interim presentation 2008 v17...
TRANSCRIPT
INTERIM RESULTSfor the six months ended 30 September 200818 November 2008
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H1 2008 REVIEW
SOLID FIRST HALFRevenue up 20%Profit up 3%Executing on strategies
TRADING ENVIRONMENT MORE DIFFICULT SINCE START OF H2
COST EFFICIENCY PROGRAMMEEnabled by investments in supply chain and systems
WELL-POSITIONED FOR LONG-TERM GROWTH
AUTUMN/WINTER 2008 CAMPAIGN
Stacey CartwrightChief Financial Officer
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FINANCIAL HIGHLIGHTS
2008 2007SIX MONTHS TO 30 SEPTEMBER £M £M GROWTH
REVENUE 539 449 20%ADJUSTED OPERATING PROFIT* 98.4 95.1 3%REPORTED OPERATING PROFIT 100.1 97.3 3%ADJUSTED DILUTED EPS* 15.3p 14.8p 3%DIVIDEND PER SHARE 3.35p 3.35p -
* Before profit from BME negative goodwill of £1.7m in 2008; and before Atlas costs of £12.9m and HQ relocation profit of £15.1m in 2007. Adjusted diluted EPS excludes prior year tax adjustment in 2008
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REVENUE UP 13%*
RETAIL45% of sales14% underlying growth
WHOLESALE47% of sales15% underlying growth
LICENSING8% of salesDown 3% underlying
H1 2007 Exchangerates
Retail Wholesale Licensing H1 2008
£449m£31m
£31m (£1m)£29m
£539m
* Underlying
REVENUE£M
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RETAIL SALES UP 14%*
COMPARABLE STORE SALES UP 3.4%Increasing volatilityLower proportion of full price salesGrowth in all regions except SpainDriven by innovation in iconic outerwear and accessories
OPENED NET5 mainline stores19 concessions4 outlets13% new space
12% NEW SPACE PLANNED FOR H2#
H1 2007 Exchangerates
Comparablestore growth
New space H1 2008
£202m£14m
£22m£7m
£245m
* Underlying# Excluding Burberry Middle East
REVENUE£M
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WHOLESALE REVENUE UP 15%*
CONTINUED MOMENTUMStrong Autumn/Winter collectionSupply chain improvements led toon-time deliveriesNorth America and Europe strongEmerging Markets up over 50%
H1 2007 Exchange rates Underlyinggrowth
H1 2008
* Underlying
£207m£16m
£254m£31m
REVENUE£M
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LICENSING REVENUE DOWN 3%*
JAPANESE VOLUMES MARGINALLY DOWNBoth apparel and non-apparel
ONGOING NON-RENEWAL OF MENSWEAR LICENCES
GROWTH FROM GLOBAL PRODUCT LICENCES
FULL YEAR REVENUE EXPECTED TO BE SLIGHTLY DOWN UNDERLYING
H1 2007 Exchangerates
Underlyinggrowth
Non-renewals
H1 2008
£39.5m£1.5m (£0.7m)
£39.7m
Japan
Global products
* Underlying
(£0.6m)
REVENUE£M
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REVENUE BY DESTINATION
DOUBLE-DIGIT GROWTH INAmericasEuropeAsia PacificRest of World
SPAIN CHALLENGINGPoor economic environment Low consumer confidencePremium positioningOngoing contraction of domestic independent retailers
AMERICAS SLOWED SINCESTART OF H2
H1 2008 retail/wholesale revenue by destination
Asia Pacific+23%
Europe*+19%
Spain(20)%
Americas+23%
Rest of World+44%
* Excluding Spain
GROWTH ON UNDERLYING BASIS%
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ADJUSTED OPERATING PROFIT UP 3%
ADJUSTED OPERATING PROFIT OF £98.4M, UP 3%
£94.9M AT CONSTANT FX
OPERATING MARGIN OF 18.3%
LOWER PROPORTION OF REVENUE FROM LICENSING
RETAIL/WHOLESALE MARGIN DOWNSpainLower gross margin Offset by tight cost control
H1 2007 Exchangerates
Retail/wholesale
Licensing H1 2008
£95.1m £3.5m (£0.5m)£0.3m £98.4m
ADJUSTED OPERATING PROFIT£M
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REVENUE 39.7 39.5 (1.3)
GROSS MARGIN AT 100% 39.7 39.5 (1.3)OPERATING EXPENSES (5.7) (6.5) 0.8ADJUSTED OPERATING PROFIT 34.0 33.0 (0.5)ADJUSTED OPERATING MARGIN 85.6% 83.5%
