Financial results under IFRS

Burberry Group PLC 10 June 2005 Burberry Group plc Financial results under IFRS 10 June 2005. Burberry Group plc reports on its unaudited financial results for the year to 31 March 2005 and six months to 30 September 2004 under International Financial Reporting Standards (IFRS). For the year to 31 March 2005, primary differences under IFRS relative to previously reported financial results under UK GAAP are highlighted below: • Turnover and gross profit unchanged. • EBITA (1) under IFRS of £161.3 million compared to £165.5 million under UK GAAP. The £4.2 million difference primarily relates to an increased charge under IFRS for share based remuneration payments. • Goodwill amortisation and exceptional gain reported under UK GAAP are not applicable under IFRS. • Net interest income of £5.6 million under IFRS compared to £4.9 million under UK GAAP. The £0.7 million difference primarily reflects foreign currency gains on intercompany loans, which under IFRS are recognised in the income statement and not taken directly to reserves. • Effective tax rate of 32.1% compared to 32.0% reported under UK GAAP (calculated on profit before taxation, goodwill amortisation and exceptional gain). • Profit after tax of £113.4 million under IFRS compared to £109.9 million reported under UK GAAP. • Diluted EPS of 22.4p under IFRS compared to diluted EPS (before goodwill amortisation and exceptional gain) of 23.0p reported under UK GAAP. • Shareholders' funds at 31 March 2005 of £478.4 million under IFRS compared to £454.6 million reported under UK GAAP, driven by balance sheet reclassifications and remeasurements under IFRS, including the reversal of £21.7 million provided for the proposed final dividend payment under UK GAAP. International Financial Reporting Standards are subject to ongoing amendments by the International Accounting Standards board and some standards have yet to be endorsed by the European Commission. Further development of the interpretation of these standards could result in changes in the basis in accounting or presentation of certain items and accordingly this financial information is subject to possible change. Group income statement - unaudited Year to 31 March 2005 Six months to September 2004 --------------- --------------- UK GAAP IFRS IFRS UK GAAP (3) IFRS IFRS 2005 adjustments 2005 2004 adjustments 2004 £m £m £m £m £m £m --------------------------- ------ ------ ------ ------ ------ ------ Turnover Wholesale 371.9 - 371.9 111.0 - 111.0 Retail 265.2 - 265.2 197.2 - 197.2 Licence 78.4 - 78.4 39.3 - 39.3 --------------------------- ------ ------ ------ ------ ------ ------ Total turnover 715.5 - 715.5 347.5 - 347.5 Cost of sales (291.3) - (291.3) (144.0) - (144.0) --------------------------- ------ ------ ------ ------ ------ ------ Gross profit 424.2 - 424.2 203.5 - 203.5 Net operating expenses (258.7) (4.2) (262.9) (124.7) (1.2) (125.9) --------------------------- ------ ------ ------ ------ ------ ------ EBITA (1) 165.5 (4.2) 161.3 78.8 (1.2) 77.6 Goodwill amortisation (6.8) 6.8 - (3.3) 3.3 - Exceptional gain (2) 0.8 (0.8) - 0.8 (0.8) - --------------------------- ------ ------ ------ ------ ------ ------ Profit before interest and taxation 159.5 1.8 161.3 76.3 1.3 77.6 Net interest income 4.9 0.7 5.6 2.0 0.6 2.6 --------------------------- ------ ------ ------ ------ ------ ------ Profit before taxation 164.4 2.5 166.9 78.3 1.9 80.2 Tax on profit (54.5) 1.0 (53.5) (26.0) 0.9 (25.1) --------------------------- ------ ------ ------ ------ ------ ------ Attributable profit for the year 109.9 3.5 113.4 52.3 2.8 55.1 --------------------------- ------ ------ ------ ------ ------ ------ Diluted EPS before goodwill amortisation and exceptional gain 23.0p n/a 10.8p n/a Diluted EPS 21.8p 22.4p 10.3p 10.9p Basic EPS 22.2p 22.9p 10.5p 11.1p --------------------------- ------ ------ ------ ------ ------ ------ Notes: (1) EBITA represents operating profit before interest, taxation, exceptional gain and goodwill amortisation. Following the adoption of IFRS, the exceptional gain and goodwill amortisation are no longer applicable. (2) The £0.8m pre-tax exceptional gain in the year to 31 March 2005 under UK GAAP relates to lapsed awards under the IPO Senior Executive Restricted Share Plan. (3) Amounts previously reported have been restated to reflect the impact of adopting FRS 17 'Retirement Benefits'. Management will discuss these results during a conference call at 8:00am today. The conference call can be accessed by dialling +44 (0) 20 7081 7194, password 299766. This document, together with the appendices, will be available on the Group's website at www.burberryplc.com. Enquiries: Burberry 020 7968 0577 Stacey Cartwright CFO Matt McEvoy Strategy and IR John Scaramuzza Strategy and IR Brunswick 020 7404 5959 Susan Gilchrist Laura Cummings Robert Gardener Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward looking statements. This announcement does not constitute an invitation to underwrite, subscribe for or otherwise acquire or dispose of any Burberry Group plc or GUS plc shares. Past performance is not a guide to future performance and persons needing advice should consult an independent financial adviser. Burberry Group plc Impact from adoption of IFRS Contents 1. Introduction 2. Explanation of adjustments under IFRS 3. Restated IFRS consolidated financial information - Consolidated income statement for the year to 31 March 2005 - Consolidated balance sheet as at 31 March 2005 - Consolidated income statement for the six months to 30 September 2004 - Consolidated balance sheet as at 30 September 2004 - Consolidated balance sheet as at 31 March 2004 Appendix 1 Basis of preparation Appendix 2 Detailed reconciliations from UK GAAP to IFRS Appendix 3 IFRS accounting policies 1 INTRODUCTION For all periods up to and including the year to 31 March 2005 Burberry has prepared its financial statements in accordance with UK Generally Accepted Accounting Principles (UK GAAP). For the year to 31 March 2006 Burberry is required to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Commission. The Group's transition date to IFRS is 1 April 2004. This has been determined in accordance with IFRS 1 'First Time Adoption of International Financial Reporting Standards', being the start of the earliest period of comparative information. To explain the transition to IFRS, the unaudited financial performance and position of the Group has been converted from UK GAAP to IFRS for the year to 31 March 2005. An explanation of the principle adjustments required by Burberry on conversion to IFRS is set out in section 2, with summary financial information presented in section 3. The financial information presented includes: • The Group's consolidated income statements for the year to 31 March 2005 and six months to 30 September 2004; and • The Group's consolidated balance sheets at 31 March 2005, 30 September 2004 and 31 March 2004. The consolidated income statements and balance sheets have been prepared in accordance with the 'Basis of Preparation', see Appendix 1. Reconciliation schedules to assist the reader in understanding the nature and quantum of differences between UK GAAP and IFRS for the financial information are included in Appendix 2. This document explains all material accounting policy changes from the accounting policies adopted in the UK GAAP financial statements for the year to 31 March 2005. A full set of IFRS accounting policies are included in Appendix 3. The financial information presented in this document is unaudited. 