Burberry Group PLC (BRBY) - Interim Results RNS Number : 4956Q Burberry Group PLC 07 November 2012 7 November 2012 Burberry Group plc Interim results for the six months ended 30 September 2012 · Financial performance - Total revenue growth 8% underlying to £883m (up 6% reported) - Retail revenue growth 10% underlying to £577m (up 9% reported) - Adjusted PBT up 6% underlying to £173m (up 7% reported) - Reported PBT £112m (2011: £159m) - Net cash of £237m - Interim dividend up 14% to 8p · Retail/wholesale reported revenue up 7%; adjusted operating profit up 11% - Adjusted operating margin up 60 basis points to 15.5% - Better quality sales and tight control of discretionary spend - Enabled continued investment in key growth initiatives · Focused execution of key strategies - Digital innovation: Regent Street opening - Burberry World Live - Brand balance: Prorsum and London penetration increased - Non-apparel growth: mens accessories grew 40% in retail - Retail investment focus in flagship markets: new stores in Hong Kong, Milan, Rome and London; full year capital expenditure unchanged at £180-200m - Emerging markets focus: 62 franchise stores in 27 countries worldwide - Operational excellence: expanded and upgraded logistics network · Fragrance and beauty directly operated as fifth product division from 1 April 2013 - Consistent with ongoing strategy of greater brand control - Significant opportunity in under-penetrated opening price point categories - Euro181m payment to be made in H2 for ending licence relationship; £71m of which is recognised within exceptional items in H1 - Broadly neutral to adjusted PBT in FY 2013/14, a transition year; earnings accretive thereafter Angela Ahrendts, Chief Executive Officer, commented: "In retail/wholesale, which accounts for over 90% of our business, Burberry delivered 7% revenue growth, 11% profit growth and a further improvement in operating margin, all in a challenging external environment. Our five key strategies remain highly relevant and we continue to invest in our retail, digital and technology growth initiatives. Integrating fragrance and beauty is a significant brand and business opportunity. Our global teams are excited to partner with long-standing distributors, suppliers and customers to optimise these under-penetrated categories. One consistent brand expression, leveraged across all categories, will underpin future growth in the Beauty division and our existing core business." All metrics and commentary in the Group Financial Highlights and Interim Management Report exclude the results of the discontinued business in Spain and exceptional items unless stated otherwise. Exceptional items are: · A charge of £73.8m relating to the termination of the fragrance and beauty licence relationship (2011: nil). · A restructuring credit of £0.6m (2011: nil). · A put option liability finance credit of £11.7m relating to the third party 15% economic interest in the Chinese business (2011: charge of £2.9m). Details of exceptional items are contained in Note 4 of the Condensed Consolidated Interim Financial Statements. Underlying change is calculated at constant exchange rates. Certain financial data within this announcement have been rounded. Enquiries Burberry 020 3367 3524 Stacey Cartwright EVP, Chief Financial Officer Jenna Littler VP, PR and Corporate Relations Fay Dodds Director of Investor Relations Brunswick 020 7404 5959 Nick Claydon Laura Cummings · There will be a presentation today at 9.30am (UK time) to investors and analysts at Horseferry House, Horseferry Road, London, SW1P 2AW. · The presentation can be viewed live on the Burberry website www.burberryplc.com and can also be accessed live via a dial-in facility on +44 (0) 20 3364 5381, password 1564290. · The supporting slides and an indexed replay will be available on the website later in the day. · Burberry will update on trading on 15 January 2013 when it will issue its Interim Management Statement for the Third Quarter. Certain statements made in this announcement 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. Burberry Group plc undertakes no obligation to update these forward-looking statements and will not publicly release any revisions it may make to these forward-looking statements that may result from events or circumstances arising after the date of this document. All persons, wherever located, should consult any additional disclosures that Burberry Group plc may make in any regulatory announcements or documents which it publishes. All persons, wherever located, should take note of these disclosures. This announcement does not constitute an invitation to underwrite, subscribe for or otherwise acquire or dispose of any Burberry Group plc shares, in the UK, or in the US, or under the US Securities Act 1933 or in any other jurisdiction. BURBERRY, the Equestrian Knight Device and the Burberry Check are trademarks belonging to Burberry which are registered and enforced worldwide. Group financial highlights Total revenue up 6% to £883m (2011: £830m) Retail/wholesale revenue up 7%, adjusted operating profit up 11%; adjusted operating margin of 15.5% (2011: 14.9%) Group adjusted profit before tax up 7% to £173.4m (2011: £161.6m) Reported profit before tax of £111.9m (2011: £158.7m), after £61.5m exceptional items Forecast effective tax rate of 25.0% on adjusted PBT for the full year Adjusted diluted EPS up 8% at 29.0p; reported diluted EPS of 19.1p Interim dividend up 14% to 8.0p (2011: 7.0p); reflecting rebalancing between halves. Dividend policy is approximately 40% payout based on full year adjusted diluted EPS Net cash of £237m at 30 September 2012 (2011: £174m), after £89m investment in capital expenditure Six months to 30 % change September £ million 2012 2011 reported FX underlying Revenue 882.5 829.6 6 8 Cost of sales (255.5) (257.7) 1 Gross margin 627.0 571.9 10 Operating expenses* (453.4) (409.8) (11) Adjusted operating profit 173.6 162.1 7 6 Net finance charge* (0.2) (0.5) Adjusted profit before taxation 173.4 161.6 7 6 Exceptional items (61.5) (2.9) Profit before taxation 111.9 158.7 Taxation (26.5) (42.8) Discontinued operations^# 0.1 0.6 Non-controlling interest (0.5) 0.7 Attributable profit 85.0 117.2 Adjusted EPS (pence)^~ 29.0 26.9 EPS (pence)^~ 19.1 26.4 Weighted average number of ordinary 445.9 444.5 shares (millions) ^~ Adjusted measures exclude exceptional items and discontinued operations. *Operating expenses in 2012 in the table above exclude a charge relating to the termination of the licence relationship of £73.8m (2011: nil) and a restructuring credit of £0.6m (2011: nil) included in the reported expenses of £526.6m (2011: £409.8m). The net finance charge in the table above excludes a £11.7m China put option liability finance credit (2011: £2.9m charge) included in the reported net finance income of £11.5m (2011: £3.4m charge). ^# Discontinued operations in Spain in 2012 delivered a profit of £0.1m (2011: £0.6m). ^~ EPS is presented on a diluted basis. INTERIM MANAGEMENT REPORT · Total revenue grew 8% underlying to £883m (up 6% reported) · Retail revenue grew 10% underlying to £577m (up 9% reported) · Group adjusted PBT grew 6% underlying to £173m (up 7% reported) Against a challenging external environment, Burberry has driven productivity, through an intense focus on innovative product, merchandising and marketing initiatives, while optimising efficiency and tightly controlling expenses. Brand momentum remains strong and the continued execution of the five key long term strategies will consistently underpin future revenue and profit growth. Leverage the franchise Brand reach and engagement increased as Burberry continued to use traditional and digital media in innovative ways. 14m Facebook fans, Twitter accounts in ten languages, global real-time initiatives with Clear Channel International and the Weather Channel over the Olympic period as well as the Regent Street opening further connected consumers to compelling brand content. Burberry's product assortments continued to be tightly merchandised and balanced by product division, label, category and price point. The penetration of Burberry Prorsum and London increased during the first half, while certain opening price point products in core accessories and outerwear were rationalised. Outerwear remained at the core of Burberry's business, with good growth in the half driven by fashion and replenishment styles. Key marketing and retail initiatives globally continued to centre on the iconic trench, from innovative outdoor advertising in London linked to Art of the Trench, to the introduction of physical Burberry Bespoke experiences in Regent