Preliminary Results - Part 2

Burberry Group PLC 24 May 2007 18 Retirement benefit obligations 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 Balance Sheet obligations in respect of Burberry Group's post-retirement arrangements, assessed in accordance with IAS 19, were: As at As at 31 March 31 March 2007 2006 Â£m Â£m Defined benefit schemes GUS defined benefit scheme UK * - - Supplemental executive retirement plan US** 1.4 1.4 Retirement indemnities France 0.2 0.2 Burberry (Taiwan) Co Ltd retirement scheme 0.2 0.2 ------------------------------------------ ------ ------ Total obligation 1.8 1.8 ------------------------------------------ ------ ------ *This plan has been renamed the Experian Pension Plan. **The plans in the US are classified as defined benefit schemes under IAS 19 because their exact cost cannot be quantified as the funds are subject to notional indexation according to specified investment return indices. No prepayments or obligations in respect of defined contributions schemes were outstanding at 31 March 2007 (2006: nil). The pension costs charged to the Income Statement in respect of the main plans were: Year to Year to 31 March 31 March 2007 2006 Â£m Â£m ------------------------------------------ ------ ------ Defined benefit schemes GUS defined benefit scheme UK 0.1 0.4 Supplemental executive retirement plan US 0.2 0.3 Defined contribution schemes GUS money purchase pension plan UK - 1.0 Burberry stakeholder plan UK 2.0 - Burberry money purchase plan US 0.7 0.9 Burberry Asia Limited retirement scheme 0.2 0.1 ------------------------------------------ ------ ------ Total pension costs 3.2 2.7 ------------------------------------------ ------ ------ Defined benefit schemes GUS defined benefit scheme UK Prior to the demerger of Burberry from GUS plc on 13 December 2005, it was agreed that existing employees of Burberry Group who were participating in the GUS defined benefit scheme (the 'GUS Pension Scheme') would continue to do so until 31 December 2007 or such earlier date as required by HM Customs & Revenue or by Burberry. When the eventual withdrawal of members of the Burberry Group from the GUS Pension Scheme takes place on or before 31 December 2007, Burberry must pay any liabilities due under section 75 or 75A of the Pensions Act 1995. GUS has indemnified Burberry on an after tax basis against any amounts which are in excess of Â£1.25m. 18 Retirement benefit obligations (continued) The following disclosures regarding the GUS defined benefit scheme UK have been included for completeness as required by IAS 19 and the assets have been restricted in accordance with the standard as it is not likely that Burberry will be able to benefit from this surplus. The GUS Pension 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 Pension Scheme is carried out every three years with interim reviews in the intervening years. The last full valuation was carried out as at 31 March 2004 by independent qualified actuaries, Watson Wyatt Limited, using the projected unit method. A full valuation is currently been carried out by Watson Wyatt Limited, the results of which are expected late summer 2007. As a result of the 31 March 2004 valuation it became possible to separately identify the underlying assets and liabilities which relate to the Burberry Group. Therefore, since the valuation, Burberry Group has accounted for its proportionate share of the overall defined benefit obligation, scheme assets and costs. The valuation of the GUS Pension Scheme used for Burberry Group's IAS 19 disclosures for the year to 31 March 2007 has been based on an update of the 31 March 2004 valuation. As at 31 March 2007, this update showed that there was an excess in the value of the assets of the GUS Pension Scheme, when compared to the value of the liabilities, on the basis set out below. Burberry Group's proportionate share of this excess was approximately Â£5.7m (2006: Â£1.8m) before allowing for deferred tax. This surplus has been restricted as explained above. Burberry Group's disclosures in respect of its continued participation in the GUS Pension Scheme are shown below. The disclosures are in accordance with IAS 19 and the Group recognise all gains/losses immediately through the SORIE. The valuation assumptions The principal actuarial assumptions used in the IAS 19 valuation of the Burberry Group portion of the GUS Pension Scheme are the same as those used for the whole of the GUS Pension Scheme and are shown below: Year to Year to 31 March 31 March 2007 2006 % % ----------------------------------------- ------ ------ Discount rate 5.4% 4.9% Rate of inflation 3.1% 2.9% Rate of salary increases 4.9% 4.7% Rate of increases for pensions in payment and deferred pensions 3.1% 2.9% Expected return on plan assets 7.1% 6.8% ----------------------------------------- ------ ------ The expected return on plan assets is calculated by reference to the GUS Pension Scheme investments at the year end and is a weighted average of the expected returns on each main asset type (based on the market yields available on these asset types at the year end). The main asset types held by the GUS Pension Scheme (expressed as a percentage of total assets) and their expected returns are as follows: Asset Asset allocation at Expected allocation at Expected 31 March return for the 31 March return for the 2007 next year 2006 next year % % % % --------------------------------- ------ ------ ------ ------ Equities 69% 8.1% 67% 7.9% Fixed and index linked income securities 16% 5.0% 30% 4.6% Other 15% 4.6% 3% 3.7% --------------------------------- ------ ------ ------ ------ Total 100% 7.1% 100% 6.8% --------------------------------- ------ ------ ------ ------ 18 Retirement benefit obligations (continued) The IAS 19 valuation assumes mortality will be in line with standard tables known as PMA92C2004 for males and PFA92C2004 for females. An allowance is also made for anticipated future improvements in life expectancy, by assuming that the probability of death occurring at each age will decrease by 0.25% each year. Overall, the average expectation of life on retirement in normal health is assumed to be: â€¢ 19.1 years at age 65 for a male currently aged 65; â€¢ 22.2 years at age 65 for a female currently aged 65; â€¢ 19.8 years at age 65 for a male currently aged 50; and â€¢ 23.1 years at age 65 for a female currently aged 50. On 6 April 2006, 'A-Day', the Rules of the Scheme were changed to allow members to exchange a higher percentage of their pension for cash on retirement. As such, it has been assumed that non-retired members will exchange a higher percentage, 25% (2006: 20%), of their pension for cash on retirement. This results in a reduction in the year end liabilities of Â£0.2m. This reduction has been treated as follows: â€¢ Â£0.1m of this reduction will impact the year end Balance Sheet via the SORIE; and â€¢ Â£0.1m of this reduction will impact the year end Balance Sheet via the Group Income Statement. Based on the method and assumptions outlined above, the amount recognised in Burberry Group's Balance Sheet is determined as follows: As at As at 31 March 31 March 2007 2006 Â£m Â£m ------------------------------------------ ------ ------ Present value of Burberry Group's share of scheme's liabilities (the defined benefit obligation) (37.8) (39.4) Market value of Burberry Group's share of scheme's assets 43.5 41.2 ------------------------------------------ ------ ------ Net assets 5.7 1.8 Restricted recognition of assets (5.7) (1.8) ------------------------------------------ ------ ------ Net assets recognised in the balance sheet - - ------------------------------------------ ------ ------ Amounts for the current and previous two periods are as follows: As at As at As at 31 March 31 March 31 March 2007 2006 2005 Â£m Â£m Â£m -------------------------------------- ------ ------ ------ Defined benefit obligation (37.8) (39.4) (35.0) Market value of assets 43.5 41.2 34.0 -------------------------------------- ------ ------ ------ Surplus/(deficit) 5.7 1.8 (1.0) Restricted recognition of assets (5.7) (1.8) - -------------------------------------- ------ ------ ------ Deficit recognised - - (1.0) -------------------------------------- ------ ------ ------ Experience adjustments on liabilities 2.7 (3.3) (2.9) Experience adjustments on assets 0.7 5.8 1.4 -------------------------------------- ------ ------ ------ The amounts recognised in the Income Statement are as follows: Year to Year to 31 March 31 March 2007 2006 Â£m Â£m ------------------------------------------ ------ ------ Current service cost (included in net operating costs) (1.0) (0.9) Past service cost (included in net operating costs) 0.1 - Interest cost (included in net finance income) (1.9) (1.8) Expected return on plan assets (included in