Burberry Group plc · LSE:BRBY
Burberry — H1 2013 Earnings Presentation
37 slides from Burberry's earnings presentation, Nov 7, 2012
Slide 1: Interim results for the six months ended 30 September 2012
Interim results FOR THE six months ENDED 30 September 2012 1 FIRST HALF REVIEW — Directly operating fragrance and beauty — QUESTIONS 2 1
Slide 2: First half achievements
FIRST HALF ACHIEVEMENTS • FIRST HALF PERFORMANCE – Revenue grew 6% to £883m – Adjusted PBT grew 7% to £173m – Retail/wholesale • Revenue grew 7% • Adjusted operating profit grew 11% – £237m cash – Interim dividend up 14% to 8.0p • CONSISTENT EXECUTION OF KEY STRATEGIES – Investment plans unchanged •
Slide 3: Revenue grew 6%
REVENUE GREW 6% £12m (£2m) £883m £52m £830m (£9m) H1 2011 EXCHANGE RETAIL WHOLESALE LICENSING H1 2012 RATES REVENUE 5 REVENUE GREW 6% • REVENUE GREW 8% UNDERLYING • RETAIL – 65% of revenue – 10% underlying growth • WHOLESALE – 29% of revenue – 5% underlying growth • LICENSING – 6% of revenue – 5% un
Slide 4: Retail revenue grew 10%
RETAIL REVENUE GREW 10%* £16m £577m £36m £528m (£3m) H1 2011 EXCHANGE NEW COMP H1 2012 RATES SPACE STORE GROWTH REVENUE * UNDERLYING 7 RETAIL REVENUE GREW 10% • COMPARABLE STORE SALES GREW 3% – Q1 grew 6% – Q2 grew 1% – Footfall decelerated • HIGHER QUALITY SALES GROWTH – Increased average transacti
Slide 5: Investing in flagship markets
INVESTING IN FLAGSHIP MARKETS REGENT STREET, LONDON 9 INVESTING IN FLAGSHIP MARKETS • FULL YEAR CAPITAL EXPENDITURE UNCHANGED AT £180-200M – Re-tested projects against 25% IRR hurdle – Half of spend in flagship markets – About 14% average retail space growth planned in H2 KNIGHTSBRIDGE, LONDON 10 5
Slide 6: Wholesale revenue grew 5%
WHOLESALE REVENUE grew 5%* £248m (£7m) £12m £253m H1 2011 EXCHANGE GROWTH H1 2012 RATES REVENUE * UNDERLYING 11 WHOLESALE REVENUE grew 5% • H1 IN LINE WITH GUIDANCE • OUTLOOK FOR H2 – More cautious approach from customers globally – Broadly unchanged revenue year-on-year at constant FX • FOCUS ON QU
Slide 7: Licensing revenue down 5%
LICENSING REVENUE DOWN 5%* £54m £1m (£3m) £1m £53m H1 2011 EXCHANGE NON - GROWTH H1 2012 RATES RENEWALS REVENUE * UNDERLYING 13 LICENSING REVENUE DOWN 5% • DOWN 3% AT REPORTED FX – Consistent with full year guidance • CORRECTING LEGACY ISSUES IN JAPAN COST £3M • PREPARING FOR JAPAN APPAREL TRANSITIO
Slide 8: The Britain watch
THE BRITAIN WATCH 15 16 8
Slide 9: Balanced by region
BALANCED BY REGION REST OF WORLD: 7% 14% GROWTH ASIA PACIFIC: 36% AMERICAS: 24% 11% GROWTH 5% GROWTH EUROPE: 33% 8% GROWTH H1 2012 RETAIL/WHOLESALE REVENUE % growth on underlying basis 17 BALANCED BY REGION • ASIA PACIFIC GREW 11% – Hong Kong robust, if uneven; Pacific Place and Russell Street openi
