Burberry Group Plc · LSE:BRBY
Burberry — H1 2010/11 Earnings Presentation
27 slides from Burberry's earnings presentation, Nov 16, 2010
Slide 1: Interim results for the six months ended 30 September 2010
INTERIM results FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010 1 FINANCIAL REVIEW — Burberry in asia pacific — Second half priorities — QUESTIONS 2 1
Slide 2: First half achievements; revenue up 21%
FIRST HALF ACHIEVEMENTS • RECORD FIRST HALF PROFIT – Revenue up 21% to £641m – Adjusted PBT up 49% to £129m – £181m cash – Dividend up 43% to 5.0p • CHINA ACQUISITION – Rapid integration on plan • FURTHER STRATEGIC PROGRESS – Investing for growth in business – Correcting legacy issues 3 REVENUE UP 2
Slide 3: Retail and wholesale revenue up
RETAIL REVENUE UP 20%* • COMPARABLE STORE SALES UP 9% 27 366 – Average selling price up significantly – Increased mainline sell-through 20 10 – Dynamic pricing model 14 295 • INVESTING IN RETAIL PORTFOLIO – Opened 20 mainline stores in H1 – Average selling space up 8% in H1, planned up about 25% in
Slide 4: Licensing revenue down 3%
LICENSING REVENUE DOWN 3%* • UP 9% AT REPORTED FX – Benefit from hedged yen rate • NON-RENEWALS CONTINUE – Final menswear licences 5 (2) 1 49 – Japanese leather goods licence 45 • JAPAN DIFFICULT MARKET – Apparel broadly flat • GOOD GROWTH FROM GLOBAL PRODUCT LICENCES – Enhanced eyewear and watches
Slide 5: Revenue grew in all regions and products
REVENUE GREW IN ALL REGIONS REST OF WORLD: 6% 31% GROWTH • ASIA PACIFIC NOW LARGER THAN AMERICAS – 32% of pro forma sales including China retail • EUROPE UP 12% – Up strong double-digit in retail – Wholesale marginally up despite planned account rationalisation AMERICAS: 27% EUROPE: 38% 8% GROWTH 12
Slide 6: > ws ne — a =) ma)
> ws ne — a =) ma)
Slide 7: Financial highlights
STACEY CARTWRIGHT — EVP, CHIEF FINANCIAL OFFICER 13 FINANCIAL HIGHLIGHTS SIX MONTHS TO 30 SEPTEMBER 2010 2009 GROWTH £M £M ADJUSTED REVENUE* 641.1 527.8 21% ADJUSTED PBT* 128.5 86.2 49% REPORTED PBT 117.7 78.4 50% ADJUSTED DILUTED EPS* 21.1p 14.2p 49% DIVIDEND PER SHARE 5.0p 3.5p 43% NET CASH 180.9
Slide 8: Adjusted operating profit; acquisition of Chinese retail operations
ADJUSTED OPERATING PROFIT £130M, UP 44% £35.4m (£1.3m) £129.7m £5.7m £89.9m H1 2009 EXCHANGE RETAIL/ LICENSING H1 2010 RATES WHOLESALE ADJUSTED OPERATING PROFIT SEE APPENDIX FOR FULL DEFINITION OF ADJUSTED 15 ACQUISITION OF CHINESE RETAIL OPERATIONS • TRANSACTION ANNOUNCED 16 JULY – Acquired 50 stor
Slide 9: Spain restructuring; retail/wholesale profit up 69%
SPAIN RESTRUCTURING • RESTRUCTURING ANNOUNCED FEBRUARY 2010 TO MOVE SPAIN TO GLOBAL BUSINESS MODEL – Global collection from SS11 – Final local collection is AW10 – Barcelona facility closing with about 300 redundancies • OPERATING LOSSES – Loss of £2.7m on sales of £32m in H1 – Loss of around £10m e
Slide 10: Retail/wholesale gross margin and operating expenses
