REG - Burberry Group PLC - Interim Results <Origin Href="QuoteRef">BRBY.L</Origin> - Part 2
09/11/2017 07:07
- Part 2: For the preceding part double click ID:nRSI9878Va
(18.3) (14.7) (32.8)
Proceeds from sale of property, plant and equipment - - 8.5
Net cash outflow from investing activities (52.7) (43.2) (95.6)
Cash flows from financing activities
Dividends paid in the year (123.0) (118.6) (164.4)
Dividends paid to non-controlling interest - - (0.1)
Payment to acquire additional interest in subsidiary from non-controlling interest 19 - (68.8) (68.8)
Issue of ordinary share capital 1.5 0.6 1.6
Purchase of own shares by ESOP trusts - (11.3) (97.2)
Purchase of shares through share buy-back (190.7) (32.4) (13.3)
Net cash outflow from financing activities (312.2) (230.5) (342.2)
Net (decrease)/increase in cash and cash equivalents (141.3) (155.4) 122.9
Effect of exchange rate changes (13.6) 24.2 26.0
Cash and cash equivalents at beginning of period 809.2 660.3 660.3
Cash and cash equivalents at end of period 654.3 529.1 809.2
ANALYSIS OF NET CASH - UNAUDITED Note As at As at Audited
30 September 2017 30 September 2016 As at
£m £m 31 March 2017
£m
Cash and cash equivalents as per the Balance Sheet 677.2 568.4 843.5
Bank overdrafts 14 (22.9) (39.3) (34.3)
Net cash 654.3 529.1 809.2
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, retailer and wholesaler. 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 2017, and the
Condensed Group Balance Sheet as at 30 September 2017 and related notes have
been reviewed by the auditors and their report to the Company is set out on
page 28. 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 2017 were
approved by the Board of Directors on 17 May 2017 and have been filed with the
Registrar of Companies. The report of the auditors on the statutory accounts
for the year ended 31 March 2017 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
to 30 September 2017 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 2017, 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 consider it appropriate to continue to
adopt the going concern basis in preparing the condensed consolidated interim
financial statements for the six months to 30 September 2017.
Accounting policies
Accounting policies and presentation are consistent with those applied in the
Group's financial statements for the year ended 31 March 2017, as set out on
pages 132 to 140 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 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 2017, as set out
on pages 131 and 132 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 ongoing 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 ongoing business. Generally, this will include those items that are
largely one-off and material in nature as well as income or expenses relating
to acquisitions or disposals of businesses or other transactions of a similar
nature, including the impact of changes in fair value of expected future
payments or receipts relating to these transactions. 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. Refer to note 4 for further details of adjusting items.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
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, prestige 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 global
licensees of eyewear, timepieces, and from licences relating to the use of
non-Burberry trade marks in Japan.
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. Interest
income and charges are not included in the result for each operating segment
that is reviewed by the Board.
Retail / Wholesale Licensing Total
Six months 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
2017 2016 2017 2016 2017 2016
£m £m £m £m £m £m
Retail 943.9 859.0 - - 943.9 859.0
Wholesale 310.3 286.7 - - 310.3 286.7
Licensing - - 10.1 13.9 10.1 13.9
Total segment revenue 1,254.2 1,145.7 10.1 13.9 1,264.3 1,159.6
Inter-segment revenue1 - - (0.9) (1.1) (0.9) (1.1)
Revenue from external customers 1,254.2 1,145.7 9.2 12.8 1,263.4 1,158.5
Adjusted operating profit 177.0 133.5 7.8 11.0 184.8 144.5
Adjusting items2 (59.3) (44.2)
Finance income 3.6 2.6
Finance expense (0.8) (0.9)
Profit before taxation 128.3 102.0
Year to 31 March 2017 Retail / Wholesale Licensing Total
£m £m £m
Retail 2,127.2 - 2,127.2
Wholesale 613.9 - 613.9
Licensing - 27.1 27.1
Total segment revenue 2,741.1 27.1 2,768.2
Inter-segment revenue1 - (2.2) (2.2)
Revenue from external customers 2,741.1 24.9 2,766.0
Adjusted operating profit 437.0 21.7 458.7
Adjusting items2 (67.6)
Finance income 5.5
Finance expense (1.8)
Profit before taxation 394.8
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 note 4 for details of adjusting items.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
3. Segmental analysis (continued)
Revenue by destination Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Asia Pacific 461.2 409.9 1,069.0
EMEIA1 500.7 455.6 991.2
Americas 292.3 280.2 680.9
Retail/Wholesale 1,254.2 1,145.7 2,741.1
Licensing 9.2 12.8 24.9
Total 1,263.4 1,158.5 2,766.0
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, adjusted operating
profit is usually expected to be higher in the second half of the year.