Street and Chicago. Mens was the fastest growing product division (up 12% underlying), accounting for 25% of retail/wholesale revenue. Burberry will directly operate fragrance and beauty from 1 April 2013, following the end of its existing licence relationship with Interparfums SA. · The ongoing strategy of greater brand control and integrating fragrance and beauty will enable Burberry to capitalise on the significant growth opportunities in these key opening price point product categories, where Burberry is under-penetrated compared to peers. · The wider brand halo has impact internally and externally, as witnessed by last year's launch of Burberry Body. When leveraged with the core business, the increased scale will further accelerate growth in revenue and profit over time. Fragrance and beauty will be run as Burberry Beauty, the fifth product division alongside accessories and womens, mens and childrens apparel. · Burberry historically led all product design, packaging and marketing activities for fragrance and beauty and will now oversee product development, sourcing and logistics, while partnering with distributors worldwide. · The Beauty division will be supported by Burberry's existing IT, planning and central infrastructure; supplemented by a number of key senior hires with extensive functional expertise in these Beauty categories. · Burberry will pay Euro181m in cash to Interparfums SA on 31 December 2012 for the ending of the licence relationship. · The transaction is expected to be broadly neutral to adjusted PBT in the transitional financial year 2013/14, excluding the amortisation of the intangible asset which will be charged to exceptional items. Further financial information is given in the appendix. Intensify non-apparel Non-apparel revenue increased by 8% underlying and remained the largest product division at 39% of retail/wholesale revenue. Large leather goods remained at around half of mainline non-apparel sales, driven by innovation in core programmes and focused marketing and merchandising behind key shapes. Mens accessories grew strongly, reaching 18% of total mainline non-apparel sales, with the fastest growth in Asia Pacific and on burberry.com. Accelerate retail-led growth With 10% underlying growth, retail accounted for 65% of revenue in the first half. This is the 14^th consecutive six month period where Burberry has delivered double digit percentage underlying retail growth and was achieved against record prior year comparatives. Burberry continued to elevate its real estate portfolio, opening 13 stores and 16 concessions, while closing seven and nine respectively. Openings were focused in flagship markets including Hong Kong, Milan, Rome and London, including the brand's largest and most innovative environment on Regent Street. The store opening programme remains robust. Second half openings in flagship markets include Chicago, Shanghai and a standalone menswear store in Knightsbridge, London, as well as further stores in Brazil, Mexico and the Middle East. Having recently reviewed all proposed store and business projects, projected capital expenditure remains at between £180-200m for FY 2012/13. This excludes the cash spend in the second half on the intangible asset relating to fragrance and beauty. Burberry continued to innovate in digital commerce, enabling consumers around the world to engage and transact more easily with the brand on and off line. With the addition of Spanish and Korean, the website is now accessible in eight languages; customer services including Click to Call and Click to Chat are available in 14 languages; with delivery to over 100 countries. A new local payment method has been introduced in China and the collect in store trial extended in London and the United States. Invest in under-penetrated markets Burberry continued to invest in mainland China, opening seven stores and closing two in the first half. There are currently 68 stores in 35 cities, up from 50 stores in 30 cities acquired in September 2010. To ensure appropriate brand representation, the investment is clustered around flagship markets and provincial capitals. Three new larger format stores are planned for Shanghai during calendar year 2013 at an average size of about 9,000 square feet each. This compares to the average of 2,000 square feet for China at acquisition. North American wholesale revenue grew strongly in the half, reaching 9% of group retail/wholesale revenue, helped by continued investment in wholesale shop-in-shops. Burberry is starting to test concessions in the Americas region. Burberry continued to invest in real estate and retail productivity in high growth emerging markets. About eight new directly-operated stores are planned this financial year in the Middle East and Latin America. Pursue operational excellence Burberry continued to develop and optimise its logistics network, increasing capacity and upgrading hub capabilities in Europe and Asia Pacific. A local distribution centre in China was opened to ensure continuity and speed of supply for replenishment styles and to provide future fulfilment for rapidly growing digital commerce. The operating model continued to evolve, with improved execution of monthly floorsets, focused assortments and global buys of key items in greater depth. Burberry continued to leverage the investment made in technology, from early learnings from customer insight, innovative in store technology trials to personalisation tools in digital marketing. Facilitated by the investment in planning and IT, procurement was significantly reduced to drive better working capital efficiency. Revenue analysis Revenue by channel Six months to 30 September % change £ million 2012 2011 reported FX underlying Retail 576.8 527.4 9 10 Wholesale 253.1 247.9 2 5 Licensing 52.6 54.3 (3) (5) Revenue 882.5 829.6 6 8 Retail 65% of revenue (2011: 64%); generated from 198 mainline stores, 215 concessions within department stores, digital commerce and 49 outlets · Retail sales increased 10% on an underlying basis (up 9% at reported FX) · Comparable store sales increased by 3% (Q1: +6%; Q2: +1%) · New space contributed the balance of growth (7%) · Average retail selling space increased by 12% During the first half, there was a broad-based slowdown in revenue growth across regions and product divisions. The key driver of the softer second quarter was footfall, partly mitigated by higher average transaction values. In mainline stores and concessions, revenue in the first half was driven by modest pricing increases and mix shift. In particular, the penetration of Burberry Prorsum and London increased by five percentage points. Replenishment remained at around half of mainline revenue. Mens tailoring more than doubled in the half and soft accessories and mens non-apparel outperformed. In the first half, all four regions showed positive comparable store sales growth, but slowed compared to the growth rates in the second half of last year. Asia Pacific Retail accounted for over 80% of revenue in Asia Pacific. Mainland China, which accounted for about 40% of the region's retail sales, delivered mid-teens percentage underlying growth in the first half. Comparable store sales in China were still positive but slowed in the second quarter, driven primarily by lower traffic. Hong Kong's performance, although uneven, remained robust for the half as a whole. Stores were opened in Russell Street and Pacific Place, the largest and most digitally advanced in the region, bringing the total to 20 stores in this key flagship market. Korea and Taiwan remained weak, while Singapore and the 14 directly-operated stores in Japan, which sell the global collection, performed well. Europe In Europe, which was about two-thirds retail, France and Germany remained robust, due in part to the travelling luxury customer, while Italy was soft. The United Kingdom accounted for over 40% of European retail sales. Footfall in London decelerated in the second quarter, in part due to the disruption from the Olympics, impacting both tourist and domestic customers. Burberry continued to upgrade its brand presence in retail concessions in key European department stores, opening seven and closing three in the half. Americas Retail contributed about 60% of revenue in the Americas. Comparable store sales growth was modest reflecting tough prior year comparatives, a more domestic customer base than other regions and greater exposure to the rationalisation of certain opening price point products in core accessories and outerwear. Rest of World Retail accounted for about half of Rest of World revenue. The Middle East remained uneven while