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RNS Number : 3685O Burberry Group PLC 09 June 2022
9 June 2022
Burberry Group plc - Annual Financial Report
The following documents have today been made available to shareholders of
Burberry Group plc
(the "Company"):
1. Annual Report and Accounts for the financial year ended 2 April 2022
(the "2021/22 Annual Report");
2. Notice of the 2022 Annual General Meeting (the "Notice of AGM"); and
3. Form of Proxy for the 2022 Annual General Meeting (the "Form of
Proxy").
Pursuant to Listing Rule 9.6.1, each of these documents has been submitted to
the National Storage Mechanism and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fdata.fca.org.uk%2F%23%2Fnsm%2Fnationalstoragemechanism&data=04%7C01%7CEmily.Nurse%40burberry.com%7C2a31867d22fd41a2f39f08d921f93884%7C8535436a46bb4cc6a9c99ec392e449ee%7C0%7C0%7C637578176576724451%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=4wIdTjv5NhTuIAORGXtJGbVYYnQiK60qCYT2c%2FDo4yY%3D&reserved=0)
.
In accordance with Disclosure Guidance and Transparency Rule ("DTR")
6.3.5(3), the documents are also available on the Company's website at
Burberryplc.com (https://www.burberryplc.com/en/index.html) .
(https://www.burberryplc.com/en/index.html)
The Company's 2022 Annual General Meeting ("AGM" or the "Meeting") will take
place at 2.00pm on Tuesday, 12 July 2022 at Horseferry House 2, 1a Page
Street, London, SW1P 4PQ. 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 Disclosure Guidance and Transparency Rule ("DTR") 6.3.5,
the information in the Appendix below is extracted from the 2021/22 Annual
Report and should be read in conjunction with the Company's preliminary
results announcement issued on 18 May 2022 (the "Preliminary Announcement"),
both of which can be viewed at Burberryplc.com
(https://www.burberryplc.com/en/index.html) . 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 2021/22 Annual Report in full. Page numbers and
cross-references in the extracted information below refer to page numbers and
cross-references in the 2021/22 Annual Report.
The information contained in this announcement, and in the Preliminary
Announcement, does not constitute the Company's statutory accounts, but is
derived from the statutory accounts. The statutory accounts for the financial
year ended 2 April 2022 have been approved by the Board of Directors and will
be delivered to the Registrar of Companies following the AGM.
Enquiries
Investors and analysts
Julian Easthope
VP, Investor Relations
julian.easthope@burberry.com
020 3367 4458
Media
Andrew Roberts
SVP, Corporate Relations and Engagement
andrew.roberts@burberry.com (mailto:andrew.roberts@burberry.com)
020 3367 3764
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 is listed on the London Stock Exchange (BRBY.L) and is a constituent
of the FTSE 100 index. ADR symbol OTC:BURBY.
BURBERRY, the Equestrian Knight Device, the Burberry Check and the Thomas
Burberry Monogram and Print are trademarks belonging to Burberry.
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 2 April 2022 are
contained in the 2021/22 Annual Report. The Independent Auditors' Report on
the Company financial statements and the parent company financial statements
(the "Audit Report") is set out in full on pages 221 to 235 of the 2021/22
Annual Report. The Audit Report is unqualified and does not contain any
statements under section 498(2) (regarding adequacy of accounting records and
returns) or under section 498(3) (regarding provision of necessary information
and explanations) of the Companies Act 2006.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The following information is extracted from page 220 of the 2021/22 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 154 to 158 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 the UK-adopted International Accounting Standards, 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 107 to 129 of the 2021/22
Annual Report.
OUR APPROACH TO RISK
Effective risk management is essential to executing our strategy and achieving
sustainable shareholder value. We assess the risks we need to take in order to
remain successful and to grow, and we use the available evidence to manage
those risks as effectively as possible. These risk assessments are formally
updated, documented and approved at least twice a year.
The Board is ultimately responsible for determining the nature and extent of
the principal risks it is willing to take to achieve our strategic objectives
(the Board's risk appetite), as well as challenging management's
implementation of effective systems of risk identification, assessment and
mitigation. The Board has delegated the responsibility for reviewing the
effectiveness of the Group's internal controls and risk management
arrangements to the Audit Committee. Ongoing review of these controls is
provided through internal governance processes.
The Group Risk team (Group Risk) comprises risk management, risk analytics,
business continuity and insurance. This team assesses and prioritises risks to
determine mitigating actions and to secure a more resilient organisation.
Group Risk also promotes agility, by highlighting areas of control which
require further investment, and in managing the Group's incident response to
urgent, emerging challenges. This multidisciplinary team is an integral part
of our business, and reports to our CO&FO.
Risk management activities are reviewed by Internal Audit and other control
functions, which provide assurance to our Risk Committee, Audit Committee, and
Board, as described on page 144. During FY 2021/22, we commenced a risk
modelling project with Cambridge University's Centre for Risk Studies, which
began by modelling our climate-related risks (see TCFD section on page 130).
This work will be expanded through FY 2022/23 to encompass other principal
risks.
RISK APPETITE
We will pursue growth and accept a certain level of risk to ignite brand heat
commensurate with our position in luxury fashion. We approve capital
investment in strategic projects and accept a moderate to high risk in pursuit
of innovation and profitable growth, balancing a reasonable return on capital
with a reasonable level of commercial risk within the approved capital
allocation framework.
Complying with applicable laws and doing the right thing are part of our
culture and underpin our strategic ambition. In evaluating risks and
opportunities, we prioritise the interests and safety of our customers and our
people. We seek to protect the long-term value and reputation of the brand,
maximising commercial benefits to support responsible and sustainable global
growth within our defined risk tolerance.
