REG - Burberry Group PLC - Annual Financial Report <Origin Href="QuoteRef">BRBY.L</Origin> - Part 1

BurberryAnnouncement

06/06/2017 10:00

RNS Number : 2724H
Burberry Group PLC
06 June 2017
6 June 2017
Annual Financial Report
Pursuant to Listing Rule 9.6.1, Burberry Group plc (the "Group") has submitted the following documents to the National Storage Mechanism and they will shortly be available for inspection at: www.hemscott.com/nsm.do:
1. Annual Report and Accounts for the year ended 31 March 2017;
2. Notice of Annual General Meeting; and
3. Form of Proxy.
The Annual Report and Notice of Annual General Meeting are also available on the Burberry Group plc website at www.burberryplc.com. The Annual Report will be delivered to the Registrar of Companies in due course. 
The Annual General Meeting ("AGM") will take place on Thursday, 13 July 2017 at the InterContinental Hotel, One Hamilton Place, Park Lane, London W1J 7QY. The total of the votes cast by shareholders for or against or withheld on each resolution to be put to the meeting will be published on www.burberryplc.com as soon as possible after the meeting.
In compliance with The Disclosure and Transparency Rules (DTR) 6.3.5, the information in the Appendix below is extracted from Burberry Group plc's Annual Report and Accounts for the financial year ended 31 March 2017 (the "2016/17 Annual Report and Accounts") and should be read in conjunction with Burberry Group plc's Preliminary Announcement issued on 18 May 2017, both of which can be viewed at www.burberryplc.com. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the 2016/17 Annual Report and Accounts in full and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2016/17 Annual Report and Accounts.
Enquiries
Investors and analysts
Charlotte Cowley
VP, Investor Relations
020 3367 3524
Media
Andrew Roberts
VP, Corporate Relations
020 3367 3764
Caroline Daniel
Brunswick
020 7404 5959
APPENDIX: ADDITIONAL INFORMATION REQUIRED BY DTR 6.3.5
AUDIT REPORTS
The Preliminary Announcement includes a condensed set of financial statements. Audited financial statements for the financial year ended 31 March 2017 are contained in the 2016/17 Annual Report and Accounts. The Independent Auditor's Report on the Group financial statements is set out in full on pages 119 to 124 of the 2016/17 Annual Report and Accounts and the Independent Auditor's Report on the parent company financial statements is set out in full on pages 179 to 181 of the 2016/17 Annual Report and Accounts. Both audit reports are unqualified and do not contain any statements under section 498(2) or section 498(3) of the Companies Act 2006.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The following information is extracted from page 118 of the 2016/17 Annual Report and Accounts.
The directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and the Company's position and performance, business model and strategy.
Each of the directors, whose names and functions are listed on pages 68 to 69 confirm that, to the best of their knowledge:
-the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;
- the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
- the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that it faces.
PRINCIPAL RISKS
The following information is extracted from pages 60 to 65 of the 2016/17 Annual Report and Accounts. 
The Board is responsible for the Group's risk management and internal controls system and reviewing its effectiveness. The system is designed to identify and manage, rather than eliminate, the risk of failure to achieve the Group's strategic objectives and to provide reasonable but not absolute assurance against material misstatement or loss. More information on the Group's internal control and risk management systems can be found in the Corporate Governance Report on pages 70 to 86.
The Board has overall responsibility for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives (its risk appetite), and for ensuring that risks are managed effectively. The Board has delegated to the Audit Committee the responsibility for reviewing the effectiveness of the Group's systems of internal control and risk management methodology. 
As part of this review, the Audit Committee considers the principal risks facing the Group and the nature and extent of these risks. The Group Risk function facilitates a risk assessment process in each key business area and global support function to review the significant risks facing Group operations and the controls and actions in place to mitigate these. The detailed assessments are then consolidated to provide input into the overall Group risk assessment. 