standalone stores in India performed strongly. With 23 stores in the Middle East and seven in India, Burberry continues to grow and evolve its store portfolio in these high potential markets. Wholesale 29% of revenue (2011: 30%); generated from sales to department stores, multi-brand specialty accounts, Emerging Market franchisees and Travel Retail · Wholesale revenue increased by 5% on an underlying basis (up 2% at reported FX), in line with guidance · Performance was led by mens accessories, small leather goods and mens apparel · Department stores and emerging markets partners outperformed Asia Pacific Wholesale revenue in Asia Pacific, which was about 20% of group wholesale revenue, is predominantly Travel Retail. Burberry worked dynamically with key partners to offset the impact of the slowdown in tourist footfall in the region. Europe Europe contributed around 40% of group wholesale revenue and was broadly unchanged year-on-year. Growth in key department stores was offset by the continuing planned rationalisation of small specialty accounts. Americas Wholesale achieved double-digit percentage underlying growth in the United States even after planned brand rationalisation. Over 10 dedicated shop-in-shops were opened, bringing the total to 92. Rest of World Double-digit percentage underlying growth was achieved in Rest of World, despite more challenging trading conditions in certain franchise markets. During the first half, five franchise stores were opened, including two with a new partner in the Baltic region and the first Burberry store in Jordan, bringing the total to 62. Licensing 6% of revenue (2011: 6%); of which approximately two-thirds from Japan (split roughly 80% apparel and 20% from various short-term, mainly non-apparel, licences), with the balance from global product licences (fragrance, eyewear and timepieces) and European wholesale childrenswear · Licensing revenue decreased by 5% underlying (down 3% at reported FX) · Consistent with full year guidance of broadly unchanged revenue, reflecting timing benefits in the second half · H2 global launch of The Britain watch collection · Fragrance and beauty to be directly operated from 1 April 2013 In Japan, apparel royalty income was broadly unchanged, while non-apparel income was down year-on-year due to continuing licence rationalisation. Against the anniversary of the Burberry Body fragrance launch last year, global product licences delivered solid growth in the half, helped by deliveries to distributors ahead of the launch of The Britain watch in early October. As part of the marketing campaign, Burberry developed innovative mobile-only content, interactively exploring the collection while also showing the user's local time, location and weather. Operating profit analysis Adjusted operating profit Six months to 30 September % change £ million 2012 2011 reported FX underlying Retail/wholesale 128.9 115.7 11 10 Licensing 44.7 46.4 (4) (6) Adjusted operating profit 173.6 162.1 7 6 Adjusted operating margin 19.7% 19.5% Adjusted operating profit increased by 7% to £173.6m in the first half, with a £2.3m benefit from exchange rates. Adjusted retail/wholesale operating profit Six months to 30 September % change £ million 2012 2011 reported FX Revenue 829.9 775.3 7 Cost of sales (255.5) (257.7) 1 Gross margin 574.4 517.6 11 Gross margin 69.2% 66.7% Operating expenses (445.5) (401.9) (11) Adjusted operating profit 128.9 115.7 11 Operating expenses as a % of sales 53.7% 51.8% Adjusted operating margin 15.5% 14.9% Adjusted retail/wholesale operating profit grew by 11% to £128.9m in the half, with the operating margin up by 60 basis points to 15.5%. Gross margin was 69.2% in the first half - up 250 basis points from 66.7% in the same period last year. The key drivers were the net benefit from price increases and FX on procurement, as well as the continued mix shift to retail. Operating expenses increased by £44m or 11%, including a £15m reduction in performance-related payments. Of the gross increase of £59m, about half was for new space, including pre-opening costs, around one-third was general inflation and the balance was investment in areas such as IT, customer resources, logistics and creative media. While marketing was held flat as a percentage of sales in the first half, expenses were tightly controlled in areas such as headcount, travel and discretionary business projects. Operating expenses as a percentage of revenue increased to 53.7% (2011: 51.8%). For FY 2012/13, Burberry continues to expect a modest improvement in retail/wholesale operating margin, dynamically managing gross margin and operating expenses to enable continued strategic investment in the business. Licensing operating profit Six months to 30 September Six months to 30 September 2012 £ million 2012 2011 underlying Revenue 52.6 54.3 51.5 Cost of sales - - - Gross margin 52.6 54.3 51.5 Gross margin 100% 100% Operating expenses (7.9) (7.9) (7.9) Operating profit 44.7 46.4 43.6 Operating margin 85.0% 85.5% Licensing revenue decreased by 5% on an underlying basis (down 3% at reported FX). Operating expenses were unchanged year-on-year, and with a £1.1m FX benefit, operating profit was £44.7m (2011: £46.4m). Exceptional items Six months to 30 September £ million 2012 2011 Termination of licence relationship (73.8) - Restructuring credit 0.6 - China put option liability finance credit/(charge) 11.7 (2.9) (61.5) (2.9) In the first half, £73.8m has been recognised as an exceptional item relating to the ending of the fragrance and beauty licence relationship. · Of the Euro181m termination payment (£142m), £70.9m has been capitalised as an intangible asset and will be amortised on a straight line basis over the period 1 April 2013 to 31 December 2017. This intangible asset relates to the present value of the anticipated incremental income from fragrance and beauty which will be earned by the Group up to 31 December 2017. · The remaining £71.3m has been recognised as an expense, together with related costs of £2.5m. It is anticipated that this value will be recovered through increased income from fragrance and beauty beyond 31 December 2017. The restructuring credit of £0.6m relates to the release of a provision held in respect of the cost efficiency programme announced in January 2009. The China put option liability finance credit/(charge) relates to fair value movements on the put option liability over the non-controlling interest in the acquired Chinese business. Largely reflecting lower growth assumptions for the Chinese luxury goods market, the credit in the first half was £11.7m (2011: £2.9m charge). Discontinued operations Six months to 30 September £ million 2012 2011 Restructuring credit for discontinued Spanish 0.1 0.6 operations The restructuring credit of £0.1m relates to the release of restructuring provisions held in respect of the discontinued Spanish operations. Cash spend in the first half associated with the restructuring was £0.6m. Taxation The effective rate of tax on adjusted profit for FY 2012/13 is estimated to be 25.0%, which is the rate applied in H1 2012 (H1 2011: 26.5%). Tax on exceptional items has been recognised as appropriate. The resulting effective tax rate on reported profit is 23.7% (H1 2011: 27.0%). Net cash Net cash at 30 September 2012 was £237m, compared to £338m at 31 March 2012 and £174m at 30 September 2011. The major cash outflows in the first half included capital expenditure of £89m (2011: £63m), of which three-quarters was retail; a seasonal working capital outflow of £108m (2011: £114m); tax of £47m (2011: £49m); and dividends of £79m (2011: £68m). Inventory at 30 September 2012 was £353m (2011: £340m), up 4%, less than half the rate of growth in retail sales. The proportion of inventory held in replenishment and current season styles increased significantly compared to last year. Outlook The following is consistent with the guidance given in October 2012. Retail: For the second half of FY 2012/13, average retail selling space is on plan to increase by about 14%. Wholesale: For the second half of FY 2012/13, Burberry expects broadly unchanged underlying wholesale revenue year-on-year (H2 2011/12: £230m), reflecting the rationalisation of certain opening price point products in core accessories and outerwear. With a more cautious approach from customers globally, the United States, Asia Travel Retail and emerging markets are expected to continue to grow, offset by further contraction of small specialty wholesale accounts, especially in Southern Europe. Licensing: With timing benefits in the second half, Burberry continues to expect licensing revenue for FY 2012/13 at