OUR PRINCIPAL RISKS
The Board considers the principal risks to be the most significant risks faced
by the Group, including those that are the most material to our performance
and those that could threaten our business model or the future long-term
solvency or liquidity of Burberry. They do not comprise all the risks
associated with our business and are not set out in priority order. Additional
risks not known to management, or currently deemed to be less material, may
also have an adverse effect on our business.
Our risk framework is structured around the following categories of risk:
External, Strategic, Operational, Compliance and Climate Change. Each
principal risk is linked to one of these categories and may impact one or more
of our strategic priorities. We have reviewed and updated the descriptions and
mitigating actions of our principal risks and emerging risks. We reviewed
whether the level of risk associated with each of the principal risks is
increasing or decreasing compared to the previous financial year and noted new
risks, which do not have a basis for comparison. Our risk management processes
are designed to enable us to identify risks that can be partially mitigated
through insurance. We focus our insurance resources on the most critical areas
or where there is a legal requirement, and where we can get best value for
money for risk transfer.
EMERGING RISKS
Our understanding of emerging risks which have potential to affect our
business is an area of focus for us. We undertake detailed horizon scanning in
conjunction with our strategy team to identify and assess emerging risks and
opportunities and how to address them. Emerging risks are by their nature
highly uncertain, and to manage this, we involve specialist third parties
where necessary to better understand them and their potential impacts. Our
risk management approach considers short term to be one year, medium term to
be two to five years and long term more than five years.
Macro Macroeconomic impacts - escalating inflation particularly in food and energy
prices which may lead to increased interest rates as central banks try to curb
inflation, heightening the risk of recession
Changing regulatory environment - new regulations continue to emerge,
including financial reporting (UK Corporate Governance regulations), raw
material transparency (New York bill) and UK/EU/US government sanctions on
Russia, all of which increase the risk of non-compliance
Geopolitical - increasing geopolitical tensions and bifurcation, which may
restrict free trade through mechanism such as quotas and tariffs
Consumer Changing consumer preferences - expectations around product and sustainability
continue to increase, along with heightened focus on the ESG performance of
companies
Significance of influential groups/third parties on consumer spending patterns
- increased reliance on third parties to produce content to influence consumer
spending (for example, social media influencers), which carries risk of damage
to brand image
Industry Industry concentration - increase in concentration on key customer groups
resulting in greater competition for growth targets and polarisation of luxury
players in the global fashion industry
New technology - leading to changes in consumer spending habits and
expectations around product availability (for example, virtual stores, the
metaverse, and new materials)
Circularity - new business models and increase in product re-sale markets,
including fashion rental
Full supply chain traceability - requiring investment in new technologies and
greater collaboration amongst participants in the fashion value chain
EXTERNAL RISKS
COVID-19 Impact
·
·
Examples of Risks
·
· Recovery is delayed by a resurgence in virus infections
· Challenges to liquidity to manage operations and meet liabilities
as they fall due
· The Group's regional trading performance and cash flows are
significantly impacted by further extended periods of closures of Burberry
retail stores, manufacturing facilities and distribution centres
· Burberry's regional internal manufacturing sites and global
network of suppliers, storage and distribution hubs are disrupted,
significantly impacting the supply chain and the speed with which we recover
as government restrictions are lifted
· Impairment of goodwill, retail assets and inventory
·
We are continuing to monitor the potential impacts of the COVID-19 pandemic
and we continue to prioritise the safety of our people, customers and
suppliers. Our response is globally coordinated but locally tailored, driven
by regional developments. We regularly update our modelling of the impact of
the pandemic across all our regions and on the Group. The impact of pandemic
risk on our viability and asset impairment is carefully considered, as well as
on other principal risks, especially those related to our customers, supply
chain and operations.
Risk movement and outlook
COVID-19 was a new principal risk in FY 2019/20 and was considered to have
been effectively managed by our Executive Committee, functional heads,
regional leaders and Business Continuity team. We assess a diverse range of
exogenous risk factors: infection and hospitalisation rates, vaccine efficacy,
lockdowns and social restriction policies, travel policy and other factors
when assessing the regional risks and potential impact. We aggregate these
regional risks to form an assessment of risk to the Group. This risk remains
similar to last year for the Group which reflects an increase in Mainland
China as a result of ongoing restrictions and a decrease in other key markets.
Link to Strategy Actions Taken by Management
Pandemic risk remains a significant factor in our ability to execute our · The Group Executive Committee is responsible for the overall
strategy. The risk varies by region over time. In each region, we ensure that management of our response to the COVID-19 pandemic. Mitigating actions are
we comply with legal obligations, which vary depending on national responses delegated to the relevant regional and function leadership teams to ensure we
to COVID-19 developments. maintain an agile, tailored response, including the temporary closure of
stores, offices and other buildings, as required
· We monitor emerging regional regulations as COVID-19 continues to
develop and evolve. We are focused on promoting and protecting the health and
safety of our people, customers, partners and communities, and ensuring we
comply with regulations
· Where local regulations are less restrictive, we recognise
individual needs and preferences. We provide free PPE and offer a flexible
working approach to our colleagues, where possible. We have tailored our
commercial approach to each market, which includes targeted marketing
investment in Mainland China and the USA
· We keep product, inventory and supply chain under constant review
to maintain supply chain operations while optimising buying commitments and
ensuring an undisrupted flow of product to our customers
· Burberry has significant financial headroom and minimal leverage.
We have £0.9 billion of cash, excluding proceeds of £0.3 billion from the
Sustainability Bond, and a further £0.3 billion undrawn from the revolving
credit facility. We have completed detailed stress testing to understand the
extent to which the Group could withstand a loss of revenues within the limits
of its available financial resources. Details of this reverse stress testing
are set out in the Viability Assessment on page 146
· We continue to manage cash and costs to protect the Group's
liquidity. A comprehensive cost mitigation programme has been delivered. Other
levers include delaying discretionary capital. We also focus on investment in
commercial areas to drive revenues and strengthen the brand
Risk Tolerance
We prioritise and have a low risk tolerance regarding the safety and wellbeing of our people, our customers, partners and the communities in which we operate.