LICENSING PROFIT
CHANGE ATCONSTANT
2008 2007 CURRENCYSIX MONTHS TO 30 SEPTEMBER £M £M £M
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RETAIL/WHOLESALE PROFIT
2008 2007SIX MONTHS TO 30 SEPTEMBER £M £M CHANGE
REVENUE 499.4 409.6 22%
GROSS MARGIN 283.4 246.4 15%AS % OF REVENUE 56.8% 60.2% (340)BP
HORSEFERRY/SAP COSTS (3.8) -OTHER OPERATING EXPENSES (215.2) (184.3) (17%)
AS % OF REVENUE (43.1%) (45.0%) +190BPADJUSTED OPERATING PROFIT 64.4 62.1 4%
AS % OF REVENUE 12.9% 15.2% (230)BP
EXCLUDING SPAIN, ADJUSTED OPERATING MARGIN BROADLY UNCHANGED
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RETAIL/WHOLESALEGROSS MARGIN DOWN 340BP
BENEFITS FROMSourcing gainsNon-apparel mix
MAINLINE MARKDOWN ACTIVITY BROADLY UNCHANGED
HIGHER PROPORTION OF SALES THROUGH OUTLETSCustomer sentimentMore fashion merchandiseNew and refurbished outlets
OUTLETS ARE KEY STRATEGY FOR CLEARING EXCESS INVENTORY
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RETAIL/WHOLESALEOPERATING EXPENSES/REVENUE DOWN 190BP
OPERATING EXPENSES UP 17%; BELOW REVENUE GROWTH OF 22%
FULL YEAR IMPACT OF 2007/08 INVESTMENTS Supply chain, IT and distribution
MARKETING AND OTHER CORPORATE COSTS TIGHTLY CONTROLLED
COST EFFICIENCY PROGRAMME
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INCOME STATEMENT
2008 2007SIX MONTHS TO 30 SEPTEMBER £M £M
ADJUSTED OPERATING PROFIT 98.4 95.1ATLAS COSTS - (12.9)RELOCATION OF HQ - 15.1NEGATIVE GOODWILL 1.7 -REPORTED OPERATING PROFIT 100.1 97.3NET FINANCE CHARGE (3.1) (1.5)PROFIT BEFORE TAXATION 97.0 95.8TAXATION (22.2) (29.7)ATTRIBUTABLE PROFIT 74.8 66.1
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CASH FLOW FROM OPERATIONS
2008 2007SIX MONTHS TO 30 SEPTEMBER £M £M
ADJUSTED OPERATING PROFIT 98.4 95.1ATLAS COSTS - (12.9)DEPRECIATION AND AMORTISATION 19.5 15.9EMPLOYEE SHARE SCHEME COSTS 1.3 7.1INCREASE IN STOCKS (43.8) (68.7)INCREASE IN DEBTORS (23.9) (22.5)DECREASE IN CREDITORS (8.1) (3.7)CASH INFLOW FROM OPERATIONS 43.4 10.3
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STOCK
INVENTORY OF £331M; INCREASE DUE TOFXAcquisitionsSales below planBusiness modelGrowth
FOCUSED ON REDUCING STOCKSOutletsConservative buy for Autumn/Winter 2009Facilitated by integrated planning/SAP
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FREE CASH FLOW
2008 2007SIX MONTHS TO 30 SEPTEMBER £M £M
CASH INFLOW FROM OPERATIONS 43.4 10.3CAPITAL EXPENDITURE (40.3) (20.9)ACQUISITION-RELATED PAYMENTS (1.7) (10.0)NET INTEREST (3.3) (2.4)TAX PAID (7.6) (18.8)PROCEEDS FROM FIXED ASSET SALES 0.2 29.0OTHER NON-CASH ITEMS 2.3 (4.5)FREE CASH FLOW (7.0) (17.3)
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CAPITAL EXPENDITURE
NORMALISED SPEND OF C.£60M
2008/09 CAPEX CUT TO C.£90MAbout £5m for Burberry Middle EastReduced H2 spend£23m for Horseferry House
PRELIMINARY PLAN FOR 2009/10 IS BROADLY IN LINE WITH ONGOING DEPRECIATION*High single-digit % increase in retail spaceRenegotiating dealsStore refurbishments rephased
NEED TO INVEST IN FUTURE WHILE MAINTAINING RETURN ON INVESTMENT
HORSEFERRY HOUSE* Excluding Japanese JV
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TOTAL CASH FLOW
2008 2007SIX MONTHS TO 30 SEPTEMBER £M £M
FREE CASH FLOW (7.0) (17.3)DIVIDENDS (37.2) (32.9)SHARE BUYBACK - (39.5)OTHER SHARE CAPITAL (5.3) 4.7EXCHANGE DIFFERENCES (0.6) (1.4)TOTAL CASH FLOW (50.1) (86.4) NET DEBT AT 31 MARCH (64.2) (2.8)NET DEBT AT 30 SEPTEMBER (114.3) (89.2)
TWO BANKING FACILITIES TOTALLING £260M WHICH EXPIRE IN 2010 AND 2011