constant and reported exchange rates to be broadly unchanged year-on-year. Appendix 1. Financial implications of directly operating fragrance and beauty As previously announced, Burberry has agreed to end its existing licence relationship with Interparfums SA with effect from 31 December 2012. At that date, it will pay Euro181m in cash (exclusive of any inventories and other tangible assets) to Interparfums. To facilitate the transition to direct operation, the licence relationship with Interparfums has been extended until 31 March 2013. Burberry will commence direct operations from 1 April 2013. Based on current expectations, the key financial assumptions, which are forward-looking statements, are detailed below. Adjusted retail/wholesale FY 2012/13: No impact on retail/wholesale revenue and operating profit. FY 2013/14: This is expected to be a transitional year, reflecting the short-term impact of the move from licence to direct operation and Burberry's strategy to clean up and elevate the distribution of fragrance and beauty, ensuring closer alignment with the core business and brand positioning. Revenue in FY 2013/14 is expected to be about £140m, with around £25m of incremental retail/wholesale operating profit, weighted towards the second half. Licensing FY 2012/13: No change to guidance, with total licensing revenue broadly unchanged year-on-year at constant and reported exchange rates. FY 2013/14: Reduction of licensing revenue of about £25m, based on internal three year plan. Adjusted PBT As a result of the above factors and taking into account the reduced interest income arising from the Euro181m payment, the net impact on adjusted PBT is expected to be as below: FY 2012/13: Minimal. FY 2013/14: Broadly neutral to adjusted PBT in the year of transition. Exceptional items FY 2012/13: In addition to the exceptional items incurred in the first half, Burberry expects a second half exceptional charge of between £5-10m, relating to set-up costs incurred prior to direct operation. FY 2013/14: Of the Euro181m payment, £71m has been capitalised as an intangible asset and will be amortised on a straight line basis over the period 1 April 2013 to 31 December 2017, the remaining period of the original licence. The annual amortisation charge is expected to be £15m. 2. Additional disclosure Retail/wholesale revenue by destination Six months to 30 September % growth £ million 2012 2011 reported FX underlying Asia Pacific 298.7 265.3 13 11 Europe 272.3 270.8 1 8 Americas 202.8 189.9 7 5 Rest of World 56.1 49.3 14 14 829.9 775.3 7 8 Retail/wholesale revenue by product division Six months to 30 September % growth £ million 2012 2011 reported FX underlying Accessories 324.5 303.6 7 8 Womens 265.5 254.2 4 6 Mens 206.7 185.9 11 12 Childrens/other 33.2 31.6 5 5 829.9 775.3 7 8 Store portfolio Directly-operated stores Stores Concessions Outlets Total Franchise stores At 31 March 2012 192 208 44 444 57 Additions 13 16 7 36 5 Closures (7) (9) (2) (18) - At 30 September 2012 198 215 49 462 62 Store portfolio by region Directly-operated stores At 30 September 2012 Stores Concessions Outlets Total Franchise stores Asia Pacific 56 155 12 223 17 Europe 41 57 19 117 26 Americas 74 1 17 92 3 Rest of World 27 2 1 30 16 Total 198 215 49 462 62 Retail net selling square footage 000s square feet At 31 March 2008 740 At 31 March 2009 845 At 31 March 2010 890 At 31 March 2011 1,010 At 30 September 2011 1,085 At 31 March 2012 1,145 At 30 September 2012 1,240 3. Related parties Related party disclosures are given in note 15 of the Condensed Consolidated Interim Financial Statements. 4. Principal risks The Group carried out a formal process throughout the period to identify, evaluate and manage significant risks faced by the Group. In the view of the directors, the principal risks and uncertainties affecting the Group for the remaining six months of the financial year comprise those set out on pages 56 to 59 of the Annual Report for the year ended 31 March 2012 (a copy of which is available at the Group's website at www.burberryplc.com ) and which are summarised below. These principal risks and uncertainties have remained unchanged subject to the following: · The macro-economic climate has worsened with expectations for global economic growth reducing, adversely impacting on consumer confidence and sales growth. · The Group announced plans to operate directly its fragrance and beauty business commencing 1 April 2013, exiting its existing licence relationship with Interparfums SA. Under the new structure, the Group will bear full operating responsibility for this business, requiring the Group to perform functions currently the responsibility of Interparfums. Failure to adequately complete this transition would adversely affect the Group's financial performance. In addition, this incremental activity could divert management resources with an adverse impact on the Group's existing business. Summary of principal risks set out in the Annual Report Economic downturn The Group's performance remains strong; however, reduced consumer wealth driven by adverse economic conditions could lead to a reduction in demand, disrupt its supply chain or lead to an increase in bad debts, all of which would impact sales and profitability. Loss of key management or the inability to attract and retain key employees The loss of key individuals or the inability to recruit and retain individuals with the relevant talent and experience would disrupt the operation of the business and adversely impact the Group's ability to deliver its strategies. Dependence on IT systems and operational infrastructure The Group's operations depend on IT systems and operational infrastructure in order to trade efficiently. Increasingly technology is also being used to stream major events and to communicate through social media. A failure in these systems or a denial of service could have a significant impact on the Group's operations and reputation, and potentially result in the loss of sensitive information. Negative social media campaigns could impact on the Group's reputation. Over-reliance on key vendors The Group relies on a small number of vendors in key product categories, and for specialist digital and IT services. Failure of one of these businesses to deliver products or services would have a significant impact on business operations. Major incidents Major incidents such as natural catastrophes, global pandemics or terrorist attacks affecting one or more of the Group's key locations could significantly impact its operations. The impact may vary depending on the location of the incident and its nature. The impact of the loss of a distribution hub would clearly differ from a global pandemic, but both would impact revenue and profits. Non-compliance with ethical and environmental standards A failure by the Group or associated third parties to act in accordance with ethical and environmental standards could result in penalties, adverse press coverage and reputational damage with a resulting drop in revenue and profit. Non-compliance with legislation and regulation The Group's operations are subject to a broad spectrum of regulatory requirements in the various jurisdictions in which the Group operates. The pace of change and the consistency of application of legislation can vary significantly across these jurisdictions, particularly in an environment where public sector debt is often high and tax revenues are falling. Failure to comply with these requirements could leave the Group open to civil and/or criminal legal challenge, significant penalties and reputational damage. Significant growth and pace of change Significant growth and pace of change within the business puts pressure on both internal and external resources. Failure to effectively manage the pace of change will inevitably adversely impact the Group's operations and return on investment. Licences A substantial proportion of Group profits is reliant upon its licensed business in Japan and other key licensed product categories. The Group expects licensees to maintain operational and financial control over their businesses. Should licensees fail to manage their operations effectively or be affected by a major incident, the royalty income may decline directly impacting the profits of the Group. Stability of emerging markets The Group operates in a number of emerging markets which are typically more volatile than developed markets, and are subject to changing economic, regulatory, social and political developments that are beyond the Group's control. Infrastructure and services also tend to be less developed. Unauthorised use of the Group's trademarks