Burberry Group plc · LSE:BRBY
Burberry — H1 2015 Earnings Presentation
32 slides from Burberry's earnings presentation, November 2014
Slide 1: Interim Results for the Six Months Ended 30 September 2014
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014 CHRISTOPHER BAILEY — CHIEF CREATIVE AND CHIEF EXECUTIVE OFFICER 1
Slide 2: Financial Review, Digital, Driving Productivity, Questions
FINANCIAL REVIEW — DIGITAL AS A DIFFERENTIATOR FOR BURBERRY — DRIVING PRODUCTIVITY THE PRODUCT OPPORTUNITY — QUESTIONS PRINCIPLES • BRAND FIRST • FAMOUS FOR PRODUCT • CUSTOMER-CENTRIC • PRODUCTIVE AND RESPONSIBLE 2
Slide 3: Evolving Strategies and First Half Highlights
EVOLVING STRATEGIES LEVERAGE THE FRANCHISE INSPIRE WITH THE BRAND INTENSIFY ACCESSORIES REALISE PRODUCT POTENTIAL ACCELERATE RETAIL-LED GROWTH OPTIMISE CHANNELS INVEST IN UNDER-PENETRATED MARKETS UNLOCK MARKET OPPORTUNITY PURSUE OPERATIONAL EXCELLENCE FIRST HALF HIGHLIGHTS • MY BURBERRY • RELAUNCH O
Slide 4: Financial Highlights
CAROL FAIRWEATHER — CHIEF FINANCIAL OFFICER FINANCIAL HIGHLIGHTS CHANGE SIX MONTHS TO 30 SEPTEMBER 2014 2013 REPORTED £M £M UNDERLYING FX REVENUE 1,100 1,031 14% 7% ADJUSTED PBT 152.3 173.9 6% (12%) NET CASH 307 208 DIVIDEND PER SHARE 9.7p 8.8p 10% 4
Slide 5: Revenue Grew 14% Underlying
REVENUE GREW 14% UNDERLYING (£1m) £1,100m £40m £1,031m (£75m) £105m H1 2013 EXCHANGE RETAIL WHOLESALE LICENSING H1 2014 RATES REVENUE REVENUE GREW 14% UNDERLYING • RETAIL – 68% of revenue – 15% underlying growth; 8% at reported FX – Comparable sales up 10% (Q1: 12%; Q2: 8%) – Opened nine mainline st
Slide 6: Balanced Growth by Region and Product Division
BALANCED GROWTH BY REGION AND PRODUCT DIVISION BEAUTY: 7% 54% GROWTH CHILDRENS: 4% 3% GROWTH AMERICAS: 25% 17% GROWTH ASIA PACIFIC: 36% 17% GROWTH ACCESSORIES: 36% MENS: 23% 14% GROWTH 12% GROWTH EMEIA: 39% 11% GROWTH WOMENS: 30% 12% GROWTH H1 2014 RETAIL/WHOLESALE REVENUE % GROWTH ON UNDERLYING BAS
Slide 7: Retail/Wholesale Profit Up 8% Underlying
RETAIL/WHOLESALE PROFIT UP 8% UNDERLYING ADJUSTED OPERATING MARGIN 13.9% (1.4%) (0.8%) 11.7% £138m (£25m) £11m £124m H1 2013 EXCHANGE UNDERLYING H1 2014 RATES ADJUSTED RETAIL/WHOLESALE OPERATING PROFIT RETAIL/WHOLESALE PROFIT SIX MONTHS TO 30 SEPTEMBER 2014 2013 £M £M CHANGE RETAIL/WHOLESALE REVENUE
Slide 8: Retail/Wholesale and Licensing Profit
RETAIL/WHOLESALE PROFIT OPERATING MARGIN 12.7% 15.6% 16.4% 17.8% 17.5% £394m £336m £287m £220m £138m FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 ADJUSTED RETAIL/WHOLESALE OPERATING PROFIT LICENSING PROFIT SIX MONTHS TO 30 SEPTEMBER 2014 2013 £M £M REVENUE 34.7 42.4 GROSS MARGIN AT 100% 34.7 42.4 OPERATI
Slide 9: Income Statement
INCOME STATEMENT SIX MONTHS TO 30 SEPTEMBER 2014 2013 £M £M ADJUSTED OPERATING PROFIT 152.2 173.6 NET FINANCE INCOME 0.1 0.3 ADJUSTED PROFIT BEFORE TAX 152.3 173.9 ADJUSTING ITEMS (10.5) (14.9) PROFIT BEFORE TAX 141.8 159.0 TAX (33.4) (42.5) NON-CONTROLLING INTEREST (3.9) (3.8) ATTRIBUTABLE PROFIT 1
Slide 10: Cash Inflow from Operations