The Board and the executive management team use a combination of different and complementary skills to assess the risks facing the business. In determining its risk appetite the Board considers a variety of information when reviewing the Group operations and in approving key matters reserved for its decision. This information includes:
- updates provided by senior management on key strategic and operational matters;
-discussion and approval by the Board of the Group's three-year strategic plan, budget and viability statement (see page 61);
- information provided for the purposes of deciding whether to approve those significant matters which have been reserved for the Board;
-Group risk assessments facilitated by the Group Risk function and the reports of the internal and external auditors; and
- risk appetite guidelines relating to the Group's principal risks.
The risks set out in the table on the following pages represent the principal risks and uncertainties which may adversely impact the performance of the Group and the execution of its key strategies. The Group's key strategies are set out on pages 33 to 44.
Within the table is a summary of how each risk is defined, its context, potential impact, mitigating activities and the Group's assessment of the change in risk during 2016/17. This assessment is based on the external environment in which the Group operates, its business operations and the impact of the Group's internal controls on the severity of the risk in the period. The Group's risk exposure is continually reviewed by senior management and is therefore subject to change as a result of internal and external factors, future events or otherwise. It is not possible for the Group to implement controls to respond to all the risks it may face and the steps the Group has taken to address certain risks (including those listed) may not manage these risks effectively. 
The principal risks are not listed in order of significance and each of the risks should be considered independently. If more than one of the events contemplated by the risks set out occurs, it is possible that the combined overall impact of such events may be compounded. The Group Risk function examines these risks for correlation impacts. Other factors could also adversely affect Group performance and so the risks set out should not be considered to be a complete set of all potential risks and uncertainties the Group may face. 
The key changes in the principal risks during the year include the following:
-Following the outcome of the UK referendum to leave the EU and the invoking of Article 50, uncertainties remain about the impact of Brexit on the Group's operations and financial performance. The Group has considered the possible consequences that Brexit could have upon the business and has concluded that it does not raise any new principal risks. However, it does have the potential to impact a number of the Group's existing risks at an individual risk level including: outlook for the luxury sector remains uncertain, volatility of exchange rates, loss of key management personnel and regulatory requirements. The Group has established a Brexit Steering Committee to monitor developments arising from Brexit, headed by the Chief People and Corporate Affairs Officer, who will provide regular updates on this to the Board. 
-The previous risk relating to the failure to realign the organisational resource capability to deliver the productivity and efficiency agenda announced last May, has been reclassified as one relating more generally to the loss of key management personnel or the inability to attract and retain key employees. This shift reflects that the implementation of the Group's growth and productivity and efficiency programme is well under way. 
Risk Businessimpact Mitigation
A major breach in cyber systems or information security could adversely impact the Group's business operations and/ or result in a major data loss adversely impacting the Group'sreputation.
Change in level of risk No materialchange
The Group's customer and employee data, Burberry.com business, digital strategy and operations mean that it is critical that the Group's technology is robust, its systems are secure and data protected. Sensitive data faces the threat of misappropriationand
a breach of cyber-security on key business systems could also affect businessoperations.
Strategiclink
All keystrategies
Information systems and cyber-security continued to receive substantial Audit Committee focus during the year to ensure thattheGroup'sresponsetothisdevelopingriskisappropriate.
Investment in the ongoing cyber-security programme continued and a four-year security strategy was reviewed and approved bytheAuditCommittee.AnewInformationandITsecurity
team was put inplace.
Ongoing activities to detect and investigate threats and incidents including with the support of key technology partners andsuppliers.
Evaluation and testing of cyber-security using specialist third parties and of the crisis management and wider business continuityplans.
The outlook for the luxury sector remainsuncertain.