2 EXPLANATION OF ADJUSTMENTS UNDER IFRS The format of the IFRS primary financial information contained within this document is prepared in accordance with IAS 1 'Presentation of Financial Statements', which differs from the UK GAAP format. On the income statement in particular, there is no equivalent for 'exceptional items'. Under IFRS, these amounts are included in operating expenses. Burberry will continue to disclose separately material items of a one off nature and provide adjusted earnings per share to assist shareholders. The IFRS changes set out below have no effect on cash flows. The significant differences between UK GAAP and IFRS which affect the Group are as follows: 2.1 Share based payments Under UK GAAP, the cost of equity-settled transactions were recognised in the year of performance to which the scheme related. The charge was recognised based on the fair market value of the share award at the date of grant, less any consideration receivable from the participating Burberry employee. Under IFRS equity-settled transaction charges are recognised from the date of grant over the vesting period of the shares. The total charge is determined with reference to the fair value of the equity instruments awarded at the date of grant. The fair value at the date of grant has been determined using the Black-Scholes Option Pricing Model. Where awards are contingent upon future events an assessment of the likelihood of these conditions being achieved is made at the time of the award. The impact on operating profit from the adoption of IFRS 2 is a charge of £5.1m for the year to 31 March 2005. 2.2 Exceptional gain Under UK GAAP an exceptional gain of £0.8m arises from the lapsing of awards made under the IPO Senior Executive Restricted Share Plan (the 'IPO RSP'). IFRS no longer permits the use of exceptional items. It does however allow material items to be separately identified. These items will typically be material, non-recurring items. 2.3 Intangible fixed assets a) Goodwill amortisation Under UK GAAP, goodwill was capitalised and amortised over its estimated useful economic life and a charge of £6.8m was recorded in the year to 31 March 2005. Under IFRS, goodwill has been assigned an indefinite life as at the date of transition and it is no longer amortised. Burberry has elected to apply the exemption related to Business Combinations and has frozen its goodwill at its carrying value as at 1 April 2004. All accumulated amortisation at this point in time has been reclassified against the cost of the goodwill. Impairment reviews will be carried out on goodwill on an annual basis and any impairment charge would be charged and if applicable reported as a material item. No impairment charge was required and accordingly no charge has been recorded in the year to 31 March 2005. b) Computer software Under UK GAAP, computer software was included within tangible fixed assets. Under IFRS, computer software is considered to be an intangible fixed asset, unless it is an integral part of the related hardware. The period over which the computer software is amortised is not affected. Accordingly, a net reclassification of £1.8m as at 1 April 2004 and of £1.6m as at 31 March 2005 has been made between intangible fixed assets and property, plant and equipment. There is no impact on the income statement as a result of this reclassification. 2.4 Foreign exchange Under UK GAAP, any foreign exchange movements arising on the translation of net assets of foreign subsidiaries were recognised by charging or crediting the amounts directly to the profit and loss reserve account. In addition, any exchange difference arising on intercompany loans was also taken directly to the profit and loss reserve account where the loan formed part of the net investment in the subsidiary. Under IFRS, any foreign exchange movements arising on the translation of foreign subsidiaries is to be taken to a separate component of equity, the foreign currency translation reserve. Any exchange difference arising on an intercompany loan should be taken through the income statement, unless the loan is deemed to form part of the direct investment in the subsidiary. In the year to 31 March 2005 these movements resulted in an unrealised foreign exchange gain of £0.7m. These amounts will vary from year to year as they are generated by exchange movements. It is Burberry's intention that where possible future foreign exchange gains or losses arising on intercompany loans will be charged or credited directly to retained earnings. This could be achieved by restructuring the foreign currency intercompany loan balances. 2.5 Deferred taxation Under UK GAAP, deferred tax was recognised for all timing differences (being the difference between an entities taxable profits and its statutory results) which are expected to reverse. Deferred tax under IAS 12 'Income Taxes' is recognised on all taxable temporary differences and all deductible temporary differences and unused tax losses, to the extent that it is probable there are sufficient taxable profits available in future periods. Temporary differences are the difference between the tax base of an asset/liability and its carrying amount in the financial statements. The most significant difference between IFRS and UK GAAP, is that deferred tax is now recognised on the revaluation of fixed assets. On transition to IFRS an additional deferred tax liability of £12.6m has been recorded as at 1 April 2004 and a liability of £5.3m as at 31 March 2005. 2.6 Dividends Under UK GAAP, proposed dividends are recorded as a liability at the balance sheet date. Under IFRS, dividends proposed at the balance sheet date are only recorded as a liability when the shareholders have approved their distribution, or for the interim dividend when approved by the Board. The final dividend proposed as at 31 March 2004 of £14.9m has been reversed in the opening balance sheet and charged in the year to 31 March 2005. The final dividend proposed as at 31 March 2005 of £21.7m has been reversed in the income statement and will be charged in the year to 31 March 2006. 2.6 Dividends (continued) The recognition of the charge in the income statement in relation to dividends does not affect the timing of dividend payments or Burberry's dividend policy. 