CASH INFLOW FROM OPERATIONS SIX MONTHS TO 30 SEPTEMBER 2014 2013 £M £M ADJUSTED OPERATING PROFIT 152.2 173.6 DEPRECIATION AND AMORTISATION 58.7 61.5 EMPLOYEE SHARE SCHEME COSTS 16.6 17.0 (INCREASE) IN INVENTORIES (62.1) (79.1) (INCREASE) IN RECEIVABLES/OTHER (33.9) (54.9) INCREASE IN PAYABLES 16.8 2
Slide 11: Movement in Net Cash
MOVEMENT IN NET CASH £149m (£73m) (£61m) £403m (£103m) (£8m) £307m MAR 2014 OPERATING CAPITAL TAX DIVIDENDS OTHER SEP 2014 CASHFLOW EXPENDITURE MOVEMENT IN NET CASH SIX MONTHS TO 30 SEPTEMBER 2014 2013 £M £M CASH INFLOW FROM OPERATIONS 149.3 142.2 CAPITAL EXPENDITURE (73.0) (63.0) NET INTEREST 0.1 0
Slide 12: FY 2015 Outlook
CONTINUED MOMENTUM IN THE BUSINESS — STRONG FINANCIAL POSITION — GOAL REMAINS TO DRIVE PROFITABLE GROWTH FY 2015 OUTLOOK RETAIL Low to mid single-digit % growth in retail revenue from net new openings WHOLESALE Excluding Beauty, mid single-digit % underlying decline in H2 BEAUTY WHOLESALE Up about 2
Slide 13: Digital Innovation
JOHN SMITH — CHIEF OPERATING OFFICER DIGITAL INNOVATION SEPTEMBER 2010 SEPTEMBER 2011 FEBRUARY 2013 SEPTEMBER 2013 JANUARY 2014 SEPTEMBER 2014 SEPTEMBER 2014 FIRST SHOW LIVESTREAM #TWEETWALK #MADEFOR INSTAGRAM REAL-TIME WECHAT IN TWEET YOUTUBE: OUT OF HOME PARTNERSHIP PURCHASE BACKSTAGE & BEYOND FRA
Slide 14: Digital in the Luxury Sector
DIGITAL IN THE LUXURY SECTOR $ TRILLIONS EURO BILLIONS 2.4 12.2 1.9x 25% 9.8 1.2 2013 2018F 2013 2014F GROWTH IN GLOBAL E-COMMERCE GROWTH IN LUXURY GOODS E-COMMERCE SOURCE: EMARKETER B2C E-COMMERCE SALES SOURCE: BAIN ALTAGAMMA REACH AND ENGAGEMENT • DIGITAL IS A CRITICAL PART OF MARKETING – Across m
Slide 15: Customer End to End Journey
CUSTOMER END TO END JOURNEY BURBERRY.COM - OUR BIGGEST STORE 15
Slide 16: Digital Integrated with Retail
DIGITAL INTEGRATED WITH RETAIL • IPADS IN STORE – Over 25% of digital revenue • COLLECT IN STORE – c.140 stores – Over 20% of digital revenue • BLURRING PHYSICAL AND DIGITAL LEARNING ABOUT THE CUSTOMER • WHO – Millennial consumer – New to Burberry • WHAT – Prorsum – Shoes – Childrenswear 16
Slide 17: Customer Value Management and Fulfilment
CUSTOMER VALUE MANAGEMENT Customer contact Value MEASUREMENT & segmentation strategy proposition METRICS FULFILMENT • FULFILMENT - THE NEW FRONTIER – Improved order window – Free delivery – Testing same day fulfilment – China virtual single pool of inventory 17
Slide 18: Investment Off and Online
INVESTMENT OFF AND ONLINE • CONTINUE TO INVEST IN STORES AND DIGITAL • UPGRADED MOBILE SITE – Traffic shifting to mobile from desktop – Improved speed and responsiveness • OTHER IMPROVEMENTS – Mobile payments in store – Revised taxonomy – Search engine and browser optimisation – Click to chat or cal
Slide 19: Maximising Reach
MAXIMISING REACH 307m 284m 260m ALIBABA TWITTER AMAZON ACTIVE USERS MOST RECENTLY AVAILABLE DATA DRIVING REPUTATION TMALL DIGITAL CONCESSION 19
Slide 20: Driving Reputation
DRIVING REPUTATION BRAND A 161 BURBERRY - POST LAUNCH 468 BRAND B 683 BRAND C 1,577 BRAND D 1,612 BRAND E 2,159 BRAND F 4,108 BRAND G 4,915 BRAND H 5,860 BURBERRY - PRE LAUNCH 6,500 BRAND I 7,300 BRAND J 8,094 BRAND K 15,431 NUMBER OF PRODUCT LISTINGS ON TMALL.COM CLICK TO BUY WITHIN TWEET 20
Slide 21: Digital as a Differentiator for Burberry