4. Adjusting items
Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Adjusting operating items
Restructuring costs 32.9 12.8 20.8
Disposal of Beauty operations 26.5 - -
Costs relating to the transfer of the Beauty operations 1.8 - 14.5
Charge relating to the fragrance and beauty licence intangible - 26.1 26.1
Revaluation of deferred consideration liability (2.9) 3.2 3.0
Total adjusting operating items 58.3 42.1 64.4
Adjusting financing items
Finance charge on deferred consideration liability 1.0 1.1 2.2
Put option liability finance charge - 1.0 1.0
Total adjusting financing items 1.0 2.1 3.2
Restructuring costs
Restructuring costs of £32.9m (six months to 30 September 2016: £12.8m; year
to 31 March 2017: £20.8m) were incurred in the period, arising as a result of
the Group's cost efficiency programme announced in May 2016. These costs are
presented as an adjusting item as they are considered material and one-off in
nature, being part of a restructuring programme running from May 2016 to March
2019. The most significant elements of these restructuring costs relate to
onerous lease obligations for property, redundancies, and consultancy costs
supporting organisational design and development of strategic growth and
productivity initiatives, with the remainder relating to legal advice and
project assurance. £9.5m of restructuring costs were settled in the period (30
September 2016: £9.3m; 31 March 2017 £16.7m) with £27.5m being accrued at 30
September 2017. A related tax credit of £6.3m (30 September 2016: £2.6m; 31
March 2017: £4.2m) has also been recognised in the period.
Disposal of Beauty operations
On 3 April 2017, Burberry entered into two agreements with Coty Geneva SARL
Versoix (Coty) to grant Coty a licence to sell its fragrance and beauty
products and to transfer Burberry's Beauty operations to Coty. The agreements
completed on 2 October 2017. In the six months to 30 September 2017, Burberry
incurred liabilities of £26.5m relating to the transfer of the beauty
operations to Coty. These costs related to a write down of inventory from net
book value to its selling value to Coty, provisions for the costs of certain
related contract terminations and employee redundancy. These costs are
recorded in disposal of Beauty operations. None of these costs were paid in
the period. A related tax credit of £5.0m has been recognised in the period.
Refer to note 21 for further details of this transaction. These costs are
presented as adjusting items in accordance with the Group accounting policy as
they arise in relation to the disposal of a business.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
4. Adjusting items (continued)
Other costs relating to the transfer of the Beauty operations
In addition to the costs arising directly from the transfer of the Beauty
operations, costs of £1.8m relating to the Beauty transaction were incurred in
the six months to 30 September 2017 (six months to 30 September 2016: £nil;
year to 31 March 2017: £14.5m). Payments of £3.5m were made in the period (30
September 2016: £nil; 31 March 2017: £nil). A related tax credit of £0.3m (30
September 2016: £nil; 31 March 2017: £2.9m) has also been recognised in the
period.
Items relating to the deferred consideration liability
On 22 April 2016, the Group entered into an agreement to transfer the economic
right to the non-controlling interest in Burberry Middle East LLC to the Group
in consideration of contingent payments to be made to the minority shareholder
based on an agreed percentage of the future revenue of Burberry Middle East
LLC and its subsidiaries, Burberry Al Kuwait General Trading Textiles and
Accessories Company WLL and Burberry Qatar WLL, over the period 2016 to 2023,
together with fixed payments of AED 120.0m (£22.6m), relating to profits of
Burberry Middle East LLC up to 31 March 2016, to be paid over the period 2016
to 2019. A liability for the present value of the fixed and contingent
deferred consideration of AED 236.0m (£44.6m) was recognised at this point.