· Changes to the nature of the pandemic, such as the introduction of novel variants, impacts the health of our employees and their ability to operate effectively
Macro-Economic and Political Instability
The Group operates in a wide range of markets and is exposed to changing
economic, regulatory, social and political developments, which may impact
consumer demand or affect our supply chain and manufacturing, and therefore
our profitability. Adverse macroeconomic conditions or country-specific
crises, such as natural disasters, global health emergencies or civil unrest,
may significantly affect our markets and our ability to operate.
Risk movement and outlook
The risk has increased over the last two years. The outlook remains uncertain
as we continue to navigate through several significant macroeconomic and
political events, including the macroeconomic impact of the conflict in
Ukraine. External factors, such as global health emergencies and natural
disasters, are difficult to predict, although we remain confident in our
ability to adapt and respond as they emerge.
Link to Strategy Actions Taken by Management
Volatility in the external environment could impact our overall financial · We quickly and decisively responded to the macroeconomic impact
performance and operations. of the conflict in Ukraine through our coordinated cross-function cross-region
Group Incident Management team and supporting operational groups
· We continue to respond in a way that leverages our brand appeal
and global reach across multiple customer segments and regions to mitigate
reliance on a particular customer group
· We recognise the importance of Mainland China and the Chinese
consumer for the luxury industry
· We continue to assess shifts occurring in the industry and in
consumer preferences to ensure our plans are dynamic and responsive to the
market
· We monitor external macroeconomic and regulatory changes and
perform horizon scanning supported by insights from the Group Strategy,
Commercial and Finance teams
Risk Tolerance
We have a low tolerance for risk in this area but recognise external factors
can be more difficult to mitigate as they are often outside our control. This
requires us to be resilient, while retaining the agility required to respond
effectively.
Examples of Risks
· Rapidly changing market sentiment caused by international crises,
leading to uncertainty in the economic outlook for the luxury sector
· Rising inflation both in a supply chain and consumer context
· Global health emergencies affecting countries and regions
· Disruptions to and increased cost associated with the internal
and external supply chain
· Increased customs and duty charges resulting from international
trade disputes
Further impact from the UK's withdrawal from the EU
Various scenarios could impact the Group's financial position, operating model
and people.
Risk movement and outlook
The UK's withdrawal from the EU on 31 December 2020 has crystallised with some
supply chain disruption and costs realised, notwithstanding the EU-UK Trade
and Cooperation agreement. Further disruption may arise in the event of
destabilisation of the trading arrangements between the EU and UK, potentially
giving rise to incremental border costs and delays. However, the risk has
reduced since last year.
Link to Strategy Actions Taken by Management
Volatility arising from uncertainty around the trading relationship between · Our steering committee continually monitors the evolving
the UK and EU following the end of the transition period may impact our post-transition trading relationship between the UK and EU, and oversees our
overall financial and operating performance, as well as our ambitions under mitigation plans
supply chain Operational Excellence.
· While the business has experienced some short-term disruption,
ongoing mitigation reduced the risk to all business activities, including
supply chain, trade compliance, IP and people
· We engage with UK government departments and other external
stakeholders to ensure they are fully
informed of our circumstances
Risk Tolerance
We have a low tolerance for risk arising from uncertainty regarding the
trading relationship between the UK and EU.
Examples of Risks
· Additional customs duty based on the post-transition trading
relationship between the UK and EU
· Disruption to business operations
· Impact on some current business project roadmaps
· Extended supply chain lead times could increase inventory levels
· Uncertainty over the rights of EU nationals and UK immigration
law could increase the risk of being unable to recruit and retain talent
· Exchange rate volatility impacts Group revenues, margins, profits
and cash flow
STRATEGIC RISKS
Image and Reputation
We invest in building trust in our brand and protecting our image and
reputation globally. Unfavourable incidents, unethical behaviour or erroneous
media coverage relating to the Group's people, practices, products or
third-party suppliers could damage the Group's image and reputation and
negatively impact the value of our brand. A negative perception of the Group's
values could potentially lead to a slowdown in sales as well as a loss of
customers. While internal enhancements continue to be made to protect
Burberry's image and reputation, we operate in a complex and volatile external
environment. Scrutiny of our brand is high and the risk to our brand is
elevated as a result of global events. Working with third parties, including
collaborators and influencers, creates additional risk.
Risk movement and outlook
The risk has increased over the last two years. The outlook remains uncertain
as we continue to navigate through several significant macroeconomic and
political events and external factors, including global health emergencies and
natural disasters.
Link to Strategy Actions Taken by Management
All strategic pillars. · Oversight of mitigation of reputational issues by the Ethics and
Risk Committees
· Audit of reputational risks, continued monitoring of risks and
development of mitigation plans
· Undertaking marketing risk analysis/risk register and
implementation of mitigation procedures
· Codified incident management policy, monitoring of social
networks and response procedures
· Review process in place for engagements with collaborators,
influencers and/or celebrities
· Approval processes and editorial controls in place to ensure all
product and content is reviewed and signed off prior to external release
· Development of due diligence policy in connection with retention
of talent and partners
· Training and monitoring of adherence to Burberry's Model
Wellbeing Policy for all people who engage with models on Burberry's behalf,
including employees, freelancers, casting agents, contractors and external
third parties
· Training and monitoring of adherence by personnel to the
requirements in the Group's Responsible Business Principles
· Continued supplier audits and supplier training programmes to
ensure compliance in day-to-day operations
· Continued development of our global Diversity and Inclusion
strategy as well as the widening of our Internal Diversity and Inclusion
Council membership to support its implementation
· Renewal of Cultural Advisory Council members
· Updated and consolidated our Code of Conduct for our people and
third parties to ensure they act lawfully and in accordance with Burberry's
values
Risk Tolerance
Protecting our brand and reputation safeguards our licence to operate. We have
a moderate risk appetite in order to deliver our strategy supported by
processes to avoid or mitigate any reputational/brand risk where possible.
