Burberry Group Plc · LSE:BRBY
Burberry — FY2008 Earnings Presentation
54 slides from Burberry's earnings presentation, May 28, 2008
Slide 1: Burberry Established 1856
Slide 2: Preliminary Results for the Year Ended 31 March 2008
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2008 28 MAY 2008
Slide 3: Driving Growth
DRIVING GROWTH STRONG FINANCIAL PERFORMANCE – Revenue up 18%* – Operating profit up 14%* FURTHER EVOLVED FRONT END OF BUSINESS – Luxury – Retail – Non-apparel FURTHER PROGRESS ON BACK OF HOUSE – IT – Supply chain – Logistics INCREASINGLY CHALLENGING EXTERNAL ENVIRONMENT FROM H2 * Underlying 3
Slide 4: Stacey Cartwright, Chief Financial Officer
STACEY CARTWRIGHT CHIEF FINANCIAL OFFICER
Slide 5: Financial Highlights
FINANCIAL HIGHLIGHTS 2008 2007 12 MONTHS TO 31 MARCH £M £M GROWTH REVENUE 995.4 850.3 17% ADJUSTED OPERATING PROFIT* 206.2 185.1 11% OPERATING PROFIT 201.7 157.0 28% ADJUSTED DILUTED EPS* 31.6p 29.1p 9% DIVIDEND PER SHARE 12.0p 10.5p 14% * Pre Atlas and plant closure costs and HQ relocation 5
Slide 6: Revenue up 18%*
REVENUE UP 18%* – RETAIL – 49% of sales £72m £2m £995m – 20% underlying growth £83m £850m (£12m) – WHOLESALE – 43% of sales – 20% underlying growth – LICENSING – 8% of sales – 3% underlying growth FY 2007 Exchange Retail Wholesale Licensing FY 2008 rates REVENUE * Underlying 6
Slide 7: Retail Sales up 20%*
RETAIL SALES UP 20%* COMPARABLE STORE SALES UP 8% (H1 11%; H2 6%) – Increasing volatility in H2 – Double-digit growth in US £49m £484m – Positive growth in Europe and Asia £33m £410m (£8m) – OPENED NET – 20 mainline stores – 49 concessions – 7 outlets – 12% more space FY 2007 Exchange Comparable New
Slide 8: Wholesale Revenue up 20%*
WHOLESALE REVENUE UP 20%* CONTINUED MOMENTUM FROM H2 LAST YEAR £72m £426m – Product designs – More frequent flow of product £354m (£0m) – Replenishment STRONG GROWTH FROM US, EUROPE AND EMERGING MARKETS FY 2007 Exchange Underlying FY 2008 rates growth REVENUE * Underlying 8
Slide 9: Licensing Revenue up 3%*
LICENSING REVENUE UP 3%* FX IMPACT OF £3.5M – Yen impact of £5.4m, offset by Euro £86.1m (£3.5m) £3.9m (£1.7m) £84.8m – Modest favourable Yen impact in 2008/09 GLOBAL PRODUCTS MODEST GROWTH IN JAPAN GOOD GROWTH FROM GLOBAL LICENSEES FURTHER NON-RENEWALS IN JAPAN MENSWEAR FY 2007 Exchange Underlying
Slide 10: Regions up Strongly
REGIONS UP STRONGLY STRONG GROWTH Rest of World – Double-digit in most regions +79% DIFFICULT ENVIRONMENT IN SPAIN Europe* Asia Pacific +26% – Economic slowdown +17% – Erosion of multi-brand accounts – Ongoing initiatives – Grow childrenswear Americas +26% Spain +1% FY 2008 RETAIL/WHOLESALE REVENUE
Slide 11: Adjusted Operating Profit up 14%*
ADJUSTED OPERATING PROFIT UP 14%* RETAIL/WHOLESALE PROFIT UP 23%* £25.4m £0.7m £206.2m £185.1m (£5.0m) FY 2007 Exchange Retail/ Licensing FY 2008 rates wholesale ADJUSTED OPERATING PROFIT * Underlying 11
Slide 12: Licensing Profit