Refer to note 12 for further details of the deferred consideration liability.
A credit of £2.9m in relation to the revaluation of this balance has been
recognised in operating expenses for the six months to 30 September 2017 (six
months to 30 September 2016: charge of £3.2m; year to 31 March 2017: charge of
£3.0m). A financing charge of £1.0m in relation to the unwinding of the
discount on the non-current portion of the deferred consideration liability
has also been recognised for the six months to 30 September 2017 (six months
to 30 September 2016: charge of £1.1m; year to 31 March 2017: charge of
£2.2m). These movements are unrealised. No deferred consideration was
settled in the period (six months to 30 September 2016: £15.1m; year to 31
March 2017: £15.1m).
No tax has been recognised on either of these items, as the future payments
are not considered to be deductible for tax purposes. These items are
presented as adjusting items in accordance with the Group accounting policy,
as they arise from changes in the value of the liability for expected future
payments relating to the purchase of a non-controlling interest in the Group.
Adjusting items relating to the year to 31 March 2017
Charge relating to 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 was being amortised on a straight-line basis
over the period 1 April 2013 to 31 December 2017.
During the six months to 30 September 2016, amortisation expense of £7.5m was
recognised in relation to the fragrance and beauty licence intangible. At 30
September 2016, management carried out an impairment assessment of the
carrying value of this asset based on a value-in-use calculation using latest
estimates for cost and revenue projections. As a result of a reduction in
projected revenue over the remaining life to 31 December 2017, compared to
previous estimates, management concluded that the book value of the asset was
not supported by its value-in-use. An impairment charge of £18.6m was
recognised at 30 September 2016, to write the remaining balance of the
intangible asset down to £nil.
The total charge in relation to the fragrance and beauty intangible for the
six months to 30 September 2016 and the year to 31 March 2017 was £26.1m. This
was presented as an adjusting item, which is consistent with the treatment of
the cost recognised on termination of the licence relationship in the year to
31 March 2013. A related tax credit of £5.1m was also recognised.
Put option liability finance charge
The financing charge for the six months to 30 September 2016 of £1.0m (year to
31 March 2017: charge of £1.0m) 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. No tax was
recognised on this item, as the value of the option on exercise is not
considered to be deductible for tax purposes. This item has been presented as
an adjusting item in accordance with the Group accounting policy as it arises
from changes in the value of the liability for expected future payments
relating to the purchase of a non-controlling interest in the Group. The
liability was released upon expiration of the put option at 1 August 2016,
therefore there is no charge for the six months to 30 September 2017.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
5. Taxation
The tax charge for the six months to 30 September 2017 has been calculated
based on an estimated effective underlying rate of tax on adjusted profit
before taxation for the full year of 25.0% (30 September 2016: 25.0%; year to
31 March 2017: 25.8%). 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 27.5% (six months to 30 September 2016:
28.3%; year to 31 March 2017: 27.1%).
Total taxation recognised in the Condensed Group Income Statement comprises:
Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Tax on adjusted profit before taxation 46.9 36.6 119.3
Tax on adjusting items (note 4) (11.6) (7.7) (12.2)
Total taxation charge 35.3 28.9 107.1
6. Earnings per share
The calculation of basic earnings per share is based on profit or loss
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
2017 2016 2017
£m £m £m
Attributable profit for the period before adjusting items1 140.6 108.5 342.2
Effect of adjusting items1 (after taxation) (47.7) (36.5) (55.4)
Attributable profit for the period 92.9 72.0 286.8
1 Refer to note 4 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) and own shares purchased by the Company as part of a
share buy-back programme.
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
2017 2016 2017
Millions Millions Millions
Weighted average number of ordinary shares in issue during the period 431.5 441.5 439.1
Dilutive effect of the share incentive schemes 3.3 2.8 3.1
Diluted weighted average number of ordinary shares in issue during the period 434.8 444.3 442.2
7. Dividends
The interim dividend of 11.0p (2016: 10.5p) per share has been approved by the
Board of Directors after 30 September 2017. Accordingly, this dividend has not
been recognised as a liability at the period end.