Change in level of risk No materialchange
Changesandeventsintheexternalmarket or environment could impact theGroup's
performance and the delivery of its strategies. These changes or events couldinclude:
(i) a sustained economic slowdown, which adversely impacts the Group's customers, suppliers and operations; (ii) a change in consumer behaviour or other events, which adversely impact consumer demand particularly in relation to key consumer groups who make a significant contribution to Group revenues; and (iii) increasing global economic uncertainty including matters such as Brexit which could have an impact on economic growthandadverselyimpacttheGrouporgive rise to additional costs relating to movements of inventory within the supplychain.
Strategiclink
Productive Space, E-CommerceLeadership
Withtheoutlookfordemandintheluxurysectorremaining uncertain and underlying cost pressures persisting for the sector, in May 2016 the Group outlined itsproductivity
andefficiencyagendaanditsplanstooptimisefutureorganic revenue growthopportunities.
TheglobalreachoftheGrouphelpstomitigatelocaleconomic and geopoliticalrisks.
The Group focuses on engaging consumers through theBrand and realising its opportunities among key consumer groups and geographicmarkets.
The Group's financial reporting and review processes are designed to highlight any change in ongoing sales performance to enable action planning to addressunderperformance.
Counterparty credit checks are in place for all key customers and suppliers and flexible payment terms are used to assist suppliers as required. Group Treasury monitors the credit ratings of financial institutions which hold Group deposits to enable the Group to take appropriate action should there be adowngrade
in their creditratings.
TheGroupwouldseektomitigateanyadversecostimpacts arisingasaresultofBrexit,throughoptimisationofoperations withinthesupplychain.
Inability ofthe
The growth and productivity andefficiency
The Senior Leadership Team is accountable for the conductof
organisationto
programme is being implemented tooptimise
this programme and the delivery of the outcomes inaccordance
successfully deliver
future organic revenue growthopportunities
withtheplanapprovedbytheBoard.
the growth and productivity and efficiency programme without compromising business asusual.
and to deliver productivity and efficiencies, particularly through ways ofworking.
The failure to effectively manage this programme could adversely impact the delivery of the Group's strategies, the anticipated productivity and efficiency improvements, and its operations andreturn
A Transformation Management Office ('TMO') has been established to drive and coordinate delivery and to monitor risks of each of the major programmesunderway.
Progressofthedeliveryoftheprogrammeissubjecttoregular review by the Board. The Board also approves the Group's strategies, its three-year plan and annualbudget.
oninvestments.TheGroup'ssystemsof
internal control will need to bemaintained.
Change in level ofrisk
Strategiclink
Decreasedrisk
All keystrategies
Loss of keymanagement
Insufficient capability and capacity insenior
TheInspiredPeoplestrategyhasbeenestablishedtooversee
or the inabilityto
management and insufficientemployees
the Group's organisational capability requirements,culture
attract andretain
withtherightskillsmaylimittheGroup's
and engagement, equality and wellbeing, talentdevelopment,
keyemployees.
abilitytoexecutetheGroup'sstrategies
training and reward andrecognition.
and changeprogramme.
TheBoardandAuditCommitteeregularlyreviewkeytalent
Theperiodofchangemayresultinalossof
and resourcerisks.
key individuals or the inability to recruit and retain individuals with the relevant talent and experience, which could disrupt the operation of the business and adversely impact the Group's ability to deliver itsstrategies.
There is a programme of clear and open engagement with employeestopromoteanenvironmentoftrustandhonesty.
Competitive incentive arrangements currently exist, with specific initiatives in place designed to retain keyindividuals.
Brexit may have an adverse impact on the Group's UK workforce which includes EU nationals, including withinsenior
Recruitment is ongoing and talent review and succession planningprogrammesareinplaceandareregularlyreviewed andupdated.
management.
TheGroupwouldseektomitigateanyadverseimpactsonits
UK workforce arising from Brexit. The Group's BrexitSteering
Change in level ofrisk
Strategiclink
Committee will keep this underreview.