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CURRENT TRADING
TRADING ENVIRONMENT MORE DIFFICULT SINCE START OF H2
EUROPE, ASIA AND EMERGING MARKETS STILL POSITIVE COMPS
SPAIN REMAINS WEAK Both retail and wholesale
US MARKET MORE CHALLENGINGHigher proportion of retail sales through outletsAnticipating lower department store reorders
GROUP COMPARABLE STORE SALES DOWN MID SINGLE-DIGIT % H2 TO DATE
GROUP UNDERLYING WHOLESALE REVENUE EXPECTED DOWN MID TO HIGH SINGLE-DIGIT % IN H2
IF INITIAL TRENDS CONTINUE, ADJUSTED PBT IN MID TO LOWER HALF OFCURRENT RANGE OF MARKET EXPECTATIONSPeak season trading to come
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OUTLOOK2008/9
RETAIL 12% AVERAGE SPACE INCREASE IN H2
WHOLESALE MID TO HIGH SINGLE-DIGIT % UNDERLYING DECLINE IN H2
LICENSING UNDERLYING REVENUE SLIGHTLY DOWN IN FY 2009
BURBERRY MIDDLE EAST C.£2M EXPECTED CONTRIBUTION TO EARNINGS IN H2
CAPITAL EXPENDITURE C.£90M IN FY 2009 INCLUDING £23M ON HORSEFERRY HOUSE AND £5M IN BURBERRY MIDDLE EAST
UNDERLYING TAX RATE C.29.5% IN FY 2009
FX EURO AND $ TRANSLATION BENEFIT
Angela AhrendtsChief Executive Officer
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LEVERAGING THE FRANCHISE
INTENSIFYING NON-APPAREL DEVELOPMENT
ACCELERATING RETAIL-LED GROWTH
INVESTING IN UNDER-PENETRATED MARKETS
PURSUING OPERATIONAL EXCELLENCE
H1 2008CONTINUED PROGRESS ON STRATEGIC INITIATIVES
AUTUMN/WINTER 2008 CAMPAIGN
27AUTUMN/WINTER 2008 CHILDREN’S CAMPAIGN
LEVERAGING THE FRANCHISEONE COMPANY, ONE BRAND
DOUBLE-DIGIT REVENUE GROWTH IN ALL PRODUCT CATEGORIES*Womens: +13%Mens: +10%Non-apparel: +20%Childrens: up over 50%
AUTUMN/WINTER MARKETING STRATEGYCore outerwear and check non-apparelNew menswear, childrenswear and shoesIncreased entertainment for digital
PR STRATEGYLeverage all content digitally Elevate celebrity focus
* Underlying AUTUMN/WINTER 2008 SHOE BROCHUREKATE BECKINSALE IN BURBERRY - LA STORE REOPENINGMISCHA BARTON IN BURBERRY - LA STORE REOPENING
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INTENSIFYING NON-APPAREL DEVELOPMENTINNOVATION IN CHECK
20% UNDERLYING GROWTH31% of revenue
HANDBAGS 40% OF ACCESSORY SALES: INNOVATION IN CHECKRevitalised core
Linked to runwayLaunched new check, The Beat
With fragrance
SHOES: GROWING DISTRIBUTIONExpanded product rangeBroadened department store distributionIntroduced exclusive marketing tools
PROCESS IMPROVEMENTSReplenishment programmeSourcing scale
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INTENSIFYING NON-APPAREL DEVELOPMENTJAPAN JOINT VENTURE
FINALISING JOINT VENTURE AGREEMENT With Sanyo Shokai and Mitsui & Co.Majority-owned by Burberry
GLOBAL NON-APPAREL PRODUCTSLargest luxury accessories market in worldShop-in-shops and free-standing stores
OPERATIONAL IN CALENDAR 2009
ORGANISATIONNew Managing Director
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ACCELERATING RETAIL-LED GROWTHFOCUS INVESTMENT
RETAIL REVENUE UP 14%*; OPENED NET13% more spaceFive mainline storesFive franchise stores
FOCUS INVESTMENT IN HIGH DEMOGRAPHIC MARKETSLos Angeles as example
FlagshipMainlineSmall format
CONTROLLING CAPITAL EXPENDITUREDelaying large refurbishmentsRenegotiating existing leasesStrict adherence to high ROI hurdles
* Underlying BEVERLY HILLS, LOS ANGELES
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INVESTING IN UNDER-PENETRATED MARKETSEMERGING MARKETS
EMERGING MARKETS WERE6% OF REVENUE IN FY 2008ChinaMiddle EastRussiaEastern Europe/TurkeySouth AmericaOther Asia/India
50%+ GROWTH IN FY 2007/08 AND IN H1 2008
OPERATED UNDER FRANCHISEWholesale revenue
FY 2008% OF RETAIL/WHOLESALE REVENUE
