Burberry Group Plc · LSE:BRBY
Burberry — H1 2008 Earnings Presentation
51 slides from Burberry's earnings presentation, Nov 18, 2008
Slide 1: SPs = A
SPs = A wey oe BURBERRY ESTABLISHED 1856
Slide 2: Interim Results for the six months ended 30 September 2008
INTERIM RESULTS for the six months ended 30 September 2008 18 November 2008
Slide 3: H1 2008 Review
H1 2008 REVIEW SOLID FIRST HALF Revenue up 20% Profit up 3% Executing on strategies TRADING ENVIRONMENT MORE DIFFICULT SINCE START OF H2 COST EFFICIENCY PROGRAMME Enabled by investments in supply chain and systems WELL-POSITIONED FOR LONG-TERM GROWTH AUTUMN/WINTER 2008 CAMPAIGN 3
Slide 4: SPs = A
SPs = A wey oe BURBERRY ESTABLISHED 1856
Slide 5: Stacey Cartwright, Chief Financial Officer
Stacey Cartwright Chief Financial Officer
Slide 6: Financial Highlights
FINANCIAL HIGHLIGHTS 2008 2007 SIX 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
Slide 7: Revenue up 13%
REVENUE UP 13%* RETAIL 45% of sales 14% underlying growth (£1m) £539m £31m £29m WHOLESALE £31m 47% of sales £449m 15% underlying growth LICENSING 8% of sales Down 3% underlying H1 2007 Exchange Retail Wholesale Licensing H1 2008 rates REVENUE £M * Underlying 7
Slide 8: Retail sales up 14%
RETAIL SALES UP 14%* COMPARABLE STORE SALES UP 3.4% Increasing volatility Lower proportion of full price sales Growth in all regions except Spain Driven by innovation in iconic outerwear £22m £245m and accessories £7m £14m £202m OPENED NET 5 mainline stores 19 concessions 4 outlets 13% new space
Slide 9: Wholesale revenue up 15%
WHOLESALE REVENUE UP 15%* CONTINUED MOMENTUM Strong Autumn/Winter collection Supply chain improvements led to on-time deliveries £31m £254m North America and Europe strong Emerging Markets up over 50% £16m £207m H1 2007 Exchange rates Underlying H1 2008 growth REVENUE £M * Underlying 9
Slide 10: Licensing revenue down 3%
LICENSING REVENUE DOWN 3%* JAPANESE VOLUMES MARGINALLY DOWN Both apparel and non-apparel £1.5m (£0.7m) (£0.6m) £39.5m £39.7m ONGOING NON-RENEWAL OF MENSWEAR LICENCES Global products GROWTH FROM GLOBAL PRODUCT LICENCES FULL YEAR REVENUE EXPECTED TO BE SLIGHTLY DOWN UNDERLYING Japan H1 2007 Ex
Slide 11: Revenue by destination
REVENUE BY DESTINATION DOUBLE-DIGIT GROWTH IN Rest of World Americas +44% Europe Asia Pacific Rest of World Asia Pacific +23% SPAIN CHALLENGING Europe* Poor economic environment +19% Low consumer confidence Premium positioning Ongoing contraction of domestic independent retailers AMERICAS SLOW
Slide 12: Adjusted operating profit up 3%
ADJUSTED OPERATING PROFIT UP 3% ADJUSTED OPERATING PROFIT OF £98.4M, UP 3% £94.9M AT CONSTANT FX £3.5m £0.3m (£0.5m) £98.4m £95.1m OPERATING MARGIN OF 18.3% LOWER PROPORTION OF REVENUE FROM LICENSING RETAIL/WHOLESALE MARGIN DOWN Spain Lower gross margin Offset by tight cost control H1 2007
Slide 13: Licensing profit
LICENSING PROFIT CHANGE AT CONSTANT 2008 2007 CURRENCY SIX MONTHS TO 30 SEPTEMBER £M £M £M REVENUE 39.7 39.5 (1.3) GROSS MARGIN AT 100% 39.7 39.5 (1.3) OPERATING EXPENSES (5.7) (6.5) 0.8 ADJUSTED OPERATING PROFIT 34.0 33.0 (0.5) ADJUSTED OPERATING MARGIN 85.6% 83.5% 13
Slide 14: Retail/Wholesale profit