LICENSING PROFIT IMPACT OF EXCHANGE 2008 2007 RATES 12 MONTHS TO 31 MARCH £M £M £M REVENUE 84.8 86.1 (3.5) GROSS MARGIN AT 100% 84.8 86.1 (3.5) OPERATING EXPENSES (14.2) (12.7) - ADJUSTED OPERATING PROFIT 70.6 73.4 (3.5) ADJUSTED OPERATING MARGIN 83.3% 85.2% FOR FY 2009, EXPECT BROADLY FLAT UNDERLYI
Slide 13: Retail/Wholesale Profit
RETAIL/WHOLESALE PROFIT 2008 2007 CHANGE 12 MONTHS TO 31 MARCH £M £M REVENUE 910.6 764.2 19% GROSS MARGIN 532.9 435.2 22% AS % OF REVENUE 58.5% 56.9% +160bp OPERATING EXPENSES (397.3) (323.5) (23%) AS % OF REVENUE (43.6%) (42.3%) +130bp ADJUSTED OPERATING PROFIT 135.6 111.7 21% AS % OF REVENUE 14.9%
Slide 14: Retail/Wholesale – Gross Margin up 160bp
RETAIL/WHOLESALE – GROSS MARGIN UP 160BP MAJORITY FROM ATLAS BENEFITS – Mainly sourcing 58.5% – Delivered targeted cumulative P&L benefits of £20m – Further intangible benefits beyond FY 2008 56.9% OTHER FACTORS – Favourable product mix (non-apparel) – Neutral channel mix 55.2% – H2 retail sales mod
Slide 15: Retail/Wholesale – Operating Expenses/Revenue up 130bp
RETAIL/WHOLESALE – OPERATING EXPENSES/REVENUE UP 130BP POSITIVE OPERATING LEVERAGE IN REGIONS, WITH RECORD STORE OPENINGS CONTINUED INVESTMENT IN GLOBAL INFRASTRUCTURE – Supply chain – IT – Product development – Group functions – Warehousing and distribution FOR 2008/09, EXPECT – £6m Horseferry Hous
Slide 16: Income Statement
INCOME STATEMENT 2008 2007 12 MONTHS TO 31 MARCH £M £M ADJUSTED OPERATING PROFIT 206.2 185.1 ATLAS COSTS (19.6) (21.6) PLANT CLOSURE COSTS - (6.5) RELOCATION OF HQ 15.1 - REPORTED OPERATING PROFIT 201.7 157.0 NET FINANCE CHARGE (6.0) (0.7) PROFIT BEFORE TAXATION 195.7 156.3 TAXATION (60.5) (46.1) AT
Slide 17: Cash Flow from Operations
CASH FLOW FROM OPERATIONS 2008 2007 12 MONTHS TO 31 MARCH £M £M ADJUSTED OPERATING PROFIT 206.2 185.1 ATLAS/PLANT CLOSURE COSTS (19.6) (28.1) DEPRECIATION AND AMORTISATION 32.7 27.7 OTHER NON-CASH ITEMS 13.8 9.8 INCREASE IN STOCKS (122.6) (33.4) INCREASE IN DEBTORS (29.1) (33.8) INCREASE IN CREDITOR
Slide 18: Free Cash Flow
FREE CASH FLOW 2008 2007 12 MONTHS TO 31 MARCH £M £M CASH INFLOW FROM OPERATIONS 110.2 160.1 CAPITAL EXPENDITURE (48.5) (34.3) ACQUISITION-RELATED PAYMENTS* (10.0) (1.5) NET INTEREST (7.0) (1.6) TAX PAID (53.3) (45.8) (8.6) 76.9 PROCEEDS FROM FIXED ASSET SALES 28.3 0.1 OTHER NON-CASH ITEMS (4.5) 1.1
Slide 19: Capital Expenditure
CAPITAL EXPENDITURE 2009 2008 BUDGET ACTUAL 12 MONTHS TO 31 MARCH £M £M NEW STORES 21 20 STORE REFURBISHMENTS 28 11 Including Beverly Hills and Knightsbridge OTHER 25 16 e.g. IT, supply chain 74 47 HORSEFERRY HOUSE 20 3 94 50 NORMALISED SPEND C.£60M PER ANNUM Capital expenditure defined as additions
Slide 20: Total Cash Flow
TOTAL CASH FLOW 2008 2007 12 MONTHS TO 31 MARCH £M £M FREE CASH FLOW 15.2 78.1 DIVIDENDS (47.4) (36.5) SHARE BUYBACK (39.6) (62.2) OTHER SHARE CAPITAL 3.4 6.7 EXCHANGE DIFFERENCE 7.0 (1.4) TOTAL CASH FLOW (61.4) (15.3) NET DEBT AT 31 MARCH (64.2) (2.8) 20