Amendedrisk
All keystrategies
Sustained breachesof
Trade marks and other intellectualproperty
TheGroup'sglobalBrandProtectionteamisresponsiblefor
the Group'sintellectual
('IP') rights are fundamentally important tothe
theGroup'sbrandprotectioneffortsglobally,includinginthe
property rightsand
Group'sreputation,successandcompetitive
digitalenvironment.Whereinfringementsareidentifiedtheseare
unauthorised saleof
position. Unauthorised use of these,as
addressedthroughamixtureofcriminalandcivillegalactionand
Burberryproducts.
wellastheunauthorisedsaleofBurberry
negotiatedsettlement.IPrightsaredrivenlargelybynationallaws
productsanddistributionofcounterfeit
which afford varying degrees of protection andenforcement
products, damages the Burberrybrand
priorities depending on thecountry.
image andprofits.
Change in level ofrisk
Strategiclink
No materialchange
Product Focus, Productive Space, E-Commerce
Leadership
Chineseconsumer
AsignificantproportionoftheGroup's
TheglobalreachoftheGrouphelpstomitigaterelianceon
spendingpatterns
salesaretoChineseconsumersglobally.
particular consumers. In addition, the Group continuesto
significantlychange
Consequently,anychangetoChinese
focus on engaging with the Chinese luxury consumer,both
adverselyimpacting
consumer tastes or the economic,regulatory,
inChinaandwhiletravellingabroad.
the Group'srevenues.
social and/or political environment inChina
couldadverselyimpactthisconsumergroup's
disposable income, confidence andtravel,
whichcouldimpactthe Group'srevenue
andprofits.
Change in level ofrisk
Strategiclink
No materialchange
Product Focus, Productive Space, E-Commerce
Leadership, OperationalExcellence
Volatility inforeign
TheGroupoperatesonaglobalbasisand
The Group seeks to hedge anticipated foreigncurrency
exchange ratescould
earnsrevenues,incurscostsandmakes
transactional cash flows using financial instruments. Theseare
have asignificant
investments in a number ofcurrencies.
mainlyintheGroup'scentralisedsupplychainandwholesale
impact on theGroup's
TheGroup'sfinancialresultsarereportedin
and Beauty businesses. The Group does not hedgeintra-group
reportedresults.
Sterling. The majority of reportedrevenues
foreign currency transactions at present. The Group monitorsthe
are earned in non-Sterling currencies,with
desirabilityofhedgingthenetassetsofnon-Sterlingsubsidiaries
a significant proportion of costs inSterling.
whentranslatedintoSterlingforreportingpurposes,butthe
Therefore,changesinexchangerateswhich
Grouphasnotenteredintoanymaterialtransactionsforthis
aredrivenbyanumberoffactors,suchas
purposeinthecurrentorpreviousyear.
global economic trends, Brexit orother
developments,canimpacttheGroup's
revenues, margins, profits and cashflows.
Change in level ofrisk
Strategiclink
No materialchange
All keystrategies
Major incidentssuch
as natural catastrophes, global pandemics or terrorist attacks affecting one or more of the Group's key locations could significantly impact itsoperations.
Change in level of risk Decreasedrisk
A major incident at a key location could significantly impact business operations, with the impact clearly varying depending onthelocationanditsnature.Theimpact
ofthelossofadistributionhubwouldclearly differ from a global pandemic, but both wouldimpactrevenueandprofits.
Strategiclink
All keystrategies
Business continuity plans are in place to mitigate operational risks, but cannot ensure the uninterrupted operation of the business, particularly in the short term. The regional spread oftheGroup'skeydistributionhubshelpstomitigatethisrisk.
A Group incident management framework is in place that addresses the reporting and management of major incidents, and is tested each year using third-party specialists. Tailored plans have been produced for a number of high-impact events.Theseplansareregularlyreviewedandupdated.