and other proprietary rights Trademarks and other intellectual property (IP) rights are fundamentally important to the Group's reputation, success and competitive position. Unauthorised use of these, as well as the distribution of counterfeit products, damages the Burberry brand image and profits. Condensed group Income Statement - UNAUDITED Audited Six months to Year to 30 September Six months to 30 31 March 2012 September 2011 2012 Note £m £m £m Revenue 3 882.5 829.6 1,857.2 Cost of sales (255.5) (257.7) (558.3) Gross profit 627.0 571.9 1,298.9 Net operating expenses (526.6) (409.8) (922.0) Operating profit 100.4 162.1 376.9 Financing Interest income 1.6 1.3 2.9 Interest expense (1.8) (1.8) (3.6) Other financing (10.2) income/(charges) 11.7 (2.9) Net finance income/(charge) 11.5 (3.4) (10.9) Profit before taxation 111.9 158.7 366.0 Taxation 5 (26.5) (42.8) (100.6) Profit for the period from 265.4 continuing operations 85.4 115.9 Profit/(loss) for the period (0.3) from discontinued operations 17 0.1 0.6 Profit for the period 85.5 116.5 265.1 Attributable to: Equity holders of the Company 85.0 117.2 263.3 Non-controlling interest 0.5 (0.7) 1.8 Profit for the period 85.5 116.5 265.1 Earnings per share - basic 6 19.5p 26.9p 60.4p - diluted 6 19.1p 26.4p 59.3p Earnings per share from continuing operations - basic 6 19.5p 26.7p 60.4p - diluted 6 19.1p 26.2p 59.3p £m £m £m Reconciliation of adjusted profit before taxation: Profit before taxation 111.9 158.7 366.0 Exceptional items: - termination of licence relationship 4 73.8 - - - restructuring credit relating to continuing operations 4 (0.6) - - - put option liability finance (credit)/charge 4 (11.7) 2.9 10.2 Adjusted profit before taxation - non-GAAP measure 173.4 161.6 376.2 Adjusted earnings per share - non-GAAP measure - basic 6 29.7p 27.4p 62.8p - diluted 6 29.0p 26.9p 61.6p Dividends per share - Proposed interim (not recognised as a liability at 30 7 7.00p 7.00p September) 8.00p - Final (not recognised as a liability at 31 March) 7 - - 18.00p Condensed group Statement OF COMPREHENSIVE INCOME - UNAUDITED Audited Six months to Six months to Year to 30 September 30 September 31 March 2012 2011 2012 £m £m £m Profit for the period 85.5 116.5 265.1 Other comprehensive income: - cash flow hedges (2.8) - 3.3 - foreign currency translation (3.8) differences (6.9) 6.4 Tax on other comprehensive income: - cash flow hedges 0.7 - (0.8) - foreign currency translation (0.2) differences 0.4 (0.6) Other comprehensive (expense)/income (1.5) for the period, net of tax (8.6) 5.8 Total comprehensive income for the 263.6 period 76.9 122.3 Total comprehensive income attributable to: Equity holders of the Company 76.7 122.1 261.2 Non-controlling interest 0.2 0.2 2.4 76.9 122.3 263.6 Condensed group balance sheet - UNAUDITED Audited As at As at As at 30 September 30 September 31 March 2012 2011 2012 Note £m £m £m ASSETS Non-current assets Intangible assets 8 204.1 133.4 133.1 Property, plant and equipment 9 371.4 299.5 328.8 Investment properties 2.6 2.9 2.8 Deferred tax assets 99.3 77.6 84.1 Trade and other receivables 10 23.4 17.3 22.3 Derivative financial assets 6.2 7.9 14.7 707.0 538.6 585.8 Current assets Inventories 352.6 340.3 311.1 Trade and other receivables 10 191.3 177.0 145.2 Derivative financial assets 1.6 2.3 3.2 Income tax receivables 8.1 4.8 10.1 Cash and cash equivalents 380.3 328.5 546.9 933.9 852.9 1,016.5 Assets classified as held for sale 17 7.8 13.2 8.3 941.7 866.1 1,024.8 Total assets 1,648.7 1,404.7 1,610.6 LIABILITIES Non-current liabilities Trade and other payables 11 (96.2) (89.5) (104.9) Deferred tax liabilities (1.1) (1.8) (1.4) Derivative financial liabilities (2.7) - (0.2) Retirement benefit obligations (0.5) (0.6) (0.8) Provisions for other liabilities and charges 12 (17.9) (10.1) (15.1) (118.4) (102.0) (122.4) Current liabilities Bank overdrafts and borrowings 13 (143.1) (154.3) (208.6) Derivative financial liabilities (3.2) (4.1) (1.9) Trade and other payables 11 (458.2) (309.8) (324.4) Provisions for other liabilities and charges 12 (6.2) (10.1) (8.2) Income tax liabilities (55.4) (51.3) (53.7) (666.1) (529.6) (596.8) Total liabilities (784.5) (631.6) (719.2) Net assets 864.2 773.1 891.4 EQUITY Capital and reserves attributable to the Company's equity holders Ordinary share capital 14 0.2 0.2 0.2 Share premium account 203.4 202.3 202.6 Capital reserve 33.5 28.9 33.9 Hedging reserve 2.8 2.4 4.9 Foreign currency translation reserve 112.4 128.1 118.6 Retained earnings 487.2 389.0 507.1 839.5 750.9 867.3 Non-controlling interests in equity 24.7 22.2 24.1 Total equity 864.2 773.1 891.4 Condensed group statement of changes in equity - UNAUDITED Attributable to owners of the company Ordinary Share Share premium Other Retained Non-controlling Total capital account reserves earnings Total interest equity Note £m £m £m £m £m £m £m Balance as at 1 0.2 192.5 154.5 366.4 713.6 20.1 733.7 April 2011 Profit/(loss) for the period - - - 117.2 117.2 (0.7) 116.5 Other comprehensive income: Cash flow hedges - losses deferred in equity - - (2.0) - (2.0) - (2.0) Cash flow hedges - losses transferred to income - - 2.0 - 2.0 - 2.0 Foreign currency translation differences - - 5.5 - 5.5 0.9 6.4 Tax on other comprehensive income - - (0.6) - (0.6) - (0.6) Total comprehensive income for the period - - 4.9 117.2 122.1 0.2 122.3 Transactions with owners: Employee share incentive scheme - value of share - awards granted - - 16.0 16.0 - 16.0 - value of share awards transferred to liabilities - - - (0.8) (0.8) - (0.8) - tax on share - awards granted - - 7.2 7.2 - 7.2 - exercise of - share awards - 9.8 (9.4) 0.4 - 0.4 Sale of own - shares by ESOP trusts - - 0.1 0.1 - 0.1 Purchase of own - shares by ESOP trusts - - (42.3) (42.3) - (42.3) Capital - - - contribution by non-controlling interest - - 4.9 4.9 Dividend paid in - the period - - (65.4) (65.4) (3.0) (68.4) Balance as at 30 September 2011 0.2 202.3 159.4 389.0 750.9 22.2 773.1 Balance as at 1 0.2 202.6 157.4 507.1 867.3 24.1 891.4 April 2012 Profit for the - period - - 85.0 85.0 0.5 85.5 Other comprehensive income: Cash flow hedges - losses deferred in equity - - (3.6) - (3.6) - (3.6) Cash flow hedges - losses transferred to income - - 0.8 - 0.8 - 0.8 Foreign currency translation differences - - (6.6) - (6.6) (0.3) (6.9) Tax on other comprehensive income - - 1.1 - 1.1 - 1.1 Total comprehensive (expense)/income for the period - - (8.3) 85.0 76.7 0.2 76.9 Transfer between reserves - - (0.4) 0.4 - - - Transactions with owners: Employee share incentive scheme - value of share awards granted - - - 10.2 10.2 - 10.2 - value of share awards transferred to liabilities - - - (0.9) (0.9) - (0.9) - tax on share awards granted - - - (7.8) (7.8) - (7.8) - exercise of share awards 14 - 0.8 - - 0.8 - 0.8 Sale of own - shares by ESOP trusts - - - - - - Purchase of own - shares by ESOP trusts - - (28.2) (28.2) - (28.2) Capital - - - 0.4 contribution by non-controlling interest - - 0.4 Dividend paid in - the period - - (78.6) (78.6) - (78.6) Balance as at 30 203.4 September 2012 0.2 148.7 487.2 839.5 24.7 864.2 CONDENSED GROUP Statement of Cash flows -UNAUDITED Audited Six months to Six months to Year to 30 September 30 September 31 March 2012 2011 2012 Note £m £m £m Cash flows from operating activities Operating profit 100.4 162.1 376.9 Operating profit/(loss) from discontinued operations 0.1 0.6 (0.3) Termination of licence - - relationship 4 73.8 Depreciation 40.9 33.8 74.3 Amortisation 7.7 5.7 13.3 Net impairment charges 9 2.4 - 6.8 Write-down of assets held for sale - - 4.5 Loss on disposal of property, plant and equipment and intangible assets 0.1 0.2 0.3 Fair value losses/(gains) on derivative instruments 11.0 1.3 (5.7) Charges in respect of employee share incentive schemes 10.2 16.0 31.8 Increase in inventories (42.3) (90.3) (61.8) Increase in receivables (48.1) (43.9) (17.6) (Decrease)/increase in payables (17.9) 19.8 60.0 Cash generated from operations 138.3 105.3 482.5 Interest received 1.6 1.3 2.7 Interest paid (1.0) (1.8) (3.3) Taxation paid (46.8) (48.7) (108.2) Net cash generated from operating activities 92.1 56.1 373.7 Cash flows from investing activities Purchase of property, plant and equipment (79.3) (50.7) (126.1) Purchase of intangible assets (9.5) (12.3) (27.0) Proceeds from sale of asset held - - for sale 17 0.1 Acquisition of subsidiary, net of cash acquired (1.0) (11.0) (23.5) Net cash outflow from investing activities (89.7) (74.0) (176.6) Cash flows from financing activities Dividends paid in the year (78.6) (65.4) (95.9) Dividends paid to non-controlling interest - (3.0) (3.3) Capital contributions by non-controlling interest 0.4 