DIGITAL INNOVATION MANAGE CUSTOMER JOURNEY ON AND OFFLINE — DIGITAL AS A DIFFERENTIATOR FOR BURBERRY 21
Slide 22: Driving Productivity: The Product Opportunity
DONALD KOHLER — CHIEF MERCHANDISING OPERATIONS OFFICER DRIVING PRODUCTIVITY — THE PRODUCT OPPORTUNITY 22
Slide 23: Five Product Functions
FIVE PRODUCT FUNCTIONS SUPPLY DESIGN CHAIN product PRODUCT PLANNING DEVELOPMENT MERCHANDISING MERCHANDISING OPERATIONS Heritage Trench Rack Coat Warehouse GLOBAL MERCHANDISE PLANNING & ALLOCATION REPLENISHMENT INVENTORY MANAGEMENT Swing ticket or wall of handbags Report or PC .com PRICING STRATEGY B
Slide 24: Range Rationalisation
RATIONALISATION — CONSISTENCY — ELEVATION RANGE RATIONALISATION RETAIL • REDUCED ASSORTMENTS – c.65% fewer options offered – c.50% fewer options procured – Over 75% of what is offered is now procured • OPERATIONAL EFFICIENCIES – Design – Product development – Showrooms – Samples • SIMPLIFY SUPPLY CH
Slide 25: Consistency: Brand Buy and Replenishment
CONSISTENCY BRAND BUY • BRAND BUY ASSORTMENT – Key design inspiration – Key revenue drivers 70% – Core replenishment items – Aligned with marketing strategy • ONE BRAND – 70% consistency among regions – With room for regional nuances 30% • WHOLESALE TO RETAIL ALIGNMENT – Two-thirds consistency betwe
Slide 26: Elevation: Retail Apparel Product Pyramid
ELEVATION 5% PRORSUM 5% LONDON 25% 45% BRIT 70% 50% FY 2009 FY 2014 RETAIL APPAREL PRODUCT PYRAMID % OF REVENUE GOALS • DRIVE SALES • INCREASE PROFITABILITY • IMPROVE INVENTORY EFFICIENCY IMAGE 26
Slide 27: Driving Retail Productivity and Gross Margin
DRIVING RETAIL PRODUCTIVITY AND GROSS MARGIN RETAIL AS % OF TOTAL REVENUE 60% 70% 140 70.2% 100 61.0% FY 2010 FY 2014 FY 2010 FY 2014 SALES DENSITIES RETAIL/WHOLESALE GROSS MARGIN RETAIL REVENUE PER SQUARE FOOT (2010=100) GENERATING CASH THROUGH Inventory EFFICIENCY CAGR +21% £1,623m CAGR +10%* £630
Slide 28: Future Opportunities: Store Profiling and Warm Climate Stores
Future opportunities • STORE PROFILING – Assort by fixture versus total store – Enable clustering based on fixtures, climate and customer – Will support store productivity • WARM CLIMATE STORES • AUTOMATED ALLOCATION • VIRTUAL SINGLE POOL OF INVENTORY ION ORCHARD, SINGAPORE PACIFIC PLACE, HONG KONG
Slide 29: Future Opportunities: Automated Allocation
FUTURE OPPORTUNITIES • STORE PROFILING • WARM CLIMATE STORES • AUTOMATED ALLOCATION – Now allocate 60% of fashion to stores up front • Down from 85% – Completed software implementation – Now automating initial inventory and replenishment – Will drive in-stock rates and sales ION ORCHARD, SINGAPORE •
Slide 30: Christopher Bailey, Chief Creative and Chief Executive Officer
CHRISTOPHER BAILEY — CHIEF CREATIVE AND CHIEF EXECUTIVE OFFICER 30
Slide 31: Appendix: Disclaimer
APPENDIX 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 forward-l
Slide 32: Adjusted Measures
ADJUSTED MEASURES All metrics and commentary in this presentation are at reported FX and exclude adjusting items unless stated otherwise. Adjusting items are: A charge of £7.5m in reported operating expenses being the amortisation of the fragrance and beauty licence intangible asset (2013: £7.5m)