net finance income) 2.7 2.3 ------------------------------------------ ------ ------ Total recognised in the income statement (0.1) (0.4) ------------------------------------------ ------ ------ 18 Retirement benefit obligations (continued) The amount recognised in the Group Statement of Recognised Income and Expense (SORIE) is as follows: Year to Year to 31 March 31 March 2007 2006 Â£m Â£m ------------------------------------------ ------ ------ Gain/(loss) on liabilities 2.7 (3.3) Gain on assets 0.7 5.8 ------------------------------------------ ------ ------ Total gain 3.4 2.5 Restricted recognition of assts (3.9) (1.8) ------------------------------------------ ------ ------ Total (loss)/gain included in the SORIE in the year (0.5) 0.7 ------------------------------------------ ------ ------ Cumulative actuarial gain included in the SORIE (1.3) (0.8) ------------------------------------------ ------ ------ Changes in the present value of the defined benefit obligation are as follows: As at As at 31 March 31 March 2007 2006 Â£m Â£m ------------------------------------------ ------ ------ Opening defined benefit obligation (39.4) (35.0) Current service cost (1.0) (0.9) Past service cost 0.1 - Interest cost (1.9) (1.8) Employee contributions (0.2) (0.2) Actuarial gain/(loss) on liabilities 2.7 (3.3) Benefits paid 1.9 1.8 ------------------------------------------ ------ ------ Closing defined benefit obligation (37.8) (39.4) ------------------------------------------ ------ ------ Changes in the fair value of the plan assets are as follows: As at As at 31 March 31 March 2007 2006 Â£m Â£m ------------------------------------------ ------ ------ Opening fair value of plan assets 41.2 34.0 Expected return 2.7 2.3 Actuarial gain on assets 0.7 5.8 Contributions paid by employer 0.6 0.7 Contributions paid by employee 0.2 0.2 Benefits paid (1.9) (1.8) ------------------------------------------ ------ ------ Closing fair value of plan assets 43.5 41.2 ------------------------------------------ ------ ------ The actual return on the plan assets in the year to 31 March 2007 was Â£3.4m (2006: Â£8.1m). Burberry Group's total contributions to the GUS Pension Scheme during the year ended 31 March 2007 were Â£0.6m (2006: Â£0.7m). The Group expects to contribute Â£0.4m in the year to 31 March 2008. Supplemental executive retirement plan US Rose Marie Bravo participates in this plan as explained in the Report on Directors' Remuneration and Related Matters. Payments are made into the Supplemental executive retirement plan based on a percentage of salary and benefits. Interest is earned on the scheme at a rate of 3.5% (2006: 4.6%). 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. There are no assets held by Burberry Group companies in relation to this commitment. 18 Retirement benefit obligations (continued) Burberry (Taiwan) Co Ltd retirement scheme Burberry (Taiwan) Co Ltd offers lump sum benefits at retirement to employees transferred from one of the previous operators based on the length of service up to date of transfer (i.e. 1 August 2005) and salary at retirement. There are no assets held by Burberry Group companies in relation to this commitment Starting from 1 August 2005, all employees of the company joined the defined contribution scheme operated under local labour ordinance. Defined contribution schemes Burberry stakeholder plan UK This plan was introduced on 1 April 2006 when the GUS money purchase pension plan UK closed for Burberry employees. All UK employees are eligible to participate in this scheme. The assets of this scheme are held separately in an independently administered fund. 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. 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. GUS money purchase pension plan UK This plan 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. On 31 March 2006 all Burberry employees ceased to be members of this scheme. Employees had the choice to transfer their pensions to the Burberry stakeholder plan UK or a private scheme of their choice. The assets of this scheme were held separately from those of GUS plc in an independently administered fund. 19 Provisions for liabilities and charges Property obligations Â£m --------------------------------------------- ------ As at 1 April 2006 2.8 Released during the year (2.8) --------------------------------------------- ------ As at 31 March 2007 - --------------------------------------------- ------ Property obligations arose from the portfolio of leasehold obligations which the Group maintains and were released during the year. 20 Bank overdrafts and borrowings As at As at 31 March 31 March 2007 2006 Â£m Â£m ----------------------------------------- ------- ------- Unsecured: Bank overdrafts 74.2 51.2 Bank borrowings 60.0 50.0 ----------------------------------------- ------- ------- Total 134.2 101.2 ----------------------------------------- ------- ------- Bank overdrafts represent balances on cash pooling arrangements in the Group. The effective interest rate for the overdraft balances is 4.5% (2006: 5.3%). A Â£200m five year multi currency revolving facility was agreed with a syndicate of third party banks commencing on 30 March 2005. At 31 March 2007, the amount drawn down was Â£60m (2006: Â£50m). This drawdown was made in Sterling. Interest is charged on this loan at LIBOR plus 0.325% per annum and the borrowing matures on 22 June 2007. 21 Trade and other payables As at As at 31 March 31 March 2007 2006 Â£m Â£m ----------------------------------------- ------ ------ Unsecured: Trade creditors 56.8 28.0 Other taxes and social security costs 6.4 6.0 Other creditors 19.4 18.9 Accruals and deferred income 78.1 67.5 Deferred consideration for acquisitions 10.0 6.5 ----------------------------------------- ------ ------ Total 170.7 126.9 ----------------------------------------- ------ ------ Deferred consideration of Â£10m (2006: Â£5m) due within one year arose from the acquisition of the Burberry business in Korea. Deferred consideration arising on the Burberry Taiwan acquisition was fully paid in the year (2006: Â£1.5m). 22 Share capital and reserves Authorised share capital 2007 2006 Â£m Â£m ----------------------------------------- ------- ------ 1,999,999,998,000 (2006: 1,999,999,998,000) Ordinary Shares of 0.05p (2006: 0.05p) each 1,000.0 1,000.0 ----------------------------------------- ------- ------ 1,000.0 1,000.0 ----------------------------------------- ------- ------ Allotted, called up and fully paid share capital Number Â£m ----------------------------------------- ------- ------ Ordinary Shares of 0.05p (2006: 0.05p) each ----------------------------------------- ------- ------ As at 1 April 2006 446,712,463 0.2 Allotted on exercise of IPO Option Scheme awards during the year 3,347,919 - Cancelled on repurchase of own shares (12,281,000) - ----------------------------------------- ------- ------ As at 31 March 2007 437,779,382 0.2 ----------------------------------------- ------- ------ 22 Share capital and reserves (continued) Statement of changes in shareholders' equity Foreign Ordinary Share currency share premium Hedging translation Capital Retained Total capital account reserve reserve reserve earnings equity Â£m Â£m Â£m Â£m Â£m Â£m Â£m ---------------------- ----- ------ ------ ------ ------ ------ ------ Balance as at 1 April 2005 0.3 136.1 2.6 5.4 24.9 304.9 474.2 Cash flow hedges - losses deferred in equity - - (3.8) - - - (3.8) Foreign currency translation differences - - - 15.6 - - 15.6 Net actuarial gains on defined benefit pension scheme - - - - - 0.7 0.7 Tax on items taken directly to equity - - 1.5 0.2 - (0.2) 1.5 ---------------------- ----- ------ ------ ------ ------ ------ ------ Net income/(expense) recognised directly in equity - - (2.3) 15.8 - 0.5 14.0 ---------------------- ----- ------ ------ ------ ------ ------ ------ Cash flow hedges - transferred to the income statement - - (0.7) - - - (0.7) Tax on items transferred from equity - - 0.2 - - - 0.2 Attributable profit for the year - - - - - 106.4 106.4 ---------------------- ----- ------ ------ ------ ------ ------ ------ Total recognised income/(expenses) for the year - - (2.8) 15.8 - 106.9 119.9 Employee share option scheme - value of share options granted - - - - - 7.4 7.4 - tax on share options granted - - - - - 2.6 2.6 - exercise of share options - 15.7 - - - - 15.7 - price differential on exercise of shares - - - - - (12.0) (12.0) Share buy back costs (0.1) - - - 0.1 (191.6) (191.6) Sale of shares by ESOPs - - - - - 2.4 2.4 Redemption of preference shares - - - - 0.8 - 0.8 Dividend paid in the year - - - - - (32.8) (32.8) ---------------------- ----- ------ ------ ------ ------ ------ ------ Balance as at 31 March 2006 0.2 151.8 (0.2) 21.2 25.8 187.8 386.6 Cash flow hedges - gains deferred in equity - - 9.1 - - - 9.1 Foreign currency translation differences - - - (28.9) - - (28.9) Net actuarial losses on defined benefit pension scheme - - - - - (0.5) (0.5) Tax on items taken directly to equity - - (3.0) 1.5 - - (1.5) ---------------------- ----- ------ ------ ------ ------ ------ ------ Net income/(expense) recognised directly in equity - - 6.1 (27.4) - (0.5) (21.8) ---------------------- ----- ------ ------ ------ ------ ------ ------ Cash flow hedges - transferred tothe income statement - - (5.9) - - - (5.9) Tax on items transferred from equity - - 1.8 - - - 1.8 Attributable profit for the year - - - - - 110.2 110.2 ---------------------- ----- ------ ------ ------ ------ ------ ------ Total recognised income/(expenses) for the year - - 2.0 (27.4) - 109.7 84.3 Employee share option - scheme - value of share options granted - - - - - 10.8 10.8 - tax on share options granted - - - - - 7.2 7.2 - exercise of share options - 15.5 - - - - 15.5 - price differential on exercise of shares - - - - - (14.9) (14.9) Share buy back costs - - - - - (62.2) (62.2) Sale of shares by ESOPs - - - - - 6.1 6.1 Transfer between reserves - - - - 0.2 (0.2) - Dividend paid in the year - - - - - (36.5) (36.5) ---------------------- ----- ------ ------ ------ ------ ------ ------ Balance as at 31 March 2007 0.2 167.3 1.8 (6.2) 26.0 207.8 396.9 ---------------------- ----- ------ ------ ------ ------ ------ ------ During the year to 31 March 2007, the Company repurchased and subsequently cancelled 12,281,000 Ordinary Shares, representing 2.7% of the issued share capital, at a total cost of Â£62.2m. The nominal value of the shares was Â£6,141 which was transferred to a capital redemption reserve. Retained earnings were reduced by Â£62.2m. The share repurchase programme commenced in January 2005 and since then a total of 72,865,230 Ordinary Shares have been repurchased and subsequently cancelled. This represents 14.5% of the original issued share capital at a total cost of Â£312.2m. The nominal value of the shares was Â£36,433 and has been transferred to a capital redemption reserve and the retained earnings have been reduced by Â£312.2m since this date. 23 Financial commitments Burberry Group has commitments relating to future minimum lease payments under non-cancellable operating leases as follows: As at 31 March 2007 As at 31 March 2006 ------------------------------ -------------------------------- Land and Land and buildings Other Total buildings Other Total Â£m Â£m Â£m Â£m Â£m Â£m -------------------------- ------ ------ ------ ------ ------ ------ Amounts falling due Within one year 30.5 1.0 31.5 26.0 1.3 27.3 Between two and five years 84.5 1.5 86.0 80.2 1.5 81.7 After five years 103.0 0.8 103.8 112.2 2.7 114.9 -------------------------- ------ ------ ------ ------ ------ ------ Total 218.0 3.3 221.3 218.4 5.5 223.9 -------------------------- ------ ------ ------ ------ ------ ------ 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 Income Statement may be materially higher than the financial commitment at the prior year end. Where rental agreements include a contingent rental, this contingent rent is generally calculated as a percentage of turnover. Escalation clauses increase the rental to either open market rent, a stipulated amount in the rental agreement, or by an inflationary index percentage. There are no significant restrictions imposed by these lease agreements. The total of future minimum sublease payments to be received under non-cancellable subleases is as follows: As at As at 31 March 31 March 2007 2006 Land and Land and buildings buildings Â£m Â£m -------------------------------------- ------ ------ Amounts falling due: Within one year 0.1 0.1 Between two and five years 0.4 0.4 After five years 0.8 0.9 -------------------------------------- ------ ------ Total 1.3 1.4 -------------------------------------- ------ ------ 24 Capital commitments As at As at 31 March 31 March 2007 2006 Â£m Â£m ----------------------------------------- ------- ------- Capital commitments contracted but not provided for - property, plant and equipment 2.5 3.5 - intangible assets 0.1 0.1 ----------------------------------------- ------- ------- Total 2.6 3.6 ----------------------------------------- ------- ------- Contracted capital commitments represent contracts entered into by the year end and future work in respect of major capital expenditure projects where activity has commenced by the year end relating to property, plant and equipment. 25 Contingent liabilities Since 31 March 2006 the following changes to material contingent liabilities have occurred: During the year ended 31 March 2007, Burberry Group has provided guarantee letters to certain raw material suppliers. The total value of these guarantees, which expire on 31 July 2007, amount to Â£1.1m at 31 March 2007. Other material contingent liabilities reported at 31 March 2006 remain unchanged and were: Under the terms of a demerger Agreement, entered into with GUS plc on 13 December 2005, Burberry continues to participate in the GUS defined benefit scheme. Under this scheme Burberry is jointly and severally liable with the other participating GUS companies for any deficit in this scheme. When Burberry leaves the scheme it will be required to pay an exit charge calculated pursuant to Section 75 or 75A of the Pensions Act. GUS plc has agreed to pay to Burberry the amount of this liability to the extent it exceeds Â£1.25 million. Refer to note 18. Under the GUS group UK tax payment arrangements, the Group was jointly and severally liable for any GUS liability attributable to the period of Burberry Group's membership of this payment scheme. Burberry Group's membership of this scheme was terminated with effect from 31 March 2002. Burberry (Spain) S.A. is liable for certain salary and social security contributions left unpaid by its sole contractors where the amounts are attributable to the period in which subcontracting activity is undertaken on behalf of Burberry (Spain) S.A. It is not feasible to estimate the amount of contingent liability, but such expense has been minimal in prior years. 26 Acquisition of Subsidiaries On 18 October 2006 Burberry Group acquired a shell company in the Czech Republic to enable the Group to buy a lease for a new store. The net asset value of the shell company acquired was Â£4,197 consisting of cash of Â£4,095 and a debtor of Â£102. No adjustments were made to the fair values of the assets. Total consideration paid in cash was Â£71,727 resulting in goodwill of Â£67,530. The new store contributed Â£0.1m to turnover and a total loss of Â£0.1m was realised for the period since its opening in March 2007. Due to the fact that Burberry has never had presence in this country trading history is not available and therefore the estimated financial impact on the Group had the store opened on 1 April 2006 cannot be determined. 27 Financial risk management The Group's principal financial instruments, other than derivatives, comprise cash and short term deposits, external borrowings, deferred consideration, as well as trade debtors and creditors, arising directly from operations. The Group's activities expose it to a variety of financial risks: market risks (including currency risk, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. Risk management is carried out by Group Treasury who seek to reduce financial risk and to ensure sufficient liquidity is available to meet foreseeable needs and to invest in cash assets safely and profitably. This is done in close co-operation with the Group's operating units. Group Treasury does not operate as a profit centre and transacts only in relation to the underlying business requirements. The policies of the Group Treasury department are reviewed and approved by the Board of Directors. The Group uses derivative instruments to hedge certain risk exposures. (i) Market Risk Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. Burberry Group monitors the desirability of hedging the profits and the net assets of the overseas subsidiaries when translated in to Sterling for reporting purposes. It has not entered into any specific transactions for this purpose. Burberry Group's Income Statement 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 (see note 15). The Group's accounting policy in relation to derivative instruments is set out in note 2. Price Risk The Group's exposure to equity securities price risk is minimal. The Group is not exposed to commodity price risk. (ii) Credit risk The Group has no significant concentrations of credit risk. It has policies in place to ensure that wholesale sales of products are made to customers with an appropriate credit history. Sales to retail customers are made in cash or via major credit cards. In addition, receivables balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant. With respect to credit risk arising from other financial assets, which comprise cash and short term deposits and certain derivative instruments, the Group's exposure to credit risk arises from the default of the counter party with a maximum exposure equal to the carrying value of these instruments. The Group has policies that limit the amount of credit exposure to any financial institution. (iii) Liquidity Risk The Group financial risk management policy aims to ensure that sufficient cash is maintained to meet foreseeable needs and close out market positions. Due to the dynamic nature of the underlying business, the Group treasury department aims to maintain flexibility in funding by keeping committed credit lines available. For further details of this, see note 20. (iv) Cash flow interest rate risk The Group's exposure to market risk for changes in interest rates, relates primarily to cash, short term deposits and external borrowings. The external borrowings are linked to the LIBOR rate, while cash and short term borrowings are affected by local market rates around the Group. The borrowings at variable rates expose the Group to cash flow interest rate risk. 27 Financial risk management (continued) Currently, this risk is not hedged as the risk is not considered significant. This situation is monitored by the Group treasury department. (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 As at 31 March 31 March 2007 2006 Book and Book and Primary financial instruments held or issued to Fair value Fair value finance the Group's operations: Â£m Â£m ----------------------------------------- ------ ------ Cash at bank and in hand 72.0 70.2 Short term deposits 59.4 43.5 ----------------------------------------- ------ ------ Total financial assets 131.4 113.7 ----------------------------------------- ------ ------ Interest bearing borrowings (134.2) (101.2) Other financial liabilities (20.4) (23.9) ----------------------------------------- ------ ------ Total financial liabilities (154.6) (125.1) ----------------------------------------- ------ ------ Total net financial liabilities (23.2) (11.4) ----------------------------------------- ------ ------ The nominal value less impairment provision of trade receivables and payables are assumed to approximate their fair value. Derivative financial instruments held to manage 2007 2006 the currencyprofile Â£m Â£m ----------------------------------------- ------ ------ Forward foreign currency contracts - book value 4.8 0.7 - fair value 4.8 0.7 ----------------------------------------- ------ ------ 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, borrowings 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 market rates after discounting using the prevailing interest rates at the time. (b) Interest rate risk profile Financial assets The interest rate risk profile of Burberry Group's financial assets by currency is as follows: Cash at bank and in Short term hand deposits Total Currency Â£m Â£m Â£m -------------------------------------- ------ ------ ------ As at 31 March 2007 Sterling 4.9 2.3 7.2 US dollar 14.9 - 14.9 Euro 36.2 3.2 39.4 Other currencies 16.0 53.9 69.9 -------------------------------------- ------ ------ ------ Total financial assets 72.0 59.4 131.4 -------------------------------------- ------ ------ ------ Floating rate assets 64.2 59.4 123.6 Balances for which no interest is paid 7.8 - 7.8 -------------------------------------- ------ ------ ------ 27 Financial risk management (continued) (b) Interest rate risk profile (continued) Cash at bank Short term Total and in hand deposits Currency Â£m Â£m Â£m -------------------------------------- ------ ------ ------ As at 31 March 2006 Sterling 5.5 5.0 10.5 US dollar 14.4 0.4 14.8 Euro 37.6 14.0 51.6 Other currencies 12.7 24.1 36.8 -------------------------------------- ------ ------ ------ Total financial assets 70.2 43.5 113.7 -------------------------------------- ------ ------ ------ Floating rate assets 56.4 43.5 99.9 Balances for which no interest is paid 13.8 - 13.8 -------------------------------------- ------ ------ ------ Floating rate assets earn interest based on the relevant national LIBOR equivalents. Balances for which no interest is paid is made up of Sterling Â£1.2m (2006: Â£3.8m), Euros Â£nil (2006: Â£0.2m) and Hong Kong dollars Â£3.2m (2006: Â£2.2m), Singapore dollars Â£3.0m (2006: Â£3.3m), Japanese Yen Â£nil (2006: Â£3.9m) and Malaysian Ringgit Â£0.4m (2006: Â£0.4m). These amounts arise principally due to the timing of transactions. Financial liabilities The interest rate risk profile of Burberry Group's financial liabilities by currency is as follows: Financial Currency Floating liabilities on rate which no financial interest is liabilities payable Total -------------------------------------- ------ ------ ------ As at 31 March 2007 Sterling 62.1 12.1 74.2 US dollar 14.5 6.6 21.1 Euro 20.2 1.0 21.2 Other currencies 37.4 0.7 38.1 -------------------------------------- ------ ------ ------ Total financial liabilities 134.2 20.4 154.6 -------------------------------------- ------ ------ ------ As at 31 March 2006 Sterling 50.0 16.6 66.6 US dollar - 5.2 5.2 Euro 27.7 1.3 29.0 Other currencies 23.5 0.8 24.3 -------------------------------------- ------ ------ ------ Total financial liabilities 101.2 23.9 125.1 -------------------------------------- ------ ------- ------ The floating rate financial liabilities at 31 March 2007 and 2006 incurred interest based on relevant national LIBOR equivalents. The floating rate financial liabilities at 31 March 2007 and 2006 include overdraft balances of Â£74.2m (2006: Â£51.2m). 27 Financial risk management (continued) (c) 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, are as follows: ---------------------------------- ------ ------ ------ ------ Other Deferred financial Debt consideration liabilities Total As at 31 March 2007 Â£m Â£m Â£m Â£m ---------------------------------- ------ ------ ------ ------ In one year or less, or on demand 134.2 10.0 - 144.2 In more than one year, but not more than two years - - 1.9 1.9 In more than two years, but not more than three years - - 1.0 1.0 In more than three years, but not more than four years - - 0.9 0.9 In more than four years, but not more than five years - - 0.8 0.8 In more than five years - - 5.8 5.8 ---------------------------------- ------ ------ ------ ------ Total financial liabilities 134.2 10.0 10.4 154.6 ---------------------------------- ------ ------ ------ ------ ------------------------------- ------ ------ ------ ------ Other Deferred financial Debt consideration liabilities Total As at 31 March 2007 Â£m Â£m Â£m Â£m ------------------------------- ---------- ------ ------ ------ In one year or less,or on demand 101.2 6.5 1.9 109.6 In more than one year, but not more than two years - 5.0 1.8 6.8 In more than two years, but not more than three years - - 1.4 1.4 In more than three years, but not more than four years - - 1.2 1.2 In more than four years, but not more than five years - - 0.9 0.9 In more than five years - - 5.2 5.2 ------------------------------- ---------- ------ ------ ------ Total financial liabilities 101.2 11.5 12.4 125.1 ------------------------------- ---------- ------ ------ ------ All deferred consideration is payable in cash. Other financial liabilities principally relate to accrued lease liabilities Â£7.9m (2006: Â£6.3m), property related accruals Â£0.9m (2006: Â£1.2m) which are included in other creditors falling due after more than one year, and provisions for certain property obligations Â£nil (2006: Â£2.8m), which are included in provisions. (d) 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 recognised in the Income Statement. 