RETAIL/WHOLESALE PROFIT 2008 2007 SIX 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%) +190BP ADJUSTED OPERATING PRO
Slide 15: Retail/Wholesale gross margin down 340bp
RETAIL/WHOLESALE GROSS MARGIN DOWN 340BP BENEFITS FROM Sourcing gains Non-apparel mix MAINLINE MARKDOWN ACTIVITY BROADLY UNCHANGED HIGHER PROPORTION OF SALES THROUGH OUTLETS Customer sentiment More fashion merchandise New and refurbished outlets OUTLETS ARE KEY STRATEGY FOR CLEARING EXCESS I
Slide 16: Retail/Wholesale operating expenses/revenue down 190bp
RETAIL/WHOLESALE OPERATING 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 16
Slide 17: Income statement
INCOME STATEMENT 2008 2007 SIX MONTHS TO 30 SEPTEMBER £M £M ADJUSTED OPERATING PROFIT 98.4 95.1 ATLAS COSTS - (12.9) RELOCATION OF HQ - 15.1 NEGATIVE GOODWILL 1.7 - REPORTED OPERATING PROFIT 100.1 97.3 NET FINANCE CHARGE (3.1) (1.5) PROFIT BEFORE TAXATION 97.0 95.8 TAXATION (22.2) (29.7) ATTRIBUTABL
Slide 18: Cash flow from operations
CASH FLOW FROM OPERATIONS 2008 2007 SIX MONTHS TO 30 SEPTEMBER £M £M ADJUSTED OPERATING PROFIT 98.4 95.1 ATLAS COSTS - (12.9) DEPRECIATION AND AMORTISATION 19.5 15.9 EMPLOYEE SHARE SCHEME COSTS 1.3 7.1 INCREASE IN STOCKS (43.8) (68.7) INCREASE IN DEBTORS (23.9) (22.5) DECREASE IN CREDITORS (8.1) (3.
Slide 19: Stock
STOCK INVENTORY OF £331M; INCREASE DUE TO FX Acquisitions Sales below plan Business model Growth FOCUSED ON REDUCING STOCKS Outlets Conservative buy for Autumn/Winter 2009 Facilitated by integrated planning/SAP 19
Slide 20: Free cash flow
FREE CASH FLOW 2008 2007 SIX MONTHS TO 30 SEPTEMBER £M £M CASH INFLOW FROM OPERATIONS 43.4 10.3 CAPITAL 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 29.0 OTHER NON-CASH ITEMS 2.3 (4.5) FREE CASH
Slide 21: Capital expenditure
CAPITAL EXPENDITURE NORMALISED SPEND OF C.£60M 2008/09 CAPEX CUT TO C.£90M About £5m for Burberry Middle East Reduced H2 spend £23m for Horseferry House PRELIMINARY PLAN FOR 2009/10 IS BROADLY IN LINE WITH ONGOING DEPRECIATION* High single-digit % increase in retail space Renegotiating deals S
Slide 22: Total cash flow
TOTAL CASH FLOW 2008 2007 SIX 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) 4.7 EXCHANGE 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)
Slide 23: Current trading
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 CHALLENGING Higher proportion of retail sales through outlets Anticipating lower department store reorders
Slide 24: Outlook
OUTLOOK 2008/9 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 HORSEF
Slide 25: Angela Ahrendts, Chief Executive Officer
Angela Ahrendts Chief Executive Officer
Slide 26: H1 2008 continued progress on strategic initiatives
H1 2008 CONTINUED PROGRESS ON STRATEGIC INITIATIVES LEVERAGING THE FRANCHISE INTENSIFYING NON-APPAREL DEVELOPMENT ACCELERATING RETAIL-LED GROWTH INVESTING IN UNDER- PENETRATED MARKETS PURSUING OPERATIONAL EXCELLENCE AUTUMN/WINTER 2008 CAMPAIGN 26
Slide 27: Leveraging the franchise: one company, one brand
LEVERAGING THE FRANCHISE ONE 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 STRATEGY Core outerwear and check non-apparel New menswear, childrenswear and shoes Increased entertainm
Slide 28: Intensifying non-apparel development: innovation in check