Slide 21: Capital Structure
CAPITAL STRUCTURE NEARLY £500M CASH RETURNED TO SHAREHOLDERS 2005-08 – Year end cash neutral goal 224 YEAR END NET DEBT OF UP TO ABOUT – £100M IS NOW APPROPRIATE POLICY 99 83 87 2005 2006 2007 2008 Year to March Dividends paid Buyback CASH RETURNED TO SHAREHOLDERS £M 21
Slide 22: Outlook
OUTLOOK – RETAIL 12-13% average space increase in FY 2009 – WHOLESALE Around 10% underlying growth in H1 2008/09 – LICENSING Broadly flat underlying revenue in FY 2009 – CAPITAL EXPENDITURE c.£90-95m including c.£20m Horseferry House – TAX RATE c.31% in FY 2009 – FX Euro translation benefit 22
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Slide 24: Angela Ahrendts, Chief Executive Officer
ANGELA AHRENDTS CHIEF EXECUTIVE OFFICER
Slide 25: Continued Progress on Strategic Initiatives
CONTINUED PROGRESS ON STRATEGIC INTIATIVES LEVERAGING THE FRANCHISE INTENSIFYING NON-APPAREL DEVELOPMENT ACCELERATING RETAIL-LED GROWTH INVESTING IN UNDER-PENETRATED MARKETS PURSUING OPERATIONAL EXCELLENCE 25
Slide 26: Leveraging the Franchise: One Company, One Brand
LEVERAGING THE FRANCHISE ONE COMPANY, ONE BRAND REVENUE UP 18% DRIVEN BY CONSTANT INNOVATION – Womens: +14% – Mens: +10% – Non-apparel: +39% – Childrenswear: +52% REINVENTING CORE CATEGORIES – Outerwear: Launched packables – London: Refined tailored offer – Lifestyle: Launched Burberry Sport ICONS –
Slide 27: Growing Childrenswear
GROWING CHILDRENSWEAR LARGE BUT FRAGMENTED MARKET DISTRIBUTION RIGHTS BROUGHT IN HOUSE IN KEY MARKETS BUILDING THE TEAM BUILDING OUT CHILDREN’S PRODUCT PYRAMID APPLYING OPERATIONAL BEST PRACTICES PR/MARKETING MIRRORS GLOBAL CAMPAIGN 27
Slide 28: Growing Childrenswear
GROWING CHILDRENSWEAR HIGH GROWTH END MARKETS – Expand strong concession business in Korea and Spain – Test first standalone stores in Asia, Middle East and Americas – Target US wholesale accounts RESULTS – FY 2008: Revenue up 52% – AW08 wholesale order book: Up three-fold GOAL – 10% of total revenu
Slide 29: Intensifying Non-Apparel Development
INTENSIFYING NON-APPAREL DEVELOPMENT INVEST IN UNDER-PENETRATED CATEGORIES 39% UNDERLYING GROWTH 32% of revenue (up from 28%) FURTHER INNOVATION IN CORE CATEGORIES – Luxury handbags: 40% of our handbag sales in retail – Soft accessories: Over 15% of non-apparel revenue – Shoes: Doubled in 2007/08 NE
Slide 30: Women's Shoes – The Opportunity
WOMEN’S SHOES – THE OPPORTUNITY – ATTRACTIVE CATEGORY – Large market – Growing – Burberry under-represented – NATURAL EXTENSION FOR BRAND – Outerwear heritage – Ready-to-wear – Non-apparel 30
Slide 31: Investing in the Infrastructure
INVESTING IN THE INFRASTRUCTURE BUILDING DEDICATED TEAMS – Design – Sourcing – Merchandising – US wholesale – In store CENTRALISED DESIGN ENSURES COHESION WITH OTHER CATEGORIES 31
Slide 32: Footwear – Historical Pyramid