Slide 10: Asia Pacific grew 11%; China grew mid-teens
ASIA PACIFIC GREW 11% PACIFIC PLACE, HONG KONG 19 CHINA GREW mid-teens % • CONTINUE TO INVEST IN THIS HIGH POTENTIAL MARKET – Increasing wealth – Fast growing domestic luxury demand – Outbound travel increasing SINA WEIBO 20 10
Slide 11: Europe grew 8%; Americas grew 5%
EUROPE GREW 8% VIA MONTENAPOLEONE, MILAN OLYMPICS 2012 CLOSING CEREMONY 21 AMERICAS GREW 5% MICHIGAN AVENUE, CHICAGO 22 11
Slide 12: Balanced by product division
BALANCED BY PRODUCT DIVISION CHILDRENS: 4% 5% GROWTH MENS: 25% 12% GROWTH ACCESSORIES: 39% 8% GROWTH WOMENS: 32% 6% GROWTH H1 2012 RETAIL/WHOLESALE REVENUE % growth on underlying basis 23 BALANCED BY PRODUCT DIVISION • BALANCED ASSORTMENT BY LABEL, CATEGORY AND PRICE POINT – Constant evolution • SOL
Slide 13: Intense focus on festive
INTENSE FOCUS ON FESTIVE 25 26 13
Slide 14: Financial highlights
STACEY CARTWRIGHT — EVP, CHIEF FINANCIAL OFFICER 27 FINANCIAL HIGHLIGHTS SIX MONTHS TO 30 SEPTEMBER 2012 2011 £M £M GROWTH REVENUE 883 830 6% ADJUSTED PBT 173.4 161.6 7% ADJUSTED DILUTED EPS 29.0p 26.9p 8% NET CASH 237 174 36% DIVIDEND PER SHARE 8.0p 7.0p 14% 28 14
Slide 15: Adjusted operating profit grew 7%; retail/wholesale profit grew 11%
ADJUSTED OPERATING PROFIT GREW 7% £12.0m (£2.8m) £173.6m £162.1m £2.3m H1 2011 EXCHANGE RETAIL/ LICENSING H1 2012 RATES WHOLESALE ADJUSTED OPERATING PROFIT 29 RETAIL/WHOLESALE PROFIT GREW 11% SIX MONTHS TO 30 SEPTEMBER 2012 2011 £M £M CHANGE RETAIL/WHOLESALE REVENUE 829.9 775.3 7% GROSS MARGIN 574.4
Slide 16: Retail/wholesale gross margin grew 250bp
RETAIL/WHOLESALE GROSS MARGIN GREW 250BP 69.2% 66.7% 64.3% 56.8% 57.6% H1 2008 H1 2009 H1 2010 H1 2011 H1 2012 RETAIL AS % OF GROUP SALES 45% 56% 57% 64% 65% GROSS MARGIN 31 RETAIL/WHOLESALE GROSS MARGIN GREW 250BP • GROSS MARGIN AT 69.2% • DRIVEN BY – Modest price increases – FX benefits, especiall
Slide 17: Retail/wholesale operating expenses/revenue at 53.7%
RETAIL/WHOLESALE OPERATING EXPENSES/REVENUE AT 53.7% 53.7% 49.5% 51.8% 46.9% 43.9% H1 2008 H1 2009 H1 2010 H1 2011 H1 2012 RETAIL AS % OF GROUP SALES 45% 56% 57% 64% 65% ADJUSTED OPERATING EXPENSES/REVENUE 33 RETAIL/WHOLESALE OPERATING EXPENSES/REVENUE AT 53.7% • OPERATING EXPENSES UP 11% OR £44M •
Slide 18: Licensing profit
LICENSING PROFIT SIX MONTHS TO 30 SEPTEMBER 2012 2011 £M £M REVENUE 52.6 54.3 GROSS MARGIN AT 100% 52.6 54.3 OPERATING EXPENSES (7.9) (7.9) OPERATING PROFIT 44.7 46.4 OPERATING MARGIN 85.0% 85.5% YEN HEDGE RATE 125 135 H1 2012 INCLUDES FX BENEFIT OF £1.1M IN REVENUE AND NIL IN OPEX 35 36 18
Slide 19: Income statement