Examples of Risks
· Unethical behaviour on the part of individuals or entities
connected with the Group
· Unfavourable or erroneous media coverage or negative discussions
on social networks about the Group's products, content or practices
· An organisation, association, celebrity, influencer, collaborator
or model associated with Burberry becoming involved in a reputational incident
· Suppliers or partners not respecting the Group's Responsible
Business Principles
· Alleged infringement or appropriation of third-party rights in
connection with the production of content and design of product
· Failure of our people or those acting on Burberry's behalf to
adhere to Burberry's Model Wellbeing Policy
· Failure to understand social issues and respect cultural
sensitivities around product and marketing content
Global Chinese consumer spending
A significant change to Chinese consumer spending habits globally due to
changes in the economic, regulatory, social or political environment in
Mainland China, including a further health emergency or a natural disaster,
may adversely impact domestic consumers' disposable income and confidence.
Such changes could also lead to Chinese consumers scaling back on spending and
travel. This could impact the Group's revenue and profits outside Mainland
China, which may not be fully compensated by the repatriation of spend in the
country.
Risk movement and outlook
The risks associated with Chinese consumer spending have increased since the
prior year and remain the Group's highest principal risk. This is driven by a
number of factors, including the resurgence of COVID-19 disruptions in
Mainland China and associated restrictions on movement, which reduce the
potential for domestic and tourist spend. Due to the significant proportion of
sales to Chinese consumers, the Group may lose revenues and profits as a
result of changes in Chinese consumer spending patterns resulting from shifts
in the economic, social or geopolitical environment.
Link to Strategy Actions Taken by Management
All strategic pillars. · Sustained execution of Mainland China strategy, including
localised campaigns and additional marketing spend to support growth targets
· Building new social partnerships in Mainland China in strategic
locations, and developing innovative customer experiences, storytelling and
products that are locally relevant
· Sustained investment in inventory and technology to support our
Mainland China digital business across our own platform and those of our
third-party partners
· Targeted investments supporting tailored strategies in other
regions to diversify our global consumer profile
Risk Tolerance
We accept a certain level of concentration risk in relation to consumer
nationality to maximise growth opportunities.
Examples of Risks
· We suffer a major reputational shock in Mainland China causing a
deterioration in brand value
· Burberry's growth in Asia does not meet expectations either in
magnitude or timing, especially in Mainland China
· Slower recovery in Asia due to a resurgence of COVID-19
· We are unable to capture additional consumer spend in Mainland
China
Foreign exchange
Volatility in foreign exchange rates could have a significant impact on the
Group's reported results. Burberry is exposed to uncertainty through foreign
exchange movements. Major events such as the COVID-19 pandemic and the
conflict in Ukraine might impact foreign exchange rates, which in turn could
cause significant change in the Group's reported results.
Risk movement and outlook
The risk has not changed significantly since the prior year. In light of the
macroeconomic environment, geopolitical risks remain heightened and foreign
exchange rates remain volatile.
Link to Strategy Actions Taken by Management
Volatility in foreign exchange rates could impact our overall financial · Burberry hedges some external purchases of goods and some
performance. inter-company balances using financial instruments. Burberry does not hedge
anticipated intra-group foreign currency transactions
· Burberry monitors the desirability of hedging the net assets of
non-sterling subsidiaries when translated into sterling for reporting
purposes. We have only entered into modest transactions for this purpose
· Burberry monitors the overall impact of unhedged exchange
movements and provides guidance to shareholders if exchange rates move on a
quarterly basis
Risk Tolerance
Burberry does not seek to manage structural foreign exchange risk relating to
its overseas retail operations.
Examples of Risks
· Burberry operates on a global basis and earns revenues, incurs
costs and makes investments in a number of currencies. Burberry's financial
results are reported in sterling. Most reported revenues are earned in
non-sterling currencies, with a significant proportion of costs in sterling.
Therefore, changes in exchange rates, which are driven by multiple factors,
such as global economic trends, could impact Burberry's revenues, margins,
profits and cash flows
· Changes in exchange rates driven by global economic trends could
reduce the attractiveness of international shopping for travelling tourists
OPERATIONAL RISKS
Loss of data or cyberattack
A cyberattack results in a system outage, impacting core operations and/or
results in a major data loss leading to reputational damage and financial
loss. A cyber risk-aware workforce and the Group's technology environment are
critical to success. A robust control environment helps decrease risks to core
business operations and/or major data loss.
Risk movement and outlook
This risk is assessed to have slightly increased in comparison to the prior
year as a result of an increase in global cyber threat during the year.
Link to Strategy Actions Taken by Management
Having a cyber risk-aware workforce and resilient technology landscape is · Governance provided through a cross-functional Cyber Security
integral to delivering our strategy. Steering Group with Executive membership and sponsorship
· Continued investment in information security capabilities
· Second line assurance checks reporting on control effectiveness
to Executive and IT management through monthly scorecards
· 24/7/365 security monitoring and analytics capability supported
by security incident response processes
· Information Security Advisory function to embed security in new
projects and initiatives
· Security training and awareness and phishing tests rolled out to
employees globally with completion monitoring
· Implementation of solutions to help detect personal and sensitive
data loss with improved control over user access management
· Test responses to cybersecurity incidents through simulations
· Data Privacy Steering Committee, a cross-functional group to
review data controls around existing systems and assess potential data risks
(from both a legal and reputational perspective) associated with new IT,
Marketing, Retail and Digital initiatives across Burberry
· Ongoing collaboration between the Data Protection office, Legal,
IT and Information Security functions to ensure policies are adhered to in
respect of the appropriate collection, security, storage, retention and
deletion of personal data
· In line with other organisations, Burberry encounters information
security incidents from time to time and has policies, processes and
technologies in place to detect and respond to these as appropriate
· Both Cloud Governance and Ransomware Audits were completed in
January 2022 by the Internal Audit team in line with the NIST framework
Risk Tolerance
We have a low risk tolerance in this area.