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 2007 Sterling - (11.9) (8.7) (36.4) (57.0) Other currencies 2.0 0.2 (1.3) - 0.9 ------------------------------- ------ ------ ------ ------ ------ Total 2.0 (11.7) (10.0) (36.4) (56.1) ------------------------------- ------ ------ ------ ------ ------ As at 31 March 2006 Sterling - 0.3 8.6 (0.1) 8.8 Other currencies (1.3) (0.2) (0.1) - (1.6) ------------------------------- ------ ------ ------ ------ ------ Total (1.3) 0.1 8.5 (0.1) 7.2 ------------------------------- ------ ------ ------ ------ ------ 28 Employee costs Staff costs, including directors' emoluments, during the year are 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 Year to 31 March 31 March 2007 2006 Â£m Â£m ---------------------------------------- ------ ------ Wages and salaries 143.5 124.7 Social security costs 16.5 13.9 Share based compensation (all awards settled in shares) 10.8 7.4 Other pension costs (see note 18) 3.2 2.7 ---------------------------------------- ------ ------ Total 174.0 148.7 ---------------------------------------- ------ ------ The average number of full time equivalent employees (including directors) during the year was as follows: Year to Year to 31 March 31 March 2007 2006 Number of Number of employees employees ---------------------------------------- ------ ------ Europe (excluding Spain) 2,415 2,149 North America 1,026 902 Asia Pacific 735 683 Spain 1,042 917 ---------------------------------------- ------ ------ Total 5,218 4,651 ---------------------------------------- ------ ------ Share options granted to directors and employees The share option schemes have been valued using the Black-Scholes option pricing model. The Senior Executive Restricted Share Plan 2004, which has market based performance conditions attached, has been valued using the Black-Scholes option pricing model with a discount applied to this value, based on information obtained by running a Monte Carlo simulation model on the scheme. Where applicable, equity swaps have been entered into to cover future Employer's National Insurance liability (or overseas equivalent) that may arise in respect of these schemes. SAYE share option scheme A Save As You Earn (SAYE) share option scheme offering GUS plc ordinary shares was introduced for employees in the UK by GUS plc in the year to 31 March 2002, with a further option scheme offered to all UK employees of GUS plc in the year to 31 March 2003. For both of the grants made, employees were entitled to save for either three years or five years. As a result of the demerger from GUS plc on 13 December 2005, the employees who held options at this date as part of the GUS SAYE share option scheme had six months from the date of the demerger to exercise these options. At 31 March 2007 there were no shares under option (2006: 129,748 at a weighted average exercise price of 413p). The administrative costs of this scheme have not been borne by Burberry Group plc and are not considered to be material. On 23 June 2006 a Save As You Earn (SAYE) share option scheme offering Burberry Group plc ordinary shares was introduced for all employees in the UK, Europe and Asia Pacific, with a further option scheme offered to all American employees of Burberry Group plc on 30 March 2007. For both of the grants made, employees are entitled to save for three years. The options granted on 23 June 2006 and 30 March 2007 are exercisable from 30 September 2009 and 31 March 2010 respectively and are dependent on continued employment, as well as a saving obligation over the vesting period. The exercise price for these options is calculated at a 20 percent discount to market price over the three dealing days preceding the grant date. Three day averages are calculated by taking middle market quotations of a Burberry Group plc share from the London Stock Exchange. 28 Employee costs (continued) The fair value of the options granted has been calculated using a risk-free rate of 4.9%, expected volatility of 25.2% and an expected dividend yield of between 1.6% and 2.1%. The fair values per option for these grants were determined as Â£1.20 and Â£2.97 respectively. Expected volatility was determined by calculating the historic annualised standard deviation of the continuously compounded rates of return on the shares over a period of time, prior to the grant, equivalent to the life of the option. As share price information was only available for Burberry Group plc from July 2002 an average of a comparator group of companies was used prior to this date. The average expected volatility over the life of the option was used. Movements in the number of SAYE share options in Burberry Group plc shares outstanding and their weighted average exercise price are as follows: Number of Number of Weighted shares under Weighted shares under average option as at 31 average option as at 31 exercise March exercise March price 2007 price 2006 ---------------------------------- ------ ------ ------ ------ Outstanding at 1 April - - - - Granted during the year 354.8 788,517 - - Lapsed during the year 350.5 (25,949) - - Exercised during the year - - - - ---------------------------------- ------ ------ ------ ------ Outstanding at 31 March 354.9 762,568 - - Exercisable at 31 March - - - - ---------------------------------- ------ ------ ------ ------ SAYE share options in Burberry Group plc shares outstanding at the end of the year have the following expiry dates and exercise prices: Number of Number of shares under shares under option as at option as at Exercise 31 March 31 March Option term price 2007 2006 --------------------------------------- ------ ------ ------ 23 June 2006 - 1 September 2009 350.5 663,584 - 30 March 2007 - 31 March 2010 384.5 98,984 - --------------------------------------- ------ ------ ------ Total 762,568 - --------------------------------------- ------ ------ ------ Share options and awards i) GUS schemes Share options were granted to Burberry employees under the GUS 1998 Approved and Non-Approved Executive Share Option Schemes during the years to 31 March 2001 and 2002 in respect of the ordinary shares of GUS plc. As a result of the demerger from GUS plc on 13 December 2005, the employees who held options at this date as part of the GUS share option scheme had six months from the date of the demerger to exercise these options. At 31 March 2007 there were no shares remaining under option (2006: 200,443 at a weighted average exercise price of 616.6p). ii) The Burberry IPO 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. The restricted shares vest in three stages, 50 percent are exercisable after three years, 25 percent are exercisable after four years and 25 percent are exercisable after five years. The vesting of these share options is dependent on continued employment over the vesting period. The exercise price of these share options is Â£nil. Obligations under this plan will be met by the issue of ordinary shares of the Company. 28 Employee costs (continued) Movements in the number of share options outstanding are as follows: Number of Number of shares under shares under option as at option as at 31 March 2007 31 March 2006 -------------------------------- ------ ------- Outstanding at 1 April 3,610,000 6,571,640 Lapsed during the year (6,250) (911,640) Exercised during the year (3,102,500) (2,050,000) -------------------------------- ------ ------- Outstanding at 31 March 501,250 3,610,000 Exercisable at 31 March - 12,499 -------------------------------- ------ ------- The weighted average share price at the date of the exercises in the year was Â£4.56. Share options outstanding at the end of the year have the following terms and exercise prices: Number of Number of shares under shares under option as at option as at 31 March 31 March Option term 2007 2006 ------------------------------------- ------- ------- 11 July 2002 - 11 July 2012 501,250 3,610,000 ------------------------------------- ------- ------- Total 501,250 3,610,000 ------------------------------------- ------- ------- iii) Burberry Senior Executive Restricted Share Plan 2004 Between August and November 2006 awards in respect of a total of 2,352,546 (2006: 2,413,206) ordinary shares were made to directors and senior management under the 2004 RSP. The options vest in three stages, 50 percent are exercisable after three years, 25 percent are exercisable after four years and 25 percent are exercisable after five years. The vesting of these share options is dependent on two performance conditions. Vesting of RSP shares is based 50 percent on Burberry's three year Total Shareholder Return ('TSR') relative to peers and 50 percent on three year growth in profit before taxation ('PBT'). Awards vest in full only if Burberry achieves at least upper quartile TSR compared to its global peers and at least 15 percent per annum profit growth (currency adjusted), and the executive remains in employment with Burberry for at least five years. A proportion of an award (12.5%) may vest if TSR performance exceeds the median of the peer group or if PBT growth exceeds five percent per annum over three years. The vesting of these share options is also dependent on continued employment over the vesting period. The exercise price of these share options is Â£nil. Shares have been purchased by the Burberry Group plc ESOP Trust to meet obligations under this plan. Movements in the number of share options outstanding are as follows: Number of Number of shares under shares under option as at option as at 31 March 31 March 2007 2006 --------------------------------- ------- ------ Outstanding at 1 April 3,565,477 1,342,592 Granted during the year 2,352,546 2,413,206 Lapsed during the year (25,000) (190,321) --------------------------------- ------- ------ Outstanding at 31 March 5,893,023 3,565,477 Exercisable