Burberry Regulatory News (BRBY)

16 May 2018

Burberry Group plc

Preliminary results for the year ended 31 March 2018

Execution of plan on track with comparable sales +3%and growth in profit and cash flow

In November 2017, we set out our multi-year plan to re-energise our product, our communication and the experiences customers have of our brand to deliver sustainable long-term value. We have made good initial progress, our plans are on track and we are seeing positive early signs from our retail and wholesale customers.

*See page 12 for definitions of alternative performance measures

· Riccardo Tisci appointed as Chief Creative Officer from March 2018

· Strategic acquisition to create centre of excellence for luxury leather goods

· Collections resonated with new customers and top-tier clients

· Retail excellence programme supported increased conversion in all regions

· Started evolution of distribution including strategic retail store closures as planned

· Launched collaboration with Farfetch, expanded reach to over 150 countries

· Cumulative cost savings of £64m, ahead of plan; Burberry Business Services live

· Successfully completed transfer of Beauty to Coty strategic partnership as planned

FY 2019 outlook

· Trading in line with guidance

· On track to deliver cumulative cost savings of £100m

· New share buyback of £150m announced

"In a year of transition, we are pleased with our performance as we began to execute our strategy. While the task of transforming Burberry is still before us, the first steps we implemented to re-energise our brand are showing promising early signs. With Riccardo Tisci now on board and a strong leadership team in place, we are excited about the year ahead and remain fully focused on our strategy to deliver long-term sustainable value."

Marco Gobbetti, Chief Executive Officer

All metrics and commentary in the Group Financial Highlights and Business and Financial Review exclude adjusting items unless stated otherwise.

# Constant exchange rates (CER) removes the effect of changes in exchange rates compared to the prior period. This takes into account both the impact of the movement in exchange rates on the translation of overseas subsidiaries' results and also on foreign currency procurement and sales through the Group's UK supply chain.

The following alternative performance measures are presented in this announcement: adjusted performance measures, comparable sales, revenue excluding Beauty wholesale, free cash flow, cash conversion and lease-adjusted net debt. The definition of these alternative performance measures are set out in the Appendix on page 12.

Cumulative cost savings are savings compared to FY 2016 operating expenses.

Certain financial data within this announcement have been rounded.

Enquiries

· There will be a presentation today at 9.30am (UK time) to investors and analysts at Horseferry House, Horseferry Road, London, SW1P 2AW

· The presentation can be viewed live on the Burberry website www.burberryplc.com and can also be accessed live via a listen only dial-in facility on +44 (0)20 3003 2666

· The supporting slides and an indexed replay will be available on the website later in the day

· Burberry will issue its First Quarter Trading Update on 11 July 2018

· The AGM will be held on 12 July 2018

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 statements. Burberry Group plc undertakes no obligation to update these forward-looking statements and will not publicly release any revisions it may make to these forward-looking statements that may result from events or circumstances arising after the date of this document. Nothing in this announcement should be construed as a profit forecast. All persons, wherever located, should consult any additional disclosures that Burberry Group plc may make in any regulatory announcements or documents which it publishes. All persons, wherever located, should take note of these disclosures. This announcement does not constitute an invitation to underwrite, subscribe for or otherwise acquire or dispose of any Burberry Group plc shares, in the UK, or in the US, or under the US Securities Act 1933 or in any other jurisdiction.

Burberry is listed on the London Stock Exchange (BRBY.L) and is a constituent of the FTSE 100 index. ADR symbol OTC:BURBY.

BURBERRY, the Equestrian Knight Device and the Burberry Check are trademarks belonging to Burberry which are registered and enforced worldwide.