2.7 Non-current assets held for sale Under IFRS, any non-current asset whose carrying value will be recovered principally through sale, and the sale of the asset is highly probable, should be classified as non-current assets held for sale on the balance sheet. The amounts reclassified from property, plant and equipment to non-current assets held for sale as at 31 March 2005 was £1.2m. 2.8 Revaluation reserve The Group has elected to adopt the exemption set out in IFRS 1 and to hold the tangible fixed assets at their historic cost or revalued amount on transition to IFRS. As a result of this, the balance on the revaluation reserve at the date of transition has been reclassified to retained earnings. The amounts included in retained earnings in relation to the revaluation reserve will be separately identified in the Annual Report as this amount is not considered to be distributable until the relevant property is disposed of. 2.9 Earnings per share The calculation of basic earnings per share is based on attributable profit for the period divided by the weighted average number of Ordinary Shares in issue during the period. Diluted earnings per share is based on the weighted average number of Ordinary Shares in issue during the period. In addition, account is taken of any awards which will have dilutive effects when exercised (full vesting of all outstanding awards is assumed). Year to Six months to 31 March 30 September 2005 2004 £m £m ------------------------------------------- ------- ------- Attributable profit for the period 113.4 55.1 ------------------------------------------- ------- ------- The weighted average number of Ordinary Shares represents the weighted average number of Burberry Group plc Ordinary Shares in issue throughout the period, excluding Ordinary Shares held in the Burberry Group's ESOPs. Year to Six months to 31 March 30 September 2005 2004 Million Million ------------------------------------------- ------- ------- Weighted average number of Ordinary Shares in issue during the period 494.1 496.2 Dilutive effect of the share incentive schemes 10.4 10.9 ------------------------------------------- ------- ------- Diluted weighted average number of Ordinary Shares in issue during the period 504.5 507.1 ------------------------------------------- ------- ------- Year to Six months to 31 March 30 September 2005 2004 Earnings per share Pence Pence ------------------------------------------- ------- ------- Basic earnings per share 22.9 11.1 ------------------------------------------- ------- ------- Diluted earnings per share 22.4 10.9 ------------------------------------------- ------- ------- 2.10 Financial instruments IAS 32 'Financial Instruments: Disclosures and Presentations' (IAS 32) and IAS 39 'Financial Instruments: Recognition and Measurement' (IAS 39) address the accounting for, and reporting of financial instruments. The Group has elected to take the option to defer the restatement of comparative information for IAS 32 and IAS 39. IAS 39 sets out detailed accounting requirements in relation to financial assets and liabilities. All derivative financial instruments are accounted for at fair market value whilst other financial instruments are accounted for either at amortised cost or at fair value depending on their classification. If certain key criteria are met financial instruments, financial assets and financial liabilities may be designated as forming hedge relationships as a result of which changes in their value are offset in the income statement or charged/credited to equity depending on the nature of the hedge relationship. From 1 April 2005, the Group will adopt IAS 32 and IAS 39 and subject to meeting certain criteria will adopt hedge accounting for the majority of the Group's forward currency contracts which are taken out to hedge the cost of foreign currency inventory. In addition when IAS 32 is adopted, redeemable preference shares will not be treated as equity as they will be considered to be a liability and the dividends paid on these shares classified as an interest expense. GROUP INCOME STATEMENT For the year to 31 March 2005 - unaudited UK GAAP IFRS IFRS (IFRS format) reclassifications remeasurements IFRS £m £m £m £m ----------------------------- ------- ------- ------- ------- Turnover 715.5 - - 715.5 Cost of sales (291.3) - - (291.3) ----------------------------- ------- ------- ------- ------- Gross profit 424.2 - - 424.2 Operating expenses (266.9) - 1.8 (265.1) Other operating income 2.2 - - 2.2 ----------------------------- ------- ------- ------- ------- Operating profit 159.5 - 1.8 161.3 ----------------------------- ------- ------- ------- ------- Operating profit before goodwill amortisation and exceptional gain 165.5 - (4.2) 161.3 - Goodwill amortisation (6.8) - 6.8 - - Exceptional gain relating to IPO employee share plans 0.8 - (0.8) - ----------------------------- ------- ------- ------- ------- Interest and similar income 5.5 - 0.7 6.2 Interest expense and similar charges (0.6) - - (0.6) ----------------------------- ------- ------- ------- ------- Profit before taxation 164.4 - 2.5 166.9 Tax on profit (54.5) - 1.0 (53.5) ----------------------------- ------- ------- ------- ------- Attributable profit for the year 109.9 - 3.5 113.4 ----------------------------- ------- ------- ------- ------- All the profit for the year is attributable to the equity holders of the company. ----------------------------- ------- ------- ------- ------- Pence per share Earnings - basic 22.2p 22.9p - diluted 21.8p 22.4p Earnings before exceptional items and goodwill - basic 23.4p n/a - diluted 23.0p n/a ----------------------------- ------- ------- ------- ------- CONSOLIDATED BALANCE SHEET As at 31 March 2005 - unaudited UK GAAP IFRS IFRS (IFRS format) reclassifications remeasurements IFRS £m £m £m £m ----------------------------- ------- ------- ------- ------- ASSETS Non-current assets Intangible assets 107.9 1.6 6.8 116.3 Property, plant and equipment 166.1 (2.8) - 163.3 Available-for-sale financial instruments 0.1 - - 0.1 Deferred taxation assets 18.4 13.3 (5.3) 26.4 Trade and other receivables 1.2 - - 1.2 Income tax recoverable 0.8 - - 0.8 ------------------------------ ------- ------- ------- ------- 294.5 12.1 1.5 308.1 Current assets Stock 102.5 - - 102.5 Trade and other receivables 112.2 - - 112.2 Income tax recoverable 3.1 - - 3.1 Cash and cash equivalents 169.9 - - 169.9 ------------------------------ ------- ------- ------- ------- 387.7 - - 387.7 Non-current assets classified as held for sale - 1.2 - 1.2 ------------------------------ ------- ------- ------- ------- 387.7 1.2 - 388.9 ------------------------------ ------- ------- ------- ------- Total assets 682.2 13.3 1.5 697.0 LIABILITIES Non-current liabilities Long-term liabilities (14.8) - - (14.8) Deferred taxation liabilities - (13.0) - (13.0) Retirement benefit obligations (1.8) (0.3) - (2.1) Provisions (3.2) - - (3.2) ------------------------------ ------- ------- ------- ------- (19.8) (13.3) - (33.1) Current liabilities Trade and other payables (182.6) - 22.3 (160.3) Income tax liabilities (25.2) - - (25.2) ------------------------------ ------- ------- ------- ------- (207.8) - 22.3 (185.5) ------------------------------ ------- ------- ------- ------- Total liabilities (227.6) (13.3) 22.3 (218.6) ------------------------------ ------- ------- ------- ------- Net assets 454.6 - 23.8 478.4 ------------------------------ ------- ------- ------- ------- EQUITY Ordinary share capital 1.1 - - 1.1 Share premium account 136.1 - - 136.1 Revaluation reserve 23.4 (23.4) - - Capital reserve 39.4 - (14.5) 24.9 Translation reserve - 5.0 - 5.0 Retained earnings 254.6 18.4 38.3 311.3 ------------------------------ ------- ------- ------- ------- Total equity 454.6 - 23.8 478.4 ------------------------------ ------- ------- ------- ------- GROUP INCOME STATEMENT For the 6 months to 30 September 2004 - unaudited UK GAAP (Restated*) IFRS IFRS (IFRS format) reclassifications