA** as % of turnover 16.1 18.1 19.7 21.1 23.1 --------------------------- ------ ------ ------ ------ ------ *Years to 31 March 2001, 2002, 2003 have not been restated to reflect the impact of adopting FRS 17 as the necessary data is not available, see note 3. **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 to 31 March 2003, 2004 and 2005. Five year summary (continued) 2001* 2002* 2003* 2004 2005 (Pro forma) (Pro forma) (Restated) (Restated) Earnings and dividends Pence Pence Pence Pence Pence per share per share per share per share per share ------------------------ ------- ------- ------- ------- ------- Basic earnings per share 10.9 11.3 10.5 18.8 22.2 Basic earnings per share before goodwill amortisation and exceptional items 11.2 12.3 14.9 19.8 23.4 Diluted earnings per share 10.8 11.1 10.3 18.4 21.8 Diluted earnings per share before goodwill amortisation and exceptional items 11.1 12.1 14.6 19.4 23.0 Dividend per share (post-flotation only) n/a n/a 3.0 4.5 6.5 Dividend cover* n/a n/a 5.0 4.4 3.7 ------------------------ ------- ------- ------- ------- ------- *Based on profit after taxation before goodwill amortisation and exceptional items. 2001 2002 2003 2004 2005 (Pro forma) (Pro forma) (Restated) Balance sheet £m £m £m £m £m ------------------------ ------- ------- ------- ------- ------- Fixed assets, investment and other intangible assets 101.0 125.4 162.4 150.7 167.0 Working capital (excluding cash and borrowings) 76.1 87.7 73.8 66.6 77.7 Other long term liabilities (9.1) (3.9) (10.6) (10.8) (9.8) ------------------------ ------- ------- ------- ------- ------- Net operating assets 168.0 209.2 225.6 206.5 234.9 Goodwill 89.2 94.9 122.8 110.6 107.1 Deferred consideration for acquisitions (12.9) (22.5) (31.7) (31.7) (32.7) Cash at bank, net of overdraft and borrowings 5.4 21.3 79.6 157.9 169.9 Taxation (including deferred taxation) (10.0) (20.5) 0.4 1.0 (2.9) Dividends payable - - (10.0) (14.9) (21.7) ------------------------ ------- ------- ------- ------- ------- Net assets 239.7 282.4 386.7 429.4 454.6 ------------------------ ------- ------- ------- ------- ------- 2001 2002 2003 2004 2005 (Pro forma) (Pro forma) (Restated) Cash flow £m £m £m £m £m ------------------------ ------- ------- ------- ------- ------- Operating profit before goodwill amortisation and exceptional items 68.7 90.3 116.7 142.6 165.5 Depreciation, impairment and trademark amortisation charges 11.1 14.0 19.0 28.5 24.4 Loss/(profit) on disposal of fixed assets and similar non-cash charges - 0.2 1.5 1.7 (2.3) Charges in respect of employee share incentive schemes - - - 3.6 5.3 (Increase)/decrease in stocks (11.9) (7.0) 5.2 (7.5) (12.8) Increase in debtors (1.0) (5.2) (2.4) (1.5) (7.3) Increase/(decrease) in creditors 22.2 (2.2) 25.0 18.2 2.7 ------------------------ ------- ------- ------- ------- ------- Net cash inflow from operating activities before capital expenditure and financial investment 89.1 90.1 165.0 185.6 175.5 Purchase of tangible and intangible fixed assets (39.3) (39.4) (55.7) (28.8) (37.2) Sale of tangible fixed assets 19.1 0.5 0.2 - 3.1 ------------------------ ------- ------- ------- ------- ------- Net cash inflow from operating activities 68.9 51.2 109.5 156.8 141.4 ------------------------ ------- ------- ------- ------- ------- *Years to 31 March 2001, 2002, 2003 have not been restated to reflect the impact of adopting FRS 17 as the necessary data is not available, see note 3. 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 and Annual General Meeting 14 July 2005 Final dividend record date 22 July 2005 Final dividend to be paid 3 August 2005 First half trading update October 2005 Preliminary announcement of interim results 15 November 2005 Third quarter trading update January 2006 Second half trading update April 2006 Preliminary announcement of annual results May 2006 ------------------------------------- ------------- 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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