Group financial highlights 

· Revenue +2% at CER and reported, excluding Beauty wholesale revenue

- Growth led by retail, comparable store sales +3% (H1: +4%, H2 +2%)

- Total Revenue £2,733m, -1% at CER and reported

· Adjusted operating profit £467m, +5% at CER, +2% reported

- Benefited from positive retail performance, £44m incremental cost savings (cumulative total now £64m) and improved Beauty profitability due to reduced marketing and inventory charges

· Adjusted operating margin +110bps at CER, +50bps reported to 17.1%

· Reported operating profit £410m, +4% after adjusting operating items of £57m(2017: £65m) principally relating to restructuring

· Adjusted diluted EPS 82.1p, +10% at CER, +6% reported supported by the repurchase of 20m shares and a 70bps reduction in the effective tax rate.Reported diluted EPS 68.4p, +5%

· Free cash flow of £484m (2017: £465m). Net cash of £892m at 31 March 2018 after returning £524m cash to shareholders through a combination of dividends (£169m) and share buybacks (£355m)

· Full year dividend per share up 6% to 41.3p (2017: 38.9p), in line with progressive dividend policy

Summary income statement

*Excludes adjusting items. For detail, see Appendix. ** Includes adjusting finance charge of £2m (2017: £3m). ~Includes adjusting tax charge of £12m (2017: nil) ^EPS is presented on a diluted basis

BUSINESS AND FINANCIAL REVIEW

In November 2017, we set out our multi-year plan to re-energise our product, our communication and the experiences customers have of our brand. The plan is underpinned by our operational excellence and people strategies.

We have made good initial progress and are on track to achieve our goal of positioning Burberry in the most rewarding and enduring part of the luxury industry, where we can deliver sustainable long‐term value.

Throughout the year, we have focused on building the team to develop and deliver our strategy. This has included promoting internal talent and bringing in fresh expertise from outside Burberry, including most recently Gavin Haig as Chief Commercial Officer.

We also welcomed Riccardo Tisci as Chief Creative Officer on 12 March 2018. Riccardo's creative vision will reinforce our ambitions in reshaping our product offer and sharpening our brand positioning. His first collection will be shown in September 2018.

While we are in the early stages of the implementation of our strategy, during the second half of the year we saw:

· Progress in the evolution of our product with tighter, more productive collections attracting new customers as well as current top-tier clients

· The start of the transformation of our leather goods with new handbag launches from Spring 2018 and a roadmap of launches to come

· Progress on our retail excellence programme and the roll out of our new digital clienteling tool, supporting increased conversion

· Our refreshed digital platforms, with more curated and editorialised content, generating increased engagement

· Our wholesale partners responding positively to our strategy and we started the evolution of our distribution, making some strategic retail store closures.

Consistent with our plans to transform our leather goods offer, we announced on 14 May, that we have signed an agreement to acquire a luxury leather goods business from a longstanding Italian partner, CF&P. This will create a centre of excellence for our leather goods, covering all activities from prototyping, product innovation and engineering to the coordination of production. It will give us greater control over quality, cost, delivery and sustainability in this strategically important category.

In FY 2018 we have demonstrated our commitment to exercising financial discipline. Costs have been tightly controlled and we have delivered incremental savings ahead of plan of £44m, bringing the total cumulative savings to £64m. Applying our capital allocation framework, we returned £524m of cash to shareholders through a combination of dividends and buybacks.

Revenue analysis

Revenue by channel

Retail

· Retail sales +3% at CER, +2% reported

· Comparable sales + 3% (H1: +4%; H2: +2%)

· No net space impact on revenue, as guided

Full year comparable store sales +3% with improved conversion in all regions supported by our retail excellence programme. By region:

· Asia Pacific: Mid-single digit percentage growth with stronger tourist trends in the second half

- Mainland China delivered high single digit percentage growth, slowing to mid-single digits in the second half due to the annualisation of strong prior year trends

- Hong Kong improved through the year, delivering high single digit percentage growth in the second half

- Korea declined but showed improvement in the second half

· EMEIA: Broadly stable year-on-year with a decline in the second half with the annualisation of exceptional performance of the UK in the prior year

- The UK delivered low single digit percentage growth, with growth in the first half offset by a decline in the second as expected

- Continental Europe declined marginally with tourist spend softer in the second half

- The Middle East remained challenging, impacted by the macro-environment

· Americas: Low single digit percentage growth with an improved performance in the second half

- In the US, improved traffic trends coupled with increased year-on-year conversion underpinned a return to growth in the second half

By product, mainline store customers responded positively to seasonal updates and innovation

- A more complete wardrobe offer and full look merchandising drove strength in tops, skirts and trousers in the second half

- Innovation in core categories such as the car coat and tropical gabardine performed well

- Continued strength in small leather goods and new handbag launches started from Spring 2018

Store footprint: net closure of 20 stores (12 mainline, two concessions and six outlets) as started evolution of store network. Closures weighted towards the end of the year with seven in the final week of the year.