Asia Pacific18%
Spain18%
Europe32%
Americas26%
Emerging Markets6%
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EMERGING MARKETS CONSISTENT BRAND IMAGE
EKATERINBURG, RUSSIADELHI
MACAUCAPE TOWN
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EMERGING MARKETSGROWING STORE PORTFOLIO
CHINA 35
OTHER ASIA 17
MIDDLE EAST * 9
RUSSIA 6
EASTERN EUROPE / TURKEY 9
SOUTH AMERICA 5
INDIA / SOUTH AFRICA 3Mar-07 Mar-08 Sep-08 Mar-09 F
84
c.95-100
* Includes stores now operated by BME# Reclassification of 11 wholesale accounts to franchise stores H2 2007/08
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11#
LOCATION OF STORES – SEPTEMBER 2008 NUMBER OF FRANCHISE STORES*
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EMERGING MARKETSLONG-TERM GROWTH OPPORTUNITIES
0% 5% 10% 15% 20% 25%
US
Russia
UAE
SouthKorea
Brazil
China
India
HNWI POPULATION GROWTH 2006-2007NUMBER OF HNWIs* BY REGION
US
Asia Pacific
Africa
Europe
* High net worth individuals who hold at least $1m of assets, excluding collectibles, consumables, consumer durables and primary residences
SOURCE: Capgemini World Wealth Report 2008
Middle EastLatin America
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BURBERRY MIDDLE EASTNEW JOINT VENTURE
BURBERRY/JASHANMAL JVEstablished September 2008Burberry has 59% economic interest
WORKED WITH JASHANMAL SINCE 1997Highly respected management
CURRENTLY EIGHT STORES*
RETAIL SALES IN FY 2008 Retail sales over £15mComps up over 40% year to date
MARINA MALL, KUWAIT
* Six stores as at 30 September 2008
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Licensed
Prorsum
BURBERRY MIDDLE EASTGROWTH OPPORTUNITIES
NEW STORESTwo opened recently
One flagshipOne mainline
Four more planned in H2Two mainlineTwo childrenswear
RETAIL MINDSETReplenishment programmeMonthly flow of deliveries
LAUNCH WHOLESALE/CONCESSION STRATEGYUS and European department store branchesLocal specialty retailers
% REVENUE BY PRODUCT CATEGORY
Womens
Non-apparel
Mens
Childrens
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EMERGING MARKETSOTHER OPPORTUNITIES
CHINAStrengthening our presence and partnership in marketRenovation programme underwayStore opening programme on plan with potential for 100 stores in five years time
“UNTOUCHED” REGIONSMexico and South America integrated into US teamFirst stores in South Africa and IndiaNew markets
MAXIMISE EXISTING PARTNERSHIPSTop to top meetingsApplying global strategies
NEW SVP EMERGING MARKETS JOINED NOVEMBER 2008
GOAL: EXCEED 10% OF SALES IN FIVE YEARS TIME
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PURSUING OPERATIONAL EXCELLENCEPROGRESS TO DATE
SUPPLY CHAIN IMPROVEMENT
SAP
REGIONAL REORGANISATION
INTEGRATED PLANNING FUNCTION
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PURSUING OPERATIONAL EXCELLENCESUPPLY CHAIN BENEFITS
NEW MARKET CALENDAREarlier shipments year-on-year 40%+ earlierOrder fulfilment rates up up 5bpNormalised flow
GLOBAL TRANSPORT31 carriers to three Saving £2mMoving from air to sea freight 1/3 by sea by 2009/10Direct deliveries from suppliers Volumes more than doubled
SUPPLIER RATIONALISATIONReduction in suppliers 14% downLifestyle initiative 80%+ FOB
DISTRIBUTION CENTRE CONSOLIDATIONFrom 24 warehouses to 15 Nine warehouses closingHong Kong hub opened August 2008European DC review ongoing
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PURSUING OPERATIONAL EXCELLENCESPAIN - EVOLVING THE SUPPLY CHAIN
LEGACY SUPPLY CHAINOver 50 suppliers, mainly in SpainHistoric way of working (CMT)