The interim dividend will be paid on 2 February 2018 to Shareholders on the
Register at the close of business on 22 December 2017.
A dividend of 28.4p (2016: 26.8p) per share was paid during the period ended
30 September 2017 in relation to the year ended 31 March 2017.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
8. Intangible assets
Goodwill at 30 September 2017 is £94.1m (2016: £97.8m). There were no
additions to goodwill in the period.
In the period there were additions to other intangible assets of £20.5m (2016:
£14.9m) and disposals with a net book value of £nil (2016: £0.8m).
Capital commitments contracted but not provided for by the Group amounted to
£3.8m (2016: £3.4m).
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 2017.
Management has performed a review for indicators of impairment as at 30
September 2017. The annual impairment test will be performed at 31 March
2018.
The impairment charge for intangible assets for the six months to 30 September
2017 is £nil (2016: £18.6m).
9. Property, plant and equipment
In the period there were additions to property, plant and equipment of £30.0m
(2016: £31.9m), impairments of £8.1m (2016: £10.8m) and disposals with a net
book value of £nil (2016: £0.9m).
Capital commitments contracted but not provided for by the Group amounted to
£17.8m (2016: £14.6m).
Impairment testing
For the six months to 30 September 2017, a net impairment charge of £7.0m
(2016: £10.8m) was recorded against property, plant and equipment as a result
of a review of impairment of retail store assets. The impairment charge
relates to 15 retail cash generating units (2016: 10 retail cash generating
units-) for which the total recoverable amount at the balance sheet date is
£2.4m (2016: £2.8m).
Where indicators of impairment were identified, the impairment review compared
the value-in-use of the assets to the carrying values at 30 September 2017.
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 were between 11.2% and
16.9% (2016: between 11.4% and 19.7%) based on the Group's weighted average
cost of capital adjusted for country-specific tax rates and risks. Where the
value-in-use was negative, onerous lease provisions were assessed in relation
to the future contracted minimum lease payments. Potential alternative uses
for property, such as subletting of leasehold or sale of freehold, were
considered in estimating both the value for impairment charges and onerous
lease provisions.
The remaining impairment of £1.1m relates to the assets held for sale as part
of the disposal of the Beauty operations to Coty.
10. Trade and other receivables
As at As at As at
30 September 2017 30 September 2016 31 March
£m £m 2017
£m
Non-current
Deposits and other receivables 41.6 48.1 44.9
Other non-financial receivables 3.5 3.6 3.7
Prepayments 24.8 28.4 27.8
Total non-current trade and other receivables 69.9 80.1 76.4
Current
Trade receivables 199.1 181.4 201.3
Provision for doubtful debts (10.4) (9.1) (9.5)
Net trade receivables 188.7 172.3 191.8
Other financial receivables 20.2 16.6 22.3
Other non-financial receivables 17.9 24.0 20.4
Prepayments 47.1 48.5 38.1
Accrued income 3.2 2.8 3.0
Total current trade and other receivables 277.1 264.2 275.6
Total trade and other receivables 347.0 344.3 352.0
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
11. Assets held for sale
The assets related to the Beauty operations being transferred to Coty (part of
the retail/wholesale segment) have been presented as held for sale effective
30 September 2017 given the agreement to transfer Beauty operations to Coty.
There are no liabilities associated with the Beauty operations being
transferred to Coty. Assets were remeasured to the lower of their carrying
value and their fair value less costs to sell at the date of the held for sale
classification. The major classes of assets classified as held for sale as at
30 September 2017 are as follows:
As at
30 September 2017
£m
Property, plant and equipment 4.4
Inventory 31.3
Assets classified as held for sale 35.7
Refer to note 21 for further details of the transfer of Beauty operations.
