REG - Burberry Group PLC - Interim Results <Origin Href="QuoteRef">BRBY.L</Origin> - Part 2
12/11/2014 08:01
- Part 2: For the preceding part double click ID:nRSL7735Wa
(1.9) - (1.9) - (1.9)
Foreign currency translation differences - - 10.5 - 10.5 1.4 11.9
Tax on other comprehensive income - - 0.1 - 0.1 - 0.1
Total comprehensive income for the period - - 5.4 104.5 109.9 5.3 115.2
Transfers between reserves - - 0.5 (0.5) - - -
Transactions with owners:
Employee share incentive scheme
- value of share options granted - - - 16.6 16.6 - 16.6
- value of share options transferred to liabilities - - - (0.8) (0.8) - (0.8)
- tax on share options granted - - - 3.6 3.6 - 3.6
- exercise of share awards - 1.8 - - 1.8 - 1.8
Purchase of own shares by ESOP trusts - - - (12.2) (12.2) - (12.2)
Dividend paid in the period - - - (102.1) (102.1) (0.4) (102.5)
Balance as at 30 September 2014 0.2 206.6 156.2 819.2 1,182.2 47.5 1,229.7
CONDENSED GROUP STATEMENT OF CASH FLOWS - UNAUDITED
Note Six months to Six months to Audited
30 September 2014 30 September 2013 Year to
£m £m 31 March
2014
£m
Cash flows from operating activities
Operating profit 144.7 166.1 445.4
Depreciation 50.0 52.7 105.6
Amortisation 16.2 16.3 33.0
Net impairment charges 9 0.8 1.4 12.3
Profit on disposal of property, plant and equipment and intangible assets - - (1.3)
Gains on derivative instruments (1.1) (7.7) (3.8)
Charges in respect of employee share incentive schemes 16.6 17.0 25.4
(Payment)/proceeds from settlement of equity swap contracts (0.2) 15.7 15.7
Increase in inventories (62.1) (79.1) (68.2)
Increase in receivables (33.7) (70.6) (73.8)
Increase in payables 18.1 30.4 45.2
Cash generated from operating activities 149.3 142.2 535.5
Interest received 1.6 1.9 3.4
Interest paid (1.5) (1.5) (2.6)
Taxation paid (61.0) (65.4) (111.1)
Net cash generated from operating activities 88.4 77.2 425.2
Cash flows from investing activities
Purchase of property, plant and equipment (57.7) (51.2) (129.5)
Purchase of intangible assets (15.3) (11.8) (24.5)
Proceeds from sale of property, plant and equipment - - 3.0
Acquisition of subsidiary, net of cash acquired - (1.1) (2.6)
Net cash outflow from investing activities (73.0) (64.1) (153.6)
Cash flows from financing activities
Dividends paid in the year (102.1) (92.1) (130.7)
Dividends paid to non-controlling interest (0.4) - -
Capital contributions by non-controlling interest - 0.7 0.7
Issue of ordinary share capital 1.8 0.6 1.2
Sale of own shares by ESOP trusts - 1.5 1.7
Purchase of own shares by ESOP trusts (12.2) (6.8) (24.7)
Net cash outflow from financing activities (112.9) (96.1) (151.8)
Net (decrease)/increase in cash and cash equivalents (97.5) (83.0) 119.8
Effect of exchange rate changes 1.9 (5.3) (13.9)
Cash and cash equivalents at beginning of period 402.5 296.6 296.6
Cash and cash equivalents at end of period 306.9 208.3 402.5
ANALYSIS OF NET CASH - UNAUDITED Note As at As at Audited
30 September 2014 30 September 2013 As at
£m £m 31 March 2014
£m
Cash and cash equivalents as per the Balance Sheet 361.8 323.6 545.5
Bank overdrafts 13 (54.9) (115.3) (143.0)
Net cash 306.9 208.3 402.5
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. 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' trade marks. All
of the companies which comprise the Group are controlled by Burberry Group plc
(the 'Company') directly or indirectly.
2. 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 2014, and the
Condensed Group Balance Sheet as at 30 September 2014 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 2014 were
approved by the Board of Directors on 20 May 2014 and have been filed with the
Registrar of Companies. The report of the auditors on the statutory accounts
for the year ended 31 March 2014 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 2014 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 2014, 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 2014.