Digital: Direct-to-consumer continued to deliver good growth with particular strength in Asia

- Mobile transactions represented 40% of direct-to-consumer revenue

- Collaboration with Farfetch launched, extending our reach to more customers and over 150 countries

Wholesale

· Excluding Beauty, wholesale revenue was unchanged at CER (+2% reported), slightly better than our expectations due to higher in-season orders

- Growth in Asia Pacific was offset by a high single digit percentage decline in the US as we initiated actions to shift customer perception in the market

· In October, Beauty successfully transitioned to a strategic partnership with Coty, moving from a wholesale to licensed business model. Reflecting this change in operation in the second half, full year total wholesale revenue declined by 16% at CER (down 14% reported)

Licensing

Licensing revenue of £30m, +21% at CER and reported, in line with guidance benefiting from Beauty transitioning from a wholesale to licensed business model, while other royalties declined.

Operating profit analysis

Adjusted operating profit

Adjusted operating profit grew 5% and margin increased by 110 basis points at CER. This reflects retail growth, an incremental £44m of cost savings (ahead of plan of £40m) and improved Beauty profitability, partly offset by continued inflationary pressure on costs, strategic investments and inventory charges.

Including a £14m headwind from currency, adjusted operating profit grew 2% at reported rates and margin increased by 50 basis points.

After a net finance credit of £4m, adjusted profit before tax was £471m up 5% at CER and 2% at reported rates.

Adjusting items*

Adjusting items were £59m (2017: £68m). The most significant item was restructuring costs of £54m relating to our cost and efficiency programme, below original guidance for the year due to phasing. There is no change to the total estimated one-off costs associated with the programme of c.£110m and our target of cumulative annualised cost savings of £120m in FY 2020.  

* For detail on adjusting items see Appendix and note 8 of the Financial Statements

Taxation

The effective tax rate on adjusted profit in FY 2018 reduced to 25.1% (2017: 25.8%), as we move towards a range of 23%-24% by FY 2020. This was below the effective tax rate on reported profit of 28.8% (2017: 27.1%), due to certain adjusting items which are not subject to tax and an adjusting tax charge of £12m* relating to the reduction of the US federal income tax rate (in line with guidance). The total tax charge was £119m (2017: £107m).

* See note 8 of the Financial Statements

Cash flow

Free cash flow generated in FY 2018 grew 4% to £484m (2017: £465m) with strong cash conversion at 128% (2017: 129%). The free cash flow reflected the growth in adjusted operating profit, a cash inflow from working capital and re-phased capital expenditure.

· Inventory was down £94m year-on-year with about 60% of the reduction from Beauty. Fashion inventory was down 5% excluding the impact of foreign exchange on translation of inventory balances

· Working capital and free cash flow benefited from a one-off inflow relating to Beauty receivables of £63m

· Capital expenditure of £106m (2017: £104m), was below original guidance due to phasing between FY 2018 and FY 2019

· Tax paid of £118m (2017: £132m)

Net cash at 31 March 2018 was £892m (2017: £809m) with a £150m net inflow from the Beauty transaction and £524m returned to shareholders (dividends of £169m and share buyback of £355m). Lease adjusted net debt at 31 March 2018 was £327m (2017: £388m).

Summary outlook

There is no change to the guidance given at our strategic update in November 2017 of broadly stable revenue and operating profit margin at CER in FY 2019 and FY 2020.

We are focused on sharpening the positioning of our brand to deliver sustainable long-term value. Our financial ambition is to deliver high-single digit revenue growth coupled with meaningful operating margin expansion over time.

