Burberry Group plc · LSE:BRBY
Burberry — FY2006/07 Earnings Presentation
64 slides from Burberry's earnings presentation, May 24, 2007
Slide 1: Slide 1
Slide 2: Preliminary Results 24th May 2007
Preliminary Results 24th May 2007
Slide 3: John Peace, Chairman
John Peace Chairman
Slide 4: Second Half Review
Second Half Review Stacey Cartwright Chief Financial Officer
Slide 5: Full Year Financial Highlights
Full Year Financial Highlights 2006/07 2005/06 £m £m Growth Turnover 850.3 742.9 14% Reported EBIT 157.0 154.5 2% Adjusted EBIT* 185.1 165.6 12% Adjusted diluted EPS* 29.1 24.1 21% Dividend per share 10.5 8.0 31% Atlas costs 21.6 11.1 Plant closure costs 6.5 * Pre Atlas and plant closure costs
Slide 6: First Half / Second Half Split
First Half / Second Half Split 2006/07 2005/06 Growth H1 H2 H1 H2 H1 H2 Turnover 392.0 458.3 354.9 384.3 11% 19% Gross Profit % 61.6% 61.0% 57.8% 62.1% 7% (2%) Operating expenses % * 40.2% 39.0% 35.6% 39.7% 13% (2%) Adjusted EBIT * 84.2 100.9 78.8 86.1 7% 17% * Pre Atlas and plant closure costs
Slide 7: Full Year Revenue Channel Shift
Full Year Revenue Channel Shift % 11% 10% 11% 10% 11% 10% Turnover 54% 47% 39% 37% 46% 42% License Wholesale Retail 35% 43% 50% 53% 43% 48% H1 H1 H2 H2 FY FY 05/06 06/07 05/06 06/07 05/06 06/07 Retail +8% Retail +3% Retail +5% points shift points shift points shift
Slide 8: Turnover
Turnover Second Half Review £78.5m (£19.9m) £15.4m £458.3m • Growth – 19% reported £384.3m – 20% underlying 2005/06 Underlying Exchange Conversions 2006/07 growth rates H2 H2
Slide 9: Accelerated Retail Growth
Accelerated Retail Growth Second Half Review Retail Revenue Growth Components Conversions/FX/Other Comparable store growth Space additions 36% 13% 25% 24% 2% 12% 12% 11% 12% 4% 3% 0% 12% 14% 8% 9% H1 H2 H1 H2 2005/06 2006/07
Slide 10: Second Half Store Activity
Second Half Store Activity Second Half Review First Half Second Half • 15 new openings Atlantic City Topanga • 14% space growth Hackensack Vienna Northbrook Seville • Channel shift Kansas City Manchester – Spain concessions Madrid Prague Sydney 2 outlets 1 outlet 5 concessions 8 concessions (net)
Slide 11: Retail Revenue
Retail Revenue Second Half Review • Growth £45.9m (£12.2m) £15.1m £241.0m – 25% reported – 24% underlying £192.2m • 14% space increase • 12% comp • 6% exchange • 8% conversion 2005/06 Underlying Exchange Conversions 2006/07 H2 growth rates H2
Slide 12: Wholesale Trajectory
Wholesale Trajectory Second Half Review Underlying Wholesale Revenue Growth 17% 1% (1%) (7%) H1 H2 H1 H2 2005/06 2006/07
Slide 13: Wholesale Performance
Wholesale Performance Second Half Review % % change revenue (underlying) 80 60 40 20 Europe Spain North Asia Emerging America Markets (ex Spain)
Slide 14: Wholesale Revenue
Wholesale Revenue Second Half Review • Growth – up 14% reported £26.1m (£5.1m) £0.3m £172.0m – up 17% underlying £150.7m • Replenishment added £4m • New markets – September market for Spring delivery 2005/06 Underlying Exchange Conversions 2006/07 growth rates H2 H2
Slide 15: Licensing Revenue
Licensing Revenue Second Half Review • 15% underlying growth % share of licensing revenue Product Product • Japan 36% 30% – MSD – Reported affected by Yen – Declining share of licensing mix Japan Japan 64% 70% • Product – Strong DD underlying growth 2006/07 2005/06 H2 H2 £45.3m £41.5m
Slide 16: Product Licenses
Product Licenses Second Half Review • Fragrances – Burberry London – Burberry Summer – FIFI award for Burberry London for men • Eyewear – Launch of new collection with Luxottica • Watches performed well Eyewear
Slide 17: Licensing Revenue
Licensing Revenue Second Half Review £6.4m (£2.6m) • Growth £45.3m – 9% reported £41.5m – 15% underlying 2005/06 Underlying Exchange 2006/07 growth rates H2 H2
Slide 18: Gross Profit Margin
Gross Profit Margin Second Half Review • Retail mix 62.1% 61.0% • Reduced markdowns • Atlas sourcing benefits • Offset by – Investment in sourcing, samples and product development – Spain stock write-offs – Licensing mix 2005/06 2006/07 H2 H2
Slide 19: Operating Expenses*
Operating Expenses* Second Half Review • Retail mix shift 39.7% 39.0% • Investment in merchandising and supply chain • Marketing efficiencies • Atlas savings • Leverage 2005/06 2006/07 H2 H2 * Pre Atlas and plant closure costs
Slide 20: Adjusted EBIT*