RETAIL/WHOLESALE GROSS MARGIN UP 670BP • RECORD GROSS MARGIN 64.3% 60.2% • DRIVEN BY INCREASED MAINLINE 57.2% 56.8% 56.5% 57.6% SELL-THROUGH • MODEST INCREASE EXPECTED IN H2 – Tougher comparatives in H2 – Raw material prices H1 2006 H1 2007 H1 2008 H1 2009 H1 2010 INC SPAIN EXC SPAIN GROSS MARGIN 19
Slide 11: Licensing profit and income statement
LICENSING PROFIT SIX MONTHS TO 30 SEPTEMBER 2010 2009 £M £M REVENUE 48.8 44.7 GROSS MARGIN AT 100% 48.8 44.7 OPERATING EXPENSES (6.5) (6.4) OPERATING PROFIT 42.3 38.3 OPERATING MARGIN 86.7% 85.7% YEN RATE 145 170 2010 INCLUDES FX BENEFIT OF £5.2M IN REVENUE AND £0.1M IN OPEX 21 INCOME STATEMENT SIX
Slide 12: Exceptional items and cash flow from operations
EXCEPTIONAL ITEMS SIX MONTHS TO 30 SEPTEMBER 2010 2009 £M £M SPAIN OPERATING LOSS (2.7) (3.6) RESTRUCTURING COSTS (7.6) (4.2) CHINESE PUT OPTION CHARGE (0.5) - TOTAL (10.8) (7.8) 23 CASH FLOW FROM OPERATIONS SIX MONTHS TO 30 SEPTEMBER 2010 2009 £M £M ADJUSTED OPERATING PROFIT 129.7 89.9 SPAIN OPERAT
Slide 13: Capital expenditure and free cash flow
INCREASING CAPITAL EXPENDITURE EUROPE 130F DIGITAL/IT/OTHER 90 70 US EMERGING MARKETS/ NEW BUSINESSES ASIA PACIFIC 2009 2010 2011F YEAR TO MARCH REFURBISHMENT NEW STORES DIGITAL/IT/OTHER HFH CAPITAL EXPENDITURE £M FY 2010/11F CAPITAL EXPENDITURE BY REGION 25 FREE CASH FLOW SIX MONTHS TO 30 SEPTEMBER
Slide 14: Total cash flow and outlook
TOTAL CASH FLOW SIX MONTHS TO 30 SEPTEMBER 2010 2009 £M £M FREE CASH FLOW (27.4) 83.4 DIVIDENDS (45.7) (37.4) OTHER CASH ITEMS (6.3) (1.1) EXCHANGE DIFFERENCE (1.7) 3.8 TOTAL CASH FLOW (81.1) 48.7 NET CASH AT 31 MARCH 262.0 7.6 NET CASH AT 30 SEPTEMBER 180.9 56.3 27 OUTLOOK RETAIL H2 average selling
Slide 15: Burberry in Asia Pacific: a fast growing business
PASCAL PERRIER — PRESIDENT ASIA PACIFIC 29 BURBERRY IN ASIA PACIFIC A FAST GROWING BUSINESS • REVENUE DOUBLED IN LAST FIVE ASIA/PACIFIC RETAIL/WHOLESALE YEARS • HISTORICALLY, A FEDERATION OF SIX INDEPENDENT BUSINESSES 13% – SE Asia acquired 2001 283 – Hong Kong acquired 2001 17% – Korea acquired 200
Slide 16: A broad portfolio; leveraging the franchise
BURBERRY IN ASIA PACIFIC A BROAD PORTFOLIO BY CHANNEL BY PRODUCT CHILDRENS WHOLESALE* MENS NON-APPAREL RETAIL WOMENS FY 2009/10 ASIA PACIFIC RETAIL/WHOLESALE REVENUE * PREDOMINANTLY TRAVEL RETAIL 31 LEVERAGING THE FRANCHISE • REGIONAL PLANNING AND MERCHANDISING – Three years ago, <1% common styles –
Slide 17: Accelerating retail-led growth; China opportunity
ACCELERATING RETAIL-LED GROWTH • REGIONAL TEAM IN PLACE TO PURSUE STORE OPENINGS IN ASIA PACIFIC OPPORTUNITIES • FLAGSHIP/ CLUSTER STRATEGY IN KEY MARKETS • FLAGSHIPS – Singapore: July 2009 (6,500 sq ft) c.20F 18 – Beijing: December 2010 (11,000 sq ft) – Sydney: Early 2011 (7,000 sq ft) – Hong Kong:
Slide 18: China: what we acquired and integration plans
CHINA WHAT WE ACQUIRED DOS 35 RAPID INTEGRATION PLANS • BUILDING TEAM – New MD – 45 person infrastructure already built – Offices in Shanghai and Beijing • 550 SALES ASSOCIATES TRANSFERRED TO BURBERRY – Initial training already complete • STORE OPERATIONS IMPROVED – Visual merchandising – Investment
Slide 19: Aggressively invest in brand; drive retail productivity
AGGRESSIVELY INVEST IN BRAND • UTILISE GLOBAL MARKETING STRATEGIES • LEVERAGE BRAND ATTRIBUTES – Britishness – Heritage and authenticity – Outerwear and large leather goods – Icons • CONNECTING WITH CUSTOMER – Social media – Digital media – Traditional channels www.youku.cn 37 DRIVE RETAIL PRODUCTIV
Slide 20: Evolve store network
EVOLVE STORE NETWORK • SELECTIVE STORE EXPANSION – Renovations/expansion/relocations – Partner with luxury developers – Open alongside peers • TARGET 100 STORES – Flagship/cluster strategy – Explore markets outside flagship and provincial capitals – Childrenswear stores 39 40 20
Slide 21: Asia Pacific
ASIA PACIFIC • ASIA PACIFIC ALREADY A LARGE PROFITABLE REGION FOR BURBERRY • VERY EXCITED ABOUT FUTURE GROWTH POTENTIAL – Continue to apply key strategic initiatives throughout region – Capitalise on China opportunity 41 42 21
Slide 22: Leveraging the franchise
ANGELA AHRENDTS — CHIEF EXECUTIVE OFFICER 43 LEVERAGING THE FRANCHISE — INTENSIFYING NON-APPAREL DEVELOPMENT — ACCELERATING RETAIL-LED GROWTH — INVESTING IN UNDER-PENETRATED MARKETS — PURSUING OPERATIONAL EXCELLENCE 44 22
Slide 23: Innovative marketing; monthly product flow
INNOVATIVE MARKETING • CONNECTING WITH CONSUMERS THROUGH DIGITAL TECHNOLOGY – Social media – Burberry Acoustic – Interactive advertising campaign – Livestreaming runway shows • TESTING AND ROLLING OUT NEW DIGITAL COMMERCE PLATFORM • RETAIL THEATRE – September show relayed into 25 flagship stores 45
Slide 24: Winter storms replenishment
WINTER STORMS 47 REPLENISHMENT • REPLENISHMENT STYLES – Core items never out of stock – Drive volume and gross margin – Reduce fashion risk • % OF SALES FROM REPLENISHMENT STYLES GROWING • BUT STILL FURTHER OPPORTUNITY – Womens – Childrens – Wholesale in-season orders – Improve/automate processes 48
Slide 25: Strong first half
Strong first half — Strong united team — More disciplined in driving growth and margin — Focus on and invest in brand Digital content and technology Retail expansion retail productivity New markets 49 50 25
Slide 26: Appendix: adjusted measures
APPENDIX 51 ADJUSTED MEASURES “Adjusted” excludes: 1. The discontinuing business in Spain affected by the restructuring, which in H1 2010 generated revenue of £31.9m (2009: £44.6m) and an operating loss of £2.7m (2009: £3.6m) 2. Restructuring costs of £7.6m (2009: £4.2m) relating to the Spanish rest
Slide 27: Reconciliation of H1 2010; IR contacts
RECONCILIATION OF H1 2010 OTHER STATUTORY DISCONTINUING EXCEPTIONAL REPORT SPAIN ITEMS ADJUSTED SIX MONTHS TO 30 SEPTEMBER 2010 £M £M £M £M REVENUE 673.0 31.9 - 641.1 COST OF SALES (229.0) (17.5) - (211.5) GROSS MARGIN 444.0 14.4 - 429.6 OPERATING EXPENSES (324.6) (17.1) (7.6) (299.9) OPERATING PROF