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Burberry Group PLC (BRBY)

  Print          Annual reports

Wednesday 02 June, 2021

Burberry Group PLC

Annual Financial Report

RNS Number : 6246A
Burberry Group PLC
02 June 2021
 

2 June 2021

 

Burberry Group plc - Annual Financial Report

The following documents have today been made available to shareholders of Burberry Group plc

(the "Company"):

 

1.  Annual Report and Accounts for the financial year ended 27 March 2021 (the "2020/21 Annual Report");

2.  Notice of the 2021 Annual General Meeting (the "Notice of AGM"); and

3.  Form of Proxy for the 2021 Annual General Meeting (the "Form of Proxy").

Pursuant to Listing Rule 9.6.1, each of these documents has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

The documents are also available on the Company's website at burberryplc.com .

The Company's 2021 Annual General Meeting ( "AGM" or the "Meeting") will take place at 2.00pm on Wednesday, 14 July 2021 at Horseferry House 2, 1a Page Street, London, SW1P 4PQ. Please note that due to uncertainty surrounding COVID-19 and the restrictions on public gatherings in place at the date of this announcement, the AGM will be held with the minimal quorum present. As such, shareholders are strongly discouraged from physically attending the AGM and to instead vote in advance either electronically, or by submitting their Form of Proxy appointing the Chairman of the Meeting as proxy.

As detailed in the Notice of AGM, shareholders may email questions in relation to the business of the Meeting in advance and will be provided with a virtual platform where they will be able to watch the proceedings of the Meeting live and have the opportunity to ask questions of the Board. The results of votes cast by shareholders on each resolution to be put to the AGM will be published via a Regulatory Information Service and on burberryplc.com on Wednesday, 14 July 2021 or as soon as reasonably practicable after the Meeting.

In compliance with Disclosure Guidance and Transparency Rule ("DTR") 6.3.5, the information in the Appendix below is extracted from the 2020/21 Annual Report and should be read in conjunction with the Company's preliminary results announcement issued on 13 May 2021 (the "Preliminary Announcement"), both of which can be viewed at burberryplc.com . Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the 2020/21 Annual Report in full. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2020/21 Annual Report.

The information contained in this announcement, and in the Preliminary Announcement, does not constitute the Company's statutory accounts, but is derived from the statutory accounts. The statutory accounts for the financial year ended 27 March 2021 have been approved by the Board and will be delivered to the Registrar of Companies following the AGM.

Enquiries

Investors and analysts   
Julian Easthope
VP, Investor Relations  
[email protected]
020 3367 4458

Media
Andrew Roberts
VP, Corporate Relations
[email protected]  
020 3367 3764
 

APPENDIX: ADDITIONAL INFORMATION REQUIRED BY DTR 6.3.5

AUDIT REPORTS

The Preliminary Announcement includes a condensed set of financial statements. Audited financial statements for the financial year ended 27 March 2021 are contained in the 2020/21 Annual Report. The Independent Auditors' Report on the Company financial statements and the parent company financial statements (the "Audit Report") is set out in full on pages 211 to 223 of the 2020/21 Annual Report. The Audit Report is unqualified and does not contain any statements under section 498(2) (regarding adequacy of accounting records and returns) or under section 498(3) (regarding provision of necessary information and explanations) of the Companies Act 2006.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following information is extracted from page 210 of the 2020/21 Annual Report and Accounts.

The directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and the Company's position and performance, business model and strategy. Each of the directors, whose names and functions are listed on pages 148 to 151 confirm that, to the best of their knowledge:

· the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;

· the Group financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

· the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that it faces.

PRINCIPAL RISKS

The following information is extracted from pages 106 to 131 of the 2020/21 Annual Report.

OUR APPROACH TO RISK

The Group's strategy takes into account risks, as well as opportunities, which need to be actively managed. Effective risk management is essential to executing our strategy, achieving sustainable shareholder value, protecting the brand and ensuring good governance.

The Board is ultimately responsible for determining the nature and extent of the principal risks it is willing to take to achieve our strategic objectives (the Board's risk appetite), and challenging management's implementation of effective systems of risk identification, assessment and mitigation.

The Audit Committee has been delegated the responsibility for reviewing the effectiveness of the Group's internal controls and risk management arrangements. Ongoing review of these controls is provided through internal governance processes. The Ethics Committee reports to the Risk Committee, which oversees the Group's risk. Reports from both of these committees are presented to the Audit Committee.

An integral part of our business, our risk management process is coordinated by our Group Risk and Assurance team, reporting to our CO&FO. Risk management activities include identifying risks, undertaking risk assessments and determining mitigating actions. These activities are reviewed by Internal Audit and other control functions, which provide assurance to our Risk Committee, and ultimately to our Board, as described on page 109.

 

RISK APPETITE

The Board reviews and validates the Group's risk appetite on an annual basis. This is integrated into our wider risk management framework to support better decision-making and prioritisation.

We will pursue growth and accept a certain level of risk to ignite brand heat commensurate with our position in luxury fashion. We approve capital investment in strategic projects and accept a moderate to high risk in pursuit of innovation and profitable growth, balancing a reasonable return on capital with a reasonable level of commercial risk within the approved capital allocation framework.

Complying with applicable laws and doing the right thing is part of our culture and underpins our strategic ambition. In exploring risks and opportunities, we prioritise the interests and safety of our customers and our people. We seek to protect the long-term value and reputation of the brand, maximising commercial benefits to support responsible and sustainable global growth within our defined risk tolerance.

OUR PRINCIPAL RISKS

The Board considers the principal risks to be the most significant risks faced by the Group, including those that are the most material to our performance and that could threaten our business model or the future long-term performance, solvency or liquidity of Burberry. They do not comprise all the risks associated with our business and are not set out in priority order. Additional risks not known to management, or currently deemed to be less material, may also have an adverse effect on our business.  

COVID-19 was declared a global pandemic on 11 March 2020 by the World Health Organization (WHO). Unprecedented restrictive measures were put in place worldwide to help prevent the spread of the disease to ensure safety and wellbeing, protect health services and attempt to stabilise economies. A new Group principal risk was added last year to consider the risk of prolonged COVID-19 disruption beyond the range of assumptions that have been used to develop the reasonably expected outcomes. The global pandemic has continued to create uncertainty in FY 2020/21, however, as vaccination rollouts progress, the outlook is more optimistic. The impact on each of the other principal risks from the pandemic is also explained in the detail for each risk.

Our risk framework is structured around the following categories of risk: External, Strategic and Financial, Operational, Compliance and Climate Change. Each principal risk is linked to one of these categories and may impact one or more of our strategic priorities.

We have reviewed and updated the descriptions and mitigating actions of our principal risks and emerging risks. We reviewed whether the level of risk associated with each of the principal risks is increasing or decreasing compared to the previous financial year and noted new risks, which do not have a basis for comparison.

Our risk management processes are designed to enable us to identify risks that can be partially mitigated through insurance. We focus our insurance resources on the most critical areas or where there is a legal requirement, and where we can get best value for money for risk transfer.