4.9 4.9 Issue of ordinary share capital 0.8 0.4 0.6 Sale of own shares by ESOP trusts - 0.1 0.1 Purchase of own shares by ESOP trusts (28.2) (42.3) (60.7) Net cash outflow from financing activities (105.6) (105.3) (154.3) Net (decrease)/increase in cash and cash equivalents (103.2) (123.2) 42.8 Effect of exchange rate changes 2.1 (0.4) (2.4) Cash and cash equivalents at beginning of period 339.6 299.2 299.2 Cash and cash equivalents at end of period 238.5 175.6 339.6 Audited As at As at As at 31 March 30 September 30 September 2012 2011 2012 ANALYSIS OF NET CASH Note £m £m £m Cash and cash equivalents as per the Balance Sheet 380.3 328.5 546.9 Bank overdrafts 13 (141.8) (152.9) (207.3) Cash and cash equivalents as per the Statement of Cash Flows 238.5 175.6 339.6 Bank and other borrowings 13 (1.3) (1.4) (1.3) Net cash 237.2 174.2 338.3 Notes to the CONDENSED consolidated INTERIM financial statements Corporate information Burberry Group plc and its subsidiaries (the 'Group') is a global luxury goods manufacturer, wholesaler and retailer. The Group also licenses third parties to manufacture and distribute products using the 'Burberry' trademarks. All of the companies which comprise the Group are controlled by Burberry Group plc (the 'Company') directly or indirectly. Accounting policies and basis of preparation Basis of preparation The financial information contained in this report is unaudited. The Condensed Group Income Statement, Condensed Group Statement of Comprehensive Income, Condensed Group Statement of Changes in Equity and Condensed Group Statement of Cash Flows for the interim period ended 30 September 2012, and the Condensed Group Balance Sheet as at 30 September 2012 and related notes have been reviewed by the auditors and their report to the Company is set out on page 32. These condensed consolidated interim financial statements do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2012 were approved by the Board of Directors on 22 May 2012 and have been filed with the Registrar of Companies. The report of the auditors on the statutory accounts for the year ended 31 March 2012 was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under Section 498 of the Companies Act 2006. These condensed consolidated interim financial statements for the six months ended 30 September 2012 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. This report should be read in conjunction with the Group's financial statements for the year ended 31 March 2012, which have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. The Directors have made enquiries and reviewed the Group's updated forecasts and projections. These include the assumptions around the Group's products and markets, expenditure commitments, expected cashflows and borrowing facilities. Taking into account reasonable possible changes in trading performance, and after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors consider it appropriate to continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements for the six months ended 30 September 2012. Accounting policies Accounting policies and presentation are consistent with those applied in the Group's financial statements for the year ended 31 March 2012, as set out on pages 103 to 109 of those financial statements, with the exception of taxation. Taxes on income in the interim periods are accrued using the expected tax rate that would be applicable to total annual earnings. Key sources of estimation and judgement The preparation of the condensed consolidated interim financial statements requires that management make certain judgements, estimates and assumptions that affect the reported revenues, expenses, assets and liabilities and the disclosure of certain contingent liabilities. The key sources of estimation and uncertainty and the assumptions applied in the preparation of these condensed consolidated interim financial statements are consistent with those applied in the Group's financial statements for the year ended 31 March 2012, as set out on page 102 of those financial statements, with the exception of taxation as described above, and the valuation of the intangible asset relating to the termination of the fragrance and beauty licence relationship with Interparfums SA, which is a new area of estimation and judgement for the current period. The Group has an obligation to make a payment to Interparfums SA of €181.2m on 31 December 2012 (£142.2m at the spot rate at the time of exercise). This has resulted in the recognition of an intangible asset of £70.9m and an expense of £71.3m in the current period. In order to identify the carrying value of the intangible asset acquired, management is required to estimate the incremental income that will be earned by the Group from 1 April 2013 to 31 December 2017, which represents the remaining period of the original licence, prior to its termination. A value-in-use calculation has been performed, based on key forecast assumptions including: sales of products until 2017, by product category; operating margins achieved on this activity; tax charged on the incremental profits; the working capital required to support this activity; and anticipated tax relief on the payment made to acquire the intangible asset. Such forecast assumptions are inherently uncertain and the actual experience between 1 April 2013 and 31 December 2017 may differ materially from these assumptions. Refer to notes 4 and 8 for further details of the accounting for this transaction. Adjusted profit before taxation and exceptional items Exceptional items include those items that are largely one-off and material in nature. Fair value movements on options held over equity interests, which are held for the purpose of future business developments, rather than speculative purposes, are also considered to be exceptional items and are separately presented in the Income Statement. These items are added back/deducted from profit/loss before taxation to arrive at adjusted profit/loss before taxation. These items and their related tax impacts are added back/deducted from profit attributable to equity holders of the Company to arrive at adjusted earnings per share. These measures are disclosed in order to provide additional consideration of the underlying performance of the Group's ongoing business. Segmental analysis The Chief Operating Decision Maker has been identified as the Board of Directors. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on the reports used by the Board. The Board considers Burberry's business through its two channels to market, being Retail/Wholesale and Licensing. Retail/Wholesale revenues are generated by the sale of luxury goods through Burberry mainline stores, concessions, outlets and digital commerce as well as Burberry franchisees, prestige department stores globally and multi-brand specialty accounts. The flow of global product between Retail and Wholesale channels and across the regions is monitored and optimised at a corporate level and implemented via the Group's inventory hubs situated in Asia, Europe and the US. Licensing revenues are generated through the receipt of royalties from Burberry's partners in Japan and global licensees of fragrances, eyewear, watches and European childrenswear. The Board assesses channel performance based on a measure of adjusted operating profit. This measurement basis excludes the effects of exceptional items. The measure of earnings for each operating segment that is reviewed by the Board includes an allocation of corporate and central costs. Interest income and charges are not included in the result for each operating segment that is reviewed by the Board. Retail / Wholesale Licensing Total Six months Six months Six months Six months Six Six to to to to months to months to 30 30 30 30 30 30 September September September September September September 2012 2011 2012 2011 2012 2011 £m £m £m £m £m £m Retail 576.8 527.4 - - 576.8 527.4 Wholesale 253.1 247.9 - - 253.1 247.9 Licensing - - 53.3 63.6 53.3 63.6 Total segment revenue 829.9 775.3 53.3 63.6 883.2 838.9 Inter-segment revenue^(1) - - (0.7) (9.3) (0.7) (9.3) Revenue from external customers 829.9 775.3 52.6 54.3 882.5 829.6 Adjusted operating profit 128.9 115.7 44.7 46.4 173.6 162.1 Interest income 1.6 1.3 Interest expense (1.8) (1.8) Exceptional items^(2) (61.5) (2.9) Profit before taxation 111.9 158.7 Year to 31 March 2012 Retail / Wholesale Licensing Total £m £m £m Retail 1,270.3 - 1,270.3 Wholesale 478.3 - 478.3 Licensing - 118.9 118.9 Total segment revenue 1,748.6 118.9 1,867.5 Inter-segment revenue^(1) - (10.3) (10.3) Revenue from external customers 1,748.6 108.6 1,857.2 Adjusted