RATIONALISING SUPPLIER BASE IN LINE WITH BUSINESS TREND15-20 key Spanish suppliersLarger global vertical FOB suppliers
Key corporate suppliersNew childrenswear partners
DISTRIBUTIONApplying corporate standards and best practicesRepurposing for global capabilitiesDirect deliveries and hubs
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PURSUING OPERATIONAL EXCELLENCESAP IMPLEMENTATION
IMPLEMENTATIONS COMPLETED IN 2007/08Corporate treasury and UK/Europe/US financeUK/Europe/US non-stock procurementUK manufacturingGlobal Spring/Summer 2008
Sales orders bookedOrders procuredInbound deliveries to warehousesOutbound shipping to customers
Europe retail
COMPLETED IN H1Hong Kong finance and non-stock procurementHong Kong supply chain hubHong Kong retail
2009US and rest of Asia
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PURSUING OPERATIONAL EXCELLENCEREGIONAL REORGANISATION
EUROPENew CFORetail and wholesale consolidation
AMERICASWholesale organisation strengthenedIntegrating Mexico and South AmericaCanada retail expansion
ASIARationalised regional infrastructureNew MD of JapanNon-apparel JV in Japan
EMERGING MARKETSNew SVPBurberry Middle East JV
COSTA MESA
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PURSUING OPERATIONAL EXCELLENCEINTEGRATED PLANNING MODEL FUNCTION
LEVERAGE SAP
BUILT GLOBAL INTEGRATED PLANNING STRUCTURE
GOALSLeverage dataReduce style countIncrease productivity of stylesOptimise global replenishmentPlan monthly product flowDecrease inventory
IMPROVED VISIBILITY FROM CONCEPT TO CONSUMER
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COST EFFICIENCY PROGRAMME
ACCELERATING BENEFITS FROM INVESTMENTS MADE IN SUPPLY CHAIN, IT AND INFRASTRUCTURE
DELIVERING SAVINGS OF SOME £15-20M IN 2009/10
REVIEWING POTENTIAL FOR FURTHER CONSOLIDATION AND RATIONALISATION ACROSS GROUP
FOCUSED CAPITAL EXPENDITURE
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LOOKING FORWARD
BRAND MOMENTUM STRONG
STRATEGIES PROVENProductRegionChannel
ACCELERATING EFFICIENCIES REALISATION
SEASONED MANAGEMENT TEAM
Appendix
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CURRENCY IMPACT
* Spot rate as at 10 November 2008Yen hedged 12 months forward
EXCHANGE RATE SPOT RATE£1 = IMPACT ON
H1 2008AVERAGE CHANGE EBIT
H1 2008 SPOT* % £M
US DOLLAR 1.93 1.57 (19) 4
EURO 1.26 1.22 (3) 1
HONG KONG DOLLAR 15.05 12.17 (19) 2
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EXCHANGE RATES
SIX MONTHS TO 30 SEPTEMBER 2008 2007
EURO 1.26 1.47US DOLLAR 1.93 2.00HONG KONG DOLLAR 15.05 15.67KOREAN WON 2,008 1,861YEN – HEDGED RATE 223.2 220.7
Average
AS AT 30 SEPTEMBER 2008 2007
EURO 1.26 1.43US DOLLAR 1.78 2.05HONG KONG DOLLAR 13.83 15.92KOREAN WON 2,149 1,873
Closing
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DISCLAIMER
Certain statements made in this presentation are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward-looking statements.
This presentation does not constitute an invitation to underwrite, subscribe for or otherwise acquire or dispose of any Burberry Group plc shares. Past performance is not a guide to future performance and persons needing advice should consult an independent financial adviser.
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CONTACTS
Kim WarrenInvestor Relations [email protected]
Fay DoddsDirector of Investor [email protected]
Charlotte CowleyInvestor Relations [email protected]
18-22 HaymarketLondonSW1Y 4DQTel: +44 (0)20 7968 5919Fax: +44 (0)20 7980 2927
Please note new contact detailsfrom 1 December 2008Horseferry HouseHorseferry RoadLondonSW1P 2AWTel: +44 (0)20 3367 3524Fax: +44 (0)20 3367 4904