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Annual Report 2017/18

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Annual Report 2017/18 ANNUAL REPORT 2017/18 ANNUAL REPORT 2017/18 CONTENTS STRATEGIC REPORT GOVERNANCE REPORT 4 Financial Highlights 70 Chairman’s Introduction 5 Revenue Snapshot 72 Board of Directors 6 Our Business 74 Executive Team 8 Chairman's Letter 75 Corporate Governance Report 10 A Model For Success 90 Report of the Audit Committee 12 CEO Letter 96 Directors’ Remuneration Report 14 Brand Highlights 122 Directors’ Report 21 Luxury Market Environment 24 Strategy 26 Key Performance Indicators 30 Six Strategic Pillars FINANCIAL STATEMENTS 44 Responsibility 128 Statement of Directors’ 48 Financial Review Responsibilities 53 Capital Allocation Framework 129 Independent Auditor’s Report to the Members of Burberry 54 Risk And Viability Report Group plc 137 Group Income Statement 138 Group Statement of Comprehensive Income 139 Group Balance Sheet 140 Group Statement of Changes in Equity 141 Group Statement of Cash Flows 141 Analysis of Net Cash 142 Notes to the Financial Statements 182 Five Year Summary 185 Company Balance Sheet 186 Company Statement of Changes in Equity 187 Notes to the Company Financial Statements 193 Shareholder Information Strategic report “While the task of transforming Burberry is still before us, the first steps we implemented to re-energise our brand are showing promising early signs.” Marco Gobbetti Chief Executive Officer STRATEGIC REPORT Financial highlights £2,733M £467M REVENUE ADJUSTED OPERATING PROFIT 2018 2,733 2018 467 2017 2,766 2017 459 2016 2,515 2016 418 2015 2,523 2015 455 2014 2,330 2014 460 £410M £892M OPERATING PROFIT NET CASH (AS AT 31 MARCH) 2018 410 2018 892 2017 394 2017 809 2016 403 2016 660 2015 440 2015 552 2014 445 2014 403 82.1P 41.3P ADJUSTED DILUTED EPS DIVIDEND PER SHARE 2018 82.1 2018 41.3 2017 77.4 2017 38.9 2016 69.9 2016 37.0 2015 76.9 2015 35.2 2014 75.4 2014 32.0 Adjusted diluted EPS is stated before adjusting items Reported diluted EPS 68.4p (2017: 64.9p) Alternative performance measures, including adjusting measures, are defined on page 52 4 STRATEGIC REPORT revenue snapshot REVENUE BY CHANNEL2,3 REVENUE BY REGION1,2,3 REVENUE BY PRODUCT1,2,3 RETAIL: £2,177M, +3% ASIA PACIFIC: £1,081M, +5% ACCESSORIES: £1,046M, +1% WHOLESALE: £453M, 0% EMEIA: £938M, +1% WOMEN’S: £808M, +2% LICENSING: £30M, +21% AMERICAS: £611M, 1% MEN’S: £647M, +4% BEAUTY: £12M, 26% CHILDREN’S & OTHER: £117M, +8% REVENUE BY CHANNEL EMEIA (36% of sales), >75% retail Retail (82% of sales) includes revenues generated through • Comparable sales broadly stable year on year 240 mainline stores, 155 concessions, digital commerce and • Wholesale up by a low single digit percentage 54 outlets. year on year • Comparable store sales +3% • Began strategic store closures Americas (23% of sales), c80% retail • About 70% of retail sales are estimated to be influenced • Comparable sales up by a low single digit percentage by digital somewhere along the customer journey year on year • Wholesale declined by a high single digit percentage Wholesale (17% of sales) includes sales to department year on year stores, multi-brand speciality accounts, travel retail and 46 franchise stores. REVENUE BY PRODUCT • Growth in Asia Pacific offset a decline in the US Accessories (40% of sales) • Grew 1% with small leather goods outperforming Licensing (1% of sales) includes income from global product licences and a licence in Japan. Women’s (31% of sales) and Men’s (24% of sales) Apparel • In October 2017, Burberry began to operate its beauty • Grew 2% and 4% respectively with seasonal updates business under a strategic partnership with Coty leading the growth • A more complete wardrobe offer and full look REVENUE BY REGION merchandise drove strength in tops, skirts and trousers in Asia Pacific (41% of sales), c90% retail the second half • Comparable sales up by a mid-single digit percentage year on year Children’s and other (4% of sales) • Wholesale up by a double digit percentage year on year • Grew 8% with strength in cashmere scarves and tops Beauty retail (1% of sales) 1. Retail/wholesale revenue • Declined 26% due to the closure of beauty box stores 2. All references to revenue growth on this page are presented at constant exchange rates 3. All references to revenue and revenue growth on this page are excluding Beauty wholesale. See page 49 for reconciliation to total revenue 5 STRATEGIC REPORT Our BUSINESS ONE OF THE WORLD’S STRENGTH AN EXTENSIVE MOST VALUABLE ACROSS MULTIPLE LUXURY DISTRIBUTION LUXURY BRANDS CATEGORIES FOOTPRINT We are a 162-year-old global We express our creativity across We have a strong global, luxury brand with a distinctive multiple product categories directly operated distribution British identity network with a presence in all major fashion cities and luxury brand adjacencies ICONIC LUXURY BRAND(1) DIVERSIFIED OFFERING 3 REGIONS Ranked the 6th most valuable A well-balanced