Examples of Risks
· Malware results in a loss of system control causing business
disruption and/or major data loss
· Credential compromise of customer or employee accounts leading to
business disruption and/or major data loss
· Accidental personal data loss or disclosure leading to regulatory
fines
· Attack on Burberry.com causing business disruption and/or major
data loss
· Compromise or misconfiguration of externally facing assets
causing business disruption and/or major data loss
· Fines due to failure to comply with EU General Data Protection
Regulation (GDPR) and/or equivalent applicable data protection legislation
globally
IT operations
There is a risk that IT operations fail to support critical processes across
the Group, including Retail and Digital, as well as Group functions, such as
Supply Chain and Finance.
Risk movement and outlook
The impact of this risk has remained the same, with the likelihood remaining
high due to ongoing data centre migration work increasing risk to system
recovery and elongated system outages. Our focus remains on key system
upgrades, which increase our resilience and security, as well as addressing
key underpinning risks and essential investment.
Link to Strategy Actions Taken by Management
All strategic pillars. · IT Portfolio Forum in place with Executive representation to
support IT investment decisions and oversee delivery of prioritised IT
programmes and initiatives
· IT function has clear alignment between the IT teams, the
strategic pillars, business functions and operations
· Implementation of controls to help maintain continuity of the
Group's IT systems, including evolution of IT recovery plans, which would be
implemented in the event of a major failure
· A tested Group incident management framework is in place to
report, escalate and respond to high-impact events
· Further evolution of the IT operating model with a Business
Systems Platform function to elevate the performance and security of core
systems, supported by a business-wide steering committee
· Elevated focus on key risks to support decision making on
operating budgets and investment
· External technology partner network and focused delivery in line
with current risk appetite and strategic priorities
· Our Internal Audit team completed a review of our IT vendors in
February 2022
Risk Tolerance
We adopt a strategy to reduce key risks to the disruption of IT operations
wherever possible.
Examples of Risks
· Failure to provide technology platforms that meet customer
demands and support innovation could result in failure to deliver the strategy
and loss of revenue
· Failure to provide stable and resilient technology platforms that
meet business demands across retail and corporate sites could result in
failure to deliver the strategy and negatively impact operations due to poor
system performance and/or system outages
People
Inability to attract, motivate, develop and retain our people to perform to
the best of their ability in order to meet our strategic objectives.
Risk movement and outlook
This risk remains a priority. It is subject to complex macro factors, which
have led to an increase in the level of risk over the last 12 months. While we
experienced reduced levels of voluntary attrition through the pandemic, these
returned to pre-pandemic levels in the second half of FY 2021/22. In addition,
in some geographies, global trading disruption continues to impact our
people's ability to meet planned business goals.
Link to Strategy Actions Taken by Management
Delivery of our strategy relies on our ability to engage and inspire our Leadership and culture
people to deliver outstanding results for the Group.
· All leaders have a leadership objective and Diversity and
Inclusion objectives included in their goals. Executive Committee members are
accountable for attracting and retaining diverse talent and fostering an
inclusive culture
· During FY 2021/22, we created Leadership Standards, which were
embedded across the organisation. These standards bring to life our purpose
and values with tangible examples for both people leaders and colleagues
· Throughout the year, we sourced in-the-moment feedback from our
colleagues, with two surveys completed with our provider, Glint. Results
demonstrated that employees remained very engaged, had a strong connection
with the brand and felt supported by their leaders
· We foster an inclusive culture where all employees feel connected
to their work
· We empower and equip leaders to lead through change
· We engage employees through our ongoing commitment to corporate
responsibility and embedding our ESG ambitions across the business
Talent and careers:
· Strengthening capabilities and enhancing our approach to talent
management throughout the organisation
· Scaled learning opportunities for all our people through enhanced
self-directed digital content
· Maintained rigorous processes to identify and engage
high-potential talent and support succession planning
· Enhanced performance management through refined processes and
systems, elevate support material, and increased communications and leader
touchpoints
· Further interview training cascaded to ensure an equitable
recruitment experience
Reward and recognition
· Simplification of our retail commission and incentive schemes to
drive performance and business results
· Deployed an in-the-moment feedback tool to recognise and share
gratitude between colleagues
· Delivered a global online celebration at year-end to reinforce
our values, celebrate our collective achievements and recognise top performers
· Maintaining a pay-for-performance culture
Diversity and Inclusion
· Employee Resource Groups continued to build in strength and
momentum, connecting colleagues across key themes of diversity to support an
inclusive culture across all parts of our organisation
· Regional and functional Diversity and Inclusion working groups
deployed action plans to attract and retain diverse top talent, foster an open
and inclusive culture, and educate and raise awareness
· Cultural Advisory Council engaged directly with colleagues
through "In Conversation" sessions
Colleague experience, including wellbeing and employee relations
· Refreshed both the Summer and Festive Programmes to focus on
Burberry's wellbeing offering. Launched Wellbeing Days to provide all
colleagues with paid time off to focus on wellbeing
· Launched new inclusive policies and support, including a global
portal to help colleagues who experience domestic abuse, in addition to a
Bereavement policy and Menopause support site
· Launched a partnership with Headspace, providing free access for
all colleagues to its award-winning mental health app. The partnership's goal
is to support all colleagues in forging habits that benefit their mental
health
Risk Tolerance
We recognise the value and importance of successfully delivering our Inspired
People strategy and therefore have a low tolerance for risk in this area.