remeasurements IFRS £m £m £m £m ----------------------------- ------- ------- ------- ------- Turnover 347.5 - - 347.5 Cost of sales (144.0) - - (144.0) ----------------------------- ------- ------- ------- ------- Gross profit 203.5 - - 203.5 Operating expenses (128.0) - 1.3 (126.7) Other operating income 0.8 - - 0.8 ----------------------------- ------- ------- ------- ------- Operating profit 76.3 - 1.3 77.6 ----------------------------- ------- ------- ------- ------- Operating profit before goodwill amortisation and exceptional gain 78.8 - (1.2) 77.6 - Goodwill amortisation (3.3) - 3.3 - - Exceptional gain relating to IPO employee share plans 0.8 - (0.8) - ----------------------------- ------- ------- ------- ------- Interest and similar income 2.2 - 0.8 3.0 Interest expense and similar charges (0.2) - (0.2) (0.4) ----------------------------- ------- ------- ------- ------- Profit before taxation 78.3 - 1.9 80.2 Tax on profit (26.0) - 0.9 (25.1) ----------------------------- ------- ------- ------- ------- Attributable profit for the period 52.3 - 2.8 55.1 ----------------------------- ------- ------- ------- ------- All the profit for the year is attributable to the equity holders of the company ----------------------------- ------- ------- ------- ------- Pence per share Earnings - basic 10.5p 11.1p - diluted 10.3p 10.9p Earnings before exceptional items and goodwill - basic 11.1p n/a - diluted 10.8p n/a ----------------------------- ------- ------- ------- ------- * Amounts previously reported have been restated to reflect the impact of adopting FRS 17 'Retirement Benefits'. CONSOLIDATED BALANCE SHEET As at 30 September 2004 - unaudited UK GAAP (Restated*) IFRS IFRS (IFRS format) reclassifications remeasurements IFRS £m £m £m £m ----------------------------- ------- ------- ------- ------- ASSETS Non-current assets Intangible assets 110.5 1.7 3.3 115.5 Property, plant and equipment 161.4 (4.5) - 156.9 Available-for-sale financial instruments 0.1 - - 0.1 Deferred taxation assets 22.3 11.3 (12.9) 20.7 Trade and other receivables 1.1 - - 1.1 Income tax recoverable 0.8 - - 0.8 ----------------------------- -------- -------- -------- -------- 296.2 8.5 (9.6) 295.1 Current assets Stock 104.4 - - 104.4 Trade and other receivables 143.4 - - 143.4 Income tax recoverable 0.1 - - 0.1 Cash and cash equivalents 143.5 - - 143.5 ----------------------------- -------- -------- -------- -------- 391.4 - - 391.4 Non-current assets classified as held for sale - 2.8 - 2.8 ----------------------------- -------- -------- -------- -------- 391.4 2.8 - 394.2 ----------------------------- -------- -------- -------- -------- Total assets 687.6 11.3 (9.6) 689.3 LIABILITIES Non-current liabilities Long-term liabilities (14.5) - - (14.5) Deferred taxation liabilities - (10.8) - (10.8) Retirement benefit obligations (2.0) (0.5) - (2.5) Provisions (5.0) - - (5.0) ----------------------------- -------- -------- -------- -------- (21.5) (11.3) - (32.8) Current liabilities Trade and other payables (156.1) - 10.8 (145.3) Income tax liabilities (29.4) - 3.3 (26.1) Bank overdrafts (0.5) - - (0.5) ----------------------------- -------- -------- -------- -------- (186.0) - 14.1 (171.9) ----------------------------- -------- -------- -------- -------- Total liabilities (207.5) (11.3) 14.1 (204.7) ----------------------------- -------- -------- -------- -------- Net assets 480.1 - 4.5 484.6 ----------------------------- -------- -------- -------- -------- EQUITY Ordinary share capital 1.1 - - 1.1 Share premium account 133.9 - - 133.9 Revaluation reserve 23.8 (23.8) - - Capital reserve 41.4 - (15.7) 25.7 Translation reserve - 9.6 - 9.6 Retained earnings 279.9 14.2 20.2 314.3 ----------------------------- -------- -------- -------- -------- Total equity 480.1 - 4.5 484.6 ----------------------------- -------- -------- -------- -------- * Amounts previously reported have been restated to reflect the impact of adopting FRS 17 'Retirement Benefits'. CONSOLIDATED BALANCE SHEET As at 31 March 2004 - unaudited UK GAAP IFRS IFRS (IFRS format) reclassifications remeasurements IFRS £m £m £m £m ----------------------------- ------- ------- ------- ------- ASSETS Non-current assets Intangible assets 111.4 1.8 - 113.2 Property, plant and equipment 149.8 (2.5) - 147.3 Available-for-sale financial instruments 0.1 - - 0.1 Deferred taxation assets 22.1 11.2 (12.6) 20.7 Trade and other receivables 1.5 - - 1.5 Income tax recoverable 0.8 - - 0.8 ----------------------------- ------- ------- ------- ------- 285.7 10.5 (12.6) 283.6 Current assets Stock 89.5 - - 89.5 Trade and other receivables 99.0 - - 99.0 Income tax recoverable 2.8 - - 2.8 Cash and cash equivalents 158.7 - - 158.7 ----------------------------- ------- ------- ------- ------- 350.0 - - 350.0 Non-current assets classified as held for sale - 0.7 - 0.7 ----------------------------- ------- ------- ------- ------- 350.0 0.7 - 350.7 ----------------------------- ------- ------- ------- ------- Total assets 635.7 11.2 (12.6) 634.3 LIABILITIES Non-current liabilities Long-term liabilities (35.4) - - (35.4) Deferred taxation liabilities - (10.7) - (10.7) Retirement benefit obligations (2.0) (0.5) - (2.5) Provisions (5.1) - - (5.1) ----------------------------- ------- ------- ------- ------- (42.5) (11.2) - (53.7) Current liabilities Trade and other payables (138.3) - 15.4 (122.9) Income tax liabilities (24.7) - - (24.7) Bank overdrafts (0.8) - - (0.8) ----------------------------- ------- ------- ------- ------- (163.8) - 15.4 (148.4) ----------------------------- ------- ------- ------- ------- Total liabilities (206.3) (11.2) 15.4 (202.1) ----------------------------- ------- ------- ------- ------- Net assets 429.4 - 2.8 432.2 ----------------------------- ------- ------- ------- ------- EQUITY Ordinary share capital 1.1 - - 1.1 Share premium account 124.7 - - 124.7 Revaluation reserve 23.5 (23.5) - - Capital reserve 42.9 (17.8) 25.1 Retained earnings 237.2 23.5 20.6 281.3 ----------------------------- ------- ------- ------- ------- Total equity 429.4 - 2.8 432.2 ----------------------------- ------- ------- ------- ------- The financial information presented in this document has been prepared on the basis of all International Financial Reporting Standards (IFRS), including the International Accounting Standards (IAS), and interpretations issued by the International Accounting Standards Board (IASB) and its committees, and as interpreted by any regulatory bodies applicable to the Group published by 31 March 2005. These are subject to ongoing amendments by the IASB and subsequent endorsement by the European Commission and are therefore subject to possible change. It is possible, therefore, that changes to this information may be required before it is published as comparative information in the interim results for the 6 months to 30 September 2005 and the Annual Report for the year to 31 March 2006. In preparing this financial information, the Group has assumed that the European Commission will endorse the amendment to IAS 19 'Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures'. In addition, Burberry has decided to adopt early IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. The format of the IFRS primary financial information contained within this