mix across Asia Pacific, EMEIA brand in the luxury industry apparel and accessories and the Americas by Interbrand in 2017 UNIQUELY BRITISH MULTIPLE CATEGORIES RETAIL 82%(2) The only British luxury fashion Broad customer appeal across WHOLESALE 17%(2) house listed in the FTSE 100 men’s, women’s and children’s of total sales wear; accessories; and beauty ONE 449 Burberry label Directly operated stores 46 Franchises 6 STRATEGIC REPORT DIGITAL LEADERSHIP INSPIRED PEOPLE HIGHLY CASH GENERATIVE Burberry is a leader More than 10,000 diverse Burberry’s capital allocation in digital innovation employees globally led by framework is applied to the uses a strong Executive Team. of cash generated by the Group We are also an industry to drive shareholder value leader in responsibility EXTENSIVE GLOBAL REACH 58 NATIONALITIES 128%(6) burberry.com Represented in our Cash conversion 47 countries and London headquarters in FY 2017/18 11 languages Increased reach through Farfetch 51M 87%(4) PROGRESSIVE FOLLOWERS GLOBALLY of employees are proud DIVIDEND POLICY Across 13 different social to work at Burberry With the dividend per media platforms, 24 accounts share greater than or in 11 languages equal to prior year NO.1 IN CHINA(3) SUSTAINABLE APPROACH(5) >£1.2BN Ranked the number 1 digital Maintained our position in the top Returned to shareholders in the luxury brand in China by L2 of the Dow Jones Sustainability form of dividends and buybacks Index (DJSI) for three consecutive over the last five years years 1. Interbrand Best Global Brands 2017 Rankings 2. Revenue excluding Beauty wholesale 3. Digital IQ Index (May 2017) 4. Burberry Employee Engagement survey 2017 5. Dow Jones Sustainability World Index (2015, 2016, 2017) 6. Cash conversion is defined on page 52 7 STRATEGIC REPORT Chairman’s Letter Throughout this report, there are early highlights of how these changes are being embedded in the organisation, and our initial progress against our plans. LEADERSHIP TEAM In Marco Gobbetti, Burberry has a leader with an outstanding track record of delivering growth. With a strengthened leadership team now in place, his vision and expertise in luxury brand transformation together with Julie Brown’s financial and commercial acumen, Burberry has the talent and the capabilities to deliver on its plans. SIR JOHN PEACE Chairman As Burberry embarks on this next chapter, Christopher Bailey, who has been a driving force behind the Company’s transformation since 2001, decided that it was the right WE ARE ON TRACK FOR THE NEXT PHASE time for him to pursue new creative projects. Christopher OF BURBERRY'S TRANSFORMATION stepped down from the Board on 31 March 2018. On behalf of the Board, I would like to thank him for his exceptional contribution to Burberry and wish him every success for With a new Chief Executive Officer, Chief Creative Officer the future. and strategy, this has been the most important year in Burberry’s recent history. We are delighted that Riccardo Tisci has decided to join us. Riccardo previously spent more than a decade at Givenchy, We welcomed Marco Gobbetti to the role of CEO on where he was Creative Director from 2005 to 2017. There 5 July 2017. After several further key appointments to the is excitement throughout the Company, and particularly leadership team, we were delighted that Riccardo Tisci among the creative team, about the quality of individual joined us in the crucial role of Chief Creative Officer on we have been able to attract to the role. 12 March 2018, succeeding Christopher Bailey. SHAREHOLDER RETURNS STRATEGY The Group ended the year with a strong cash balance Following Marco’s appointment as CEO, the Board of £892m, up £83m year-on-year after £355m of share conducted a review of the Company’s strategy with buyback and £169m of dividends. Consequently, the Board management in the context of a rapidly changing luxury has recommended a 6% increase in the full-year dividend market. The Board was united in the view that to win to 41.3p, in line with our progressive dividend policy, with today’s customer, Burberry must sharpen its resulting in a 50% pay-out ratio based on adjusted earnings brand positioning. per share. This reflects the Board’s continued confidence in the future growth of the business. This will require us to change our approach to product, communications and customer experience, enabled by Our approach to capital allocation is based on a our ongoing focus on operational excellence and our framework that defines our priorities for uses of cash. people initiative. We believe that the combination will This is underpinned by our principle to maintain a strong deliver sustainable long-term value for customers, balance sheet, with solid investment grade credit metrics. employees and society and reward our shareholders. We believe this demonstrates our ongoing commitment to appropriately using our cash to optimise shareholder returns over time.
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