Accounting policies
Accounting policies and presentation are consistent with those applied in the
Group's financial statements for the year ended 31 March 2014, as set out on
pages 122 to 130 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 2014,
as set out on pages 121 and 122 of those financial statements, with the
exception of taxation, as described above.
Adjusted profit before taxation and adjusting items
In order to provide additional consideration of the underlying performance of
the Group's on-going business, the Group's results include a presentation of
Adjusted Profit before Taxation ('adjusted PBT'). Adjusted PBT is defined as
profit before taxation and before adjusting items. Adjusting items are those
items which, in the opinion of the directors, should be excluded in order to
provide a consistent and comparable view of the underlying performance of the
Group's on-going business. Generally this will include those items that are
largely one-off and material in nature and any fair value movements on options
held over equity interests held for non-speculative purposes. Adjusting items
are identified and presented on a consistent basis each year and a
reconciliation of adjusted PBT to profit before tax is included in the
financial statements. Adjusting items and their related tax impacts are added
back/deducted from profit attributable to owners of the Company to arrive at
adjusted earnings per share.
3. 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 the Group'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, department stores globally and multi-brand specialty
accounts. The flow of global product between retail and wholesale channels and
across our regions is monitored and optimised at a corporate level and
implemented via the Group's inventory hubs situated in Asia, Europe and the
USA.
Licensing revenues are generated through the receipt of royalties from the
Group's partners in Japan and global licensees of 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 adjusting
items. The measure of earnings for each operating segment that is reviewed by
the Board includes an allocation of corporate and central costs. Finance
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 to Six months to Six months to Six months to Six months to Six months to
30 September 30 September 30 September 30 September 30 September 30 September
2014 2013 2014 2013 2014 2013
£m £m £m £m £m £m
Retail 748.1 694.5 - - 748.1 694.5
Wholesale 317.2 294.6 - - 317.2 294.6
Licensing - - 35.8 43.5 35.8 43.5
Total segment revenue 1,065.3 989.1 35.8 43.5 1,101.1 1,032.6
Inter-segment revenue(1) - - (1.1) (1.1) (1.1) (1.1)
Revenue from external customers 1,065.3 989.1 34.7 42.4 1,100.0 1,031.5
Adjusted operating profit 124.3 137.6 27.9 36.0 152.2 173.6
Adjusting items(2) (10.5) (14.9)
Finance income 1.9 1.9
Finance expense (1.8) (1.6)
Profit before taxation 141.8 159.0
Year to 31 March 2014 Retail / Wholesale Licensing Total
£m £m £m
Retail 1,622.6 - 1,622.6
Wholesale 628.0 - 628.0
Licensing - 81.6 81.6
Total segment revenue 2,250.6 81.6 2,332.2
Inter-segment revenue(1) - (2.4) (2.4)
Revenue from external customers 2,250.6 79.2 2,329.8
Adjusted operating profit 393.5 66.8 460.3
Adjusting items(2) (16.6)
Finance income 3.9
Finance expense (3.2)
Profit before taxation 444.4
(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 adjusting items.
Revenue by destination Six months to Six months to Year to
30 September 30 September 31 March
2014 2013 2014
£m £m £m
Asia Pacific 384.8 353.9 870.3
EMEIA(1) 410.4 386.7 811.5
Americas 270.1 248.5 568.8
Retail/Wholesale 1,065.3 989.1 2,250.6
Licensing 34.7 42.4 79.2
Total 1,100.0 1,031.5 2,329.8
(1) EMEIA comprises Europe, Middle East, India and Africa.
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. While some
of the Group's operating costs are also higher in the second half of the year,
such as contingent rentals and some employee costs, most of the operating
costs are phased more evenly across the year. As a result, operating profit is
usually expected to be higher in the second half of the year.
4. Adjusting items
Amortisation of the fragrance and beauty licence intangible asset
During the year ended 31 March 2013, an intangible asset of £70.9m was
recognised on the Balance Sheet, relating to the present value of the
anticipated incremental income to be earned by the Group as a result of
selling Beauty products through retail and wholesale channels rather than
under licence, following the termination of the existing licence relationship
with Interparfums SA. This asset is amortised on a straight line basis over
the period 1 April 2013 to 31 December 2017. The amortisation is presented as
an adjusting item, which is consistent with the treatment of the cost
recognised on termination of the licence relationship in the year ended 31
March 2013. The amortisation expense recognised for the six months ended 30
September 2014 was £7.5m (six months ended 30 September 2013: £7.5m; year
ended 31 March 2014: £14.9m). A related tax credit of £1.6m (30 September
2013: £0.9m; 31 March 2014: £1.9m) has also been recognised in the current
period.