operating profit 286.9 90.0 376.9 Interest income 2.9 Interest expense (3.6) Exceptional items^(2) (10.2) Profit before taxation 366.0 ^(1) Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would be available to unrelated third parties. ^(2) Refer to Condensed Group Income Statement for details of exceptional items. Due to the seasonal nature of the business, group revenue is usually expected to be higher in the second half of the year than in the first half. Six months to Six months to Year to 30 September 30 September 31 March 2012 2011 2012 Revenue by destination £m £m £m Asia Pacific 298.7 265.3 652.5 Europe 272.3 270.8 552.6 Americas 202.8 189.9 434.5 Rest of World 56.1 49.3 109.0 Retail/Wholesale 829.9 775.3 1,748.6 Licensing 52.6 54.3 108.6 Total 882.5 829.6 1,857.2 Exceptional items Exceptional operating items Termination of licence relationship During the six months ended 30 September 2012, a total of £73.8m has been recognised as an exceptional item relating to the termination of the fragrance and beauty licence relationship with Interparfums SA. On 16 July 2012, the Group exercised its right to terminate its fragrance and beauty licence relationship with Interparfums SA in exchange for a payment of €181.2m (£142.2m at the spot rate on the date of exercise). The payment is due to be made on 31 December 2012 and the termination will be effective from 1 April 2013. The terms of the termination were set out in the licence agreement, as modified by a subsequent transition agreement signed on 10 October 2012. If the licence relationship had not been terminated it would have expired on 31 December 2017. £70.9m of this payment has been capitalised as an intangible asset within the category 'trademarks, licences and other intangible assets' (refer note 8). The remaining £71.3m, which does not qualify to be capitalised as an intangible asset, has been recognised as an expense in the current period. Both items have been recognised at the spot rate of €1.27: £1 on 16 July 2012. The payment to Interparfums SA has been hedged through taking out forward contracts, which mature on 31 December 2012. These contracts have a combined effective average of €1.26: £1. This has resulted in a difference of £2.0m between the sterling equivalent of the amount to settle the creditor with Interparfums SA and the amount to settle the forward contract. The £71.3m expense, together with the net £2.0m foreign exchange losses and ancillary transaction costs of £0.5m, have been reported as exceptional in the current period, due to the size and nature of the transaction. A tax credit of £17.0m has been recognised in respect of this exceptional charge in the current period. Restructuring During the six months ended 30 September 2012, an exceptional credit was recognised for the release of £0.6m of the restructuring provision held in respect of the cost efficiency programme announced in the year to 31 March 2009. A tax charge of £0.1m has been recognised in relation to this exceptional credit in the current period. No exceptional operating items were recognised in the six months ended 30 September 2011 or the twelve months ended 31 March 2012. Exceptional financing charges The exceptional financing credit of £11.7m for the six months ended 30 September 2012 relates to fair value movements including the unwinding of the discount on the put option liability over the non-controlling interest in Burberry (Shanghai) Trading Co., Ltd (six months ended 30 September 2011: charge of £2.9m; year ended 31 March 2012: charge of £10.2m). No tax has been recognised on this item, as it is not considered to be deductible for tax purposes. Taxation The tax charge for the six months ended 30 September 2012 has been calculated based on an estimated effective underlying rate of tax on adjusted profit before taxation for the full year of 25.0% (30 September 2011: 26.5%; 31 March 2012: 26.7%). Tax on exceptional items has been recognised at the prevailing tax rates as appropriate. The resulting effective tax rate on reported profit before taxation is 23.7% (30 September 2011: 27.0%; 31 March 2012: 27.5%). Total taxation recognised in the Condensed Group Income Statement comprises: Six months to Six months to Year to 30 September 30 September 31 March 2012 2011 2012 £m £m £m Tax on adjusted profit before taxation 43.4 42.8 100.6 Tax on exceptional items (note 4) (16.9) - - Total taxation charge 26.5 42.8 100.6 Earnings per share The calculation of basic earnings per share is based on profit attributable to equity holders of the Company for the period divided by the weighted average number of ordinary shares in issue during the period. Basic and diluted earnings per share based on adjusted profit before taxation are also disclosed to indicate the underlying profitability of the Group. Six months to Six months to Year to 30 September 30 September 31 March 2012 2011 2012 £m £m £m Attributable profit for the period before exceptional items^(1) and discontinued operations 129.5 119.5 273.8 Effect of exceptional items^(1) (after taxation) (44.6) (2.9) (10.2) Attributable profit for the period from continuing operations 84.9 116.6 263.6 Attributable profit/(loss) from 0.6 discontinued operations 0.1 (0.3) Attributable profit for the period 85.0 117.2 263.3 ^(1) Refer to Condensed Group Income Statement for the details of exceptional items. The weighted average number of ordinary shares represents the weighted average number of Burberry Group plc ordinary shares in issue throughout the period, excluding ordinary shares held in the Group's employee share option plan trusts ('ESOP trusts'). Diluted earnings per share is based on the weighted average number of ordinary shares in issue during the period. In addition, account is taken of any options and awards made under the employee share incentive schemes, which will have a dilutive effect when exercised. Six months to Six months to Year to 30 September 30 September 31 March 2012 2011 2012 Millions Millions Millions Weighted average number of ordinary 435.9 shares in issue during the period 436.4 435.9 Dilutive effect of the share incentive 8.4 schemes 9.5 8.6 Diluted weighted average number of 444.3 ordinary shares in issue during the period 445.9 444.5 Dividends The interim dividend of 8.00p (2011: 7.00p) per share has been approved by the Board of Directors after 30 September 2012. Accordingly, this dividend has not been recognised as a liability at the period end. The interim dividend will be paid on 25 January 2013 to Shareholders on the Register at the close of business on 21 December 2012. A dividend of 18.00p (2011: 15.00p) per share was paid during the period ended 30 September 2012 in relation to the year ended 31 March 2012. Intangible assets Goodwill at 30 September 2012 is £80.8m (2011: £82.8m). There were additions to other intangible assets of £78.0m in the period (2011: £12.1m), of which £70.9m relates to the termination of the licence relationship with Interparfums SA. On 16 July 2012, the Group exercised its right to terminate its fragrance and beauty licence relationship with Interparfums SA in exchange for a payment of €181.2m (£142.2m at the spot rate at the time of exercise). The payment is due to be made on 31 December 2012. The termination will be effective from 1 April 2013. The terms of the termination were set out in the licence agreement, as modified by a subsequent transition agreement signed on 10 October 2012. If the licence relationship had not been terminated it would have expired on 31 December 2017. The obligation to pay €181.2m gave rise to an intangible asset of £70.9m and an expense of £71.3m at the spot rate of €1.27: £1 on 16 July 2012. The intangible asset relates to the present value of the anticipated incremental income which will be earned by the Group, as a result of selling fragrance and beauty products through retail and wholesale channels rather than under licence, from 1 April 2013 to 31 December 2017, being the remaining period of the original licence, prior to its termination. In order to identify the carrying value of the intangible asset acquired, a value-in-use calculation has been performed, based on key forecast assumptions including: sales of products until 2017, by product category; operating margins achieved on this activity; tax charged on the incremental profits; the working capital required to support this activity; and anticipated tax relief on the payment made to acquire the intangible asset. Such forecast assumptions are inherently uncertain and the actual experience between 1 April 2013 and 31 December 2017 may differ materially from these assumptions. The asset will be