INCOME STATEMENT SIX MONTHS TO 30 SEPTEMBER 2012 2011 £M £M ADJUSTED OPERATING PROFIT 173.6 162.1 NET FINANCE CHARGE (0.2) (0.5) ADJUSTED PROFIT BEFORE TAX 173.4 161.6 EXCEPTIONAL ITEMS (61.5) (2.9) PROFIT BEFORE TAX 111.9 158.7 TAX (26.5) (42.8) DISCONTINUED OPERATIONS 0.1 0.6 NON-CONTROLLING INTER
Slide 20: Cash inflow from operations
CASH INFLOW FROM OPERATIONS SIX MONTHS TO 30 SEPTEMBER 2012 2011 £M £M ADJUSTED OPERATING PROFIT 173.6 162.1 DISCONTINUED OPERATIONS 0.1 0.6 RESTRUCTURING SPEND (0.6) (6.2) DEPRECIATION AND AMORTISATION 48.6 39.5 EMPLOYEE SHARE SCHEME COSTS 10.2 16.0 INCREASE IN INVENTORIES (42.3) (90.3) INCREASE IN
Slide 21: Movement in net cash; total cash flow
MOVEMENT IN NET CASH £138m (£89m) (£47m) £338m (£79m) (£28m) £4m £237m MAR 2012 OPERATING INVESTMENT TAX DIVIDENDS ESOP TRUST OTHER SEP 2012 CASHFLOW PURCHASES 41 TOTAL CASH FLOW SIX MONTHS TO 30 SEPTEMBER 2012 2011 £M £M CASH INFLOW FROM OPERATIONS 138.3 105.3 CAPITAL EXPENDITURE (88.8) (63.0) CAPI
Slide 22: FY 2013 outlook
Strong financial position — Goal is to deliver further modest improvement in FULL YEAR retail/wholesale margin — Balancing EXPENSE control AND investment 43 FY 2013 OUTLOOK FY 2013 Modest retail/wholesale adjusted operating margin improvement RETAIL About 14% increase in average retail selling space
Slide 23: Directly operating fragrance and beauty
Directly operating FRAGRANCE AND BEAUTY • STRATEGIC RATIONALE – Greater brand control – Significant opportunities • ENDED LICENCE RELATIONSHIP FROM 31 DECEMBER 2012 – Original expiry date 31 December 2017 – Payment of €181m to Interparfums on 31 December 2012 – Three month extension of licence relat
Slide 24: Fragrance and beauty estimated financial impact
Fragrance and beauty estimated financial impact FY 2013 FY 2014 £M £M WHOLESALE REVENUE - 140 RETAIL/WHOLESALE OPERATING PROFIT - 25 LICENSING REVENUE/PROFIT - (25) ADJUSTED PBT* - - EXCEPTIONAL ITEMS H1 TERMINATION CHARGE (74) - H2 SET-UP COSTS (5-10) - ANNUAL AMORTISATION CHARGE - (15) * INTEREST
Slide 25: Angela Ahrendts, Chief Executive Officer
Angela ahrendts — Chief executive officer 49 LEVERAGE THE FRANCHISE — INTENSIFY NON-APPAREL — ACCELERATE RETAIL-LED GROWTH — INVEST IN UNDER-PENETRATED MARKETS — PURSUE OPERATIONAL EXCELLENCE 50 25
Slide 26: Directly operating fragrance and beauty; benefits of brand integration
Directly operating FRAGRANCE AND BEAUTY • TIMING IS RIGHT – One-off opportunity before 2018 – Burberry brand has evolved • UNDER-PENETRATED IN FRAGRANCE AND BEAUTY 51 BENEFITS OF BRAND INTEGRATION • MOST WIDELY ENCOUNTERED PROJECTION OF BRAND – Opening price point – Brand media spend • INTEGRATED MA
Slide 27: Established category with stable growth
INNOVATIVE LAUNCH OF BURBERRY BODY 53 ESTABLISHED CATEGORY WITH STABLE GROWTH €57bn €55bn €47bn €42bn ACCESSORIES APPAREL HARD LUXURY PERFUME AND COSMETICS GROWTH RATES 2011-12E +14% +10% +13% +5% 2012E REVENUE SOURCE: BAIN/ALTAGAMMA 54 27
Slide 28: Under-penetrated in fragrance; nascent business in beauty
UNDER-PENETRATED IN FRAGRANCE RTW AND ACCESSORIES FRAGRANCE AND BEAUTY BRAND A BRAND B BRAND C BRAND D BURBERRY SOURCE: BURBERRY ESTIMATES 55 Nascent business IN BEAUTY CHANEL DIOR YSL ARMANI BURBERRY SOURCE: BURBERRY ESTIMATES 56 28
Slide 29: Product portfolio
Matt mcevoy — Svp, strategy AND new business development 57 PRODUCT portfolio 58 29
Slide 30: Building the body pillar; aligning the pyramid
BUILDING THE BODY pillar SEPT 2011 MARCH 2012 SEPT 2012 2013 EAU DE EAU DE ROSE GOLD BODY TENDER PARFUM TOILETTE 59 ALIGNING THE PYRAMID 60 30
Slide 31: Beauty product strategy
BEAUTY product strategy • TEST ESTABLISHED BASE – Launched two years ago – Currently in 90 doors • INCREASE PACE OF SEASONAL PRODUCT INTRODUCTIONS – Similar to fashion flow – While continuing to build the base • INTENSIFY MARKETING EFFORT • EXPAND NUMBER OF DOORS 61 62 31
Slide 32: Historical model; running the beauty division
HISTORICAL MODEL BURBERRY INTERPARFUMS THIRD PARTIES DESIGN PRODUCT DEVELOPMENT MANUFACTURING CREATIVE SOURCING MARKETING AND PR INVENTORY MANAGEMENT SALES & DISTRIBUTOR LOGISTICS MANAGEMENT DISTRIBUTOR NETWORK 63 RUNNING THE BEAUTY DIVISION BURBERRY THIRD PARTIES DESIGN MANUFACTURING CREATIVE MARKE
Slide 33: Transition arrangements; integration work underway
Transition arrangements • SIGNIFICANT BUSINESS INTEGRATION EXPERIENCE • TRANSITION PLAN WITH INTERPARFUMS – Three month extension – Progressive transfer of processes and projects 65 Integration work underway • DIALOGUE WITH DISTRIBUTORS • SOURCING/LOGISTICS TEAMS SECURING PRODUCT FLOW • IT INTEGRATI
Slide 34: Burberry's fifth product division
BURBERRY BEAUTY THE FIFTH PRODUCT DIVISION • LEVERAGING OUR EXISTING INFRASTRUCTURE AND PEOPLE – Functional experience already exists in key areas – Reallocating internal resource • ATTRACTING NEW TALENT FROM RELEVANT INDUSTRIES 67 Burberry’s fifth Product division 68 34
Slide 35: Further financial growth
FURTHER FINANCIAL GROWTH — ‘PAY AS YOU GO’ IN ACTION — EXECUTE KEY STRATEGIES — INVEST FOR GROWTH 69 70 35
Slide 36: Appendix: Disclaimer
APPENDIX 71 DISCLAIMER Certain statements made in this presentation are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forwar
Slide 37: Adjusted measures; IR contacts
ADJUSTED MEASURES All metrics and commentary in the this presentation exclude the results of the discontinued business in Spain and exceptional items, unless stated otherwise. Exceptional items are: A charge of £73.8m relating to the termination of the fragrance and beauty licence relationship (20