Put option liability finance charge
The financing charge of £3.0m for the six months ended 30 September 2014
relates to unrealised 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 2013:
charge of £7.4m; year ended 31 March 2014: charge of £1.7m). No tax has been
recognised on this item, as it is not considered to be deductible for tax
purposes.
5. Taxation
The tax charge for the six months ended 30 September 2014 has been calculated
based on an estimated effective underlying rate of tax on adjusted profit
before taxation for the full year of 23.0% (30 September 2013: 25.0%; year
ended 31 March 2014: 24.7%). Tax on adjusting items has been recognised at the
prevailing tax rates as appropriate. The resulting effective tax rate on
reported profit before taxation is 23.6% (30 September 2013: 26.7%; 31 March
2014: 25.2%).
Total taxation recognised in the Condensed Group Income Statement comprises:
Six months to Six months to Year to
30 September 30 September 31 March
2014 2013 2014
£m £m £m
Tax on adjusted profit before taxation 35.0 43.4 114.0
Tax on adjusting items (note 4) (1.6) (0.9) (1.9)
Total taxation charge 33.4 42.5 112.1
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
2014 2013 2014
£m £m £m
Attributable profit for the period before adjusting items(1) 113.4 126.7 337.2
Effect of adjusting items(1) (after taxation) (8.9) (14.0) (14.7)
Attributable profit for the period 104.5 112.7 322.5
(1) Refer to Condensed Group Income Statement for the details of adjusting
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
2014 2013 2014
Millions Millions Millions
Weighted average number of ordinary shares in issue during the period 439.6 437.5 437.9
Dilutive effect of the share incentive schemes 7.6 9.0 9.4
Diluted weighted average number of ordinary shares in issue during the period 447.2 446.5 447.3
7. Dividends
The interim dividend of 9.70p (2013: 8.80p) per share has been approved by the
Board of Directors after 30 September 2014. Accordingly, this dividend has not
been recognised as a liability at the period end.
The interim dividend will be paid on 23 January 2015 to Shareholders on the
Register at the close of business on 30 December 2014.
A dividend of 23.20p (2013: 21.00p) per share was paid during the period ended
30 September 2014 in relation to the year ended 31 March 2014.
8. Intangible assets
Goodwill at 30 September 2014 is £83.0m (2013: £82.4m).
In the period there were additions to other intangible assets of £16.1m (2013:
£11.0m) and disposals with a net book value of £1.4m (2013: £nil).
Capital commitments contracted but not provided for by the Group amounted to
£3.4m (2013: £2.3m).
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 2014.
Management has performed a review for indicators of impairment as at 30
September 2014. There is no indication that the goodwill may be impaired. The
annual impairment test will be performed at 31 March 2015.
9. Property, plant and equipment
In the period there were additions to property, plant and equipment of £55.2m
(2013: £56.6m) and disposals with a net book value of £nil (2013: £nil).
Capital commitments contracted but not provided for by the Group amounted to
£36.9m (2013: £47.9m).
Impairment testing
For the six months ended 30 September 2014, a net impairment charge of £0.8m
(2013: £1.4m) was identified. The impairment charge relates to 16 retail cash
generating units (2013: 9 cash generating units) for which the total
recoverable amount at the balance sheet date is £4.7m (2013: £3.4m).
Where indicators of impairment were identified, the impairment review compared
the value-in-use of the assets to the carrying values at 30 September 2014.
The pre-tax cash flow projections were based on financial plans of expected
revenues and costs of each retail cash generating unit, approved by
management, and extrapolated beyond the budget year to the lease exit dates
using growth rates and inflation rates appropriate to each store's location.
The pre-tax discount rates used in these calculations are based on the Group's
weighted average cost of capital adjusted for country-specific tax rates and
risks.