We expect to remain strongly cash generative and are committed to our progressive dividend policy and capital allocation framework. We will initiate a new share buyback programme of £150m to be completed in FY 2019.

For detailed outlook, see Appendix.

Disclosure

In line with its on-going simplification initiatives, Burberry is modifying its financial reporting periods to a retail calendar. This change aligns all functions across the business to a single calendar enabling more streamlined ways of working and improved performance analysis.

With effect from 1 April 2018, Burberry will prepare its full year consolidated financial statements to the Saturday nearest to the 31 March.

· For FY 2019, there will be no material difference between the comparability of the prior year and current year income statement

· On a reported basis in FY 2019, there will be some phasing impact on quarterly revenues resulting from a difference in trading days under the new and old calendars. We have summarised these impacts in the table below

· To aid with comparability, in FY 2019, any revenue differences arising from the changes in reporting calendar will be split out separately

· Burberry will continue to report four times per annum

APPENDIX

Adjusting items*

* For additional detail on adjusting items note 8 of the Financial Statements

Disposal of Beauty business 

As expected, directly attributable costs of £25m associated with the disposal of our Beauty business to Coty in October 2017 and £5m of costs relating to the Beauty transaction, were offset by £30m of the upfront payment, which was deemed as proceeds relating to the disposal.

Restructuring costs

Restructuring costs of £54m were incurred relating to our cost and efficiency programme, below original guidance for the year due to phasing. There is no change to the total estimated one-off costs of the programme of c.£110m.

Goodwill impairment

The £7m goodwill impairment charge relates to our Saudi Arabian business due to challenging macroeconomic conditions.

Burberry Middle East (BME) deferred consideration

The £4m income principally reflects foreign exchange rate movements for the BME transaction.

Adjusting finance charge

The £2m charge relates to the discount unwind on the deferred consideration for the BME transaction.

Outlook*

In-line with the guidance given at our strategic update in November 2017, at constant exchange rates, we currently expect:

FY 2019

Broadly stable revenue and adjusted operating margin. This includes the impact of the Beauty transition

· Retail: Net space reduction to impact retail revenue by -1%. Planning to continue our programme of store rationalisation and relocation

· Wholesale (excluding Beauty): Revenue down by a low single digit percentage due to anticipated growth from luxury accounts offsetting rationalisation activity(FY 2018: £526m of which £73m Beauty)

· Licensing: Revenue up £15m including Beauty partly offset by the non-renewal of the watch licence

· Cumulative cost savings: £100m, an incremental £36m on FY 2018

Currency: At 30 April spot rates~, the expected impact of year-on-year exchange rate movements on reported adjusted operating profit is c.£40m adverse. This is an adverse movement of c.£15m due to sterling appreciating since our guidance of a £25m headwind was given in January 2018. The headwind to revenue is expected to be c.£45m

Currency sensitivity: In FY 2018, a +/-5% move in sterling would have resulted in a-/+£45-50m impact on the adjusted operating profit of £467m

Adjusting items: No change to total expected one-off costs of c.£110m. In FY 2019 £35m of one-off restructuring costs expected due to phasing between FY 2018 and FY 2019

*annualised

Tax rate:  A c.100bps reduction to about 24% as we move towards a range of 23%-24% by FY 2020

Capital expenditure: £160m-£170m, higher than originally guided due to phasing between FY 2018 and FY 2019

Buyback: £150m to be completed in FY 2019

FY 2020

Broadly stable revenue and adjusted operating margin

· Cumulative annualised cost savings: £120m

*Guidance assumes constant exchange rates, a stable economic environment and current tax legislation unless otherwise stated ~see Exchange rates in Appendix 

* For detail on retail/wholesale revenue by destination including Beauty wholesale see note 4 in the Financial Statements

* For detail on retail/wholesale revenue by product division including Beauty wholesale see note 4 in the Financial Statements

* 41 directly operated stores in Asia Pacific and 2 in Americas reclassified as mainline from concession to better reflect the operations of the stores

Alternative performance measures

The following alternative performance measures are used to describe the Group's financial performance. These non-GAAP measures are used for internal budgeting, performance monitoring, management remuneration and for external reporting purposes.