FOOTWEAR – HISTORICAL PYRAMID DOMINATED BY CASUAL LIFESTYLE LIMITED RANGE OPENING PRICE POINT ASIA SOURCED Prorsum London Collection Lifestyle FLIP FLOP ESPADRILLE RAINBOOT SNEAKER 32
Slide 33: Footwear – Building out Lifestyle
FOOTWEAR – BUILDING OUT LIFESTYLE ELEVATE DESIGN AND CONSTRUCTION NEW COMMERCIAL CATEGORIES MONTHLY FLOW REPLENISHMENT PROGRAMME Prorsum London Collection Lifestyle LOAFER FLIP FLOP ESPADRILLE RAINBOOT SNEAKER BALLET SLIPPER /DRIVER 33
Slide 34: Footwear – Balancing the Product Hierarchy
FOOTWEAR – BALANCING THE PRODUCT HIERARCHY – USE PRORSUM AS INSPIRATION/DNA – BUILD OUT LONDON COLLECTION – INNOVATE CASUAL CORE LEVERAGE KEY ITALIAN SUPPLIERS – Prorsum London Collection Lifestyle 34
Slide 35: From Runway to Reality
FROM RUNWAY TO REALITY RUNWAY ADVERTISING EDITORIAL PR INSTORE ONLINE 35
Slide 36: Shoes – Growth Opportunities
SHOES – GROWTH OPPORTUNTIES GROWING FROM A SMALL BASE SALES MORE THAN DOUBLED IN 2007/08 AT WHOLESALE VALUE AVERAGE PRICE UP OVER 20% IN AW07 FUTURE OPPORTUNITIES – Building out the pyramid – Shoes into all new stores (DOS and franchise) – Wholesale partnerships – Replenishment – GOAL – 10% of total
Slide 37: Accelerating Retail-Led Growth
ACCELERATING RETAIL-LED GROWTH SHIFT CULTURE TO DYNAMIC RETAIL MODEL – RETAIL REVENUE UP 20%* RECORD NUMBER OF STORE OPENINGS IN – 2007/08 30-35 30 – Mainline DOS - 20 – Franchise - 10 – Plan for 30-35 in 2008/09 – STORE REFURBISHMENTS TO ACCELERATE 18 – Beverly Hills – Knightsbridge 11 – TESTING NE
Slide 38: Investing in Under-Penetrated Markets
INVESTING IN UNDER-PENETRATED MARKETS FOCUS ON US AND EMERGING MARKETS EMERGING MARKETS UP OVER 50% WITH 10 STORE OPENINGS – China: up 30% – Middle East: up 90% – Russia: up 100% AMERICAS REVENUE UP 26% UNDERLYING – Continue to invest as returns high – New stores – Refurbishments – Professionalise w
Slide 39: Pursuing Operational Excellence
PURSUING OPERATIONAL EXCELLENCE REDUCE COMPLEXITY THROUGHOUT BURBERRY SAP IMPLEMENTATION COMPLETED IN – Corporate treasury and UK/Europe/US finance – UK/Europe/US non-stock procurement – UK manufacturing – Global Spring/Summer 2008 – Sales orders booked – Orders procured – Inbound deliveries to ware
Slide 40: Pursuing Operational Excellence
PURSUING OPERATIONAL EXCELLENCE REDUCE COMPLEXITY THROUGHOUT BURBERRY REGIONAL DISTRIBUTION STRATEGY – Americas: complete – Asia: final planning – Europe: review ongoing NEW GLOBAL CARRIER AGREEMENTS – 30+ carriers to three – Saving £2m per annum HORSEFERRY HOUSE (GLOBAL HEADQUARTERS AND SHOWROOMS)
Slide 41: Andy Janowski, SVP Global Supply Chain
ANDY JANOWSKI SVP GLOBAL SUPPLY CHAIN
Slide 42: Sourcing – Objectives
SOURCING - OBJECTIVES – IMPROVE QUALITY – IMPROVE ON-TIME DELIVERY – IMPROVE GROSS MARGINS – LUXURY HANDBAGS AS AN EXAMPLE 42
Slide 43: Historically Burberry Had a Very Traditional Supply Chain