12. Trade and other payables
As at As at As at
30 September 2017 30 September 2016 31 March2017
£m £m £m
Non-current
Other payables 2.2 2.4 2.5
Deferred income and non-financial accruals 75.3 70.5 75.6
Deferred consideration 22.8 29.2 23.8
Total non-current trade and other payables 100.3 102.1 101.9
Current
Trade payables 174.5 176.1 172.3
Other taxes and social security costs 64.1 49.6 58.7
Other payables1 16.8 76.2 8.2
Accruals 190.0 151.1 186.9
Deferred income and non-financial accruals 22.4 21.5 22.1
Deferred consideration 10.0 4.6 10.9
Total current trade and other payables 477.8 479.1 459.1
Total trade and other payables 578.1 581.2 561.0
1 Includes £13.6m (2016: £66.7m) relating to the cost of shares not yet
purchased, under an agreement entered into by the Company to purchase its own
shares, together with anticipated stamp duty arising. Refer to note 15 for
further details.
Deferred consideration
Following the purchase of the economic right to the non-controlling interest
in Burberry Middle East LLC on 22 April 2016, the Group has recognised a
liability in relation to the deferred consideration for this transaction. The
deferred consideration consists of fixed payments to be paid over the period
2016 to 2019, and contingent payments calculated as an agreed percentage of
the future revenue of Burberry Middle East LLC and its subsidiaries, over the
period 2016 to 2023.
The fair value of the deferred consideration relating to the remaining fixed
payments of AED 39.3m (£8.0m), (2016: AED 39.3m, £8.2m) has been derived via a
present value calculation discounted at an appropriate risk free rate
applicable to Burberry Middle East LLC.
The fair value of the deferred consideration relating to the contingent
payments has been estimated using a present value calculation, incorporating
observable and non-observable inputs. The inputs applied in arriving at the
value of this component of the deferred consideration are an estimate of the
future revenue of Burberry Middle East LLC and its subsidiaries from 2016 to
2023 and an appropriate risk adjusted discount rate for Burberry Middle East
LLC.
The carrying value of the deferred consideration relating to contingent
payments is dependent on assumptions applied in determining these 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 estimate of future revenues of Burberry Middle
East and its subsidiaries would result in a £1.8m increase/decrease in the
carrying value of the deferred consideration relating to contingent payments
at 30 September 2017 and a corresponding £1.8m decrease/increase in the profit
before taxation for the period ended 30 September 2017.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
13. Provisions for other liabilities and charges
Property obligations Other Total
£m costs £m
£m
As at 1 April 2017 57.7 7.7 65.4
Effect of foreign exchange rate changes (3.2) - (3.2)
Created during the period 22.8 13.2 36.0
Utilised during the period (2.9) (0.3) (3.2)
Released during the period (0.4) (2.6) (3.0)
As at 30 September 2017 74.0 18.0 92.0
As at 30 September 2016 55.0 1.9 56.9
As at As at As at
30 September 2017 30 September 2016 31 March 2017
£m £m £m
Analysis of total provisions:
Non-current 61.1 43.7 47.3
Current 30.9 13.2 18.1
Total 92.0 56.9 65.4
Within property obligations are amounts of £45.8m (2016: £27.1m) relating to
onerous lease obligations.
New property obligations created in the period include amounts relating to
retail stores as a result of impairment reviews and amounts relating to
non-retail property considered to be surplus to requirements as a result of
the Group's restructuring programme. Refer to note 4 for further details
regarding restructuring charges.
Other provisions created in the period primarily relate to provisions for
contract terminations in relation to the transfer of Beauty operations to
Coty. Refer to note 4 for further details.
14. Bank overdrafts and borrowings
Included within bank overdrafts is £20.1m (2016: £34.6m) representing balances
on cash pooling arrangements in the Group. The Group has a number of committed
and uncommitted arrangements agreed with third parties. At 30 September 2017,
the Group held bank overdrafts of £2.8m (2016: £4.7m) excluding balances on
cash pooling arrangements.
On 25 November 2014, the Group entered into a £300m multi-currency revolving
credit facility with a syndicate of third party banks. At 30 September 2017,
no amounts were drawn (2016: £nil). The facility matures in November 2021.