10. Trade and other receivables
As at As at As at
30 September 2014 30 September 2013 31 March
£m £m 2014
£m
Non-current
Deposits and other receivables 32.5 27.7 31.0
Prepayments 12.5 9.8 11.3
Total non-current trade and other receivables 45.0 37.5 42.3
Current
Trade receivables 184.4 173.8 171.2
Provision for doubtful debts (6.2) (5.9) (5.3)
Net trade receivables 178.2 167.9 165.9
Other financial receivables 29.8 14.9 14.1
Other non-financial receivables 19.6 16.2 20.3
Prepayments 35.5 32.0 27.5
Accrued income 2.5 1.2 3.6
Total current trade and other receivables 265.6 232.2 231.4
Total trade and other receivables 310.6 269.7 273.7
11. Trade and other payables
As at As at As at
30 September 2014 30 September 2013(1) 31 March2014(1)
£m £m £m
Non-current
Put option liability over non-controlling interest 55.8 58.7 51.3
Other payables 3.6 4.6 4.4
Deferred income and non-financial accruals 54.3 50.1 51.7
Total non-current trade and other payables 113.7 113.4 107.4
Current
Trade payables 177.1 149.9 174.3
Other taxes and social security costs 68.7 66.5 66.6
Other payables 7.1 10.6 5.7
Accruals 148.1 142.1 140.1
Deferred income and non-financial accruals 12.5 9.3 13.1
Total current trade and other payables 413.5 378.4 399.8
Total trade and other payables 527.2 491.8 507.2
(1) As at 30 September 2013 and as at 31 March 2014, £23.3m and £18.1m
respectively was reclassified from current Deferred income and non-financial
accruals to Other taxes and social security costs, as this was more reflective
of the nature of these liabilities.
Put option liability over non-controlling interest
Following the acquisition of the Burberry retail and distribution business in
China, Sparkle Roll Holdings Limited, a non-Group company, retains a 15%
economic interest in the Group's 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 payment has been recognised as
a non-current financial liability under IAS 39. The present value would be
different if it was based on the call option should Burberry decide to
exercise the call option. Burberry currently has no intention to exercise the
call option.
The value of the put option liability is £55.8m at the period end (30
September 2013: £58.7m; 31 March 2014: £51.3m). The movement in the liability
for the period includes an increase of £3.0m relating to unrealised fair value
movements, as described in Note 4, offset by the impact of translation of the
put liability to the Group's presentational currency.
The fair value of the put option liability has been derived using a present
value calculation, incorporating observable and non-observable inputs (Level 3
- refer to note 17 for details of the fair value hierarchy classification for
financial instruments). This valuation technique has been adopted as it most
closely mirrors the contractual arrangement. The key inputs applied in
arriving at the value of the put option liability are the future performance
of the Group's business in China; the average historical Burberry Group plc
multiple; and the risk adjusted discount rate for China, taking into account
the risk free rate in China. The future performance of the business is
estimated by using management's business plans together with long-term
observable growth forecasts.
The carrying value of the put option liability is dependent on assumptions
applied in determining these key inputs, and is subject to change in the event
that there is a change in any of those assumptions. The valuation is updated
at every reporting period or more often if a significant change to any input
is observed.
A 10% increase/decrease in the future performance of the Group's business in
China at the put option exercise date would result in a £5.6m
increase/decrease in the carrying value of the put option liability at 30
September 2014 (31 March 2014: £5.1m), and a corresponding £5.6m loss/gain in
the profit before taxation for the period ended 30 September 2014 (31 March
2014: £5.1m).
A 1% increase/decrease in the risk adjusted discount rate for China would
result in a £3.0m decrease/£3.1m increase in the carrying value of the put
option liability at 30 September 2014 (31 March 2014: £3.0m decrease/£3.1m
increase), and a corresponding £3.0m gain/£3.1m loss in the profit before
taxation for the period ended 30 September 2014 (31 March 2014: £3.0m
gain/£3.1m loss).
Ultimately, the put option liability is subject to a contractual cap of £200m.
The undiscounted value of the put option liability at 30 September 2014 is
£114.3m (30 September 2013: £147.6m, 31 March 2014: £115.3m).
12. Provisions for other liabilities and charges
Property obligations Restructuring costs Other Total
£m £m costs £m
£m
As at 1 April 2014 22.9 1.5 2.2 26.6
Created during the period 5.0 - 0.3 5.3
Discount unwind 0.1 - - 0.1
Utilised during the period (2.6) (0.3) (0.3) (3.2)
Released during the period (0.9) - (0.3) (1.2)
As at 30 September 2014 24.5 1.2 1.9 27.6
As at 30 September 2013 24.8 1.6 4.5 30.9
As at As at As at
30 September 2014 30 September 2013 31 March 2014
£m £m £m
Analysis of total provisions:
Non-current 17.6 16.5 15.9
Current 10.0 14.4 10.7
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