HISTORICALLY BURBERRY HAD A VERY TRADITIONAL SUPPLY CHAIN ORGANISATION Sourced separately by gender (mens, womens, non-apparel) Regional sourcing SOURCING MODEL Cut, make and trim (CMT) model Quality control versus assurance SUPPLIER BASE Large number of suppliers Often small; unable to modernise an
Slide 44: Build World Class Supply Chain Organisation
BUILD WORLD CLASS SUPPLY CHAIN ORGANISATION BUILT GLOBAL SOURCING ORGANISATION – Reorganised teams on category basis PRORSUM – Added functional experts LONDON COLLECTION BUILT QUALITY ASSURANCE ORGANISATION – Created technical services function to focus on LIFESTYLE fit and construction BUILT GLOBAL
Slide 45: Consolidate and Integrate Supply Chain Globally
CONSOLIDATE AND INTEGRATE SUPPLY CHAIN GLOBALLY MOVE TO LARGER, MORE VERTICALLY INTEGRATED SUPPLIERS – Ability to invest and innovate to support our growth – Leverage scale – FOB (fully factored) model – On-time deliveries – Quality assurance – CSR compliant SET UP LOCAL SOURCING OFFICES IN ITALY, T
Slide 46: Align Sourcing Origin with Product Pyramid
ALIGN SOURCING ORIGIN WITH PRODUCT PYRAMID – CRAFTSMANSHIP – VOLUME – PRICE POSITIONING Prorsum London Collection Lifestyle 46
Slide 47: Sourcing - Summary
SOURCING - SUMMARY MODERNISING LEGACY SOURCING STRATEGIC BUT BACK TO BASICS APPROACH – Talent – Attention to detail EVOLVING AND INTEGRATING GLOBAL SUPPLY CHAIN AS BUSINESS MODEL CHANGES – New market calendar – Replenishment – Business growth – New categories, e.g. jewellery FURTHER OPPORTUNITIES TO
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Slide 49: Looking Ahead
LOOKING AHEAD DELIVERING CONSISTENT SALES AND PROFIT GROWTH FOCUSED ON EXECUTION MINDFUL OF GLOBAL ECONOMIC CONDITIONS DRIVING GROWTH – World class management team – Self help initiatives – Diversified product offering – Balanced channel mix – Broad geographic portfolio – Under-penetrated markets –
Slide 50: Appendix
APPENDIX
Slide 51: Mainline Store Openings in FY 2008
MAINLINE STORE OPENINGS IN FY 2008 US EUROPE ASIA – ASPEN, COLORADO – ANTWERP, BELGIUM – LEE GARDENS, HONG KONG# – AUSTIN, TEXAS* – BOLOGNA, ITALY – PAVILION, MALAYSIA – BEVERLY CENTER, – FLORENCE, ITALY – TIMES SQUARE, HONG KONG CALIFORNIA* – FRANKFURT AIRPORT, – COPLEY PLACE, BOSTON* GERMANY – MAL
Slide 52: Currency Impact
CURRENCY IMPACT EXCHANGE RATE IMPACT ON £1 = FY 2008 EBIT AT AVERAGE CHANGE SPOT RATES FY 2008 SPOT* % £M US DOLLAR 2.02 1.98 (2) +0.4 EURO 1.42 1.26 (11) +7.0 * Spot rate as at 22 May 2008 Yen hedged 12 months forward. Reduced reported revenue by £5.4m in 2007/08. Expected to be 52 minimal (about £
Slide 53: Exchange Rates
EXCHANGE RATES AVERAGE 12 MONTHS TO 31 MARCH 2008 2007 EURO 1.42 1.49 US DOLLAR 2.02 1.91 HONG KONG DOLLAR 15.63 14.80 KOREAN WON 1,873 1,801 YEN – HEDGED RATE 221.5 199.2 CLOSING AS AT 31 MARCH 2008 2007 EURO 1.26 1.47 US DOLLAR 1.98 1.97 HONG KONG DOLLAR 15.44 15.38 KOREAN WON 1,966 1,851 53
Slide 54: Disclaimer
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 st