The definition of adjusting items is contained in note 3 of the Financial Statements and details are shown on page 9.

Constant exchange rates (CER) removes the effect of changes in exchange rates compared to the prior period. This takes into account both the impact of the movement in exchange rates on the translation of overseas subsidiaries' results and also on foreign currency procurement and sales through the Group's UK supply chain.

Comparable sales is the year-on-year change in sales from stores trading over equivalent time periods and measured at constant foreign exchange rates. It also includes online sales.

Revenue excluding Beauty wholesale is presented to exclude Beauty wholesale revenue of £73m (2017: £171m) from total revenue to provide an understanding of the revenue of the business following the disposal of the Beauty business in October 2017.

Free cash flow is defined as net cash generated from operating activities, £678m(2017: £561m), less capital expenditure plus cash inflows from disposal of fixed assets, £105m (2017: £96m) and excluding the one-off cash inflow for deferred income of £100m (2017: nil) arising from the Beauty licence and associated cash outflow for costs relating to the Beauty disposal of £11m (2017: £nil) (see notes 7 and 8 of the Financial Statements). FY 2018 free cash flow £484m (2017: £465m).

Cash conversion is defined as free cash flow pre tax/ adjusted profit before tax. Adjusted profit before tax £471m (2017: £462m).

Lease-adjusted net debt is defined as five times minimum lease payments, adjusted for charges and utilisation of onerous lease provisions, less net cash. This is considered to be a reasonable estimate of operating lease debt which is currently off balance sheet. See note 6 of the Financial Statements.

GROUP INCOME STATEMENT

GROUP STATEMENT OF COMPREHENSIVE INCOME

1. All items included in other comprehensive income may subsequently be reclassified to profit and loss in a future period.

GROUP BALANCE SHEET

GROUP STATEMENT OF CHANGES IN EQUITY

GROUP STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The financial information contained within this report has been prepared in accordance with the European Union endorsed International Financial Reporting Standards (IFRSs), IFRS Interpretations Committee (IFRS IC) interpretations and parts of the Companies Act 2006 applicable to companies reporting under IFRS. This financial information does not constitute the Burberry Group's (the Group) Annual Report and Accounts within the meaning of Section 435 of the Companies Act 2006.

Statutory accounts for the year ended 31 March 2017 have been filed with the Registrar of Companies, and those for 2018 will be delivered in due course. The reports of the auditors on those statutory accounts for the years ended 31 March 2017 and 31 March 2018 were unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under either section 400(2) or section 498(3) of the Companies Act 2006.

The principal accounting policies applied in the preparation of the consolidated financial statements are consistent with those set out in the statutory accounts for the year ended 31 March 2017.

2. TRANSLATION OF THE RESULTS OF OVERSEAS BUSINESSES

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 month 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 date of the transactions. The assets and liabilities of such undertakings are translated at the closing 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.

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:

3. ADJUSTED PROFIT BEFORE TAXATION

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 operating profit and 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 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, as well as adjusting taxation items, are added back to/deducted from profit attributable to owners of the Company to arrive at adjusted earnings per share. Refer to note 8 for further details of adjusting items.

4. 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 beauty, eyewear, timepieces, and from licences relating to the use of non-Burberry trade marks in Japan.

NOTES TO THE FINANCIAL STATEMENTS

4. SEGMENTAL ANALYSIS (CONTINUED)

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.

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. Depreciation of £6.5m relating to the Group's cost-efficiency programme and £0.2m for assets disposed as part of the disposal of Beauty operations, and £0.6m of amortisation for assets disposed as part of the disposal of Beauty operations are presented as adjusting items and excluded from the segmental analysis for the year ended 31 March 2018. Amortisation of £7.5m relating to the fragrance and beauty licence intangible asset is presented as an adjusting item and excluded from the segmental analysis for the year ended 31 March 2017.