Adjusted EBIT* Second Half Review • Adjusted EBIT growth: £21.3m (£6.5m) £100.9m – 17% reported £86.1m – 25% underlying 2005/06 Adjusted Exchange 2006/07 * Pre Atlas and plant closure costs H2 growth rates H2
Slide 21: Currency Impact
Currency Impact Second Half Review 2006/07 2007/08 H1 H2 FY Outlook Currency impact on EBIT - US dollar 0.4 2.2 2.6 1 - Euro 0.2 0.6 0.8 1 - Yen (hedge rate) 0.7 2.1 2.8 6 - Other 0.6 1.6 2.2 1 Total currency 1.9 6.5 8.4 10
Slide 22: Adjusted EBIT Margin*
Adjusted EBIT Margin* Second Half Review Year 2006/07 2005/06 1H 2H Year Retail and Wholesale 14. 5% 14.0% 15.1% 14.6% Licence 85.6% 85.8% 84.8% 85.2% Total 22.3% 21.5% 22.0% 21.8% * Pre Atlas and plant closure costs
Slide 23: Adjusted Net Income*
Adjusted Net Income* • Interest expense £0.7m – “cash neutral” balance sheet • Tax rate 29.5% vs 32.2% – 1.5% one-off – 31% ongoing rate • 21% adjusted diluted EPS* increase – tax – share repurchase * Pre Atlas and plant closure costs
Slide 24: Cash Flow from Operations
Cash Flow from Operations FY FY 2006/07 2005/06 £m £m Adjusted EBIT* 185.1 165.6 Atlas & manufacturing closure costs (28.1) (11.1) Depreciation and similar charges 26.7 24.9 Increase in stocks (33.4) (17.8) (Increase) Decrease in debtors (33.8) 2.2 (Decrease) Increase in creditors 32.8 (21.2) Other
Slide 25: Total Cash Flow
Total Cash Flow FY FY 2006/07 2005/06 £m £m Cash inflow from operations 161.2 148.4 Net interest (1.6) 1.6 Tax paid (45.8) (43.6) Capital expenditures and acquisition (35.7) (50.7) related payments Sale of shares by ESOP/ Issue of share capital 6.7 6.1 Free cash flow 84.8 61.8
Slide 26: Capital Management
Capital Management • Cash neutral target • Repurchase – £62m during the year – £312m since January 2005 • Progressively increasing dividend payout ratio – 20% in 2002/03 – 36% in 2006/07 – Dividend up from 3.0p in 2002/03 to 10.5p 2006/07 – Final dividend up 39% to 7.625p – Target 40% payout ratio
Slide 27: Atlas Update
Atlas Update • £50m programme over 3 years – 05/06 £11.1m – 06/07 £21.6m – 07/08 outlook c. £15m • Ongoing P&L benefits by 07/08 £20+m p.a. – £6m achieved in 06/07 • Fully owned by the business • Firmly in implementation
Slide 28: Atlas Update – Implementation Status
Atlas Update – Implementation Status • Completed – Corporate Treasury – UK/Europe Finance – UK/Europe Non-Stock Procurement – UK Manufacturing – Global sales & stock analytics • In implementation – Core design/product development/merchandising/selling activities in London “engine room” – “Follow the
Slide 29: 2007/08 Outlook
2007/08 Outlook • Retail - 13% space expansion • Wholesale - 1st half mid-teens percentage growth • Licensing - flat underlying - Yen adverse currency movement £6m • Atlas - c. £15m spend - £20m P&L benefits • Tax rate - c. 31% • Capital expenditure - c. £60m including renovations
Slide 30: Strategy Update
Strategy Update Angela Ahrendts Chief Executive Officer
Slide 31: Strategic Themes
Strategic Themes • Leverage the franchise • Intensify non-apparel development • Accelerate retail-led growth • Invest in under-penetrated markets • Pursue operational excellence
Slide 32: Building the Luxury Quotient
Building the Luxury Quotient Leverage the Franchise • Commercial opportunity • Benefits design and development • Brand aura SS07
Slide 33: Building the Top of the Pyramid
Building the Top of the Pyramid Leverage the Franchise SS07 SS07 SS07
Slide 34: Building the Top of the Pyramid
Building the Top of the Pyramid Leverage the Franchise
Slide 35: Reshaping the Pyramid
Reshaping the Pyramid Leverage the Franchise • Historical casual concentration Prorsum/ Runway • Early efforts to build centre • AUR progress London/Tailored Lifestyle/Casual Product Pyramid
Slide 36: Outerwear Intensification
Outerwear Intensification Leverage the Franchise • Merchandising cornerstone • Product initiatives • Back-of-house initiatives • Extensions to other categories AW07 AW07 Runway Runway
Slide 37: Outerwear Intensification
Outerwear Intensification Leverage the Franchise SS07 Sartorial
Slide 38: Outerwear Intensification
Outerwear Intensification Leverage the Franchise SS07 Lifestyle
Slide 39: New Businesses for the Future
New Businesses for the Future Leverage the Franchise • Icons learning – Power of theme internally – Drive sales • AW07 tests – Sport – At Home – Evening • Maintain operational emphasis Burberry Sport Autumn 2007
Slide 40: Integrating Selected Product Licenses