EMERGING RISKS

Potential emerging risks are an area of focus for us and we therefore undertake horizon scanning in conjunction with our strategy team to monitor any potential risks that could change our industry and/or our business, looking at both the inherent risk and opportunity. Emerging risks are new and evolving, therefore their full potential impact is still uncertain. To manage this, we involve specialist third parties where necessary to understand how our risk profile could change over a longer time period. Our risk management approach considers short term to be one year, medium term to be two to five years and long term more than five years.

Macro

Protectionism - countries protecting domestic production may use tariffs and trade restrictions, which would increase the cost of moving goods into key markets

Changing regulatory environment - financial reporting and governance regulations (for example, the UK government's consultation paper on restoring trust in audit and corporate governance) may introduce new requirements and increase the risk of non-compliance

Consumer

Changing consumer preferences - expectations around product and Company sustainability continue to increase

Significance of influential groups/individuals on consumer spending patterns - increased reliance on third parties to produce content to influence consumer spending (for example, social media influencers), which also increases risk of damage to brand image

Industry

Industry concentration - increase in concentration on key consumer groups resulting in greater competition for growth targets

New technology - leading to changes in consumer spending habits and expectations around product availability (for example, virtual stores and buying product directly from runway shows)

Circularity - new business models and increase in product re-sale markets, including fashion rental

Full supply chain traceability - requiring investment in new technologies

RISK MANAGEMENT PROCESS

BOARD AND COMMITTEES

ETHICS COMMITTEE

· Responsible for regular oversight of risk management, annual strategic risk review, and setting the Group's risk appetite

· Monitor risks through Board processes, including regular reviews of strategy, management reports and deep dives into selected risk areas

· Audit Committee reviews effectiveness of risk management process with support from Internal Audit

 

· Reviews and monitors ethical risks, as well as behavioural and responsibility practices across the Group. Approves policies relating to such ethical matters, including the Group's Code of Conduct

· Performs deep-dive reviews and assesses results of investigations and corrective actions Supports the Group in managing ethical and associated reputational risks, including overseeing awareness and training across the Group to reinforce business ethics and good practice

· Monitors whistleblower activity and Burberry Confidential

RISK COMMITTEE (CHAIRED BY CO&FO)

FUNCTIONS AND BUSINESS RISK OWNERS

· Reviews external and internal environment for emerging risks and performs deep-dive reviews of principal risks

· Reviews risk register updates from risk owners

· Meets at least three times per year and reports key findings to the Audit Committee

· Cross-functional attendees, encompassing senior management from IT, Finance, Legal, HR, Supply Chain and Retail

· Identifies changes to principal risks and the effectiveness and adequacy of mitigating actions to achieve agreed risk tolerance levels

· Carry out day-to-day risk management activities

· Identify and assess risk and implement mitigating actions

· Assign owners to update risk registers

 

 

GROUP RISK AND ASSURANCE TEAM

INTERNAL AUDIT AND COMPLIANCE FUNCTIONS

· Establishes risk management framework

· Identifies emerging risks, working with the Strategy team

· Facilitates risk assessments and updates to risk mitigation

· Provides resources and training to support risk management process

· Facilitates strategic risk assessment as part of the central planning process

· Prepares Board and Risk Committee updates

· Review risk management process periodically

· Compliance functions provide independent assurance to management and the Board on risk status (Health and Safety, Legal, Brand Protection, Quality, Asset and Profit Protection, and Corporate Responsibility)

 

EXTERNAL RISKS

COVID-19 IMPACT  

The timing of a return to sustained growth following the COVID-19 pandemic remains uncertain. There is a risk that the recovery from the spread of the COVID-19 pandemic slows due to a resurgence of cases. In response to COVID-19, we have continued to update planning scenarios based on a range of assumptions and potential outcomes. This risk remains of further significant impact on our future operations, cash flows and viability beyond the range of assumptions that have been used to develop the planning scenarios. In addition, there could be impacts on impairment of retail assets, inventory and carrying value of other assets.

 

 

Risk movement and outlook

COVID-19 was a new principal risk in FY 2019/20. While the Group had considered the possibility of a range of incidents that could disrupt a key business location, the likelihood of the occurrence of a global pandemic causing disruption on the scale of COVID-19 across the business had not been considered as a stand-alone risk previously. Although there remains uncertainty about the recovery from the pandemic, the ongoing successful rollout of vaccination programmes is a positive indicator the risk of further impact from COVID-19 is reducing. We remain confident in our ability to execute our strategic plans to accelerate growth as a British luxury brand.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

The time frame of implementing the strategy has been impacted by COVID-19, however the fundamentals and trajectory of our strategy remain right.

· The Group Incident Management Team (GIMT) was set up to coordinate Burberry's response to the COVID-19 outbreak. The Group's response is being managed through five key work streams led by the Executive Committee and chaired by our CEO

· The health and safety of our people remains our priority and our response has concentrated on our people, customers and communities. We have prioritised their wellbeing and communicated regularly with all our stakeholders

· We have executed a plan of strategic initiatives to navigate through this period of decreased luxury industry demand and capture opportunities as consumer confidence and markets rebound

· Burberry has significant financial headroom in the form of £0.9 billion cash balances, excluding £0.3 billion of proceeds from the Sustainability Bond and a further £0.3 billion undrawn from the RCF. The Group has completed detailed stress testing to understand the extent to which the Group could withstand a loss of sales within the limits of its available financial resources. Details of this stress testing are set out in the Viability Assessment on pages 140 to 142

· We closed sites across Asia, EMEIA and the Americas ahead of or in line with local government restrictions in order to prevent the spread of COVID-19 and ensure our people's, our customers' and our communities' safety and wellbeing. This includes the closure of our head office in London, as well as internal manufacturing sites across the UK and in Italy

· As part of our overarching response, we are monitoring the regulatory landscape. We are engaging regularly with government and local authorities in each of our core geographies to ensure we have the right support for our business and for our people

· We continue to manage cash and costs to protect the Group's liquidity. A comprehensive cost mitigation programme has been delivered, which includes delaying discretionary capital expenditure to focus on essential spending and to strengthen the brand

· We keep product, inventory and supply chain under constant review to maintain supply chain operations while optimising buying commitments

· We have adapted our technology for greater home working to ensure all vital operations and projects remain on track

RISK TOLERANCE

Doing the right thing is part of Burberry's culture and underpins our strategic ambition. Burberry has prioritised the safety and wellbeing of our people, our customers and our communities. We have followed government and health authority guidance and advice to reduce the risk of spreading the virus and have supported relief efforts to reduce the impact of the virus on people's lives globally.
EXAMPLES OF RISKS

· Further increase in the spread of the pandemic results in the loss of key employees and/or impacts the health of our employees and their ability to operate effectively

· There is not sufficient liquidity to manage operations and meet liabilities as they fall due

· The Group's trading performance and cash flows are significantly impacted by further extended periods of closures of Burberry retail stores, manufacturing facilities and distribution centres imposed by governments

· Further impairment of retail assets and inventory

· Continuing closure of retail stores impacts our cash generation, increases leverage and limits our ability to source adequate financing to continue to operate

· The rebound is delayed by a resurgence in virus infections, particularly in Mainland China

· The continued outbreak impacts the ability of the Group to execute the strategic plan and maintain momentum in building brand heat

· Closures of Burberry's internal manufacturing sites and global network of storage and distribution hubs significantly impact the supply chain and the speed with which we can rebound when government restrictions are lifted

· Technology and IT infrastructure is not able to adapt to sustained working from home requirements imposed by governments

 

MACRO-ECONOMIC AND POLITICAL INSTABILITY

The Group operates in a wide range of markets and is exposed to changing economic, regulatory, social and political developments that may impact consumer demand, disrupt operations and impact profitability. Adverse macroeconomic conditions or country-specific changes to the operating or regulatory environment, natural disaster, global health emergency or civil unrest may impact the spending habits of key consumer groups and lead to increased operational costs.

 

Risk movement and outlook

The risk is deemed to have remained flat since it elevated significantly last year. The outlook remains uncertain as we continue to navigate through a number of significant macroeconomic and political events, such as governmental responses to the economic damage caused by the pandemic and continuing geo-political tensions. External factors, such as global health emergencies and natural disasters, are difficult to predict.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Volatility in the external environment could impact our overall financial performance and operations.

· We have defined a strategy that leverages our brand appeal and global reach across multiple customer segments and regions to mitigate reliance on a particular customer group, however, we recognise the importance of Mainland China and the Chinese consumer for the luxury industry, as explained in the global Chinese consumer spending risk

· In the short term, we continue to assess shifts occurring in the industry and with customers to ensure our plans are dynamic and responsive to the market

· We monitor external macroeconomic and regulatory changes and perform horizon scanning supported by insights from the treasury and strategy teams into macroeconomic trends

RISK TOLERANCE

We have a low tolerance for risk in this area but recognise external factors can be more difficult to mitigate as they are often outside of our control.

EXAMPLES OF RISKS

· Unexpected shifts in domestic or tourist demand from key customer groups due to uncertainty in the economic outlook for the  luxury sector caused by global recession, socio-political tensions

· Global health emergencies affecting particular countries and regions

· Unexpected disruptions to the supply chain

· Increased customs and duty charges could result from government trade and tax disputes

 

FURTHER IMPACT FROM THE UK'S WITHDRAWAL FROM THE EU

Various scenarios could impact the Group's financial position, operating model and people.

Risk movement and outlook

The UK's withdrawal from the EU on 31 December 2020 has crystallised with some supply chain disruption realised. There is expected to be continued disruption as actions are implemented throughout the next year to mitigate the negative impacts of duty costs and border friction. However, the risk has reduced since last year.

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Volatility arising from uncertainty around the trading relationship between the UK and EU following the end of the transition period may impact our overall financial and operating performance, as well as our ambitions under supply chain Operational Excellence.

· Our steering committee continually monitors the evolving impact of the post-transition trading relationship between the UK and EU, and oversees our approach

· While the business has experienced some short-term disruption, ongoing mitigation reduced the risk to all business activities, including supply chain, trade compliance, IP and people

· We engage with UK government departments and other external stakeholders to ensure they are fully informed of our circumstances

RISK TOLERANCE

We have a low tolerance for risk arising from uncertainty regarding the trading relationship between the UK and EU following the end of the transition period, which may have a long-term impact.

EXAMPLES OF RISKS

· Additional customs duty based on the post-transition trading relationship between the UK and EU, and cessation of the UK's access to the EU's free trade agreements after 2020

· Disruption to business operations

· Impact on some current business project roadmaps

· Extended supply chain lead times could increase inventory levels

· Uncertainty over the rights of EU nationals and UK immigration law could increase the risk of being unable to recruit and retain talent

· Exchange rate volatility impacts Group revenues, margins, profits and cash flow

 

STRATEGIC RISKS

EXECUTION OF STRATEGIC PLAN

Focused execution of the strategy through our four strategic pillars (Product, Communication, Distribution and Digital) and their supporting enablers (Operational Excellence and Inspired People) is key to sustainable long-term shareholder value. Success depends on our ability to cement our luxury positioning, increasing the value and relevance of our brand to luxury consumers globally.

 

Inability to successfully execute the projects that underpin these strategies could result in under-delivery on the expected growth, productivity and efficiency targets. This could have a significant impact on the value of the business and market confidence.

 

We operate in the global luxury market, which has been significantly impacted by the COVID-19 crisis, resulting in a high degree of uncertainty, and intensifying competition among luxury players. Additionally, today's luxury consumers are increasingly more demanding of luxury brands, seeking inspiration, an authentic and meaningful relationship with brands, quality and a clear standpoint on environmental and social issues.

 

Our ability to make the right strategic investment decisions and to rapidly pivot our plans in response to changes in the market environment and consumer preferences is vital to our success.

 

Risk movement and outlook

We have reviewed the impact of the COVID-19 pandemic on the luxury industry and consumer demand and assessed the need for changes to our strategic plan. Although the fundamentals and trajectory of our strategy have not changed, we have adapted our execution and time frame to effectively respond to the challenges posed by the COVID-19 crisis.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

All strategic pillars.

· FY 2020/21 marked the end of the first phase of our strategy, which focused on building the foundations, re-energising the brand, aligning our distribution to our new luxury positioning and establishing a new product offering. In consideration of the challenges posed by the COVID-19 pandemic and impact to luxury, we prioritised building resilience by taking a series of rapid actions across four areas: protecting our people and communities, tightly managing cash and costs, securing our product, inventory and supply chain, and driving revenue as economies rebounded

· We continued to focus on our strategic priorities, and effectively adapted our plans to capitalise on opportunities as they arose across geographies

· We continued to strengthen consumers' perception of our brand, investing in brand heat and visibility, signalling luxury through our campaigns and disruptive media experiences

· We built on positive momentum with our collections, delivering newness and exceptional product, strengthening our position in leather goods, and managing product flows despite supply chain challenges

· We planned and implemented localised and bespoke plans for each region, and increased our focus on the local consumers, shifting resources as required to focus on growth opportunities in rebounding markets while optimising revenues in markets most affected by the pandemic

· In digital, we innovated and identified new ways to connect with our customers, especially those who could not visit our stores during the pandemic, strengthening our digital luxury experiences and e-commerce capabilities

· Our Inspired People initiatives include replacing our annual questionnaire with shorter, more frequent surveys. This has shown a marked increase in the understanding of our strategic goals and transformation plan within the Group

· Coordinated by the Strategy team, business owners for each pillar have ownership of the plan and responsibility to deliver its objectives. They monitor the risk associated with each of the major programmes and track progress and benefits based on a set of lead indicators in order to assess progress in product, communications, stores and digital channel performance

· Looking ahead, we devised a plan to strengthen our foundations, adapt to the COVID-19 environment, and sustain the momentum we have built for our brand and product. Details of the strategic initiatives forming our plan can be found on pages 24 to 43

RISK TOLERANCE

We are pursuing growth and accept a certain level of risk to fuel the brand heat that comes with our position in luxury fashion. We approve capital investment in strategic projects and accept a moderate to high risk in pursuit of innovation and profitable growth, balancing a reasonable return on capital with a reasonable level of commercial risk within the approved capital allocation framework.

EXAMPLES OF RISKS

· A pause to delivery of the strategy due to major external factors hampering brand heat and consumer engagement with our brand

· Failure to deliver and invest in strategy plans and capture market opportunities in countries where economies are rebounding

· Inability to capture demand as the luxury market polarises further and consumers become more discerning in their purchases

· Failure to create sufficient brand heat and engagement globally through our content and marketing activations across communication channels

· Failure to provide newness and high-quality products that excite global luxury consumers, and to bring these to the market at speed without sacrificing luxury quality

· Inability to achieve the required organisational alignment and enhance our capabilities and culture to compete and grow effectively at the pace required to deliver the targets

· Failure to sufficiently transform operational processes undermining our ability to deliver the required cost savings and margin improvements

· Failure to deliver the technology innovation required to empower changes in the Group's business model and to deliver the anticipated benefits from key investment strategies in Digital, Retail and Group Operations

 

IMAGE AND REPUTATION

The Group carefully safeguards its image and reputation. Unfavourable incidents, unethical behaviour or erroneous media coverage relating to the Group's senior executives, products, practices or supply chain operations could damage the Group's reputation and negatively impact the value of the brand. As our customers continue to engage with the brand through multiple channels, including social media, a misleading perception of the Group's values and performance could potentially lead to a slowdown in sales as well as loss of customers. Burberry's increasing reliance on influencers in its marketing could potentially expose the Group to increased reputational risk.

Risk movement and outlook

While internal enhancements have been made to further safeguard Burberry's image and reputation, in the current environment there is increased scrutiny of Burberry and a heightened risk of an escalation in geopolitical tensions. The external environment of collaborators and influencers creates risk. Therefore constant monitoring is required to ensure that Burberry's image and reputation are protected.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

All strategic pillars.

· Training and monitoring of adherence by personnel to the requirements in the Group's Responsible Business Principles

· Review process in place for any engagements with collaborators, influencers or celebrities

· Codified incident management policy, monitoring of social networks and response procedures

· Oversight of mitigation of reputational issues by the Ethics and Risk Committees

· The Group has established Corporate Responsibility standards, which aim to ensure compliance with labour, human rights, health and safety and environmental standards across our operations and extended supply chain

· Supplier audits and supplier training programmes are in place to ensure compliance in day-to-day operations

· Uphold our approval processes and editorial controls to ensure all product and content is reviewed and signed off prior to external release

· Development of a global Diversity and Inclusion strategy and creation of an Internal Diversity and Inclusion Council to support the implementation of the strategy

· Increasing awareness of and training with respect to Burberry's Model Wellbeing Policy to all people who engage with models on Burberry's behalf, including employees, freelancers, casting agents, contractors and external third parties to ensure they adhere to the policy

· Undertaking of marketing risk analysis/risk register and implementation of mitigation

· Development of due diligence policy in connection with retention of talent and partners

RISK TOLERANCE

Protecting the brand and its reputation globally is at the heart of everything we do. We have a moderate risk appetite in order to deliver our strategy supported by processes to avoid or mitigate any reputational/brand risk where possible.

EXAMPLES OF RISKS

· An unfavourable incident relating to a senior executive, erroneous media coverage or negative discussions on social networks could damage Burberry's reputation

· An organisation, association, celebrity, influencer, collaborator or model associated with Burberry becoming involved in a reputational incident could potentially lead to pressure on Burberry to distance the brand from them and could reflect poorly on Burberry, negatively impacting Burberry's reputation

· Unfavourable or erroneous media coverage or negative discussions on social networks about the Group's products, content or practices could impact brand reputation

· Unethical behaviour on the part of individuals or entities connected with the Group could attract negative attention to the brand

· If suppliers or partners do not respect the Group's Responsible Business Principles this could reflect negatively on Burberry

· Alleged infringement or appropriation of third-party rights in connection with the production of content and design of product could negatively impact the reputation of the brand

· Failure of our people or those acting on Burberry's behalf to adhere to Burberry's Model Wellbeing Policy could result in reputational or legal risk

· Failure to understand social issues and respect cultural sensitivities around product and marketing content could negatively impact Burberry's reputation .

 

 

GLOBAL CHINESE CONSUMER SPENDING

Global Chinese consumer spending patterns may significantly change having an immediate adverse impact on Group sales. Any significant change to Chinese consumer spending habits globally due to changes in the economic, regulatory, social or political environment in China, including a further health emergency or a natural disaster, may adversely impact the domestic consumer group's disposable income or confidence. Such changes could also lead to Chinese consumers scaling back on travel, which could impact the Group's global revenue and profits outside Mainland China, which may not be fully compensated by the repatriation of spend in China.

Risk movement and outlook

The risk has increased since the prior year. Due to the continued reliance on Chinese consumers, the Group is exposed to changes in their spending patterns which may result from shifts in the economic, social or geopolitical environment. While our business in Mainland China has rebounded from COVID-19, the Group's trading performance could be impacted if there are further waves of the pandemic in Mainland China, or an escalation in geopolitical tensions.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

All strategic pillars.

· Development and execution of Mainland China strategy, including specific product designed for Lunar New Year and additional marketing spend to support growth targets

· Prior to the outbreak of COVID-19 there had been significant focus on building brand heat in Mainland China. A clear strategy had been set, including building new strategic social partnerships, strategic locations and making customer experiences, storytelling and products more locally relevant. This strategy will continue assuming China continues to rebound from COVID-19

· Investment in inventory and technology to support Mainland China digital across our own platforms and those of our third-party partner platforms

· Supporting investment and growth strategies in other global markets to reduce Burberry's exposure to an individual country or group of customers

 

RISK TOLERANCE

We accept a certain level of concentration risk in relation to consumer nationality to maximise the greatest growth opportunities and to ignite brand heat commensurate with our position in luxury fashion

EXAMPLES OF RISKS

· We suffer a major reputational shock in Mainland China causing brand fallout

· Burberry's growth from Asia does not meet the expectations either in magnitude or timing, especially in Mainland China

· Slower recovery in Asia from the global pandemic because of reinfections

· We are unable to recapture our share of the spend in Mainland China because of the strength and success of our competitors, for example, in marketing campaigns and investment in brand heat

· We are unable to capture additional consumer spend in Mainland China to offset the loss of revenue as a result of disruptions in Hong Kong S.A.R.

 

 

 

 

FOREIGN EXCHANGE

Volatility in foreign exchange rates could have a significant impact on the Group's reported results. Burberry is exposed to uncertainty through foreign exchange movements. Major events such as the COVID-19 pandemic continue to impact foreign exchange rates, which in turn could cause significant change in our Group reported results.

Risk movement and outlook

The risk has not changed since the prior year. In light of the macroeconomic environment, geopolitical risks remain heightened and foreign exchange rates remain volatile.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Volatility in foreign exchange rates could impact our overall financial performance. 

· Burberry seeks to hedge anticipated foreign currency transactional cash flows using financial instruments. These are mainly in Burberry's centralised supply chain and wholesale business. Burberry does not hedge intra-group foreign currency transactions at present

· Burberry monitors the desirability of hedging the net assets of non-pound sterling subsidiaries when translated into pound sterling for reporting purposes. We have only entered into modest transactions for this purpose in the current and previous year

· Burberry monitors the overall impact of unhedged exchange movements and provides guidance to shareholders if exchange rates move on a quarterly basis

RISK TOLERANCE

Burberry does not seek to manage structural foreign exchange risk relating to its overseas retail operations.

EXAMPLES OF RISKS

· Burberry operates on a global basis and earns revenues, incurs costs and makes investments in a number of currencies. Burberry's financial results are reported in pound sterling. Most reported revenues are earned in non-pound sterling currencies, with a significant proportion of costs in pound sterling. Therefore, changes in exchange rates, which are driven by several factors, such as global economic trends and the COVID-19 pandemic, could impact Burberry's revenues, margins, profits and cash flows

· Changes in exchange rates driven by global economic trends could reduce the attractiveness of international shopping for travelling tourists

 

OPERATIONAL RISKS

LOSS OF DATA OR CYBERATTACK

A cyberattack results in a system outage, impacting core operations and/or results in a major data loss leading to reputational damage and financial loss. A cyber risk-aware workforce and the Group's technology environment are critical to success. A robust control environment helps decrease the risks to core business operations and/or major data loss.

Risk movement and outlook

The impact and likelihood of this risk is assessed to have not changed since last year.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Having a cyber risk-aware workforce and resilient technology landscape is integral to delivering our strategy.

· Governance provided through a cross-functional Cyber Security Steering Group with Executive membership and sponsorship

· Continued investment in information security capabilities

· Improved security for remote working

· Second line assurance checks reporting on control effectiveness to Executive and IT management through monthly scorecards

· 24/7/365 security monitoring and analytics capability supported by security incident response processes

· Information Security Advisory function to embed security in new projects and initiatives

· Security training and awareness and phishing tests rolled out to employees globally with completion monitoring

· Implementation of solutions to help detect personal and sensitive data loss with improved control over user access management

· Test responses to cybersecurity incidents through simulations

· Data Privacy Steering Committee, a cross-functional group to review data controls around existing systems and assess the potential data risks (from both a legal and reputational perspective) associated with new IT, Marketing, Retail and Digital initiatives across Burberry

· Ongoing collaboration between the Data Protection office, Legal, IT and Information Security functions to ensure policies are adhered to in respect to the appropriate collection, security, storage, retention and deletion of personal data

· In line with other organisations, Burberry encounters information security incidents from time to time and has policies, processes and technologies in place to detect and respond to these as appropriate

· Burberry is independently audited against appropriate information security standards with results being submitted to the Risk and Audit Committee

 

RISK TOLERANCE

Protecting the brand and its reputation globally is at the heart of everything we do. We adopt a strategy to avoid or mitigate key reputational/brand risks wherever possible.

EXAMPLES OF RISKS

· Malware results in a loss of system control causing business disruption and/or major data loss

· Credential compromise of customer or employee accounts leading to business disruption and/or major data loss

· Accidental personal data loss or disclosure leading to regulatory fines

· Attack on Burberry.com causing business disruption and/or major data loss

· Compromise or misconfiguration of externally facing assets causing business disruption and/or major data loss

· Fines due to failure to comply with EU General Data Protection Regulation (GDPR) and/or equivalent applicable data protection legislation globally

 

PEOPLE

Inability to attract, motivate, develop and retain our people to perform to the best of their ability in order to meet our strategic objectives.

Risk movement and outlook

There is no change to risk for this year. We continue to navigate uncertainty caused by the pandemic and changes as a result of the UK's withdrawal from the EU. Global trading disruption continues to impact our people's ability to meet planned business goals. However, we have experienced reduced levels of attrition, likely due in part to external factors, and we anticipate that risk levels will diminish in the next fiscal year, assuming the impact of the pandemic reduces.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Delivery of our strategy relies on our ability to engage and inspire our people to deliver outstanding results for the Group. This is accomplished through:

· strengthening capabilities and enhancing our approach to talent management throughout the organisation

· fostering an inclusive culture where all employees feel connected to their work

· empowering and equipping leaders to lead through change

· simplifying how we work to enhance operational efficiency

· rewarding performance and creating a pay for performance culture

· engaging employees through our ongoing commitment to corporate responsibility

· driving positive change to promote sustainability across the business

 

Leadership and culture

· All line leaders have a leadership objective and Diversity and Inclusion objectives included in their goals. Executive Committee members have overall accountability for attracting and retaining diverse talent and fostering an inclusive culture

· Values integrated across the colleague life cycle with a focus on moments that matter (for example, onboarding, leadership development programmes, recognition, policies and talent processes)

· Over the course of this year, we have enhanced our ability to source in-the-moment feedback from our colleagues, with three surveys completed with our new provider, Glint. Results shared with the Board in October 2020 demonstrated that employees remained very engaged, had a strong connection with the brand and were ambassadors for the future of Burberry. Leaders are held accountable for delivering against agreed action plans following the Employee Engagement Survey, with actions led at a central level for pulse surveys

· Leaders are equipped with regular strategy updates, including talking points on key topics and regular leaders calls for the director-plus population, to engage their teams on our strategic priorities. The annual engagement survey illustrated a positive shift in confidence in leaders from 69% in 2018 to 71% in 2019 and 75% in 2020

· Leadership Development Programmes were reimagined for the COVID-19 environment. Four cohorts (with 25 colleagues per cohort) participated in the New Manager Development Programme, which was designed to engage and equip people managers across the organisation. The programme is underpinned by Insights Discovery, a self-awareness tool, which enables line leaders to develop their management brand, decision-making preferences and strengths. Our Executive Development Programme has been overhauled and will be re-launched in the first quarter of FY 2021/22

 

Talent and careers

· Scaled learning opportunities for all our people through enhanced self-directed digital content

· Introduced global digital onboarding programme to elevate colleague experience and embed our purpose and values

· Designed and deployed new Talent Management approach to identify and engage high-potential talent and support succession planning

· Enhanced the performance management process through refined processes and systems, elevation of support material, and increased communications and leader touchpoints

· Introduced standardised interview questions to ensure an equitable experience, piloting anonymous screening of CVs, and including diversity data monitoring forms in candidate applications for voluntary and confidential disclosure

 

Reward and recognition

· Implemented the 2020 Directors' Remuneration Policy, which received strong shareholder support

· Simplified our retail commission and incentive schemes to drive consistency and efficiencies, and ultimately business results

· Introduced a new simplified long-term incentive plan, the Burberry Share Plan (BSP), to drive performance through retention and motivation of key talent

· Took positive decisions in response to COVID-19, including maintaining base salaries for retail colleagues affected by store closures, adjusting commission and incentive targets and a discretionary payment under the annual bonus plan to approximately 3,500 colleagues below the Board to recognise individual performance and contribution to the business

· Deployed a reimagined year-end global recognition experience, which brought together all our people to reinforce our values, celebrate our collective achievements and recognise top performers

 

Diversity and Inclusion and employee relations

· The launch of a new Global Parental Leave Policy has seen an increase in the amount of paid leave globally for all employees, with all new parents receiving 18 weeks' paid leave and four weeks on reduced hours when they return to work

· The celebration of global events such as World Mental Health Day, International Women's Day and Black History Month (in the USA and the UK) saw great participation across our global employee population

· Deployed Diversity and Inclusion strategy and created regional and functional Diversity and Inclusion action plans

· Deployed global training to embed Diversity and Inclusion agenda. This includes allyship training, which we expect all our people to complete by the end of 2021; mandatory unconscious bias training for all our people; training for all line managers as part of our annual reward review to ensure all reward decisions made by managers are fair and balanced, and specialised training for our Talent Acquisition team to mitigate bias in recruitment

· Deployed a global Diversity and Inclusion Policy providing clear accountability and behaviours for all employees including contractors and third-party partners

· Creation of a Diversity and Inclusion calendar to ensure all diversity events globally are captured and celebrated, feeding into our Diversity and Inclusion strategy for building a truly open and inclusive workplace

· Deployed a diversity monitoring dashboard to monitor our Diversity and Inclusion targets

· Onboarded a diversity recruiter focused on senior level roles globally

· All new starters now experience our global Diversity and Inclusion strategy as part of their onboarding process

 

Wellbeing

· Launched a new dedicated wellbeing home page on Burberry World to provide information, tools and resources to help our people make small positive changes in their everyday lives and bring their best selves to work

· Launch of new Mental Health digital learning to develop awareness, identify signals and support the destigmatisation and normalisation of talking about mental health

· Launched four interactive energy sessions to help our people take responsibility for their own mental and physical health and speak openly about health and wellbeing

· Provided a selection of health and wellbeing webinars to support employees in their daily lives: "Balancing Work and Life", "Connecting Mind and Body", "Female Health" and "Menopause Health"

 

RISK TOLERANCE

We recognise the value and importance of successfully delivering our Inspired People strategy and therefore have a low tolerance for risk in this area.

EXAMPLES OF RISKS

· Loss of critical talent/knowledge/ unmanageable levels of attrition due to change fatigue heightened by challenging business conditions

· Failure to build the right capabilities and behaviours in our leadership population

· The long-term impact of the UK's withdrawal from the EU on the Group's EU workforce

· The impact of the downturn in business performance related to a macro event, such as a global health emergency

 

IT OPERATIONS

IT operations fail to support critical processes across the Group, including Retail and Digital, as well as Group functions, such as Supply Chain and Finance.

Risk movement and outlook

The impact of this risk has remained the same. Progress has been maintained on key system upgrades increasing both resiliency and security, however, the likelihood has increased due to the organisational pressures of COVID-19 across IT functions and key technology partners. Continued focus on key risks and essential investment will be maintained to further mitigate this risk.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

All strategic pillars.

· IT Portfolio Forum in place with Executive representation to support IT investment decisions and oversee delivery of prioritised IT programmes and initiatives

· IT function has been strengthened with clear alignment between the IT teams, the strategic pillars, business functions and operations

· Implementation of controls to help maintain the continuity of the Group's IT systems, including business continuity and IT recovery plans, which would be implemented in the event of a major failure

· A tested Group incident management framework is in place to report, escalate and respond to high-impact events

· Further evolution of the IT operating model with a newly created Business Systems Platform function to elevate the performance and security of core systems, supported by a business-wide steering community

· Core "re-platforming" objectives for critical IT systems have been delivered both for Digital and Enterprise Resource Planning, addressing key operational and security risks

· Elevated focus on "key risks" to support decision-making on operating budgets and investment in line with the financial needs of the organisation relating to the COVID-19 pandemic

· Adjustment of external technology partner network and refocused delivery in line with current risk appetite and strategic priorities

 

RISK TOLERANCE

We adopt a strategy to avoid or mitigate key risks to the disruption of IT operations wherever possible.

 

EXAMPLES OF RISKS

· Failure to provide technology platforms that meet customer demands and support innovation could result in failure to deliver the strategy and loss of revenue

· Failure to provide stable and resilient technology platforms that meet business demands across retail and corporate sites could result in failure to deliver the strategy and negatively impact operations due to poor system performance and/or system outages

 

BUSINESS INTERRUPTION

A major incident impacts countries where the Group operates, has its main locations or where its suppliers are located, and significantly interrupts the business. This could be caused by a wide range of events at a country level, including geopolitical tensions, natural catastrophe, pandemic or changes in regulations, through to localised issues, such as fire, terrorism or quality control failures.

Risk movement and outlook

The risk level of business disruption has remained the same as last year. There are proven procedures in place to manage COVID-19 impacts, new ways of working to manage the UK's withdrawal from the EU, and measures to increase flexibility in the distribution network, for example, enabling digital shipping from our stores in the USA. However, there is an increased risk of disruption to the supply chain as a result of geopolitical tensions. We expect this risk to maintain a similar level into FY 2021/22. Even though vaccination programmes for COVID-19 are being rolled out in various countries, the long-term impact of a more uncertain global economic environment, the potential for key suppliers to face financial difficulties, and ongoing political and regulatory changes are still uncertain.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Our Product and Distribution strategic pillars enable us to operate effectively and efficiently. We harness Operational Excellence to ensure continuity of supply of compliant products and services of the highest quality to our customers. Our ability to continually execute and operate key sites and factories to develop, manufacture, distribute and sell our products is a key strategic priority.

· We have policies and procedures in place designed to ensure the health and safety of our employees and to deal with major incidents, including business continuity and disaster recovery

· The Group continues to evolve its supply chain organisational design to develop its manufacturing base, reducing dependence on key sites and vendors

· A Group incident management framework is in place to ensure that incidents are reported and managed effectively. Across the Group, our Incident Management Teams managed over 20 incidents in the year. The two longest running events were related to the COVID-19 pandemic and the civil rights marches in the USA. In both cases, teams worked to mitigate the impact on our employees, customers and the business. The remainder of these incidents were localised to fire, flood or weather related issues or interruptions in the regular running of stores, offices and systems

· Our GIMT and Regional Incident Management Teams all take part in training and incident management exercises involving large parts of the Group, our customers and media relations function. Our plans were tested through actual live events, like the COVID-19 pandemic and union strikes, and were found to be effective

· Our product suppliers and vendors are subject to a quality control programme, which includes regular site inspections and independent product testing

· Robust security arrangements are in place across our store network to protect people and products in case of security incidents

· Business continuity plans are in place for our eight main sites, including our three major distribution centres and our two UK factories. Business continuity plans are being developed for our third factory, Burberry Manifattura in Italy

· The Group's key IT systems are protected to prevent and minimise any potential interruption. This includes resilient design and the provision of disaster recovery services to continue operating within pre-agreed times in case of a major incident. Our plans as tested during the year were found to be effective

· Management regularly reviews and manages business continuity and disaster recovery risks, recognising that these plans cannot always ensure the uninterrupted operation of the business, particularly in the short term

· A comprehensive insurance programme is in place to offset the financial consequences of insured events, including fires, flood, natural catastrophes and product liabilities

RISK TOLERANCE

We have a low tolerance for risk in this area, particularly with respect to product safety and quality.

EXAMPLES OF RISKS

· Burberry operates three owned factories and a global network of storage and distribution hubs. These face typical property risks, such as fire, flood and terrorism

· Burberry works with several suppliers of luxury goods, which could be difficult to replace quickly. Their loss could interrupt the delivery of core products or a seasonal range

· A serious product quality issue could result in a product recall

· Socio-political tension, like the Black Lives Matter movement in the USA and UK, can significantly impair local footfall and trade

· A global health emergency impacts a key market, which reduces consumption or significantly impacts the supply chain

· Geopolitical tensions lead to trade disruption between key countries resulting in an inability to move product between countries

 

COMPLIANCE RISKS

REGULATORY RISK AND ETHICAL/ENVIRONMENTAL STANDARDS

The Group's operations are subject to a broad spectrum of national and regional laws as well as regulations in the various jurisdictions in which we operate.

These include product safety, trade marks, bribery and corruption, competition, data, corporate governance, employment, tax, trade compliance and employee and customer health and safety. Changes to laws and regulations, or a major compliance breach, could have a material impact on the business.

Risk movement and outlook

The relative significance of this risk has increased because of the changing regulatory environment despite the proactive and mitigating steps we have taken to ensure compliance.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Compliance with applicable laws and regulations and behaving in accordance with our values as a business underpin all our strategic pillars.

· The Group monitors and seeks to continuously improve processes to gain assurance that its licensees, suppliers, franchisees, distributors and agents comply with the Group's contractual terms and conditions, its ethical and business policies, and relevant legislation

· Specialist teams at corporate and regional level, supported by third-party specialists where required, are responsible for ensuring the Group's compliance with applicable laws, ethical and business policies and regulations, and that employees are aware of the policies, laws and regulations relevant to their roles

· Ethical trading, environmental sustainability and community investment matters reported to the Ethics Committee, Risk Committee and the Board

· Annual independent and internal assurance processes are in place to monitor compliance in a number of key risks, with results reported to our Ethics Committee, Risk Committee and Audit Committee

· We have an established framework of policies that aim to drive best practice across our direct and indirect operations, including our Responsible Business Principles and Global Environmental Policy. Policies (available on Burberryplc.com) are owned by senior leadership and are issued to supply chain partners and form part of our contractual agreements with supply chain partners. Implementation of these policies is monitored on a regular basis

· In FY 2020/21 we updated and consolidated our Code of Conduct for our people and thirdparties into one comprehensive document

· We have established a Data Privacy Steering Committee to oversee compliance with applicable data legislation

· International tax reform is a key focus of attention with significant developments reported to the Audit Committee

· We have a wide range of programmes to support the communities we operate in, as well as those of our supply chain and the wider luxury industry. Community programmes focus on tackling educational inequality and building cultural capital, supporting social and economic development in remote communities and fostering community cohesion and employability skills

· Launch of annual mandatory training to employees and to targeted functions to ensure awareness and compliance with our policies governing anti-bribery and anti-corruption, Market Abuse Regulations, annual conflict declarations, criminal finances, anti-money laundering and privacy

· Our culture and policies encourage employees to speak up and report any issues without fear of retribution. A global confidential employee helpline is in place in almost all countries where we have retail or corporate locations, and where it is legally permitted. All calls and emails are logged and independently reviewed and followed up. During the year, 158 cases were received and the results and themes are reviewed by the Ethics Committee. No significant issues were identified from these cases during FY 2020/21

· During FY 2020/21, our Responsibility team provided training on the Modern Slavery Act to 158 members of our internal supply chain, sourcing, internal manufacturing and product teams. We have also focused on raising awareness among our key finished goods vendors

· In accordance with our Anti-Bribery and Corruption Policy, annual training is required to be performed. This year the annual e-learning module was rolled out to all 2,859 corporate, manufacturing and retail colleagues of manager level and above. The training reached a 99% completion rate. Any incidents or potential areas of concern are investigated by highly experienced investigators in our Asset and Profit Protection team and ABAC risks are covered as part of the scope of Internal Audit reviews. During the year there were no ABAC-related issues

RISK TOLERANCE

In complying with laws and regulations, including customer and employee safety, environmental and ethical legislation relevant

to our operations and supply chain, as well as  bribery and corruption, we have a low tolerance for risk.

EXAMPLES OF RISKS

· Regulatory non-compliance

· Failure by the Group or associated third parties to act in an ethical manner consistent with our Code of Conduct, Responsible Business Principles and our Responsibility agenda with regard to model wellbeing, for example

· Non-compliance with labour, human rights and environmental standards across our own operations and extended supply chain could result in financial penalties, disruption in production and reputational damage to our business

· Failure to comply with GDPR and/or equivalent applicable data protection legislation globally

· Tax is a complex area where laws and their interpretations change regularly. Non-compliance by Burberry and its associated third parties in this area could result in unexpected tax and financial loss

 

INTELLECTUAL PROPERTY AND BRAND PROTECTION

Sustained breaches of Burberry's IP rights or allegations of infringement by Burberry pose risk to the brand. Counterfeiting, copyright, trade mark and design infringement in the marketplace could reduce the demand for genuine Burberry merchandise and impact the luxury positioning of the brand.

Failure to implement appropriate brand protection controls in connection with our commitment to stop destroying unsaleable finished products could negatively impact the integrity and the luxury positioning of the brand.

Risk movement and outlook

The likelihood of risk remains the same since the last report in light of continued brand heat under our creative direction; the frequent launch of new designs and motifs, which may not always be immediately protected, and the potential increase of sales in the parallel market.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Protecting the integrity of the brand, safeguarding and elevating its luxury position, complying with applicable laws and regulations and doing the right thing underpin all our strategic pillars

· The Group's global Brand Protection team is responsible for brand protection efforts globally, online and offline. Where infringements are identified these are addressed through a mixture of criminal, civil and administrative legal action and negotiated settlements

· Trade marks, copyrights and designs are registered globally across all appropriate categories

· The Brand Protection team partners closely with the design teams to ensure that our products do not infringe the rights of third parties and to ensure that we have adequate protections in place prior to market entry

· The team explores new and emerging threats and ways to combat threats

· The team partners regionally with enforcement agencies and digital platforms to minimise the visibility of counterfeit and infringing products both online and offline

· We aim to disrupt the flow of counterfeit products by enforcing at source level

· Brand protection controls have been implemented to safeguard the brand in connection with our commitment to stop destroying unsaleable finished products

 

 

 

RISK TOLERANCE

We have a low tolerance for risk in protecting the integrity of the brand, asserting our IP rights and ensuring due respect is given to the IP rights of others

EXAMPLES OF RISKS

· Counterfeiting, copyright, trade mark and design infringement in the marketplace can reduce the demand for genuine Burberry merchandise and impact revenues

· Unauthorised use of trade marks and other IP, as well as the unauthorised sale of Burberry products and distribution of counterfeit products, damages Burberry's brand image and profits

· Brand heat as well as sophistication in counterfeiters' ability to manufacture at pace have increased infringements and counterfeiting of our brand

· New branding may not immediately be protected and we must rely on national laws to secure IP rights, which afford varying degrees of protection and enforcement opportunities depending on the country

· Increased cancellation actions by third parties in response to claims of infringement as well as increase in bad faith filings in China

· Allegations from third parties of IP infringement by Burberry could negatively impact Burberry's reputation, result in claims and financial loss through withdrawing infringing products

· Distribution outside of our authorised network and parallel trade could negatively impact the demand for Burberry products and negatively impact our luxury reputation

 

CLIMATE CHANGE

The success of our business over the long term will depend on the social and environmental sustainability of our operations, the resilience of our supply chain and our ability to manage any potential climate change impacts on our business model and performance.

As the global climate crisis becomes more critical, we recognise the importance of addressing long-term sustainability challenges and potential impacts of climate change on our business in reputational, operational and financial terms.

Failure to implement appropriate cross-functional action plans and strategies, incorporating the recommendations of the TCFD and Science Based Target initiative (SBTi), could hinder efforts to mitigate long-term risks and future-proof our business.

Risk movement and outlook

The risk of climate change continues to be an increasing area of scrutiny globally and will continue to increase incrementally year on year without significant science-based global mitigation efforts, from government, business and their value chains and collaboration from wider industry and civil society. The Group's ability to mitigate this risk has remained flat.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Our commitment to being an industry leader in responsible and sustainable luxury underpins our vision to establish ourselves firmly in luxury fashion and deliver sustainable, long-term value. Our commitment to be Net-Zero by 2040 and our science-based targets across scopes 1, 2 and 3 emissions form part of our response to climate change and our strategy to future-proof our business.

Physical Risks

· Building on our work in FY 2018/19 and FY 2019/20, during FY 2020/21 we developed a quantitative scenario-based analysis of climate-related risks that could impact the value chains of Burberry's key commodities. For more information see pages 133 to 137

· To understand the key climate-related risks to Burberry, the cross-functional TCFD working group undertook a risk assessment across Burberry's business to identify the key risks and vulnerabilities for our key commodities, both in terms of physical and transitional risks. Multi-hazard risk maps were used to evaluate which hazards (such as drought, heat stress and flooding) and vulnerabilities (including property damage and decreased productivity) had the most material impacts

· In the short term, we are conducting specific analysis of the acute risk of our locations and operations

· We developed a quantitative scenario-based analysis of material climate-related risks for the supply chains of Burberry's key commodities. The scenario analysis was based on 2°C and 4°C scenarios, which reflect a "best" and "extreme worst" case, and for which there is sufficient quantity and quality of data available

· In our own operations and supply chain we continue to use the WWF water risk assessment tool and the Aqueduct Water Risk Atlas to identify current risks, anticipate potential future strains on water resources and understand emerging long-term risks

· We use our Net-Zero target and science-based targets to focus our efforts in order to address our GHG emissions along our entire value chain (see page 86)

· We support a number of industry initiatives that address climate change impacts, including the British Retail Consortium's Net Zero commitment, RE100, Ellen MacArthur Foundation's Make Fashion Circular Initiative, New Plastics Economy Global Commitment, UN Fashion Industry Charter for Climate Change, The Fashion Pact, Accounting for Sustainability and SFA

· We invest in programmes that help to sustain our industry and supplier communities, specifically initiatives that support social economic development in remote communities and promote more sustainable herding practices in the cashmere industry, working with SFA, PUR Projet and Oxfam. In addition, we also support programmes that build employability skills in the circular economy, with partners including Elvis & Kresse and Progetto Quid

· We have a Regeneration Fund to support nature-based compensation and insetting projects in the supply chain that will reduce the carbon impact of key raw materials our industry depends on, and improve biodiversity and local producer livelihoods

· We continuously engage and educate employees around the topic of climate change through focused events, strategic communications, volunteering opportunities and through our network of Responsibility Champions

 

Transitional Risks

· As part of the quantitative scenario-based analysis of climate-related risks conducted in FY 2020/21, we modelled the impact of transitional risks such as the introduction of mandatory, globally applied carbon taxes

· Through our memberships with various industry bodies, associations and external assurance partners, we contribute to consultations and keep informed of upcoming environmental legislative changes

· Environmental sustainability matters are reported to the Sustainability Steering Committee, the Ethics Committee, the Risk Committee and the Board

· Our longstanding responsibility programmes, coupled with our Responsibility goals, are driving continuous improvements in moving beyond social and environmental compliance

· We identify and explore scarce resources while also developing alternative materials through research and development. For example, in FY 2020/21 we worked in partnership with HKRITA to develop a system to recycle post-consumer leather goods

· Our target is for 100% of our products to have more than one positive attribute by 2022

· We continue to increase our sustainable product mix, by including recycled content, bio-based materials and more sustainable cotton in our collections. During FY 2020/21 we established new raw material sourcing and traceability targets. Full details can be found in the ESG section on pages 60 to 91

· In FY 2020/21 we expanded our product sustainability messaging to make customers aware of improved sustainability credentials, through the ReBurberry Edit and BConscious label. This includes dedicated sustainability labelling across all key product categories. The labels provide customers with an insight into the industry-leading environment and social credentials of the Burberry programme. The pistachio-coloured sustainability labels indicate how a product meets a range of externally assured stringent criteria. Defined as "positive attributes", these include the amount of organic content or recycled natural fibres used in materials

· As part of the scenario analysis, we assessed long-term technological trends that could significantly impact our business model

· Our IT Innovation team is exploring new systems and ways in which sustainability priorities can be supported by advancements in technology

· We continue to increase our focus on a zero-waste mindset across the business and have a clearly defined waste hierarchy. We have established a waste baseline and are setting targets and KPIs that will cover operational, manufacturing and finished goods waste as well as packaging. Since FY 2018/19 we have publicly committed to not destroy unsaleable finished products

· Our climate goals are approved by the SBTi. We also advanced our climate change commitments during the year by committing to be Net-Zero by 2040

· In line with the increased expectations of our stakeholders, we are providing greater transparency in our corporate reporting, as well as participating in a number of ESG investor indices, including the 2020 Dow Jones Sustainability Index and the CDP A List, and achieved Gold Class Distinction in S&P Global's Sustainability Yearbook in 2021

RISK TOLERANCE

We have a low tolerance for risk, when it comes to protecting the human and environmental resources we all depend on. However, given the long-term nature of some sustainability risks and the level of uncertainty associated with their occurrence and impact, we accept that some risks are inevitable. We therefore

focus on helping to minimise global risks

while building resilience in our operations

and supply chain.

EXAMPLES OF RISKS

Physical risks

Acute

· Increased severity of extreme weather events, from floods to droughts, could cause disruption in our supply chain, impact our business model and affect the sourcing of raw materials, as well as the production and distribution of finished goods

 

Chronic

· Our industry is sustained by many agricultural and manufacturing communities around the world. Longer-term shifts in climate patterns and loss of biodiversity caused by changes in precipitation patterns, rising mean temperatures and rising sea levels could cause social, economic and operational challenges

· Failure to address and mitigate these risks could result in resource availability limitations (for example, cotton, leather and cashmere) and disruptions to key business and supply chain operations

 

Transitional Risks

Policy and Legal

· Increased regulation and more stringent environmental standards could impact our business by affecting operational and production costs and flexibility of operations

Market

· Resource scarcity, coupled with increasing demand and changes in customer behaviour, could affect the production, availability, quality and cost of raw materials

Technology

· Substitution and transition costs associated with implementing new low impact technologies

Reputation

· Failure to meet consumer demand for sustainable products and services could threaten our relationship with customers, employees, regulators and interest groups, which could impact Group revenues

 

 

 

 

Gemma Parsons
Company Secretary
Burberry Group plc
 

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