3. Impairment of £6.5m relating to Saudi Arabia goodwill is presented as an adjusting item and excluded from the segmental analysis for the year ended 31 March 2018. Impairment of £18.6m relating to the fragrance and beauty licence intangible asset and impairment of £7.3m of software assets specifically relating to the disposal of the Beauty operations are presented as adjusting items and excluded from the segmental analysis for the year ended 31 March 2017.

4. Refer to note 8 for details of adjusting items.

NOTES TO THE FINANCIAL STATEMENTS

4. SEGMENTAL ANALYSIS (CONTINUED)

Additional revenue analysis

1. EMEIA comprises Europe, Middle East, India and Africa.

Entity-wide disclosures

Revenue derived from external customers in the UK totalled £305.1m for the year to 31 March 2018 (2017: £300.9m).

Revenue derived from external customers in foreign countries totalled £2,427.7m for the year to 31 March 2018 (2017: £2,465.1m). This amount includes £538.0m of external revenues derived from customers in the USA (2017: £576.6m) and £443.5m of external revenues derived from customers in China (2017: £413.7m).

The total of non-current assets other than financial instruments and deferred tax assets located in the UK is £151.0m (2017: £147.6m). The remaining £372.1m of non-current assets are located in other countries (2017: £456.2m), with £130.0m located in the USA (2017: £159.6m), £66.1m located in China (2017: £76.7m), and £62.8m located in Korea (2017: £72.4m).

5. NET OPERATING EXPENSES

NOTES TO THE FINANCIAL STATEMENTS

6. PROFIT BEFORE TAXATION

1. Depreciation of property, plant and equipment within administrative expenses for the year ended 31 March 2018 has been presented excluding depreciation of £6.5m relating to the Group's cost-efficiency programme and depreciation of £0.2m for assets disposed as part of the disposal of Beauty operations, which have been presented as adjusting items (refer to note 8).

2. Amortisation of intangible assets within administrative expenses for the year ended 31 March 2018 has been presented excluding amortisation of £0.6m included in costs relating to the disposal of Beauty operations, which has been presented as an adjusting item. Amortisation of intangible assets within administrative expenses for the year ended 31 March 2017 has been presented excluding amortisation of £7.5m relating to the fragrance and beauty licence intangible, which has been presented as an adjusting item (refer to note 8).

3. Impairment of intangible assets for the year ended 31 March 2018 is presented excluding an impairment of £6.5m relating to goodwill allocated to the Saudi Arabia cash generating unit, which has been presented as an adjusting item (refer to note 8). Impairment of intangible assets for the year ended 31 March 2017 is presented excluding an impairment of £18.6m relating to the fragrance and beauty licence intangible and an impairment of £7.3m of software assets specifically relating to the disposal of the Beauty operations, which have been presented as adjusting items (refer to note 8).

4. Employee costs for the year ended 31 March 2018 are presented excluding £14.9m (2017: £9.7m) of costs arising as a result of the cost-efficiency programme, which have been presented as an adjusting item (refer to note 8).

5. Minimum lease payments include charges for onerous lease provisions during the year ended 31 March 2018 of £7.2m (2017: £7.9m) and does not include payments of £4.8m (2017: £8.3m) where existing onerous lease provisions have been utilised. Minimum lease payments for the year ended 31 March 2018 have been presented excluding charges of £29.1m for onerous property obligations in connection with the Group's cost-efficiency programme, which have been presented as adjusting items (refer to note 8).

NOTES TO THE FINANCIAL STATEMENTS

7. GAIN ON DISPOSAL OF BEAUTY OPERATIONS

On 3 April 2017, the Group 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 the Group's Beauty operations to Coty.

Under the agreement to transfer the Beauty operations, the Group transferred inventory and property plant and equipment relating to the Beauty operations to Coty. The assets transferred to Coty were paid for by cash proceeds of £33.3m, with the exception of some of the inventory which will be paid for in the future if it is used by Coty. A debtor of £4.1m has been recognised for contingent consideration in relation to the estimated future proceeds arising from the disposal of inventory to Coty.