INTENSIFYING NON-APPAREL DEVELOPMENT INNOVATION IN CHECK 20% UNDERLYING GROWTH 31% of revenue HANDBAGS 40% OF ACCESSORY SALES: INNOVATION IN CHECK Revitalised core Linked to runway Launched new check, The Beat With fragrance SHOES: GROWING DISTRIBUTION Expanded product range Broadened departme
Slide 29: Intensifying non-apparel development: Japan joint venture
INTENSIFYING NON-APPAREL DEVELOPMENT JAPAN JOINT VENTURE FINALISING JOINT VENTURE AGREEMENT With Sanyo Shokai and Mitsui & Co. Majority-owned by Burberry GLOBAL NON-APPAREL PRODUCTS Largest luxury accessories market in world Shop-in-shops and free-standing stores OPERATIONAL IN CALENDAR 2009
Slide 30: Accelerating retail-led growth: focus investment
ACCELERATING RETAIL-LED GROWTH FOCUS INVESTMENT RETAIL REVENUE UP 14%*; OPENED NET 13% more space Five mainline stores Five franchise stores FOCUS INVESTMENT IN HIGH DEMOGRAPHIC MARKETS Los Angeles as example Flagship Mainline Small format CONTROLLING CAPITAL EXPENDITURE Delaying large refurbi
Slide 31: Investing in under-penetrated markets: emerging markets
INVESTING IN UNDER-PENETRATED MARKETS EMERGING MARKETS EMERGING MARKETS WERE 6% OF REVENUE IN FY 2008 China Emerging Markets Middle East 6% Russia Eastern Europe/Turkey South America Asia Pacific Europe Other Asia/India 18% 32% 50%+ GROWTH IN FY 2007/08 AND IN H1 2008 OPERATED UNDER FRANCHISE
Slide 32: Emerging markets: consistent brand image
EMERGING MARKETS CONSISTENT BRAND IMAGE CAPE TOWN MACAU DELHI EKATERINBURG, RUSSIA 32
Slide 33: Emerging markets: growing store portfolio
EMERGING MARKETS GROWING STORE PORTFOLIO LOCATION OF STORES – SEPTEMBER 2008 NUMBER OF FRANCHISE STORES* c.95-100 84 CHINA 35 79 OTHER ASIA 17 11# 58 MIDDLE EAST * 9 RUSSIA 6 EASTERN EUROPE / TURKEY 9 SOUTH AMERICA 5 INDIA / SOUTH AFRICA 3 Mar-07 Mar-08 Sep-08 Mar-09 F * Includes stores now operated
Slide 34: Emerging markets: long-term growth opportunities
EMERGING MARKETS LONG-TERM GROWTH OPPORTUNITIES India Africa Middle East Latin America China Brazil South US Korea Asia Pacific UAE Russia Europe US 0% 5% 10% 15% 20% 25% NUMBER OF HNWIs* BY REGION HNWI POPULATION GROWTH 2006-2007 * High net worth individuals who hold at least $1m of assets, excludi
Slide 35: Burberry Middle East: new joint venture
BURBERRY MIDDLE EAST NEW JOINT VENTURE BURBERRY/JASHANMAL JV Established September 2008 Burberry has 59% economic interest WORKED WITH JASHANMAL SINCE 1997 Highly respected management CURRENTLY EIGHT STORES* RETAIL SALES IN FY 2008 Retail sales over £15m Comps up over 40% year to date MARINA
Slide 36: Burberry Middle East: growth opportunities
BURBERRY MIDDLE EAST GROWTH OPPORTUNITIES NEW STORES Two opened recently One flagship Licensed One mainline Childrens Womens Four more planned in H2 Two mainline Two childrenswear RETAIL MINDSET Prorsum Replenishment programme Monthly flow of deliveries Mens LAUNCH WHOLESALE/CONCESSION STRATEG
Slide 37: Emerging markets: other opportunities
EMERGING MARKETS OTHER OPPORTUNITIES CHINA Strengthening our presence and partnership in market Renovation programme underway Store opening programme on plan with potential for 100 stores in five years time “UNTOUCHED” REGIONS Mexico and South America integrated into US team First stores in Sout