at 31 March - - --------------------------------- ------- ------ Share options outstanding at the end of the year have the following terms: Number of Number of shares under shares under option as at option as at 31 March 31 March Option term 2007 2006 --------------------------------- ------- ------ 2 August 2004 - 2 August 2014 1,322,592 1,322,592 21 July 2005 - 21 July 2015 1,709,411 1,734,411 31 January 2006 - 31 January 2016 508,474 508,474 10 August 2006 - 10 August 2016 2,278,837 - 1 September 2006 - 1 September 2016 20,000 - 27 November 2006 - 27 November 2016 53,709 - --------------------------------- ------- ------ Total 5,893,023 3,565,477 --------------------------------- ------- ------ 28 Employee costs (continued) For the awards made on 10 August 2006 the fair value for those restricted shares with the PBT performance condition was determined as Â£4.76 by applying the Black-Scholes option pricing model. A discount was applied to the restricted shares with the TSR performance condition, by applying the Monte Carlo model. The fair value for these restricted shares was determined to be Â£2.87. For the awards made on 1 September 2006, the fair value for those restricted shares with the PBT performance condition was determined as Â£4.84 by applying the Black-Scholes option pricing model. A discount was applied to the restricted shares with the TSR performance condition, by applying the Monte Carlo model. The fair value for these restricted shares was determined to be Â£2.87. For the awards made on 27 November 2006, the fair value for those restricted shares with the PBT performance conditions was determined as Â£5.90 by applying the Black-Scholes option price model. A discount was applied to the restricted shares with the TSR performance condition, by applying the Monte Carlo model. The fair value for these restricted shares was determined to be Â£3.56. As dividends accrue during the vesting period, expected dividends were not incorporated into the measurement of fair value. The key factors used in determining the fair value of the options were as follows: 10 August 1 September 27 November 2006 2006 2006 ------------------ ------------ ------------ ------------- Weighted average share price at grant date Â£4.76 Â£4.84 Â£5.90 Exercise price - - - Option life Equivalent to Equivalent to Equivalent to vesting period vesting period vesting period Expected volatility 29.5% 29.5% 29.5% Risk free interest rate 4.9% 4.9% 5.0% ------------------ ------------ ------------ ------------- Expected volatility was determined by calculating the historic annualised standard deviation of the continuously compounded rates of return on the shares over a period of time, prior to the grant, equivalent to the life of the option. As share price information was only available for Burberry Group plc from July 2002 an average of a comparator group of companies was used prior to this date. The average expected volatility over the life of the option was used. iv) Burberry Restricted Share Reinvestment Plan On 21 July 2005 awards in respect of a total of 782,500 Ordinary Shares were made to senior management under the Restricted Share Reinvestment Plan. The options vest in two stages, 50 percent are exercisable after three years and 50 percent are exercisable after four years. The vesting of these share options is dependent on the employee holding the original IPO RSP shares which were awarded and which vested on 11 July 2005. The vesting of these share options is also dependent on continued employment over the vesting period. The exercise price of these share options is Â£nil. Movements in the number of share options outstanding are as follows: Number of Number of shares under shares under option as at option as at 31 March 31 March 2007 2006 ---------------------------------- ------ ------ Outstanding at 1 April 782,500 - Granted during the year - 782,500 ---------------------------------- ------ ------ Outstanding at 31 March 782,500 782,500 Exercisable at 31 March - - ---------------------------------- ------ ------ 28 Employee costs (continued) Share options outstanding at the end of the year have the following expiry date and exercise prices: Number of Number of shares under shares under option as at option as at 31 March 31 March Option term 2007 2006 ---------------------------------- ------ ------ 21 July 2005 - 21 July 2015 782,500 782,500 ---------------------------------- ------ ------ Total 782,500 782,500 ---------------------------------- ------ ------ v) 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. 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 options vest in three stages, 33 percent are exercisable after one year, 33 percent are exercisable after two years and 33 percent are exercisable after three years. The vesting of these share options is dependent on continued employment over the vesting period. Obligations under this scheme will be met by the issue of ordinary shares of the Company. Movements in the number of share options outstanding and their weighted average exercise price are as follows: Number of Number of Weighted shares under Weighted shares under average option as at average option as at exercise 31 March exercise 31 March price 2007 price 2006 --------------------------------- ------ ------- ------ ------- Outstanding at 1 April 230.0p 842,505 230.0p 2,456,683 Exercised during the year 230.0p (245,419) 230.0p (1,614,178) --------------------------------- ------ ------- ------ ------- Outstanding at 31 March 230.0p 597,086 230.0p 842,505 Exercisable at 31 March 230.0p 597,086 230.0p 842,505 --------------------------------- ------ ------- ------ ------- The weighted average share price at the date of the exercises in the year was Â£5.51. Share options outstanding at the end of the year have the following terms and exercise prices: Number of Number of shares under shares under option as at option as at Exercise 31 March 31 March Option term price 2007 2006 -------------------------------------- ------ ------ ------ 11 July 2002 - 11 July 2012 230.0p 597,086 842,505 -------------------------------------- ------ ------ ------ Total 597,086 842,505 -------------------------------------- ------ ------ ------ vi) The Burberry Group plc Executive Share Option Scheme 2002 During the previous financial years options were granted to directors in respect of ordinary shares in the Company under the Executive Share Option Scheme. No options were granted in the current financial year (2006: 833,333 at an exercise price of Â£4.23). The options vest in three stages, 33 percent are exercisable after one year, 33 percent are exercisable after two years and 33 percent are exercisable after three years. The vesting of these share options is dependent on continued employment over the vesting period. 28 Employee costs (continued) Movements in the number of share options outstanding and their weighted average exercise price are as follows: Number of Number of Weighted shares under Weighted shares under average option as at average option as at exercise 31 March exercise 31 March price 2007 price 2006 -------------------------------- ------ ------ ------ ------ Outstanding at 1 April 342.0p 3,935,492 315.4p 4,183,378 Granted during the year - - 423.0p 833,333 Lapsed during the year 356.2p (36,660) 361.7p (221,091) Exercised during the year 330.1p (1,876,983) 274.8p (860,128) -------------------------------- ------ ------ ------ ------ Outstanding at 31 March 357.6p 2,021,849 342.0p 3,935,492 Exercisable at 31 March 307.0p 932,740 320.0p 1,093,276 -------------------------------- ------ ------ ------ ------ The weighted average share price at the date of the exercises in the year was Â£5.73. Share options outstanding at the end of the year have the following terms and exercise prices: Number of Number of shares under shares under option as at option as at Exercise 31 March 31 March Option term price 2007 2006 ------------------------------------- ------ ------ ------ 13 June 2003 - 12 June 2013 258.0p 551,915 1,411,509 2 August 2004 - 2 August 2014 378.0p 914,379 1,690,650 21 July 2005 - 21 July 2015 423.0p 555,555 833,333 ------------------------------------- ------ ------ ------ Total 2,021,849 3,935,492 ------------------------------------- ------ ------ ------ vii) All Employee Share Plan In previous financial years all employees were offered options over ordinary shares in the Company at a nil exercise price under an all Employee Share Plan. No new awards were made in the year to 31 March 2007 (2006: 369,240). All awards vest after three years and the vesting of these share options is dependent on continued employment over the vesting period. 