15. Share capital and other reserves
Allotted, called up and fully paid share capital Number of shares Share capital
million £m
As at 1 April 2016 445.0 0.2
Allotted on exercise of options during the period 0.1 -
As at 30 September 2016 445.1 0.2
As at 1 April 2017 445.2 0.2
Cancellation of treasury shares (6.8) -
Allotted on exercise of options during the period 0.1 -
As at 30 September 2017 438.5 0.2
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
15. Share capital and other reserves (continued)
Other reserves
Own shares purchased by the Company, as part of a share buy-back programme,
are classified as treasury shares and their cost offset against retained
earnings. When treasury shares are cancelled, a transfer is made from retained
earnings to the capital redemption reserve, equivalent to the nominal value of
the shares purchased and subsequently cancelled. The cost of shares purchased
by employee share ownership trusts (ESOP trusts) are offset against retained
earnings.
As at 30 September 2017 the amount held against retained earnings was £187.4m
(2016: £33.8m) including stamp duty of £0.9m (2016: £0.2m) in relation to
treasury shares and £36.0m (2016: £48.3m) in relation to shares purchased by
ESOP trusts. As at 30 September 2017, the Company held 10.7m (2016: 2.5m)
treasury shares, with a market value of £188.3m (2016: £35.0m) and ESOP trusts
held 2.8m (2016: 3.7m) shares in the Company, with a market value of £48.9m
(2016: £51.5m). In the six months to 30 September 2017 the Burberry Group plc
ESOP trust waived its entitlement to dividends of £0.8m (2016: £0.7m).
During the period, the Company entered into agreements to purchase £200.0m of
its own shares as part of a share buy-back programme (2016: £100.0m). In the
period, £13.6m (2016: £66.7m) relating to the cost of shares not yet purchased
under these agreements has been charged to retained earnings, with the payment
obligation recognised in other payables (refer to note 12).
16. Related party disclosures
The Group's significant related parties are disclosed in the Annual Report for
the year ended 31 March 2017. There were no material changes to these related
parties in the period, other than changes to the composition of the Board.
Other than total compensation in respect of key management, no material
related party transactions have taken place during the first six months of the
current financial year.
17. Foreign currency
The results of overseas subsidiaries are translated into the Group's
presentation currency of Sterling each month at the weighted average exchange
rate for the period according to the phasing of the Group's trading results.
The weighted average exchange rate is used, as it is considered to approximate
the actual exchange rates on the dates of the transactions. The assets and
liabilities of such undertakings are translated at period end exchange rates.
Differences arising on the retranslation of the opening net investment in
subsidiary companies, and on the translation of their results, are taken
directly to the foreign currency translation reserve within equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign
operation are treated as assets and liabilities of the foreign operation and
translated at the closing rate.
The principal exchange rates used were as follows:
Average
Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
Euro 1.14 1.22 1.19
US Dollar 1.29 1.37 1.30
Chinese Yuan Renminbi 8.75 9.08 8.73
Hong Kong Dollar 10.09 10.65 10.11
Korean Won 1,464 1,565 1,487
Closing
As at As at As at
30 September 30 September 31 March
2017 2016 2017
Euro 1.13 1.16 1.17
US Dollar 1.34 1.30 1.25
Chinese Yuan Renminbi 8.92 8.69 8.62
Hong Kong Dollar 10.47 10.09 9.74
Korean Won 1,534 1,429 1,402
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
18. Fair value disclosures for financial instruments
The Group's principal financial instruments comprise derivatives, cash and
short-term deposits, external borrowings (including overdrafts), trade and
other receivables, and trade and other payables arising directly from
operations.
The Group classifies its instruments into the following categories:
Financial instrument category Classification Measurement Fair value measurement hierarchy (2)
Cash and cash equivalents Loans and receivables Amortised cost N/A
Trade and other receivables Loans and receivables Amortised cost N/A
Trade and other payables Other financial liabilities Amortised cost N/A
Borrowings Other financial liabilities Amortised cost N/A
Deferred consideration Other financial liabilities Fair value through profit and loss 2/3
Forward foreign exchange contracts1 Derivative instrument Fair value through profit and loss 2
Equity swap contracts Derivative instrument Fair value through profit and loss 2
1 Cash flow hedge accounting and net investment hedge accounting is applied to
the extent that it is achievable.