Slide 38: Pursuing operational excellence: progress to date
PURSUING OPERATIONAL EXCELLENCE PROGRESS TO DATE SUPPLY CHAIN IMPROVEMENT SAP REGIONAL REORGANISATION INTEGRATED PLANNING FUNCTION 38
Slide 39: Operational excellence: supply chain benefits
PURSUING OPERATIONAL EXCELLENCE SUPPLY CHAIN BENEFITS NEW MARKET CALENDAR Earlier shipments year-on-year 40%+ earlier Order fulfilment rates up up 5bp Normalised flow GLOBAL TRANSPORT 31 carriers to three Saving £2m Moving from air to sea freight 1/3 by sea by 2009/10 Direct deliveries from supp
Slide 40: Operational excellence: Spain, evolving the supply chain
PURSUING OPERATIONAL EXCELLENCE SPAIN - EVOLVING THE SUPPLY CHAIN LEGACY SUPPLY CHAIN Over 50 suppliers, mainly in Spain Historic way of working (CMT) RATIONALISING SUPPLIER BASE IN LINE WITH BUSINESS TREND 15-20 key Spanish suppliers Larger global vertical FOB suppliers Key corporate suppliers
Slide 41: Operational excellence: SAP implementation
PURSUING OPERATIONAL EXCELLENCE SAP IMPLEMENTATION IMPLEMENTATIONS COMPLETED IN 2007/08 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 warehouses Outbound shipping t
Slide 42: Operational excellence: regional reorganisation
PURSUING OPERATIONAL EXCELLENCE REGIONAL REORGANISATION EUROPE New CFO Retail and wholesale consolidation AMERICAS Wholesale organisation strengthened Integrating Mexico and South America Canada retail expansion ASIA Rationalised regional infrastructure New MD of Japan Non-apparel JV in Japan
Slide 43: Operational excellence: integrated planning function
PURSUING OPERATIONAL EXCELLENCE INTEGRATED PLANNING MODEL FUNCTION LEVERAGE SAP BUILT GLOBAL INTEGRATED PLANNING STRUCTURE GOALS Leverage data Reduce style count Increase productivity of styles Optimise global replenishment Plan monthly product flow Decrease inventory IMPROVED VISIBILITY FRO
Slide 44: Cost efficiency programme
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 44
Slide 45: Looking forward
LOOKING FORWARD BRAND MOMENTUM STRONG STRATEGIES PROVEN Product Region Channel ACCELERATING EFFICIENCIES REALISATION SEASONED MANAGEMENT TEAM 45
Slide 46: SPs = A
SPs = A wey oe BURBERRY ESTABLISHED 1856
Slide 47: Appendix
Appendix
Slide 48: Currency impact
CURRENCY IMPACT EXCHANGE RATE SPOT RATE £1 = IMPACT ON H1 2008 AVERAGE 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 * Spot rate as at 10 November 2008 Yen hedged 12 months forward 48
Slide 49: Exchange rates
EXCHANGE RATES Average SIX MONTHS TO 30 SEPTEMBER 2008 2007 EURO 1.26 1.47 US DOLLAR 1.93 2.00 HONG KONG DOLLAR 15.05 15.67 KOREAN WON 2,008 1,861 YEN – HEDGED RATE 223.2 220.7 Closing AS AT 30 SEPTEMBER 2008 2007 EURO 1.26 1.43 US DOLLAR 1.78 2.05 HONG KONG DOLLAR 13.83 15.92 KOREAN WON 2,149 1,873
Slide 50: 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
Slide 51: Contacts
CONTACTS Fay Dodds 18-22 Haymarket Director of Investor Relations London [email protected] SW1Y 4DQ Tel: +44 (0)20 7968 5919 Fax: +44 (0)20 7980 2927 Charlotte Cowley Investor Relations Manager [email protected] Please note new contact details from 1 December 2008 Kim Warren Horsefe