presented within the intangible asset category 'trademarks, licence and other intangible assets'. It will be amortised on a straight line basis over the period 1 April 2013 to 31 December 2017. The remaining £71.3m, which does not qualify to be capitalised as an intangible asset, has been recognised as an expense in the current period (refer to note 4). Impairment testing Assets that have an indefinite useful economic life are not subject to amortisation and are tested annually for impairment. Goodwill is the only intangible asset category with an indefinite useful economic life included within total intangible assets at 30 September 2012. Management has performed a review for indicators of impairment as at 30 September 2012. There is no indication that the goodwill may be impaired. The annual impairment test will be performed at 31 March 2013. Property, plant and equipment In the period there were additions to property, plant and equipment of £91.9m (2011: £48.7m) and disposals with a net book value of £0.1m (2011: £0.2m). Capital commitments contracted but not provided for by the Group amounted to £37.8m (2011: £18.9m). Impairment testing Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Where indicators of impairment are identified, an impairment review is performed to compare the assets' value-in-use to their carrying values. For the six months ended 30 September 2012, a net impairment charge of £2.4m (2011: £nil) was identified. Trade and other receivables As at As at As at 31 March 30 September 2012 30 September 2011 2012 £m £m £m Non-current Deposits and prepayments 23.4 17.3 22.3 Total non-current trade and other receivables 23.4 17.3 22.3 Current Trade receivables 144.7 135.1 103.0 Provision for doubtful debts (8.2) (13.0) (7.6) Net trade receivables 136.5 122.1 95.4 Other receivables 27.3 24.1 26.4 Prepayments and accrued income 27.5 30.8 23.4 Total current trade and other receivables 191.3 177.0 145.2 Total trade and other receivables 214.7 194.3 167.5 Trade and other payables As at As at 31 March As at 30 September 30 September 2012 2011 2012 £m £m £m Non-current Deferred consideration - 1.1 1.1 Put option liability over non-controlling interest 45.5 51.5 57.8 Other creditors, accruals and deferred income 50.7 36.9 46.0 Total non-current trade and other payables 96.2 89.5 104.9 Current Trade creditors 132.8 110.3 118.8 Other taxes and social security costs 23.9 20.3 23.3 Deferred consideration 1.0 13.5 1.1 Other creditors 150.3 23.8 5.8 Accruals and deferred income 150.2 141.9 175.4 Total current trade and other payables 458.2 309.8 324.4 Total trade and other payables 554.4 399.3 429.3 Put option liability over non-controlling interest Sparkle Roll Holdings Limited, a non-Group company, holds a 15% economic interest in the Group's retail business in China. Put and call options exist over this interest stake which are exercisable after 1 September 2015 in the case of the call option, and after 1 September 2020 in the case of the put option. The net present value of the put option has been recognised as a non-current financial liability under IAS 39. The fair value of the put option has been derived using a present value calculation, incorporating observable and non-observable inputs. The key inputs applied in arriving at the value of the put option are the future performance of the Group and that of the Group's business in China; the Burberry Group plc market capitalisation at the date of exercise; and the risk adjusted discount rate for China, taking into account the risk free rate in China. The value of the put option liability is £45.5m at the period end (30 September 2011: £51.5m; 31 March 2012: £57.8m). The key inputs applied in calculating the fair value of the put option at 30 September 2012 have been derived using an approach consistent with that applied at 31 March 2012. The reduction in liability in the period largely reflects lower long term growth assumptions in China for the luxury goods market. Other creditors The Group has an obligation to make a payment to Interparfums SA of €181.2m on 31 December 2012, in relation to the termination of the fragrance and beauty licence relationship. The liability arising from the termination has been included in Other Creditors. The carrying value of this liability at the spot rate of €1.25: £1 at 30 September 2012 is £144.4m. Refer to notes 4 and 8 for further details of this transaction. 12. Provisions for other liabilities and charges Property Other obligations Restructuring costs costs Total £m £m £m £m As at 1 April 2012 18.5 3.5 1.3 23.3 Effect of foreign exchange rate - changes (0.2) (0.1) (0.3) Created during the period 3.1 - 0.8 3.9 Utilised during the period (1.0) (0.6) (0.3) (1.9) Released during the period (0.2) (0.7) - (0.9) As at 30 September 2012 20.2 2.1 1.8 24.1 As at 30 September 2011 11.9 6.5 1.8 20.2 As at 31 March As at As at 30 September 2012 30 September 2011 2012 £m £m £m Analysis of total provisions: Non-current 17.9 10.1 15.1 Current 6.2 10.1 8.2 Total 24.1 20.2 23.3 Bank overdrafts and borrowings As at 31 March As at As at 30 September 2012 30 September 2011 2012 £m £m £m Unsecured Bank overdrafts 141.8 152.9 207.3 Bank borrowings 0.8 0.8 0.8 Other borrowings 0.5 0.6 0.5 Total 143.1 154.3 208.6 Included within bank overdrafts is £138.1m (2011: £151.5m) representing balances on cash pooling arrangements in the Group. The remaining overdrafts of £3.7m (2011: £1.4m) are provided by a number of committed and uncommitted arrangements agreed with third parties. On 28 March 2011, a £300m multi-currency revolving credit facility was agreed with a syndicate of third party banks. At 30 September 2012, there were no outstanding drawings (2011: £nil). Interest is charged on this facility at LIBOR plus 0.90% on drawings less than £100m, at LIBOR plus 1.05% on drawings between £100m and £200m and at LIBOR plus 1.20% on drawings over £200m. The facility matures on 30 June 2016. Share capital and other reserves Allotted, called up and fully paid share Number of shares Share capital capital million £m As at 1 April 2012 438.8 0.2 Allotted on exercise of options during the period 3.1 - As at 30 September 2012 441.9 0.2 Other reserves The cost of own shares held by the Group has been offset against retained earnings, as the amounts paid reduce the profits available for distribution by the Company. As at 30 September 2012 the amount held against this reserve was £70.0m (2011: £23.8m). Related party disclosures The Group's significant related parties are disclosed in the Annual Report for the year ended 31 March 2012. There were no material changes to these related parties in the period. Other than total compensation in respect of key management, no material related party transactions have taken place during the first six months of the current financial year. 16. Foreign currency The results of overseas subsidiaries are translated into the Group's presentation currency of Sterling each month at the weighted average exchange rate for the period according to the phasing of the Group's trading results. The weighted average exchange rate is used, as it is considered to approximate the actual exchange rates on the dates of the transactions. The assets and liabilities of such undertakings are translated at period end exchange rates. Differences arising on the retranslation of the opening net investment in subsidiary companies, and on the translation of their results, are taken directly to the foreign currency translation reserve within equity. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. The principal exchange rates used were as follows: Average Six months to Six months to Year to 30 September 30 September 31 March 2012 2011 2012 Euro 1.25 1.14 1.16 US dollar 1.58 1.62 1.60 Hong Kong dollar 12.27 12.68 12.38 Korean won 1,810 1,757 1,775 Chinese Yuan Renminbi 10.02 10.46 10.15 Closing As at As at As at 30 September 30 September 31 March 2012 2011 2012 Euro 1.25 1.16 1.20 US dollar 1.62 1.56 1.60 Hong Kong dollar 12.53 12.18 12.41 Korean won 1,797 1,848 1,811 Chinese Yuan Renminbi 10.15 9.99 10.07 The average exchange rate achieved by the Group on its Yen royalty income, taking into account its use of Yen forward exchange contracts on a monthly basis approximately twelve months in advance of royalty receipts, was Yen 125.3: £1 in the six months ended 30 September 2012 (six months ended 30 September 2011: Yen 134.8: £1; year ended 31 March 2012: Yen 133.1: £1). Discontinued operations and assets classified as held for sale The story has been truncated, [TRUNCATED]
Burberry Group PLC BRBY Interim Results
Press spacebar to pause and continue. Press esc to stop.