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. Movements in the number of share options outstanding are as follows: Number of Number of shares under shares under option as at option as at 31 March 31 March 2007 2006 --------------------------------- ------- ------ Outstanding at 1 April 1,017,580 1,029,100 Granted during the year - 369,240 Lapsed during the year (79,350) (143,040) Exercised during the year (243,260) (237,720) --------------------------------- ------- ------ Outstanding at 31 March 694,970 1,017,580 Exercisable at 31 March 94,150 52,650 --------------------------------- ------- ------ 28 Employee costs (continued) Share options outstanding at the end of the year have the following terms and exercise prices: Number of Number of shares under shares under option as at option as at 31 March 31 March Option term 2007 2006 ------------------------------------- ------ ------ 12 July 2002 - 18 July 2082* 43,450 52,650 30 August 2003 - 18 July 2082* 50,700 101,350 30 August 2003 - 7 October 2006 - 174,800 30 July 2004 - 30 October 2007 189,150 212,650 20 August 2004 - 18 July 2082* 128,350 148,250 10 June 2005 - 10 June 2008 173,920 200,720 1 September 2005 - 18 July 2082* 109,400 127,160 ------------------------------------- ------ ------ Total 694,970 1,017,580 ------------------------------------- ------ ------ *No date has been specified when awards lapse. The cessation date of the trust in which the awards are held is 18 July 2082. viii) Co-investment Scheme In previous financial years executive directors and other senior management were able to defer receipt of all or part of their annual bonus and invest it in ordinary shares in the Company with up to a 2:1 match based on individual and Group performance during the year. The matching share awards do not vest for three years and are forfeited if the executive leaves due to resignation within that period. The exercise price of these share options is Â£nil. No new awards were made in the year to 31 March 2007 (2006: 984,473). Shares have been purchased by the Burberry Group plc ESOP Trust to meet the obligations under this plan. Movements in the number of share options outstanding are as follows: Number of Number of shares under shares under option as at option as at 31 March 31 March 2007 2006 ---------------------------------- ------ ------ Outstanding at 1 April 1,074,522 221,703 Granted during the year - 984,473 Lapsed during the year (3,049) (131,654) ---------------------------------- ------ ------ Outstanding at 31 March 1,071,473 1,074,522 Exercisable at 31 March - - ---------------------------------- ------ ------ Share options outstanding at the end of the year have the following expiry date: Option term Number of Number of shares under shares under option as at option as at 31 March 31 March 2007 2006 ---------------------------------- ------- ------ 29 July 2004 - 29 July 2009 213,996 213,996 21 July 2005 - 21 July 2015 857,477 860,526 ---------------------------------- ------- ------ Total 1,071,473 1,074,522 ---------------------------------- ------- ------ 29 Related party transactions Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. The only related party transactions relate to total compensation paid to key management, who is defined as the executive and non-executive directors. The total compensation paid during the year was as follows: Year to Year to 31 March 31 March 2007 2006 Â£m Â£m ------------------------------------------ ------ ------ Salaries and short term benefits 6.2 4.3 Post-employment benefits 0.5 0.5 Share based compensation 2.3 3.8 ------------------------------------------ ------ ------ Total 9.0 8.6 ------------------------------------------ ------ ------ In addition, aggregate gains on the exercise of options in the year to 31 March 2007 were Â£14.2m (2006: Â£8.4m). GUS plc and other GUS related companies were related parties of the Burberry Group until 12 December 2005 as GUS plc owned the majority shareholding in Burberry Group plc. On 13 December 2005 Burberry Group demerged from GUS plc, services provided since this date have been done so in accordance with the demerger agreement. 30 Events after the balance sheet date On 21 March 2007, the UK Chancellor announced that the full rate of UK corporation tax will be reduced from 30% to 28% from April 2008. However this rate reduction has not been substantively enacted at the balance sheet date and therefore as required by IAS 12, deferred tax assets and liabilities (as set out in note 12) relating to the UK have been measured at the currently enacted tax rate of 30%. The deferred tax charge that will arise on substantive enactment of the proposed change to the corporation tax rate is not expected to have a material financial effect on the Group's effective tax rate for 2007/08. 31 Principal subsidiaries Company Country of Nature of business incorporation ---------------------- ----------- --------------------- Spain ----- Burberry (Spain) S.A. Spain Luxury goods wholesaler Burberry (Spain) Retail S.L. Spain Luxury goods retailer Mercader y Casadevall S.A. Spain Luxury goods retailer Europe -------- Burberry Limited UK Luxury goods retailer, wholesaler 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 SASU 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 (Austria) GmbH Austria Luxury goods retailer Burberry Antwerp N.V. Belgium Luxury goods retailer Burberry Czech Republic s.r.o. Czech Republic Luxury goods retailer Burberry Hungary kft Hungary Luxury goods retailer North America --------------- Burberry Limited USA Luxury goods retailer Burberry (Wholesale) Limited USA Luxury goods wholesaler Asia Pacific -------------- Burberry Asia Ltd Hong Kong Luxury goods retailer and wholesaler Burberry (Singapore) Singapore Luxury goods retailer and Distribution Company Pte Ltd wholesaler Burberry Pacific Pty Ltd Australia Luxury goods retailer and wholesaler Burberry Korea Ltd Republic of Luxury goods retailer and Korea wholesaler Burberry (Taiwan) Co Ltd Taiwan Luxury goods retailer Burberry (Malaysia) Sdn Bhd Malaysia Luxury goods retailer Burberry Japan K.K. Japan Luxury goods retailer, wholesaler and licensor ---------------------- ----------- --------------------- *Held directly by Burberry Group plc. All principal subsidiary undertakings are wholly owned as at 31 March 2007 and operate in the country in which they are incorporated with the exception of Burberry Italy Retail Limited, which operates principally in Italy. All the subsidiary undertakings have been consolidated as at 31 March 2007. Non-operating intermediate holding and financing companies are excluded from the list above. FIVE YEAR SUMMARY 2003* 2004 2005 2005 2006 2007 UK GAAP UK GAAP UK GAAP IFRS IFRS IFRS Turnover by product Â£m Â£m Â£m Â£m Â£m Â£m --------------------------- ------ ------ ------ ------ ------ ------ Womenswear 197.9 225.7 242.1 242.1 249.3 305.5 Menswear 162.8 190.1 194.5 194.5 206.2 227.0 Accessories (including Childrenswear) 169.5 178.4 185.0 185.0 189.2 211.2 Other 5.1 14.6 15.5 15.5 17.1 20.5 Licensing 58.3 67.0 78.4 78.4 81.1 86.1 --------------------------- ------ ------ ------ ------ ------ ------ Total 593.6 675.8 715.5 715.5 742.9 850.3 --------------------------- ------ ------ ------ ------ ------ ------ Turnover by destination Â£m Â£m Â£m Â£m Â£m Â£m --------------------------- ------ ------ ------ ------ ------ ------ Europe (excluding Spain) 159.3 191.0 188.0 188.0 216.3 257.1 North America 140.5 162.4 165.9 165.9 180.4 199.3 Asia Pacific 147.0 162.6 186.6 186.6 201.4 223.1 Spain 143.4 155.8 168.4 168.4 134.1 151.8 Other 3.4 4.0 6.6 6.6 10.7 19.0 --------------------------- ------ ------ ------ ------ ------ ------ Total 593.6 675.8 715.5 715.5 742.9 850.3 --------------------------- ------ ------ ------ ------ ------ ------ Turnover by operation Â£m Â£m Â£m Â£m Â£m Â£m --------------------------- ------ ------ ------ ------ ------ ------ Retail 228.4 257.4 265.2 265.2 318.5 410.1 Wholesale 306.9 351.4 371.9 371.9 343.3 354.1 Licensing 58.3 67.0 78.4 78.4 81.1 86.1 --------------------------- ------ ------ ------ ------ ------ ------ Total 593.6 675.8 715.5 715.5 742.9 850.3 --------------------------- ------ ------ ------ ------ ------ ------ Profit by operation Â£m Â£m Â£m Â£m Â£m Â£m --------------------------- ------ ------ ------ ------ ------ ------ Wholesale and Retail 64.3 86.6 98.5 94.3 96.2 111.7 Licensing 52.4 56.0 67.0 67.0 69.4 73.4 --------------------------- ------ ------ ------ ------ ------ ------ EBIT** (before Atlas and Treorchy costs) 116.7 142.6 165.5 161.3 165.6 185.1 Net interest income/(expense) (0.9) 2.3 4.9 4.9 2.5 (0.7) Project Atlas costs - - - - (11.1) (21.6) Treorchy closure costs - - - - - (6.5) Exceptional/material items (22.0) 2.2 0.8 - - - Foreign currency loss on loans with GUS group (pre-flotation) (2.3) - - - - - Goodwill amortisation (6.4) (6.8) (6.8) - - - --------------------------- ------ ------ ------ ------ ------ ------ Profit on ordinary activities before taxation 85.1 140.3 164.4 166.2 157.0 156.3 Tax on profit on ordinary activities (32.9) (47.3) (54.5) (54.3) (50.6) (46.1) --------------------------- ------ ------ ------ ------ ------ ------ Profit on ordinary activities after taxation/Attributable profit 52.2 93.0 109.9 111.9 106.4 110.2 --------------------------- ------ ------ ------ ------ ------ ------ --------------------------- ------ ------ ------ ------ ------ ------ Margin analysis % % % % % % --------------------------- ------ ------ ------ ------ ------ ------ Gross margin as percentage of turnover 56.0 57.9 59.3 59.3 60.0 61.3 Wholesale and Retail EBIT** as a percentage of turnover 12.0 14.2 15.5 14.8 14.5 14.6 Licence EBIT** as a percentage of turnover 89.9 83.6 85.5 85.5 85.6 85.2 Total EBIT** as a percentage of turnover 19.7 21.1 23.1 22.5 22.3 21.8 --------------------------- ------ ------ ------ ------ ------ ------ *Year to 31 March 2003 has not been restated to reflect the impact of adopting FRS 17 'Retirement Benefits' as the necessary data is not available. **Earnings before interest, taxation, goodwill amortisation and exceptional/ material items. 