Examples of Risks
· Loss of critical talent/knowledge/unmanageable levels of
attrition heightened by challenging business conditions and continued economic
uncertainty
· Failure to build and retain the right capabilities throughout the
organisation
Business interruption
A major incident impacts countries where the Group operates, has its main
locations or where its suppliers are located, and significantly interrupts the
business. This may be caused by a wide range of events at a country level,
including changes in the geopolitical landscape, natural catastrophe, pandemic
or changes in regulations, or at a local level, such as fire, terrorism or
quality control failures.
Risk movement and outlook
The risk level of business interruption has increased since last year,
although we continue to demonstrate resilience. We expect a heightened level
of risk of business interruption to continue for the foreseeable future due to
continuing instability in the geopolitical landscape. Disruption from COVID-19
continues to be felt around the world, with the breadth and depth of the
disruption varying across regions and time and with the potential for
suppliers, manufacturers and markets to be disrupted. Port congestion
continues to significantly slow the circulatory movement of ships and
containers, removing capacity, lengthening transit times, and increasing
shipping costs.
Link to Strategy Actions Taken by Management
Our Product and Distribution strategic pillars set out the framework for us to · We have policies and procedures in place designed to ensure the
operate effectively and efficiently. We harness Operational Excellence to health and safety of our employees and to deal with major incidents, including
ensure continuity of supply of compliant products and services of the highest business continuity and disaster recovery
quality to our customers. Our ability to continually execute and operate key
sites and factories to develop, manufacture, distribute and sell our products · The Group continues to evolve its supply chain organisational
is a key strategic priority. design to develop its manufacturing base and to reduce dependence on key sites
and vendors
· A Group incident management framework is in place to ensure that
incidents are reported and managed effectively at the appropriate level
· Prioritising our people, customers and communities, we managed
multiple incidents, including fire, flood and weather-related issues or
interruptions in the regular running of stores, offices and systems
· Our Global Incident Management Team (GIMT) and Regional Incident
Management Teams take part in training and incident management exercises
involving large parts of the Group, our customers, and Corporate
Communications function
· Business continuity plans are in place for our eight main sites,
including our three major distribution centres, our two UK factories, and
Burberry Manifattura in Italy
· Our product suppliers and vendors are subject to a quality
control programme, which includes regular site inspections and independent
product testing
· Robust security arrangements are in place across our store
network to protect people and products
· The Group maintains significant protection of key IT systems
designed to prevent and minimise any potential interruption. This includes
resilient design and the provision of disaster recovery services to continue
operating within pre-agreed time scales in case of a major incident. Our plans
as tested during the year were found to be effective
· Management regularly reviews business continuity and disaster
recovery risks, recognising that these plans cannot always ensure the
uninterrupted operation of the business, particularly in the short term
· A comprehensive insurance programme supported by natural
catastrophe modelling and insurance optimisation studies is in place to offset
the financial consequences of insured events, including fires, flood, natural
catastrophes and product liabilities
Risk Tolerance
We have a low tolerance for risk in this area, particularly in respect of
product safety and quality.
Examples of Risks
· Burberry operates three owned factories and a global network of
storage and distribution hubs. These face typical property risks, such as
fire, flood and terrorism
· Burberry works with several suppliers of highly specific,
high-quality raw materials, which could be difficult to replace quickly. Their
loss could interrupt the delivery of core products or a seasonal range
· A serious product quality issue may result in a product recall
· Socio-political tension, sanctions, counter-sanctions and trade
compliance challenges may impact the effectiveness and efficiency of our
supply chain
· A global health emergency impacts a key market, which
significantly affects the supply chain
· Instability in the geopolitical landscape leads to trade
disruption between key countries resulting in an inability to move product
between countries or significant delays
COMPLIANCE RISKS
Regulatory risk and ethical/environmental standards
The Group is subject to a broad spectrum of laws and regulations, in the
various jurisdictions in which it operates. These include product safety,
trade marks, anti-bribery and corruption, competition, data, corporate
governance, employment, environment, tax, trade compliance and employee and
customer health and safety. Changes to laws and regulations, including
potential non-compliance with sanctions and counter-sanctions, or a major
compliance breach, could have a material impact on the business.
Risk movement and outlook
The relative significance of this risk has increased because of the changing
regulatory environment despite the proactive and mitigating steps we have
taken to ensure compliance.
Link to Strategy Actions Taken by Management
Compliance with applicable laws and regulations, and behaving in accordance · The Group seeks to continuously improve processes to gain
with our values as a business, underpin all our strategic pillars. assurance that its licensees, suppliers, franchisees, distributors and agents
comply with the Group's contractual terms and conditions, its ethical and
business policies, and relevant legislation
· Specialist teams at corporate and regional levels, supported by
third-party specialists where required, are responsible for ensuring the
Group's compliance with applicable laws, ethical and business policies and
regulations, and that employees are aware of the policies, laws and
regulations relevant to their roles
· Ethical trading and community investment matters are reported to
the Ethics Committee, Risk Committee and the Board
· Environmental sustainability matters are reported to the
Sustainability Committee and the Board to ensure compliance with applicable
laws and regulations as well as to mitigate associated legal and reputational
risk
· Annual independent and internal assurance processes are in place
to monitor compliance in a number of key risks, with results reported to our
Ethics Committee, Risk Committee and Audit Committee
· We have an established framework of policies that aim to drive
best practice across our direct and indirect operations, including our
Responsible Business Principles and Global Environmental Policy. Policies
(available on Burberryplc.com) are owned by senior leadership. They are issued
to supply chain partners and form part of our contractual agreements with
supply chain partners. Implementation of these policies is monitored on a
regular basis
· We have updated and consolidated our Code of Conduct for our
people and third parties into one comprehensive document, which sets out
policies and guidance to ensure that our employees and third parties act
lawfully and in accordance with Burberry's values. Training on the Code to
employees is in the process of being rolled out globally
· Our Data Privacy Committee oversees compliance with applicable
data legislation
· International tax reform is a key focus of attention with
significant developments reported to the Audit Committee
Risk Tolerance
In complying with laws and regulations, including customer and employee
safety, environmental and ethical legislation relevant to our operations and
supply chain, as well as anti-bribery and corruption, we have a low tolerance
for risk.
Examples of Risks
· Regulatory non-compliance (including, for example, failure to
comply with applicable data protection legislation, anti-money laundering
regulations or applicable sanctions legislation) by the Group or associated
third parties working on its behalf may result in financial penalties and
reputational damage to our business
· Failure by the Group or associated third parties to act in an
ethical manner consistent with our Code of Conduct, Responsible Business
Principles or our Responsibility agenda could result in reputational damage to
the Group
· Non-compliance with labour, human rights and environmental
standards across our own operations and extended supply chain could result in
financial penalties, disruption in production and reputational damage to our
business
· Tax is a complex area where laws and their interpretations change
regularly. Non-compliance by Burberry and its associated third parties could
result in unexpected tax and financial loss
Intellectual property and brand protection
Sustained breaches of Burberry's IP rights or allegations of infringement by
Burberry pose a risk to our brand. Counterfeiting, copyright, trademark and
design infringement in the marketplace could reduce demand for genuine
Burberry merchandise and impact the luxury positioning of the brand. Failure
to implement appropriate brand protection controls in connection with our
commitment to stop the destruction of unsaleable finished products could
negatively impact the integrity and the sustained luxury positioning of the
brand.
Risk movement and outlook
Management of this risk remains a key area of activity as our creative
innovation generates new designs and motifs and the potential increase of
counterfeit sales. The likelihood of this risk has been assessed to be the
same level as last year.
Link to Strategy Actions Taken by Management
Protecting the integrity of the brand, safeguarding and elevating its luxury · The Group's Brand Protection team is responsible for brand
position and complying with applicable laws and regulations underpin all our protection efforts globally, online and offline. Where infringements are
strategic pillars. identified, these are addressed through a mixture of criminal, civil and
administrative legal action and negotiated settlements
· Trademarks, copyrights and designs are registered globally across
all appropriate categories
· The Brand Protection team partners with the design teams to
ensure that our products do not infringe the rights of third parties and to
ensure that we have adequate protections in place prior to market entry
· The team explores new and emerging threats and ways to combat
threats
· The team partners regionally with enforcement agencies and
digital platforms to minimise the visibility of counterfeit and infringing
products both online and offline
· We aim to disrupt the flow of counterfeit products by enforcing
at source level
· Brand protection controls have been implemented to safeguard the
brand in connection with our commitment to stop destroying unsaleable finished
products
Risk Tolerance
We have a low tolerance for risk in protecting the integrity of the brand,
asserting our IP rights and ensuring due respect is given to the IP rights of
others.
Examples of Risks
· Counterfeiting, copyright, trademark and design infringement in
the marketplace can reduce the demand for genuine Burberry merchandise and
impact revenues
· Unauthorised use of trademarks and other IP, as well as the
unauthorised sale of Burberry products and distribution of counterfeit
products, damages Burberry's brand image and profits
· Sophistication in counterfeiters' ability to manufacture at pace
has increased infringements and counterfeiting of our brand
· New branding may not immediately be protected, and we rely on
national laws to secure IP rights, which afford varying degrees of protection
and enforcement opportunities depending on the country
· Increased cancellation actions by third parties in response to
claims of infringement as well as an increase in bad faith filings
· Allegations from third parties of IP infringement by Burberry
could negatively impact Burberry's reputation, result in claims and financial
loss through withdrawing infringing products
· Distribution outside of our authorised network and parallel trade
could negatively impact demand for Burberry products and negatively impact our
luxury reputation
Climate change
The success of our business over the long term will depend on the social and
environmental sustainability of our operations, the resilience of our supply
chain and our ability to manage any potential climate change impacts on our
business model and performance. As the global climate crisis becomes more
critical, we recognise the importance of addressing long-term sustainability
challenges and potential impacts of climate change on our business in
reputational, operational and financial terms. Failure to implement
appropriate cross-functional action plans and strategies, such as
incorporating the recommendations of TCFD and our Climate Positive by 2040
ambition, could hinder mitigation of long-term climate risks and our ability
to future-proof our business.
Risk movement and outlook
The risk of climate change continues to be an increasing area of scrutiny
globally. Without significant science-based global mitigation efforts from
government and business and their value chains alongside collaboration from
wider industry and civil society, the effects will continue to increase year
on year and cause irreversible impacts. The risk has increased since last
year.