document, is prepared in accordance with IAS 1 'Presentation of Financial Statements'. The format of the primary financial information is a particular area where changes may occur as further interpretative guidance is issued and best practice develops. FIRST TIME ADOPTION EXEMPTIONS (IFRS 1) IFRS 1 requires the Group to determine its accounting policies for the year to 31 March 2006 and to apply these policies to the opening balance sheet (1 April 2004) and throughout all periods presented in its first IFRS financial statements. The Group's full set of IFRS accounting policies have been included as a separate appendix, see Appendix 3. The general principal that should be applied on first-time adoption of IFRS is that the standards in force at the first reporting date (that is, for Burberry, 31 March 2006) should be applied retrospectively. However, IFRS 1 contains a number of exemptions which companies are permitted to apply. These exemptions and the Group's choices have been set out below: a) Business combinations completed before the transition to IFRS IFRS 1 allows the first time adopter of IFRS to elect not to apply IFRS 3 'Business Combinations' retrospectively to business combinations which took place before the date of transition (1 April 2004). The Group has elected to use this exemption and has not restated any business combinations which took place prior to this transition date. b) Fair value or revaluation to be treated as deemed cost Certain items of property, plant and equipment are carried under UK GAAP at amounts based upon valuations. The Group has applied the exemption which permits a first time adopter to use a previous GAAP revaluation of an item of property, plant and equipment as deemed cost. Consequently, there is no adjustment to the previous carrying value under UK GAAP. c) Employee benefits Under IFRS 1 an entity may elect to recognise immediately all actuarial gains and losses on transition even if the corridor approach is adopted for future actuarial gains and losses. This exemption does not apply to Burberry as the obligation recognised under UK GAAP will not change on transition to IFRS. The Group has previously recognised all cumulative actuarial gains and losses in relation to employee benefit schemes under UK GAAP in the statement of total recognised gains and losses. Under IFRS the Group will continue to recognise all actuarial gains and losses in relation to employee benefit schemes in the statement of recognised income and expenses. d) Cumulative translation differences IFRS 1 allows an exemption for first-time adopters from calculating the cumulative translation differences on the historical retranslation of the net assets of foreign subsidiaries. The Group has elected to use this exemption and has set the foreign currency translation reserve to zero as at the date of transition to IFRS. From the date of transition, IFRS requires amounts taken to reserves arising on the retranslation of foreign subsidiaries to be recorded in a separate foreign currency transaction reserve. e) Share-based payment transactions A first-time adopter of IFRS is not required to apply IFRS 2 'Share-based Payments' to equity instrument which were granted on or before 7 November 2002. However, certain disclosures are still required to be made regarding these equity instruments. The Group has elected not to use this exemption, has previously disclosed the fair values of awards in its UK GAAP accounts for the year to 31 March 2005, and accordingly has applied IFRS 2 for all share based payments. f) Financial instruments The Group has elected to take the option to defer the restatement of the comparative information for IAS 32 'Financial Instruments: Disclosures and Presentation' and IAS 39 'Financial Instruments, Recognition and Measurements'. The financial instruments continue to be accounted for in accordance with UK GAAP for the year to 31 March 2005. For the year to 31 March 2006, the adjustment to record financial instruments in accordance with IFRS will be accounted for as a change in accounting policy. It is the Group's intention to apply hedge accounting where the requirements of IAS 32 and IAS 39 are met. GROUP INCOME STATEMENT For the year to 31 March 2005 - unaudited UK GAAP IAS 21 IAS 12 IFRS 3 IFRS 2 (IFRS Foreign Deferred tax Business IAS 10 Share based format) exchange remeasurement combinations Dividends payments Other IFRS £m £m £m £m £m £m £m £m ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Turnover 715.5 - - - - - - 715.5 Cost of sales (291.3) - - - - - - (291.3) ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Gross profit 424.2 - - - - - - 424.2 Operating expenses (266.9) - - 6.8 - (5.1) 0.1 (265.1) Other operating income 2.2 - - - - - - 2.2 ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Operating profit 159.5 - - 6.8 - (5.1) 0.1 161.3 ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Operating profit before goodwill amortisation and exceptional gain 165.5 - - - - (4.3) 0.1 161.3 - Goodwill amortisation (6.8) - - 6.8 - - - - - Exceptional gain relating to IPO employee share plans 0.8 - - - - (0.8) - - ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Interest and similar income 5.5 0.7 - - - - - 6.2 Interest expense and similar charges (0.6) - - - - - - (0.6) ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Profit before taxation 164.4 0.7 - 6.8 - (5.1) 0.1 166.9 Tax on profit (54.5) (0.2) 1.2 - - - - (53.5) ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Attributable profit/ (loss) for the year 109.9 0.5 1.2 6.8 - (5.1) 0.1 113.4 ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- CONSOLIDATED BALANCE SHEET As at 31 March 2005 - unaudited IAS 38 IAS 12 In- IFRS 5 Deferred IAS 12 IFRS 3 IFRS 2 tangible Assets IFRS 1 tax Deferred Bus- Share UK GAAP asset held Re- IAS 21 asset tax iness IAS 10 based (IFRS reclass- for valuation Foreign reclass- remeasure- combin- Divi- pay- format)ification resale reserve exchange ification ment ations dends ments Other IFRS £m £m £m £m £m £m £m £m £m £m £m £m ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- ASSETS Non-current assets Intangible assets 107.9 1.6 - - - - - 6.8 - - - 116.3 Property, plant and equipment 166.1 (1.6) (1.2) - - - - - - - - 163.3 Available- for-sale financial instruments 0.1 - - - - - - - - - - 0.1 Deferred taxation assets 18.4 - - - - 13.3 (5.3) - - - - 26.4 Trade and other receivables 1.2 - - - - - - - - - - 1.2 Income tax recoverable 0.8 - - - - - - - - - - 0.8 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- 294.5 - (1.2) - - 13.3 (5.3) 6.8 - - - 308.1 Current assets Stock 102.5 - - - - - - - - - - 102.5 Trade and other receivables 112.2 - - - - - - - - - - 112.2 Income tax recoverable 3.1 - - - - - - - - - - 3.1 Cash and cash equivalents 169.9 - - - - - - - - - - 169.9 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- 387.7 - - - - - - - - - - 387.7 Non-current assets classified as held for sale - - 1.2 - - - - - - - - 1.2 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- 387.7 - 1.2 - - - - - - - - 388.9 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- Total assets 682.2 - - - - 13.3 (5.3) 6.8 - - - 697.0 LIABILITIES Non-current liabilities Long-term liabilities (14.8) - - - - - - - - - - (14.8) Deferred taxation liabilities - - - - - (13.0) - - - - - (13.0) Retirement benefit obligations (1.8) - - - - (0.3) - - - - - (2.1) Provisions (3.2) - - - - - - - - - - (3.2) ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- (19.8) - - - - (13.3) - - - - - (33.1) Current liabilities Trade and other payables (182.6) - - - - - - - 21.7 0.7 (0.1) (160.3) Income tax liabilities (25.2) - - - - - - - - - - (25.2) ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- (207.8) - - - - - - - 21.7 0.7 (0.1) (185.5) ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- Total liabilities (227.6) - - - - (13.3) - - 21.7 0.7 (0.1) (218.6) ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- Net assets 454.6 - - - - - (5.3) 6.8 21.7 0.7 (0.1) 478.4 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- EQUITY Ordinary share capital 1.1 - - - - - - - - - - 1.1 Share premium account 136.1 - - - - - - - - - - 136.1 Revaluation reserve 23.4 - - (23.4) - - - - - - - - Capital reserve 39.4 - - - - - - - - (14.5) - 24.9 Translation reserve - - - - 5.0 - - - - - - 5.0 Retained earnings 254.6 - - 23.4 (5.0) - (5.3) 6.8 21.7 15.2 (0.1) 311.3 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- Total equity 454.6 - - - - - (5.3) 6.8 21.7 0.7 (0.1) 478.4 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- GROUP INCOME STATEMENT For the 6 months to 30 September 2004 - unaudited UK GAAP (Restated*) IAS 21 IAS 12 IFRS 3 IFRS 2 (IFRS Foreign Deferred tax Business IAS 10 Share based format) exchange remeasurement combinations Dividends payments Other IFRS £m £m £m £m £m £m £m £m ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Turnover 347.5 - - - - - - 347.5 Cost of sales (144.0) - - - - - - (144.0) ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Gross profit 203.5 - - - - - - 203.5 Operating expenses (128.0) - - 3.3 - (2.1) 0.1 (126.7) Other operating income 0.8 - - - - - - 0.8 ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Operating profit 76.3 - - 3.3 - (2.1) 0.1 77.6 ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Operating profit before goodwill amortisation and exceptional gain 78.8 - - - - (1.3) 0.1 77.6 - Goodwill amortisation (3.3) - - 3.3 - - - - - Exceptional gain relating to IPO employee share plans 0.8 - - - - (0.8) - - ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Interest and similar income 2.2 0.8 - - - - - 3.0 Interest expense and similar charges (0.2) (0.2) - - - - - (0.4) ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Profit before taxation 78.3 0.6 - 3.3 - (2.1) 0.1 80.2 Tax on profit (26.0) (0.3) 1.2 - - - - (25.1) ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- Attributable profit/ (loss) for the period 52.3 0.3 1.2 3.3 - (2.1) 0.1 55.1 ----------------------- -------- ------- ------- ------- ------- ------- ------- ------- * Amounts previously reported have been restated to reflect the impact of adopting FRS 17 'Retirement Benefits'. CONSOLIDATED BALANCE SHEET As at 30 September 2004 - unaudited IAS 38 IAS 12 In- IFRS 5 Deferred IAS 12 IFRS 3 IFRS 2 UK GAAP tangible Assets IFRS 1 tax Deferred Bus- Share (Restated) asset held Re- IAS 21 asset tax iness IAS 10 based (IFRS reclass- for valuation Foreign reclass- remeasure- combin- Divi- pay- format)ification resale reserve exchange ification ment ations dends ments Other IFRS £m £m £m £m £m £m £m £m £m £m £m £m ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- ASSETS Non-current assets Intangible assets 110.5 1.7 - - - - - 3.3 - - - 115.5 Property, plant and equipment 161.4 (1.7) (2.8) - - - - - - - - 156.9 Available- for-sale financial instruments 0.1 - - - - - - - - - - 0.1 Deferred taxation assets 22.3 - - - - 11.3 (12.9) - - - - 20.7 Trade and other receivables 1.1 - - - - - - - - - - 1.1 Income tax recoverable 0.8 - - - - - - - - - - 0.8 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- 296.2 - (2.8) - - 11.3 (12.9) 3.3 - - - 295.1 Current assets Stock 104.4 - - - - - - - - - - 104.4 Trade and other receivables 143.4 - - - - - - - - - - 143.4 Income tax recoverable 0.1 - - - - - - - - - - 0.1 Cash and cash equivalents 143.5 - - - - - - - - - - 143.5 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- 391.4 - - - - - - - - - - 391.4 Non-current assets classified as held for sale - - 2.8 - - - - - - - - 2.8 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- 391.4 - 2.8 - - - - - - - - 394.2 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- Total assets 687.6 - - - - 11.3 (12.9) 3.3 - - - 689.3 LIABILITIES Non-current liabilities Long-term liabilities (14.5) - - - - - - - - - - (14.5) Deferred taxation liabilities - - - - - (10.8) - - - - - (10.8) Retirement benefit obligations (2.0) - - - - (0.5) - - - - - (2.5) Provisions (5.0) - - - - - - - - - - (5.0) ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- (21.5) - - - - 11.3 - - - - - (32.8) Current liabilities Trade and other payables (156.1) - - - - - - - 10.0 1.0 (0.2) (145.3) Income tax liabilities (29.4) - - - - - 3.3 - - - - (26.1) Bank overdrafts (0.5) - - - - - - - - - - (0.5) ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- (186.0) - - - - - 3.3 - 10.0 1.0 (0.2) (171.9) ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- Total liabilities (207.5) - - - - 11.3 3.3 - 10.0 1.0 (0.2) (204.7) ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- Net assets 480.1 - - - - - (9.6) 3.3 10.0 1.0 (0.2) 484.6 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- EQUITY Ordinary share capital 1.1 - - - - - - - - - - 1.1 Share premium account 133.9 - - - - - - - - - - 133.9 Revaluation reserve 23.8 - - (23.8) - - - - - - - - Capital reserve 41.4 - - - - - - - - (15.7) - 25.7 Translation reserve - - - - 9.6 - - - - - - 9.6 Retained earnings 279.9 - - 23.8 (9.6) - (9.6) 3.3 10.0 16.7 (0.2) 314.3 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- Total equity 480.1 - - - - - (9.6) 3.3 10.0 1.0 (0.2) 484.6 ------- ------ ----- ------ ------ ------ ----- ----- ---- ----- ----- ----- * Amounts previously reported have been restated to reflect the impact of adopting FRS 17 'Retirement Benefits'. CONSOLIDATED BALANCE SHEET As at 31 March 2004 - unaudited IAS 38 IAS 12 In- IFRS 5 Deferred tangible Assets IFRS 1 tax IAS 12 IFRS 2 UK GAAP asset held Re- asset Deferred Share (IFRS reclass- for valuation reclass- tax IAS 10 based format)ification resale reserve ification remeasurement Dividends payments Other IFRS £m £m £m £m £m £m £m £m £m £m ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ ASSETS Non-current assets Intangible assets 111.4 1.8 - - - - - - - 113.2 Property, plant and equipment 149.8 (1.8) (0.7) - - - - - - 147.3 Available-for- sale financial instruments 0.1 - - - - - - - - 0.1 Deferred taxation assets 22.1 - - - 11.2 (12.6) - - - 20.7 Trade and other receivables 1.5 - - - - - - - - 1.5 Income tax recoverable 0.8 - - - - - - - - 0.8 ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ 285.7 - (0.7) - 11.2 (12.6) - - - 283.6 Current assets Stock 89.5 - - - - - - - - 89.5 Trade and other receivables 99.0 - - - - - - - - 99.0 Income tax recoverable 2.8 - - - - - - - - 2.8 Cash and cash equivalents 158.7 - - - - - - - - 158.7 ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ 350.0 - - - - - - - - 350.0 Non-current assets classified as held for sale - - 0.7 - - - - - - 0.7 ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ 350.0 - 0.7 - - - - - - 350.7 ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ Total assets 635.7 - - - 11.2 (12.6) - - - 634.3 LIABILITIES Non-current liabilities Long-term liabilities (35.4) - - - - - - - - (35.4) Deferred taxation liabilities - - - - (10.7) - - - - (10.7) Retirement benefit obligations (2.0) - - - (0.5) - - - - (2.5) Provisions (5.1) - - - - - - - - (5.1) ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ (42.5) - - - (11.2) - - - - (53.7) Current liabilities Trade and other payables (138.3) - - - - - 14.9 0.7 (0.2) (122.9) Income tax liabilities (24.7) - - - - - - - - (24.7) Bank overdrafts (0.8) - - - - - - - - (0.8) ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ (163.8) - - - - - 14.9 0.7 (0.2) (148.4) ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ Total liabilities (206.3) - - - (11.2) - 14.9 0.7 (0.2) (202.1) ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ Net assets 429.4 - - - - (12.6) 14.9 0.7 (0.2) 432.2 ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ EQUITY Ordinary share capital 1.1 - - - - - - - - 1.1 Share premium account 124.7 - - - - - - - - 124.7 Revaluation reserve 23.5 - - (23.5) - - - - - - Capital reserve 42.9 - - - - - - (17.8) - 25.1 Retained earnings 237.2 - - 23.5 - (12.6) 14.9 18.5 (0.2) 281.3 ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ Total equity 429.4 - - - - (12.6) 14.9 0.7 (0.2) 432.2 ---------- ------- -------- ------- ------ ------- ------- ------- ------- ------ ------ Basis of consolidation The Group annual financial statements comprise those of the parent company and its subsidiaries, presented as a single economic entity. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. The effects of intra-group transactions are eliminated in preparing the Group financial statements. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is a loss of control of a subsidiary, the consolidated financial statements include the results for the portion of the reporting period during which Burberry Group plc had control. Key sources of estimation uncertainty Preparation of the consolidated financial statements in conformity with IFRS requires that management make certain estimates and assumptions concerning future events that may affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates. Such estimates include but are not limited to asset impairment, stock provisioning, employee benefits obligations, contingent consideration for acquisitions, and the probability of deferred tax assets being recovered against future taxable profits. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 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. Retail sales, returns and allowances are reflected at the dates of transactions with consumers, in addition provisions are made for expected returns. Royalties receivable from licensees are accrued as earned on the basis of the terms of the relevant royalty agreement, which is typically on the basis of production volumes. (b) Intangible fixed assets Goodwill Goodwill is the excess of purchase consideration over the fair value of identifiable net assets acquired. Goodwill on acquisition is recorded as an intangible fixed asset. Fair values are attributed to the identifiable assets, liabilities and contingent 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. Prior to 31 March 2004, goodwill was held at cost less accumulated amortisation. Goodwill was assigned a finite useful economic life, not exceeding 20 years, and was amortised in equal annual instalments. Upon transition to International Financial Reporting Standards on 1 April 2004, goodwill was assigned an indefinite useful economic life in accordance with International Financial Reporting Standard 3 'Business Combinations', and it ceased to be amortised. Impairment reviews are performed annually, or more frequently 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. Computer Software The cost of acquiring computer software (including licences and separately identifiable external development costs) is capitalised as an intangible asset at purchase price, plus any directly attributable cost of preparing that asset for its intended use. Software costs are amortised by equal annual instalments over their estimated useful economic lives, which are up to 5 years. c) Property, plant and equipment Property, plant and equipment is stated at cost or revalued amount less accumulated depreciation and provision to reflect any impairment in value. Prior to 31 March 1996, the Group's policy was to revalue freehold properties, but at 1 April 1996 this policy was changed. The previously revalued properties were then carried at their 1996 revaluation amount. On 1 April 2004, upon transition to International Financial Reporting Standards, these revaluation amounts were taken to be the 'deemed cost' of the properties. Depreciation Depreciation of tangible fixed assets is calculated to write-off the cost or deemed cost, 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 equipment Up to 5 years ------------------------------- ---------------------- Impairment Impairment reviews are undertaken when performance trends or changes in circumstances suggest that the net book value of an item of property, plant or equipment is not fully recoverable. Profit/loss on disposal of property, plant and equipment Profits and losses on disposal of property, plant and equipment 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) Non-current assets held for sale A non-current asset is classified as held for sale, when its carrying value will be recovered principally through sale Non-current assets held for sale are carried at the lower of cost or fair value less costs to sell and are not depreciated. e) Impairment of assets Assets that have an indefinite useful economic life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). f) 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. g) Financial instruments A financial instrument is recognised on the balance sheet when the entity becomes a party to the contractual provisions of the instrument. A financial asset is no longer recognised when, the contractual rights to the cash flow expire or the asset is transferred. A financial liability is no longer recognised, when the obligation specified in the contract is discharged, cancelled or expires. The Group's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, and certain derivative instruments. Cash and cash equivalents Cash and cash equivalents comprise cash and short-term deposits with an original maturity date of 3 months or less, held with banks, liquidity funds as well as bank overdrafts. Bank overdrafts are recorded under current liabilities on the balance sheet. Trade and other receivables Trade and other receivables arise when the Group provides money, goods or services directly to a third party. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is recognised in the income statement. Trade and other payables Trade and other payables arise when the Group acquires money, goods or services directly from a creditor with no intention of trading the payable. They are included in current liabilities, except for maturities greater than 12 months after the balance sheet date. Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Available for sale financial assets Available for sale financial assets are non-derivative financial assets that have been designated in this category, or are not classified as loans and receivables, held-to-maturity investments, or financial assets at fair value through the profit and loss. Available for sale financial assets are initially recognised at fair value, plus transaction costs that are directly attributable to the acquisition. Subsequently the available for sale financial assets are measured at fair value, with gains and losses being recognised directly in equity. The cumulative gain or loss remains in equity until the available for sale financial asset is derecognised, when it is released to the income statement. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. h) Share capital Ordinary shares and redeemable preference shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is include in equity attributable to the Company's equity holders. i) Deferred tax Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the temporary difference arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is exempt from deferred tax. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are not discounted. j) Pension costs The pension costs in the consolidated financial statements are determined in accordance with IAS 19 'Employee Benefits'. Defined benefit schemes Eligible employees of Burberry Group participate in a number of GUS defined benefit schemes throughout the world; the principal defined benefit scheme is in the UK. The assets covering this arrangement 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 over the anticipated period of employment, in accordance with recommendations made by independent qualified actuaries. Any difference between the cumulative amounts charged against profit and contributions paid is included as an asset or liability as appropriate in the balance sheet. The asset or liability recognised in the balance sheet in respect of defined benefit schemes represents Burberry's share of the present value of the defined benefit obligation at the balance sheet date, less the fair value of plan assets, together with adjustments for unrecognised actuarial gains and losses and past service costs. A full actuarial valuation of the scheme is carried out every 3 years with interim reviews in intervening years. The latest full actuarial valuation of the scheme was carried out as at 31 March 2004 by independent, qualified actuaries, using the projected unit method. Actuarial gains and losses are recognised directly to equity through the statement of recognised income and expenses 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 and comprises the amount of contributions payable to the schemes in respect of the year. k) Share schemes Incentive plans Employees in the Group (including directors) receive certain share incentives. The cost of the share incentives is measured with reference to the fair value of the equity instruments awarded at the date of grant. The Black-Scholes Option Pricing Model is used to determine the fair value of the award made. The impact of performance conditions is not considered in determining the fair value on the date of grant, except for conditions linked to the price of Burberry Group plc shares. Vesting conditions, which relate to non-market conditions, are included in the assumptions about the number of options expected to vest. The estimate of the number of options expected to vest is revised at each balance sheet date. The cost of the share based incentives are recognised as an expense over the vesting period of the awards, with a corresponding increase in equity. The proceeds received from the exercise of the equity instruments awarded, net of any directly attributable transaction costs, are credited to share capital and share premium. l) Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). Transactions in foreign currencies Transactions denominated in foreign currencies within each entity in the Group, are translated into the functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies, which are held at year-end, are translated into the functional currency at the exchange rate ruling at the balance sheet date. Exchange differences on monetary items are taken to the income statement in the period in which they arise, except where these exchange differences form part of a net investment in overseas subsidiaries of Burberry Group, in which case such differences are taken directly to the foreign currency translation reserve within equity. l) Foreign currency translation (continued) Translation of the results of overseas businesses The results of overseas subsidiaries are translated into the Group's presentation currency of Sterling at the average exchange rate for the year. The average exchange rate is used, as it is considered to approximate the actual exchange rates on the date of the transactions. 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 directly to the foreign currency translation reserve within equity and are reported in the consolidated statement of changes in equity. The principal exchange rates used were as follows: Average ---------------------------------------- ------------- ------- Year to 6 months to 31 March 30 September 2005 2004 ---------------------------------------- ------- ------- Euro 1.47 1.49 US dollar 1.85 1.81 Hong Kong dollar 14.40 14.13 Korean won 2,041 2,099 ---------------------------------------- ------- ------- Closing ----------------------------------- ------------------ As at As at As at 31 March 30 September 31 March 2005 2004 2004 ----------------------------------- ------- ------- ------- Euro 1.45 1.46 1.50 US dollar 1.88 1.81 1.84 Hong Kong dollar 14.69 14.07 14.31 Korean won 1,920 2,078 2,106 ----------------------------------- ------- ------- ------- Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. The average exchange rate achieved by Burberry Group on its Yen royalty income, taking into account its use of Yen forward sale contracts on a monthly basis approximately 12 months in advance of royalty receipts, was Yen 184.3: £1 in the year to 31 March 2005 (in the six months to 30 September 2004 : Yen 182.0 : £1). m) Operating leases Burberry Group is both a lessee and lessor of property. Gross rental income and expenditure in respect of operating leases are recognised on a straight-line basis over the period of the leases. Certain rental expense is determined on the basis of turnover achieved in specific retail locations and is accrued for on that basis. Lease premiums and incentives Amounts paid to acquire the rights to a lease ('Lease premiums') are written off in equal annual instalments over the life of the lease. Lease incentives, typically rent-free periods and capital contributions, are recognised over the full term of the lease. n) Dividend Distribution Dividend distributions to Burberry Group plc's shareholders are recognised as a liability in the period in which the dividends are approved by the shareholders for the final dividend or approved by the directors for the interim dividend. This information is provided by RNS The company news service from the London Stock Exchange

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