2003* 2004 2005 2005 2006 2007 UK GAAP pence UK GAAP pence UK GAAP pence IFRS pence IFRS pence IFRS pence Earnings and dividends per share per share per share per share per share per share --------------------------- ------ ------ ------ ------ ------ ------ Basic earnings per share 10.5 18.8 22.2 22.7 22.9 25.2 Basic earnings per share before goodwill amortisation and exceptional/Atlas and Treorchy costs 14.9 19.8 23.4 n/a 24.7 29.7 Diluted earnings per share 10.3 18.4 21.8 22.2 22.3 24.7 Diluted earnings per share before goodwill amortisation and exceptional/Atlas and Treorchy costs 14.6 19.4 23.0 n/a 24.1 29.1 Dividend per share (UK GAAP on an accruals basis) 3.0 4.5 6.5 n/a n/a n/a Dividend per share (IFRS on a paid basis) n/a n/a n/a 5.0 7.0 8.4 Diluted weighted average number of ordinary shares in issue during the year 506.2m 505.9m 504.6m 504.5m 477.6m 446.1m Dividend cover (UK GAAP on an accruals basis)** 5.0 4.4 3.7 n/a n/a n/a Dividend cover (IFRS on a paid basis)** n/a n/a n/a 4.5 3.2 3.0 --------------------------- ------ ------ ------ ------ ------ ------ 2003* 2004 2005 2005 2006 2007 UK GAAP UK GAAP UK GAAP IFRS IFRS IFRS Balance sheet Â£m Â£m Â£m Â£m Â£m Â£m --------------------------- ------ ------ ------ ------ ------ ------ Fixed assets, investments and other intangible assets 162.4 150.7 167.0 165.6 181.2 179.5 Working capital (excluding cash and borrowings) 73.8 66.6 77.7 79.6 121.7 136.1 Other long term liabilities (10.6) (10.8) (9.8) (10.1) (19.2) (12.2) --------------------------- ------ ------ ------ ------ ------ ------ Net operating assets 225.6 206.5 234.9 235.1 283.7 303.4 Goodwill 122.8 110.6 107.1 114.0 121.2 116.9 Deferred consideration for acquisitions (31.7) (31.7) (32.7) (32.7) (11.5) (10.0) Cash at bank, net of overdraft and borrowings 79.6 157.9 169.9 169.9 12.5 (2.8) Taxation (including deferred taxation) 0.4 1.0 (2.9) (14.0) (19.3) (10.6) Dividends payable (10.0) (14.9) (21.7) - - - --------------------------- ------ ------ ------ ------ ------ ------ Net assets 386.7 429.4 454.6 472.3 386.6 396.9 --------------------------- ------ ------ ------ ------ ------ ------ 2003* 2004 2005 2005 2006 2007 UK GAAP UK GAAP UK GAAP IFRS IFRS IFRS Cash flow Â£m Â£m Â£m Â£m Â£m Â£m --------------------------- ------ ------ ------ ------ ------ ------ Operating profit before goodwill amortisation and exceptional items 116.7 142.6 165.5 161.3 165.6 185.1 Project Atlas costs - - - - (11.1) (21.6) Treorchy closure costs - - - - - (6.5) --------------------------- ------ ------ ------ ------ ------ ------ Operating profit after Atlas and Treorchy costs 116.7 142.6 165.5 161.3 154.5 157.0 Depreciation, impairment and trademark amortisation charges 19.0 28.5 24.4 24.4 24.9 26.7 Loss/(profit) on disposal of fixed assets and similar non-cash charges 1.5 1.7 (1.1) (1.1) (1.6) 0.1 Charges in respect of employee share incentive schemes - 3.6 5.3 9.5 7.4 10.8 (Increase)/decrease in stocks 5.2 (7.5) (12.8) (12.9) (17.8) (33.4) (Increase)/decrease in debtors (2.4) (1.5) (7.3) (7.3) 2.2 (33.8) Increase/(decrease) in creditors 25.0 18.2 1.5 1.5 (21.2) 32.8 --------------------------- ------ ------ ------ ------ ------ ------ Net cash inflow from operations beforecapital expenditure 165.0 185.6 175.5 175.4 148.4 160.2 Purchase of tangible and intangible fixed assets (55.7) (28.8) (37.2) (37.2) (30.7) (34.3) Sale of tangible fixed assets 0.2 - 3.1 3.1 3.6 1.1 --------------------------- ------ ------ ------ ------ ------ ------ Net cash inflow from operations adjusted for capital expenditure 109.5 156.8 141.4 141.3 121.3 127.0 --------------------------- ------ ------ ------ ------ ------ ------ *Year to 31 March 2003 have not been restated to reflect the impact of adopting FRS 17 'Retirement Benefits' as the necessary data is not available. **Based on attributable profit or profit after taxation before goodwill amortisation and exceptional items SHAREHOLDER INFORMATION Registrar Enquiries concerning shareholdings, changes of name or address should be referred to Lloyds TSB Registrars, The Causeway, Worthing, West Sussex, BN99 6DA, telephone: 0870 600 3970 (or +44 121 415 7047 from outside the UK). In addition, Lloyds TSB Registrars offer a range of shareholder information online at www.shareview.co.uk. A textphone facility for those with hearing difficulties is available by calling: 0870 600 3950 (or +44 121 415 7028 from outside the UK). Share price information The latest Burberry Group plc share price is available on the Group's website at www.burberrygroupplc.com and also on the Financial Times Cityline Service on 0906 843 0000 (calls charged at 60p per minute). Share dealing Lloyds TSB Registrars offer a telephone and internet dealing service. Terms and conditions and details of the commission charges are available on request. For telephone dealing call 0870 850 0852 between 8.00am and 4.30pm, Monday to Friday, and for internet dealing visit www.shareview.co.uk/dealing. Shareholders will need the reference number shown on their share certificate. Internet A full range of investor relations information is available at www.burberrygroupplc.com. This includes webcasts of results presentations given to analysts and fund managers together with the slides accompanying those presentations. Amalgamating Share Accounts Shareholders who have more than one account due to inconsistency in name and address details may avoid duplicate mailings by asking the Registrar to amalgamate their holdings. Dividends The interim dividend of 2.875p per share was paid on 1 February 2007. A final dividend of 7.625p has been proposed and, subject to approval at the Annual General Meeting on 12 July 2007, will be paid on 2 August 2007 to shareholders on the register at the close of business on 6 July 2007. Dividends can be paid by BACS directly into a UK bank account, with the tax voucher being sent to the shareholders address. A dividend mandate form is available from Lloyds TSB Registrars or from www.shareview.co.uk. Electronic Communication Shareholders have the opportunity to receive all shareholder documentation in electronic form via the internet, rather than through the post in paper format. Shareholders who decide to register for this option will receive an email each time a statutory document is published on the internet. Shareholders who wish to receive documentation in electronic form should register at www.shareview.co.uk. ShareGift Shareholders with a small number of shares, the value of which makes it uneconomic to sell them, may wish to consider donating their shares to charity through ShareGift, a donation scheme operated by The Orr Mackintosh Foundation (registered charity 1052686). A ShareGift donation form can be obtained from Lloyds TSB Registrars. Further information is available at www.sharegift.org or by telephone on +44 (0) 20 7828 1151. Registered office Burberry Group plc 18-22 Haymarket London SW1Y 4DQ telephone: +44 (0) 20 7968 0000 fax: +44 (0) 20 7980 2950 www.burberrygroupplc.com Financial calendar Final dividend record date 6 July 2007 First quarter trading update 11 July 2007 Annual General Meeting 12 July 2007 Final dividend payment 2 August 2007 First half trading update October 2007 Interim results announcement November 2007 Third quarter trading update and interim dividend record date January 2008 Interim dividend payment February 2008 Second half trading update April 2008 Preliminary results announcement May 2008 This information is provided by RNS The company news service from the London Stock Exchange

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