The Group'soperations
Failure to comply with theserequirements
The Group monitors and seeks to continuouslyimprove
are subject to abroad
couldleavetheGroupopentociviland/or
its processes to gain assurance that its licensees,suppliers,
spectrum ofregulatory
criminal legal challenge, significantpenalties
franchisees,distributorsandagentscomplywiththeGroup's
requirements inthe
and reputationaldamage.
contractual terms and conditions, its ethical andbusiness
variousjurisdictions
policies and relevantlegislation.
in which the Group operates. The pace of changeand
the consistency of application of legislation can vary significantly across these jurisdictions,particularly
Specialist teams at corporate and regional level, supported by third-party specialists where required, are responsible forensuringemployeesareawareofregulationsrelevant
to theirroles.
Assurance processes are in place to monitor compliance in anumberofkeyriskareas,withresultsbeingreportedtothe management Risk Committee and Board AuditCommittee.
in anenvironment
TheGroup'sBrexitSteeringCommitteewillkeepunder
where publicsector
review any regulatory requirements arising fromBrexit.
debt is often highand
tax revenues arefalling.
Change in level ofrisk
Strategiclink
No materialchange
All keystrategies
FailurebytheGroupor
A failure to act appropriately couldresult
Anumberofinitiativesareinplace,ledbytheCorporate
associated thirdparties
inpenalties,adversepresscoverageand
Responsibility function. These include thecontinuing
to act inaccordance
reputational damage with a resultingimpact
activities set out in the Responsibility section onpages
with ethicaland
on revenue andprofits.
47 to51.
environmentalstandards.
Change in level ofrisk
Strategiclink
No materialchange
All keystrategies
Over-reliance
TheGroupreliesonanumberofvendors
TheGroupcontinuestoevolveitssupplychainorganisational
on keyvendors.
inkeyproductcategories.Failureofthese
designtodevelopitsmanufacturingbasetoreduce
businesses to deliver products orservices
dependenceonkeyvendors.TheGroupisextendingits
would have a significant impacton
business continuity planning framework to key vendorsin
businessoperations.
specific business operations to minimise the impact ofan
incident affecting thosevendors.
Change in level ofrisk
Strategiclink
No materialchange
Product Focus, Productive Space,E-Commerce
Leadership
The Group'sIT
systems and operational infrastructure are critical to its operationand
the delivery of products, services and market communicationsto
itsconsumers.
Change in level of risk No materialchange
A failure in these systems could have a significant impact on the Group's operations andreputation.
The Group also relies on a small number of vendors of specialist digital and IT services, thereby concentrating the impact of thisrisk.
Strategiclink
All keystrategies
TheGroup'sITsystemsandinfrastructurecontinuetoreceive substantial Audit Committeefocus.
A number of controls to maintain the integrity andefficiency
oftheGroup'sITsystemsareinplace,includingrecoveryplans whichwouldbeimplementedintheeventofamajorfailure.
Theserecoveryplansaretestedonaregularbasis.
The Group has continued to strengthen its internal Digital andITteamsandactivelymanagesdependencyonexternal specialistservices.
The Group operatesin
Typicalpotentialrisksfacedinthesemarkets
The Group uses the services of professional consultantsto
a number ofemerging
include:seizureofassetsorstaff,business
adviseonlegalandregulatoryissueswhenenteringnewmarkets,
markets whichare
associate practices that areinconsistent
toundertakeduediligenceandtomonitorongoingdevelopments.
typically morevolatile
withtheGroup'sethicalstandardsandthe
Where appropriate, the Group seeks to work withfranchisees
than developedmarkets,
UK regulatory environment, andincreased
or partners who compensate for its relative lack ofexperience
and are subjectto
operationalcostsduetocountry-specific
inanumberofthesemarkets.
changingeconomic,
processes driven by the operatingor
regulatory, socialand
regulatoryenvironment.
politicaldevelopments
that are beyondthe
Group'scontrol.
Infrastructureand
services alsotend
to be lessdeveloped.
Change in level ofrisk
Strategiclink
No materialchange
Productive Space, E-CommerceLeadership,
OperationalExcellence

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