2 The fair value measurement hierarchy is only applicable for financial
instruments measured at fair value.
The fair value of the Group's financial assets and liabilities held at
amortised cost approximate their carrying amount due to the short maturity of
these instruments with the exception of £12.3m (2016: £12.7m) held in
non-current other receivables relating to an interest-free loan provided to a
landlord in Korea. At 30 September 2017, the discounted fair value of the loan
is £14.4m (2016: £16.5m).
The measurements for financial instruments carried at fair value are
categorised into different levels in the fair value hierarchy based on the
inputs to the valuation techniques used. The different levels are defined as
follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Group can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3: includes unobservable inputs for the asset or liability.
Observable inputs are those which are developed using market data, such as
publicly available information about actual events or transactions. The Group
has an established framework with respect to measurement of fair values,
including Level 3 fair values. The Group regularly reviews any significant
inputs which are not derived from observable market data and considers, where
available, relevant third party information, to support the conclusion that
such valuations meet the requirements of IFRS. The classification level in
the fair value hierarchy is also considered periodically. Significant
valuation issues are reported to the Audit Committee.
The fair value of forward foreign exchange contracts and equity swap contracts
is based on a comparison of the contractual and market rates and, in the case
of forward foreign exchange contracts after discounting using the appropriate
yield curve, as at the balance sheet date. All Level 2 fair value
measurements are calculated using inputs which are based on observable market
data.
The fair value of the fixed payment component of deferred consideration is
considered to be a Level 2 measurement and
is derived using a present value calculation of the remaining fixed payments,
discounted using an appropriate risk-free rate.
The fair value of the contingent payment component of deferred consideration
is considered to be a Level 3 measurement
and is derived using a present value calculation, incorporating observable and
non-observable inputs. This valuation
technique has been adopted as it most closely mirrors the contractual
arrangement. Refer to note 4 for further details on deferred consideration.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
19. Transactions with non-controlling interests
The Group did not enter into any transactions with non-controlling interests
in the period. During the six months to 30 September 2016, the Group entered
into two transactions with non-controlling interests.
Burberry Middle East LLC
On 22 April 2016, the Group entered into an agreement to transfer the economic
right to the non-controlling interest in Burberry Middle East LLC to the Group
in consideration of contingent payments to be made to the minority shareholder
based on an agreed percentage of the future revenue, together with fixed
payments.
The present value of the fixed and contingent deferred consideration in total,
at the date of the transaction was estimated to be AED 236.0m (£44.6m).
Non-controlling interests with a book value of £25.5m were transferred to
retained earnings.
Burberry (Shanghai) Trading Co., Ltd
On 1 August 2016, the Group acquired the remaining 15% economic interest in
its business in China, which was held by Sparkle Roll Holdings Ltd, a
non-Group company, for consideration of CNY 470.9m (£53.7m), through the
exercise of a call option held by the Group. Non-controlling interests with a
book value of £27.7m were transferred to retained earnings.
The Group had also granted a put option over the same 15% economic interest to
Sparkle Roll Holdings Ltd which was exercisable after 1 September 2020. Upon
exercise of the call option by the Group, the put option expired and as a
result, the value of the liability at the date of exercise, being £51.0m, was
transferred directly to retained earnings.
20. Contingent liabilities
In a number of jurisdictions, the Group is subject to claims against it and to
tax audits. These typically relate to valued added taxes, sales taxes, customs
duties, corporate taxes, transfer pricing, payroll taxes, various contractual
claims and other matters. Where appropriate, the estimated cost of known
obligations have been provided in these financial statements in accordance
with the Group's accounting policies but these matters are inherently
difficult to quantify. While changes to the amounts that may be payable could
be material to the results or cash flows of the Group in the period in which
they are recognised the Group does not currently expect the outcome of these
contingent liabilities to have a material effect on the Group's financial
condition.
21. Events after the balance sheet date
On 3 April 2017, Burberry entered into agreements with Coty Geneva SARL
Versoix (Coty) to grant Coty a licence for its fragrance and beauty products
and to transfer Burberry's Beauty operations to Coty. Under these joint
agreements, Coty will make an upfront payment to Burberry of £130m for the
licence and related transfer of the Beauty operations. Coty will also pay
Burberry additional consideration for assets transferring, being inventory and
property, plant and equipment relating to the Beauty operations. Burberry will
also receive further payments, relating to royalties, over the term of the
licence.
The agreement completed on 2 October 2017. As at 30 September 2017, inventory
of £31.3m and property plant and equipment of £4.4m has been recorded as
assets held for sale, prior to its sale to Coty on 2 October.
In the six months to 30 September 2017, Burberry incurred costs of £26.5m
relating to the transfer of the Beauty operations to Coty. These costs related
to a write down of inventory from net book value to its selling value to Coty,
provisions for the costs of certain related terminations and employee
redundancy. These costs are recorded in disposal of Beauty operations. None of
these costs were paid in the period (refer to note 4).
The directors have carried out an allocation of the upfront payment from Coty
and estimate that approximately £100m relates to future licence income and
approximately £30m relates to the transfer of the Beauty operations. These
proceeds will be recognised as receivable on completion and hence have not
been recognised as at 30 September 2017. It is not anticipated that the gain
or loss on disposal will be significant for the full year to 31 March 2018
once all aspects of the transaction have been completed. The payment of
approximately £100m relating to future licence income will be deferred on the
balance sheet and recognised as revenue over the term of the licence.
The allocation of the upfront payment from Coty will be finalised in the year
ending 31 March 2018. The final amounts received for assets transferred to
Coty and amounts paid with respect to provisions raised in the period may be
subject to further adjustment.
Associated costs of £1.8m relating to the Beauty transaction were incurred in
the six months to 30 September 2017 (six months to 30 September 2016: £nil;
year to 31 March 2017; £14.5m). Refer to note 4 for further details.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that the condensed consolidated interim financial
statements have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the European Union
and that the Interim Management Report and condensed consolidated interim
financial statements include a fair review of the information required by
Disclosure and Transparency Rules 4.2.7 and 4.2.8, namely:
- an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
consolidated interim financial statements, and a description of the principal
risks and uncertainties for the remaining six months of the financial year;
and
- material related party transactions in the first six months of the
financial year and any material changes in the related party transactions
described in the last Annual Report.
The directors of Burberry Group plc are listed in the Burberry Group plc
Annual Report for the year ended 31 March 2017, with the exception of Marco
Gobbetti, who was appointed on 5 July 2017, Ron Frasch, who was appointed as a
non-executive director on 1 September 2017, and Philip Bowman, who resigned on
31 October 2017.
A list of current directors is maintained on the Burberry Group plc website:
www.burberryplc.com.
By order of the Board
Marco Gobbetti
Chief Executve Officer
8 November 2017
Julie Brown
Chief Operating and Chief Financial Officer
8 November 2017
INDEPENDENT REVIEW REPORT TO BURBERRY GROUP PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Burberry Group plc's condensed consolidated interim financial
statements (the "interim financial statements") in the interim report of
Burberry Group plc for the six month period ended 30 September 2017. Based on
our review, nothing has come to our attention that causes us to believe that
the interim financial statements are not prepared, in all material respects,
in accordance with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
What we have reviewed
The interim financial statements comprise:
- the condensed Group balance sheet as at 30 September 2017;
- the condensed Group income statement and condensed Group statement of
comprehensive income for the period then ended;
- the condensed Group statement of cash flows for the period then
ended;
- the condensed Group statement of changes in equity for the period then
ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim report have been
prepared in accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial
reporting framework that has been applied in the preparation of the full
annual financial statements of the Group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the condensed consolidated interim financial statements
and the review
Our responsibilities and those of the directors
The interim report, including the interim financial statements, is the
responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the interim report in accordance with the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the interim report based on our review. This report, including
the conclusion, has been prepared for and only for the company for the purpose
of complying with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in
writing.
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