Integrating Selected Product Licenses Leverage the Franchise • Historical legacies • Initiated integration process • Brand and economic benefits SS07
Slide 41: Synchronised Marketing Strategy
Synchronised Marketing Strategy Leverage the Franchise • Enhance appeal to younger fashion luxury customer • Consistent imagery • Strategic segmentation of campaign • Synchronised with product flow • Reallocating spend SS07
Slide 42: Synchronised Marketing Strategy
Synchronised Marketing Strategy Leverage the Franchise Catalogue Website Store
Slide 43: Synchronised Marketing Strategy
Synchronised Marketing Strategy Leverage the Franchise SS07 Runway
Slide 44: Synchronised Marketing Strategy
Synchronised Marketing Strategy Leverage the Franchise SS07 Sartorial
Slide 45: Synchronised Marketing Strategy
Synchronised Marketing Strategy Leverage the Franchise SS07 Lifestyle
Slide 46: Enhancing the Luxury Quotient
Enhancing the Luxury Quotient Intensify Non-Apparel Development • Icons as luxury relaunch • Demonstrated opportunity • Developing execution • Building backend Icons Collection
Slide 47: Extending to Additional Categories
Extending to Additional Categories Intensify Non-Apparel Development • Building the pyramid – Shoes – SLG – Soft • Ongoing investment – Design and merchandising – Marketing – Supply Chain SS07
Slide 48: Executing Non-Apparel
Executing Non-Apparel Intensify Non-Apparel Development Non-Apparel vs Apparel Childrenswear & Other Growth 2% Licensing 25% 10% Non-Apparel 20% Apparel Womenswear 15% Non-Apparel 36% 25% 10% 5% Menswear 27% 0% 1H04/05 2H04/05 1H05/06 2H05/06 1H06/07 2H06/07 -5% 2006/07
Slide 49: Changing the Operating Model
Changing the Operating Model Retail-led Growth Retail Orientation Design Development Merchandising Marketing Operations • Design cycle • Style economy • Message precision • Replenishment • Cross-category cohesion • Precise planning • Frequent • Supply chain communication reconfiguration • Floor set
Slide 50: Store Productivity
Store Productivity Retail-led growth Drivers Assortments (in store) • Pyramid Key Metrics • Category depth • Flow Traffic Availability • In-store • Accessible Conversion Store ambiance Store • Space allocation Units per Productivity • Visual merchandising transaction Sales and service Average • Shop
Slide 51: Re-Invest in Existing Stores
Re-Invest in Existing Stores Retail-led Growth • Targeting 20+ stores • Upgrade luxury aesthetic • New category fixturing • Enhance productive capacity – Increase selling area – Greater space efficiency Manchester
Slide 52: Concessions
Concessions Retail-led Growth • Successful model • ECI womenswear performing well – childrenswear conversion • Ongoing initiatives Shinsegae Accessories Seoul, Korea
Slide 53: 2007/08 Store Plans*
2007/08 Store Plans* Retail-led Growth North America Europe Austin, TX Antwerp, Belgium Beverly Centre, CA Bologna, Italy Boston, MA Puerto Banus, Spain Natick, MA Palo Alto, CA Tampa, FL 1 outlet 1 outlet * Completed leases to date Puerto Banus
Slide 54: Strengthening the Foundation
Strengthening the Foundation Underpenetrated Markets • Asia – integrating region – evolving travel retail – eliminated local product • US – upgraded wholesale approach
Slide 55: Emerging Markets
Emerging Markets Underpenetrated Markets • Appeal of Burberry’s luxury offering • Refining approach • 10 new stores in 07/08 • China initiatives Kiev
Slide 56: Work in Progress
Work in Progress Pursue Operational Excellence • Margin management • Global logistics task force • New headquarters • Strengthen the organisation
Slide 57: Strengthening the Organisation
Strengthening the Organisation Pursue Operational Excellence Horseferry Road
Slide 58: Strengthening the Organisation
Strengthening the Organisation Pursue Operational Excellence Horseferry Road
Slide 59: Spain
Spain Phase II • Completing strategic review • Initial integration steps • Store openings • More work to do Seville
Slide 60: Japan
Japan Phase III • Testing International product • Expanded and elevated dialogue • Launching comprehensive market review Takashimaya Shinjuku
Slide 61: Burberry Foundation
Burberry Foundation BURBERRY ESTABLISHED 1856
Slide 62: Conclusion
Conclusion
Slide 63: Slide 63
Slide 64: Disclaimer
Disclaimer Certain statements made in this announcement 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 looking st