Link to Strategy Actions Taken by Management
Our commitment to being an industry leader in responsible and sustainable Physical risks
luxury underpins our vision to establish ourselves firmly in luxury fashion
and deliver sustainable, long-term value. In FY 2021/22 we became the first · Building on the assessment of climate-related risks which was
luxury brand to pledge to being Climate Positive by 2040. To achieve this, we disclosed in FY 2020/21, the cross-functional TCFD working group, in
have committed to accelerate emissions reductions across our extended supply partnership with the University of Cambridge's Centre for Risk Studies,
chain; become net zero by 2040, 10 years ahead of the 1.5°C pathway set out developed and expanded its scenario analysis in FY 2021/22 to include a wider
in the Paris Agreement, and invest in nature-based projects with carbon range of potential physical and transitional risk impacts. The scope of our
benefits that restore and protect natural ecosystems and enhance the scenario analysis was also expanded to include three emissions pathways,
livelihoods of global communities. including a 1.5°C Paris Agreement aspiration scenario. Further details of
this can be seen on pages 130 to 143
· This included specific analysis around the impact of physical
climate-related risks on our key facilities, operations and supply chain
· Our Internal Audit and Risk teams were involved in our climate
scenario modelling and oversight of TCFD disclosures
· In our own operations and supply chain, we continue to use the
WWF water risk assessment tool and the Aqueduct Water Risk Atlas to identify
current risks, anticipate potential future strains on water resources and
understand emerging long-term risks, as well as point out water efficiency and
management opportunities
· Burberry is committed to reducing its GHG emissions as set out in
our Climate Positive by 2040 commitment. Our GHG emissions targets across all
scopes are recognised as science-based aligned to the 1.5°C pathway and we
will disclose our progress towards these on an annual basis to ensure full
transparency to stakeholders, including our customers
· In FY 2021/22 we announced our biodiversity strategy through
which we will take action to protect, restore and regenerate nature in our own
value chain and in areas of greatest need beyond our operations
· Supporting our biodiversity strategy, we are a member of the
global multi-disciplinary Taskforce on Nature-related Financial Disclosures
(TNFD) Forum and contribute to the development of the TNFD framework
· We support a number of industry initiatives that address climate
change impacts, including the British Retail Consortium's Net Zero commitment,
RE100, Race to Zero, the UN Fashion Industry Charter for Climate Change, The
Fashion Pact, Lowering Emissions by Accelerating Forest finance (LEAF), and
Accounting for Sustainability
· The Burberry Regeneration Fund was established in 2020 to support
a portfolio of verified carbon projects, which enable Burberry to compensate
and store carbon, promote biodiversity, facilitate the restoration of
ecosystems and support the livelihoods of local communities
· We invest in programmes that help to sustain our industry and
supplier communities, specifically initiatives that support social economic
development in remote communities and promote more sustainable herding
practices in the cashmere industry
· We continuously engage and educate employees on the topic of
climate change through focused events, strategic communications, volunteering
opportunities and through our network of Responsibility Champions
Transitional risks
· As part of the quantitative scenario-based analysis of
climate-related risks conducted in FY 2021/22, we modelled the impact of
transitional risks including policy, market, reputation, technology and
liability risks
· Our Climate Positive ambition not only sets our strategic
direction but also mitigates the impact of transitional risks on the business.
For example, our sustainable raw material and traceability targets feed into
our Climate Positive ambition and will significantly contribute to lowering
our scope 3 emissions. This will enhance the sustainability of our products
and will be communicated to our customers and stakeholders
· Through our memberships with various industry bodies,
associations and external assurance partners, we contribute to consultations
and stay informed of upcoming environmental legislative changes
· Environmental sustainability matters are reported to the
Sustainability Committee, the Ethics Committee, the Risk Committee and the
Board
· Our longstanding Responsibility programmes, coupled with our
Responsibility goals, are driving continuous improvements in moving beyond
social and environmental compliance
· We are committed to shifting to more sustainable, low-impact
materials, and using our brand to influence consumers and our industry peers
to reduce their impacts. We have a series of ambitious targets to achieve this
aim, full details of which can be found on pages 92 to 95
· We are mitigating transitional risks by focusing on initiating
circular concepts and business models and continuing our commitment to a
zero-waste mindset across the business. We have a clearly defined waste
hierarchy and set targets and KPIs that cover operational, manufacturing and
finished goods waste as well as packaging. These targets and KPIs are a key
component of our Climate Positive ambition and roadmap
For more details on how we are monitoring climate risks and opportunities and
our strategic response, please see our TCFD report on pages 130 to 143.
Risk Tolerance
We have a low tolerance for risk when it comes to protecting the human and
environmental resources on which we all depend. However, given the long-term
nature of some sustainability risks and the level of uncertainty
associated with their occurrence and impact, we accept that some level of risk
is inevitable. We therefore focus on helping to minimise global risks while
building resilience in our operations and supply chain.
Examples of Risks
Physical risks:
Acute
· Increased severity of extreme weather events, from floods to
droughts, could cause disruption to our operations and supply chain, impact
our business model and affect the sourcing of raw materials, as well as the
distribution of our products
Chronic
· Our industry is sustained by many agricultural and manufacturing
communities around the world. Longer-term shifts in climate patterns and loss
of biodiversity caused by changes in precipitation patterns, rising mean
temperatures and rising sea levels could cause social, economic and
operational challenges
· Failure to address and mitigate these risks could result in
resource availability limitations (for example, cotton, leather and cashmere)
and disruptions to key business and supply chain operations
Transitional risks
Policy
· Increased regulation and more stringent environmental standards,
such as national or international carbon pricing mechanisms, could impact our
business by affecting operational and production costs and the flexibility of
our operations
Market
· Consumer perception of the sustainability of luxury fashion
products, their materials and associated GHG emissions may have an impact on
consumer behaviours and their purchasing decisions. Failure to meet consumer
demand for more sustainable products and services could threaten our
relationship with consumers and may result in a loss of Group revenues
Reputation
· Failure of the luxury fashion industry to meet expectations
around sustainability could lead to climate activism and threaten
relationships with employees, investors, regulators and interest groups, which
may result in a loss of Group revenues
Liability
· Litigation against activities which drive climate change,
resulting in potential operating expenses arising from fines, settlement and
legal costs
Gemma Parsons
Company Secretary
Burberry Group plc
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