The licence agreement, which is for a term of up to 15 years, allows Coty to manufacture and sell Burberry Beauty products. Under the licence agreement Coty will pay the Group royalties based on the value of products sold.

The Group received an upfront payment of £130.0m for the license and related disposal of the Beauty operations under the two agreements. The directors have carried out an allocation and have attributed £30.0m of this upfront payment to the disposal of the Beauty operations. As a result, the total consideration for the disposal of the Beauty operations is £67.4m.

The remaining £100.0m of the payment has been attributed to the licence and has been recognised as deferred royalty income on the balance sheet (refer to note 18). It will be recognised as royalty revenue over the term of the licence.

The agreements with Coty completed on 2 October 2017. Details of the sale are as follows:

The carrying amount of net assets disposed is presented net of a £10.1m write down of Beauty inventory remeasured to the lower of the carrying value and net realisable value upon classification as held for sale at 30 September 2017. Directly attributable costs relate to the write-down of inventory and provisions for the costs of certain contract terminations and employee redundancy. £2.2m of these costs were paid in the period, with the remaining £12.5m to be recognised in future periods. The net gain on disposal is presented as an adjusting item in accordance with the Group's accounting policy as it arises from the disposal of a business. A related tax charge of £1.0m has been recognised in the year ended 31 March 2018.

8. ADJUSTING ITEMS

Costs relating to the disposal of the Beauty operations

In addition to the costs arising directly from the disposal of the Beauty operations, costs of £5.0m relating to the Beauty transaction were incurred in the year ended 31 March 2018 (2017: £14.5m). Costs incurred in the year ended 31 March 2017 related to the write-off of software assets specifically relating to the Beauty operations of £7.3m; a provision for the termination of a distributor agreement; and other ancillary charges incurred. Costs incurred in the year ended 31 March 2018 relate to retention payments, advisory fees, and depreciation and amortisation on assets no longer required as a result of the disposal. £11.3m of these costs were paid in the year ended 31 March 2018 (2017: £nil). These costs are presented as an adjusting item in accordance with the Group's accounting policy as they arise in relation to the disposal of a business. A related tax credit of £1.0m has also been recognised in the period (2017: £2.9m).

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 ended 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.

NOTES TO THE FINANCIAL STATEMENTS

8. ADJUSTING ITEMS (CONTINUED)

These charges have been 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. A related tax credit of £5.1m was also recognised in the year ended 31 March 2017.

Restructuring costs

Restructuring costs of £54.5m (2017: £20.8m) were incurred in the current 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 the 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. A related tax credit of £11.4m (2017: £4.2m) has also been recognised in the current period.

Goodwill impairment

A charge of £6.5m (2017: £nil) was recorded in the period to fully impair goodwill allocated to the Saudi Arabia cash generating unit, following a significant and prolonged downturn in the Saudi Arabian economy. The charge has been presented as an adjusting item in accordance with the Group accounting policy, as it is one-off in nature, and relates to the acquisition of a business. No tax was recognised on this item, as the value is not considered to be deductible for tax purposes.

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 future revenue, together with fixed payments to be paid over the period to 2023. 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).

A credit of £4.5m in relation to the revaluation of this balance has been recognised in operating expenses for the year ended 31 March 2018 (2017: charge of £3.0m). A financing charge of £2.0m in relation to the unwinding of the discount on the non-current portion of the deferred consideration liability has also been recognised for the year ended 31 March 2018 (2017: £2.2m). These movements are unrealised. 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.

Put option liability finance charge

The financing charge of £1.0m for the year ended 31 March 2017 relates to 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 on 1 August 2016, therefore there is no charge for the year ended 31 March 2018.

An adjusting taxation charge of £12.2m has also been recognised for the year ended 31 March 2018 (2017: £nil). Refer to note 10 for further details.

NOTES TO THE FINANCIAL STATEMENTS

9. FINANCING

10. TAXATION

Analysis of charge for the year recognised in the Group Income Statement:

NOTES TO THE FINANCIAL STATEMENTS

10. TAXATION (CONTINUED)

Analysis of charge for the year recognised in other comprehensive income and directly in equity: