Gusbourne Regulatory News (GUS)

15 Nov 2005 07:02

Burberry Group PLC15 November 2005 Burberry Group plc Interim Results 15 November 2005. Burberry Group plc reports interim results for its first halfto 30 September 2005. Summary of Results(1) Six months to September ------------------------- -------- 2005 2004 Change £m £m % ------- -------- --------Turnover 354.9 347.5 2Operating profit before Atlas costs(2) 78.8 77.6 2Operating profit 75.8 77.6 (2)Attributable profit 53.1 54.6 (3) Diluted EPS before Atlas costs 11.3p 10.8p 5Diluted EPS 10.9p 10.8p 1Diluted weighted average number of OrdinaryShares 488.8m 507.1m (4) Financial Highlights • Total revenues increased 3% on an underlying(3) basis to £355 million - Retail revenues increased 9% underlying - Wholesale revenues declined 1% underlying - Licensing revenue increased 3% underlying • Operating profit before Atlas costs increased 2% to £79 million • Operating margin before Atlas costs of 22.2% vs 22.3% in prior period • Diluted EPS before Atlas costs increased 5% to 11.3p • Interim dividend increased 25% to 2.5p per Ordinary Share • As of 30 September 2005, an aggregate of £123 million shares repurchased Strategic and Operating Highlights • Retail expansion on track with opening of four new and replacement stores and six concessions - Completed key store renovations • Acquired Taiwan distributors • Concluded womenswear retail concession agreement with major customer in Spain • Continued to rebalance retail/wholesale channel mix in US market • Announced new eyewear licence • Project Atlas, major infrastructure redesign initiative underway______________(1) Financial results are reported under International Financial Reporting Standards. Prior year figures have been restated in line with these principles.(2) Project Atlas costs of £3.0 million (2004: nil) relate to the Group's infrastructure redesign initiative announced in May 2005.(3) Underlying figures exclude the financial effect of Burberry's Taiwan-related business in both reporting periods and are calculated at the same exchange rates used in the 2004/05 year's reported results for the period. Burberry completed the acquisition of the operations and assets of its distributors in Taiwan in August 2005 (the "Taiwan Acquisition"). Rose Marie Bravo, Chief Executive, stated, "In the context of a period marked bystrategic investment and transition, Burberry delivered a solid performance inthe first half. With cold weather arriving and the holidays approaching, weenter our most important time of year with cautious optimism." Management will discuss these results during a presentation to analysts andinstitutions at 1:00pm today at Merrill Lynch Financial Centre, The Auditorium,100 Newgate Street, London EC1A 1HQ (telephone +44 (0) 20 7968 0577). Thepresentation will also be broadcast live on the Internet at www.burberryplc.comand can be accessed by telephone at +44 (0) 20 7081 7194 (UK and international)and +1 866 432 7186 (US). Replay: +44 (0) 20 7081 9440, access number 299766. Enquiries: Burberry 020 7968 0577Stacey Cartwright CFOMatt McEvoy Strategy and IRJohn Scaramuzza Strategy and IR Brunswick 020 7404 5959Susan GilchristRobert GardenerAlex Tweed The financial information contained in this announcement has not been audited. Certain statements made in this announcement are forward looking statements.Such statements are based on current expectations and are subject to a number ofrisks and uncertainties that could cause actual results to differ materiallyfrom any expected future results in forward looking statements. This announcement does not constitute an invitation to underwrite, subscribe foror otherwise acquire or dispose of any Burberry Group plc shares. Pastperformance is not a guide to future performance and persons needing adviceshould consult an independent financial adviser. Chief Executive's Review In the context of a period marked by strategic investment and transition,Burberry delivered a solid performance in the first half. Revenues increased 3%on an underlying basis and diluted EPS before costs of Project Atlas, theGroup's infrastructure redesign initiative, increased 5%. These results reflectthe continued execution of Burberry's core strategies, phases of strategic andoperational transition in certain business segments and regions and a variety ofexternal market conditions. Highlights of these factors are discussed below. Regions. Burberry maintained steady progress across its trading regions duringthe half. • US. In the US, strong retail growth, driven by new and existing stores, was partially offset by reduced wholesale sales to produce 5% underlying revenue growth for the half. The reduction in wholesale sales reflects caution on the part of certain wholesale customers resulting from a soft spring season and ongoing channel adjustment. With the Group's ongoing substantial expansion of own retail space in this market, Burberry continues to rebalance the retail/wholesale channel mix in the US. The Group opened a store in San Antonio, Texas in September and plans to add three stores in the second half. • Europe. Europe's 1% underlying revenue decline in the period reflects varying performance across the region. In Spain, softer demand and distribution channel evolution led to a moderate wholesale sales decline for the half. In other Continental European markets, solid retail growth driven by new stores and concessions combined with robust wholesale growth to produce strong gains. Italy experienced particular strength, stimulated by the Milan and Rome stores. The UK market, affected by external factors, continued to be soft across both retail and wholesale channels. During the half, Burberry opened a replacement store in Zurich and completed renovation of the Frankfurt and Munich stores. • Non-Japan Asia. Revenue in Non-Japan Asia increased 9% on an underlying basis during the half. In Greater China (Hong Kong and mainland China), growth across the retail and wholesale channels continued to be fuelled by demand from mainland consumers. In Korea, selling space additions and a favourable duty free business drove revenue gains in a challenging consumer-spending environment. Gains at existing stores and travel-related customers drove revenue increases in Southeast Asia. During the half, Burberry opened three concessions in Hong Kong and Korea and a replacement store in Taipei. • Japan. Sales volumes in Japan experienced a small decline as the result of a soft apparel environment and Burberry's ongoing programme to enhance brand positioning in this market. This programme involves licence transitions/cancellations, restricting distribution of most product categories and upgrading selected products in terms of design and quality. As part of this, management began preparations for Burberry's direct selling of men's ties, scarves and silks from the brand's international collection, which is scheduled to commence in autumn 2006. These imported products will replace licensed domestic products in these categories. • Emerging markets. Boosted by new stores, sales to emerging markets increased substantially in the first half. In conjunction with local partners, the Group opened franchised stores in Istanbul (Turkey), Warsaw (Poland), Sao Paolo (Brazil), Jeddah (Saudi Arabia) and Riyadh (Saudi Arabia). Channels. The Group continued to execute its core retail, wholesale andlicensing strategies. • Retail. Investment in retail expansion continued on plan. During the half, the Group opened three Burberry stores (including two replacement stores), an outlet store and six concessions. In addition, seven stores underwent renovation during the period. In total, on a year-over-year basis, average selling space increased approximately 8% (excluding the effect of the Taiwan acquisition). • Wholesale. In key wholesale markets, Burberry took significant strategic action designed to strengthen brand control. In August, the Group acquired the operations of its distributors in Taiwan, which include 12 retail locations. In Spain, management finalised arrangements for the conversion of portions of its womenswear business from a wholesale to a retail concession format. Burberry will begin operating womenswear retail concessions in the stores of its largest customer in the financial fourth quarter. These initiatives result in sales shifts both in terms of timing and channel relative to the previous year. In the case of Taiwan, the acquisition reduced sales by approximately £7 million and operating profit by £3 million in the first half relative to results that would have been reported under the region's former distributor status. The womenswear conversion in Spain will reduce reported sales by approximately £6 million in the second half and operating profit by £3 million relative to results which would have been expected under the former wholesale configuration. Following a period of transition, management expects these actions to enhance Burberry's positioning and financial performance in Taiwan and Spain. • Licensing. Burberry's product licenses generally performed well in the half. Against strong comparatives of the previous year driven by the launch of Burberry Brit for men and an increase in the royalty rate, fragrance royalty growth moderated relative to the previous year. During the half, Burberry's fragrance team prepared for a major product launch in spring 2006. Entering its third year, the watch business experienced strong growth as the product line continued to strengthen and distribution expanded. In October, the Group also announced an important new eyewear licence with Luxottica Group. The first collections under this agreement are expected to appear at retail in late 2006. Products. Burberry advanced its strategies across major product categoriesduring the first half. • Prorsum. Burberry's Prorsum runway collection continued to set the creative and editorial pace for the Group. With outstanding critical acclaim, the Autumn 2005 collection is achieving strong results at retail. The label's capsule line of accessories is also meeting enthusiastic consumer response. • Womenswear. Experiencing a soft spring season, womenswear's underlying revenue increased 1%. At the same time, the womenswear team made important strategic progress in the period. In outerwear, the team's efforts to enhance Burberry's key quilted coat business were rewarded with a favourable consumer response to autumn's new styles and silhouettes. Responding to consumers' demand for frequent new merchandise, womenswear has reorganised its design process to produce five collections per year. Womenswear generated 34% of total revenue in the period. • Menswear. With 4% underlying growth, menswear experienced a strong first half, particularly within the Group's own stores. The menswear team's emphasis on more classic styling across the collection and intensifying selection in prime classifications were important contributors to this performance. Also, Burberry's first menswear specific marketing initiatives were launched in large European and US markets in autumn 2005. Menswear represented 28% of reported revenue. • Accessories. Accessories experienced 2% underlying revenue growth. The Group's core handbag range experienced a flat performance, as the new line of Prorsum handbags met enthusiastic demand within Burberry's own stores. In the second quarter, unseasonably warm weather in several markets dulled sales of Burberry's iconic scarves and other cold weather items. An emphasis on new styles and designs and reinvention of the classics are critical to the success of this important category. As Burberry has done with its core quilted jackets, the Group is in the process of upgrading iconic handbag groups. The new Haymarket line has been well received and Burberry will be adding successful Prorsum styles to the core assortment. Accessories (excluding childrenswear) comprised 25% of revenue in the period. Project Atlas Announced in May 2005, Burberry's infrastructure redesign programme, ProjectAtlas, generally progressed as planned during the first half.Inter-disciplinary, cross-geography working teams were established and intensivework began in the period to create a substantially stronger platform to supportthe long-term operation and growth of the Group. The initial phases of theproject are oriented toward establishing the building blocks required for theredesign of these fundamental processes. In the case of the retail and wholesalebusinesses, for example, project teams concentrated on creating global commondata standards - critical input for structuring an integrated informationsystem. In retail, teams were devoted to defining optimal procedures andprocesses to inform design of the retail information system, which is expectedto be rolled out beginning in the second half of 2006. In the case of financialmanagement, teams developed a blueprint for Burberry's global financialarchitecture. In line with expectations, expenses of £3 million and capitalexpenditures of £3.9 million were incurred in the first half. Financial summary Turnover increased 3% on an underlying basis (2% reported) to £355 million.Gross margin declined from 58.6% to 57.8% primarily as a result of increased endof season sale activity in the current half relative to the previous period.This was largely offset by a decline in the expense ratio from 36.2% to 35.6%(before Atlas costs). As a result, the Group achieved a 22.2% operating marginbefore Atlas costs in the half, broadly consistent with the previous year's22.3%. Operating profit before Atlas costs increased 2% to £78.8 million andassociated diluted EPS increased 5% to 11.3p. After Atlas costs, operatingprofit was £75.8 million with diluted EPS of 10.9p in the half. The directorshave declared a 25% increase in the interim dividend to 2.5p. As of 30 September2005, the Group had repurchased an aggregate of £123 million of its shares underits £250 million repurchase program. Second half outlookLooking to the second half of 2005/06: • Retail. Retail expansion continues on track. The Group opened a store in San Diego (California) in early October and plans to open Burberry stores in Naples (Florida) and Palm Beach Gardens (Florida) and four outlet stores in the period. Average retail selling space is planned to increase by approximately 10% in the second half, 9% for the financial year, excluding the effect of the Taiwan Acquisition. • Wholesale. On the basis of Spring/Summer 2006 merchandise orders received to date, Burberry anticipates a moderate underlying decline in wholesale sales for the second half of the year. As stores are added in the US, the Group continues to rebalance its channel mix in that market. Burberry also anticipates soft demand in Spain and the UK in the second half. In addition, the conversion of portions of its womenswear business in Spain from a wholesale to a retail concession format in the financial fourth quarter will affect reported results. Sales will shift both in terms of timing and channel relative to the previous year. The Taiwan Acquisition will have a similar effect. • Licensing. Burberry anticipates licensing revenue growth broadly consistent with that of the first half. In Japan, Burberry will continue its activities to enhance brand positioning, which restrain volume growth. Revenues will also be affected by the initial phase of the transition to a new eyewear licence. With respect to other licenses, Burberry expects trends to be broadly consistent with those of the first half of the year. Chief Executive transition On 11 October 2005, the Group announced that Angela Ahrendts will join Burberryin January 2006 as an executive director and will become Chief Executive in July2006. Rose Marie Bravo, current Chief Executive, will assume the newly createdrole of Vice Chairman at that time. In the period between January and July 2006,Ms. Ahrendts will report to Ms. Bravo to ensure a smooth transition ofresponsibilities, and thereafter to the Chairman of the Board. Demerger of Burberry Earlier this year, GUS plc, owner of approximately 65% of Burberry's ordinaryshares, announced its intention to demerge Burberry from the group by the end of2005. GUS is expected to release definitive details of the proposed demerger on17 November 2005. Burberry will release a third quarter trading statement on 11 January 2006. Financial Review Group results Six months to Six months to 30 September 2005 30 September 2004 ----------------------- --------------------- Percentage of Percentage of £m turnover £m turnover----------------------------- ----- ----------- ------ -----------TurnoverRetail 124.2 35.0% 111.0 31.9%Wholesale 191.1 53.8% 197.2 56.8%Licence 39.6 11.2% 39.3 11.3%----------------------------- ------ --------- ------ ---------Total turnover 354.9 100.0% 347.5 100.0%Cost of sales (149.7) (42.2%) (144.0) (41.4%)----------------------------- ------ --------- ------ ---------Gross profit 205.2 57.8% 203.5 58.6% Net operating expenses beforeAtlas costs (126.4) (35.6%) (125.9) (36.2%)----------------------------- ------ --------- ------ ---------Operating profit before Atlas costs 78.8 22.2% 77.6 22.3%Atlas costs (3.0) (0.8%) - ------------------------------ ------ --------- ------ ---------Operating profit 75.8 21.4% 77.6 22.3%Net finance income 2.3 0.6% 1.8 0.5%----------------------------- ------ --------- ------ ---------Profit before taxation 78.1 22.0% 79.4 22.8%Taxation (25.0) (7.0%) (24.8) (7.1%)----------------------------- ------ --------- ------ ---------Attributable profit 53.1 15.0% 54.6 15.7%----------------------------- ------ --------- ------ ---------Diluted EPS before Atlas costs 11.3p - 10.8p -Diluted EPS 10.9p - 10.8p ------------------------------ ------ --------- ------ ---------Diluted weighted average number of Ordinary Shares(millions) 488.8 - 507.1 ------------------------------ ------ --------- ------ --------- Burberry Group turnover is composed of revenue from three channels ofdistribution: retail, wholesale and licensing operations. Wholesale revenuearises from the sale of men's and women's apparel and accessories to wholesalecustomers worldwide, principally leading and prestige department stores andspeciality retailers. Retail revenue is derived from sales through the Group'sdirectly operated store network. At 30 September 2005, the Group operated 177retail locations (2004: 151) consisting of 62 Burberry stores (2004: 57), 90concessions (2004: 70) and 25 outlet stores (2004: 24). Licence revenue consistsof royalties receivable from Japanese and product licensing partners. Turnover Total turnover in the first half advanced to £354.9m from £347.5m in the priorperiod, representing an increase of 2%, or 3% on an underlying basis. Indetermining "underlying" performance, financial results are adjusted to excludethe financial effects of the Taiwan Acquisition and the impact of foreigncurrency exchange rate movements between periods. The Taiwan Acquisitionresulted in a sales shift from Burberry's wholesale channel to its retailchannel. Therefore, in determining underlying performance, the financial effectof the Group's Taiwan-related business is excluded from both reporting periods. Retail revenues increased by 12% reported (9% underlying) to £124.2m, driven bycontributions from new and refurbished stores. The acquisition of 12 retaillocations in Taiwan during August 2005 also contributed to reported gains.During the half, the Group opened three Burberry stores (including tworeplacement stores), an outlet, six concessions and completed seven storerefurbishments. Retail performance varied by region. In the US, solid salesgrowth was driven by contributions from new stores, complemented by gains atexisting stores. Against strong comparatives, new stores and concessions droverevenue growth in Continental European markets. The UK market, affected byexternal factors, was soft. In Asia, Korea achieved a small gain notwithstandingthe difficult retail environment. Led by existing stores, Hong Kong andSoutheast Asian markets generally experienced strong increases in the period. Affected by the Taiwan Acquisition, reported wholesale revenues declined 3% to£191.1m in the half. Underlying sales declined 1%. The US market experienced amoderate decline as a result of Burberry's ongoing adjustment of the brand'swholesale/retail balance in this market, as well as caution on the part ofcertain wholesale customers. In Europe, soft demand in Spain produced a moderatesales decline during the period. Other Continental European markets achievedstrong gains. The UK continued to be soft. Asia achieved good underlying growth.Emerging markets achieved strong gains, boosted by new stores, including theopening of five franchise stores in the half. Licensing revenues in the half increased by 1% reported (3% underlying) to£39.6m. Flat Japan-related royalties reflected a small volume decline resultingfrom licence transitions/cancellations, Burberry's programme to restrictselectively distribution of certain products and a soft apparel market. This waslargely offset by an increase in certain royalty rates. Excluding the effect ofcancelled licenses, total underlying licensing revenue increased 6%. Licensingrevenue growth also reflected solid gains from Burberry's global licenses.Fragrance-related royalty growth slowed reflecting strong comparatives resultingfrom the Burberry Brit for men launch in the previous year and the anniversaryof the royalty rate increase. Operating profit Gross profit as a percentage of turnover was 57.8% in the first half of 2005/06relative to 58.6% in the prior period. The decline largely resulted fromincreased levels of seasonal clearance activity for the spring/summer seasonrelative to the previous year. Net operating expenses before Atlas costs as a percentage of turnover decreasedto 35.6% from 36.2% in the previous period. Improvement in the expense ratiolargely reflected one-time items in the current period, including a gain onproperty sales. As a result of these factors, operating profit before Atlas costs increased 2%to £78.8m, or 22.2% of turnover relative to 22.3% in the previous period.Exchange rate differences relative to the previous period reduced reportedoperating profit by £0.4m. Net expenses associated with Project Atlas totalled £3.0m. Reported operatingprofit was £75.8m for the half. Net finance income Net interest income was £2.3m in the six months to September 2005 compared to£1.8m in the prior period. Profit before taxation As a result of the above factors, Burberry reported profit before taxation andAtlas costs of £81.1m in the six months to 30 September 2005 compared to £79.4min the prior period. Including Atlas costs, profit before taxation was £78.1m inthe current period. Attributable profit Burberry recorded a 32.0% effective tax rate (2004: 31.2%) on profit resultingin a £25.0m tax charge and reported attributable profit of £53.1m for the sixmonths to 30 September 2005 compared to £54.6m reported in the prior period. Theeffective tax rate for the period is in line with the expected rate for the fullfinancial year. Diluted earnings per share before Atlas costs increased 5% to 11.3p in the halfcompared to 10.8p in the prior period. Including Atlas costs, the Group reporteddiluted earnings per share of 10.9p. In the six months to September 2005, thediluted weighted average number of ordinary shares in issue was 488.8m (2004:507.1m). Cash flow and net funds Historically, Burberry's principal uses of funds have been to support capitalexpenditures and working capital growth in connection with the expansion of itsbusiness, acquisitions and share repurchases. Principal sources of funds havebeen cash flow from operations. Burberry expects to finance the expansion of itbusiness, capital expenditures including strategic infrastructure investmentsand share repurchases with existing cash balances, cash generated from operatingactivities and the use of its credit facilities. The table below sets out the principal components of cash flow for the sixmonths to 30 September 2005 and 30 September 2004 and net funds at the periodend: Six months to Six months to 30 September 30 September 2005 2004 £m £m------------------------------------------------- ----------- -----------Operating profit 75.8 77.6Depreciation and related charges 11.3 9.7Profit on disposal of fixed assets (0.9) (0.1)Charges in respect of employee share incentiveschemes 3.8 4.5Increase in stocks (9.1) (12.6)Increase in debtors (36.5) (40.6)Decrease in creditors (18.7) (1.6)------------------------------------------------- ----------- -----------Net cash inflow from operating activities 25.7 36.9Net interest received 1.7 2.1Taxation paid (18.1) (19.9)Capital expenditures and acquisition relatedpayments (15.8) (16.9)Net sale/(purchase) of shares by ESOPs 1.7 (7.4)Issue of ordinary share capital 3.5 3.3Share repurchases (64.5) -Equity dividends paid (21.5) (14.9)------------------------------------------------- ----------- -----------Movement in net funds resulting from cash flows (87.3) (16.8)------------------------------------------------- ----------- -----------Exchange gains 2.5 1.9------------------------------------------------- ----------- -----------Movement in net funds (84.8) (14.9)------------------------------------------------- ----------- -----------Net funds at end of period 85.1 143.0------------------------------------------------- ----------- ----------- Net cash inflow from operating activities was £25.7m in the first half comparedto £36.9m in the prior period. Stocks levels increased £9.1m, broadly consistentwith historical seasonal patterns. The £36.5m increase in debtors is in linewith seasonal growth of trade receivables. The £18.7m decrease in creditorsincludes timing differences in the payment of trade creditors and settlement ofprofit shares with respect to prior year acquisitions. Capital expenditures and acquisition related payments included net purchases offixed assets of £8.1m relating primarily to continued investment in the Group'sretail operations and infrastructure, Project Atlas investment of £3.9m and£3.8m as partial consideration for the acquisition of the operations ofBurberry's distributors in Taiwan. Capital expenditures for the full 2005/06financial year are expected to total approximately £35m. In line with its risk management policy, Burberry has continued to hedge itsprincipal foreign currency transaction exposures arising in respect of Yendenominated royalty income and Euro denominated product purchases and sales. In connection with share option awards, the Group sold £1.7m of equity from itsEmployee Share Ownership Trusts and received £3.5m (2004: £3.3m) from the issueof new shares following the exercise of share-based options. Consistent with the £250m share repurchase programme announced in November 2004,Burberry commenced the repurchase of shares in January 2005. In the six monthsto 30 September 2005 the Group repurchased 15.9m shares for a total cost of£64.5m. Aggregate purchases under the repurchase programme since January 2005amounted to £123m. An interim dividend of 2.5p per share (2004: 2.0p), £11.8m in total, will bepayable on 2 February 2006. Group income statement - unaudited Note Six months to Six months to Year to 30 September 30 September 31 March 2005(1) 2004(2) 2005(2) £m £m £m---------------------------------------- ---- ------ ------ ------Turnover 4 354.9 347.5 715.5Cost of sales (149.7) (144.0) (291.3)---------------------------------------- --- ------ ------ ------Gross profit 205.2 203.5 424.2Net operating expenses (129.4) (125.9) (262.9)---------------------------------------- ---- ------ ------ ------Operating profit 75.8 77.6 161.3Financing:---------------------------------------- ---- ------ ------ ------Interest and similar income 2.4 2.2 5.5Interest expense and similar charges (0.3) (0.4) (0.6)Financing fair value remeasurements 0.2 - ----------------------------------------- ---- ------ ------ ------Net finance income 4 2.3 1.8 4.9---------------------------------------- ---- ------ ------ ------Profit before taxation 4 78.1 79.4 166.2Taxation 6 (25.0) (24.8) (53.4)---------------------------------------- ---- ------ ------ ------Attributable profit for the period 13 53.1 54.6 112.8---------------------------------------- ---- ------ ------ ------All the profit for the period isattributable to the equity holders ofthe company.---------------------------------------- ---- ------ ------ ------Pence per share-----------------Earnings- basic 7 11.2p 11.0p 22.8p- diluted 7 10.9p 10.8p 22.4p DividendsDividend per share - interim (notrecognised as a liability at30 September) 8 2.5p 2.0p 2.0pDividend per share - final(not recognised as a liability at31 March) 8 - - 4.5p---------------------------------------- ---- ------ ------ ------Non-GAAP measures £m £m £mReconciliation to adjusted operating profitOperating profit 75.8 77.6 161.3Atlas costs 5 3.0 - ----------------------------------------- ---- ------ ------ ------Operating profit before Atlas costs 78.8 77.6 161.3---------------------------------------- ---- ------ ------ ------Pence per shareEarnings per share before Atlas costs- basic 7 11.6p 11.0p 22.8p- diluted 7 11.3p 10.8p 22.4p (1) Reflects the adoption of IAS 32 and IAS 39 and further guidance on IFRS (see note 3).(2) Does not reflect the adoption of IAS 32 and IAS 39, however does reflect further guidance on IFRS (see note 3). Group statement of recognised income and expense - unaudited Note Six months to Six months to Year to 30 September 30 September 31 March 2005(1) 2004(2) 2005(2) £m £m £m---------------------------------------- ---- ------ ------ ------Attributable profit for the period 53.1 54.6 112.8Cash flow hedges (2.5) - -Currency translation differences 7.0 10.5 5.7Actuarial gains/(loss) on defined benefit pension scheme 1.8 - (1.5)Tax on items taken directly to equity 0.6 (0.3) (0.4)---------------------------------------- ---- ------ ------ ------Net income recognised directly in equity 13 6.9 10.2 3.8TransfersTransferred to profit and loss on cash flow hedges (1.8) - -Tax on items transferred from equity 0.7 - ----------------------------------------- ---- ------ ------ ------Net transfers (1.1) - ----------------------------------------- ---- ------ ------ ------Net gains not recognised in income statement 5.8 10.2 3.8---------------------------------------- ---- ------ ------ ------Total recognised income for the period 13 58.9 64.8 116.6---------------------------------------- ---- ------ ------ ------ (1) Reflects the adoption of IAS 32 and IAS 39 and further guidance on IFRS (see note 3).(2) Does not reflect the adoption of IAS 32 and IAS 39, however does reflect further guidance on IFRS (see note 3). All the recognised income and expense for the period is attributable to theequity holders of the company. Group balance sheet - unaudited Note As at As at As at 30 September 30 September 31 March 2005(1) 2004(2) 2005(2) £m £m £m---------------------------------------- ---- ------ ------ ------ASSETSNon-current assetsIntangible assets 132.3 124.5 124.9Property, plant and equipment 162.5 147.9 154.7Deferred taxation assets 24.9 20.7 26.4Trade and other receivables 10 3.9 1.2 1.3Income tax recoverable 0.6 0.8 0.8---------------------------------------- ---- ------ ------ ------ 324.2 295.1 308.1Current assetsStock 113.2 104.4 102.5Trade and other receivables 10 143.6 143.4 112.2Derivative financial assets 2.5 - -Income tax recoverable 4.5 0.1 3.1Cash and cash equivalents 85.1 143.5 169.9---------------------------------------- ---- ------ ------ ------ 348.9 391.4 387.7Non-current assets classified as heldfor sale - 2.8 1.2---------------------------------------- ---- ------ ------ ------Total assets 673.1 689.3 697.0---------------------------------------- ---- ------ ------ ------LIABILITIESNon-current liabilitiesLong term liabilities 11 (16.2) (14.5) (14.8)Deferred taxation liabilities (13.2) (10.8) (13.0)Retirement benefit obligations (0.4) (2.5) (2.1)Provisions (3.1) (5.0) (3.2)---------------------------------------- ---- ------ ------ ------ (32.9) (32.8) (33.1)---------------------------------------- ---- ------ ------ ------Current liabilitiesBank overdrafts - (0.5) -Trade and other payables 12 (142.3) (145.3) (160.3)Derivative financial liabilities (3.1) - -Income tax liabilities (32.6) (26.1) (25.2)---------------------------------------- ---- ------ ------ ------ (178.0) (171.9) (185.5)---------------------------------------- ---- ------ ------ ------Total liabilities (210.9) (204.7) (218.6)---------------------------------------- ---- ------ ------ ------Net assets 462.2 484.6 478.4---------------------------------------- ---- ------ ------ ------EQUITYCapital and reserves attributable to thecompany's equity holdersOrdinary Share capital 13 0.2 1.1 1.1Share premium account 13 151.3 133.9 136.1Hedging reserve 13 (0.1) - -Foreign currency translation reserve 13 12.9 10.1 5.6Capital reserve 13 24.9 25.7 24.9Retained earnings 13 273.0 313.8 310.7---------------------------------------- ---- ------ ------ ------Total equity 462.2 484.6 478.4---------------------------------------- ---- ------ ------ ------ (1) Reflects the adoption of IAS 32 and IAS 39 and further guidance on IFRS (see note 3).(2) Does not reflect the adoption of IAS 32 and IAS 39, however does reflect further guidance on IFRS (see note 3). Group cash flow statement - unaudited Note Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 £m £m £m---------------------------------------- ---- ------ ------ ------Cash flows from operating activitiesOperating profit 75.8 77.6 161.3Depreciation, impairment and trademarkamortisation charges 11.3 9.7 24.4Gain on disposal of fixed assets and similar non-cash charges (0.9) (0.1) (1.1)Charges in respect of employee share incentive schemes 3.8 4.5 9.5Increase in stocks (9.1) (12.6) (12.9)Increase in debtors (36.5) (40.6) (7.3)(Decrease)/increase in creditors (18.7) (1.6) 1.5---------------------------------------- ---- ------ ------ ------Cash generated from operations 25.7 36.9 175.4Taxation paid (18.1) (19.9) (49.5)---------------------------------------- ---- ------ ------ ------Net cash inflow from operating activities 7.6 17.0 125.9 Cash flows from investing activitiesPurchase of tangible and intangible fixed assets (15.0) (17.2) (37.2)Proceeds from sale of property, plant and equipment 3.0 0.3 3.1Acquisition of subsidiary 9 (3.8) - ----------------------------------------- ---- ------ ------ ------Net cash outflow from investing activities (15.8) (16.9) (34.1) Cash flows from financing activitiesInterest received 2.0 2.3 5.3Interest paid (0.3) (0.2) (0.6)Equity dividends paid (21.5) (14.9) (24.9)Issue of Ordinary Share capital 3.5 3.3 4.4Purchase of shares through share buy back (64.5) - (58.4)Purchase of own shares by ESOPs - (8.7) (8.7)Sale of own shares by ESOPs 1.7 1.3 1.8---------------------------------------- ---- ------ ------ ------Net cash outflow from financing activities (79.1) (16.9) (81.1)---------------------------------------- ---- ------ ------ ------Net (decrease)/increase in cash and cashequivalents (87.3) (16.8) 10.7 Effect of exchange rate changes on opening balances 2.5 1.9 1.3 Cash and cash equivalents at beginningof period 169.9 157.9 157.9---------------------------------------- ---- ------ ------ ------Cash and cash equivalents at end ofperiod 85.1 143.0 169.9---------------------------------------- ---- ------ ------ ------ Analysis of cash and cash equivalents As at As at As at 30 September 30 September 31 March 2005 2004 2005 £m £m £m------------------------------------------ ------ ------ ------Cash 26.8 44.6 62.4Short term deposits 58.3 98.9 107.5------------------------------------------ ------ ------ ------Cash and cash equivalents as per the balance sheet 85.1 143.5 169.9Bank overdrafts as per the balance sheet - (0.5) ------------------------------------------- ------ ------ ------Cash and cash equivalents per the cash flow statement 85.1 143.0 169.9------------------------------------------ ------ ------ ------ Notes to the interim financial statements 1. Basis of preparation The interim financial statements for Burberry Group comprises the unauditedresults for the six months to 30 September 2005 and 30 September 2004 and forthe year to 31 March 2005. Under European Union (EU) legislation, it ismandatory for EU listed companies to report under International FinancialReporting Standards (IFRS), for financial years commencing after 1 January 2005.The results to 30 September 2005 have been prepared in accordance with theaccounting policies which the Group intends to adopt for the year to 31 March2006. The results to 30 September 2004 and 31 March 2005 have been restated fromUK GAAP to IFRS using the same accounting policies as those used for the resultsto 30 September 2005, other than as described in note 3 - Changes in accountingpolicies and presentation. The principle adjustments that were required byBurberry Group on conversion to IFRS are set out in note 15 - Transition toIFRS. This information has been extracted from the "Burberry Group plc financialresults under IFRS" published on 10 June 2005 and which is available on theGroup's website (www.burberry.com). In preparing this financial information, the directors have assumed that theEuropean Commission will endorse the amendment to IAS 19 " Employee Benefits"issued by the IASB in December 2004. In addition, Burberry has decided to adoptearly IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" andDraft Technical Correction 1 "Proposed amendments to IAS 21 The effects ofchanges in Foreign Exchange Rates - Net investment in a Foreign Operation". IFRS are subject to ongoing review and endorsement by the European Commission,or possible amendment by the IASB, and are therefore subject to possible change.Further standards or interpretations may also be issued that could be applicablefor the full year consolidated financial statements. These potential changescould result in the need to change the basis of accounting or presentation ofcertain financial information from that presented in this document. The interim financial statements are not audited and do not constitute statutoryaccounts within the meaning of section 240 of the Companies Act 1985. Thisfinancial information has been formally reviewed by the Group's auditors,PricewaterhouseCoopers LLP. Statutory consolidated financial statements for the Group for the year to 31March 2005, prepared in accordance with UK GAAP, were reported on by theauditors without qualification or statement under section 237(2) or (3) of theCompanies Act 1985 and have been delivered to the Registrar of Companies.Comparative information for the year to 31 March 2005 shown within this reporthas been extracted from the 'Burberry Group plc financial results under IFRS' aspublished by the Group on 10 June 2005. Basis of consolidation The Group interim financial statements comprises those of the parent company andits subsidiaries, presented as a single economic entity. The effects of intra-group transactions are eliminated in preparing the Groupinterim financial statements. Subsidiaries are consolidated from the date on which control is transferred tothe Group and cease to be consolidated from the date on which control istransferred out of the Group. Where there is a loss of control of a subsidiary,the consolidated financial statements include the results for the portion of thereporting period during which Burberry Group plc had control. The preparation of interim financial statements requires management to makeestimates and assumptions that affect the reported amount of revenues, expenses,assets and liabilities and the disclosure of contingent liabilities. If in thefuture such estimates and assumptions, which are based on management's bestjudgement at the date of the interim financial statements, deviate from actualcircumstances, the original estimate and assumptions will be modified asappropriate in the period in which the circumstances change. 2. Accounting policies and presentation The same accounting policies and methods of computation have been followed inthe interim financial statement as those published by the company on 10 June2005, in the document "Burberry Group plc financial results under IFRS", exceptfor those changes in accounting policies set out in note 3. The accountingpolicies previously published are available on the Group's website(www.burberry.com). 3. Changes in accounting policies and presentation The results for the six months to 30 September 2005, have incorporated theimpact of the adoption of: IAS 32 "Financial Instruments: Disclosure andPresentation"; IAS 39 "Financial Instruments: Recognition and Measurement"; theDraft Technical Correction 1 "Proposed amendments to IAS 21 The effects ofchanges in Foreign Exchange Rates - Net investment in a Foreign Operation" andfurther interpretation of IAS 38 "Intangible Assets". Impact of the adoption of IAS 32 and IAS 39 IFRS 1 "First time adoption of IFRS" allows an entity to produce comparativeinformation, which does not comply with IAS 32 and IAS 39. However, for thefirst IFRS reporting period, being 31 March 2006, the adjustment between thebalance sheet at the comparative period's reporting date (under the previousGAAP) and the balance sheet at the start of the first IFRS reporting period mustbe accounted for as a change in accounting policy. The Group has taken advantage of this exemption and has adopted IAS 32"Financial Instruments: Presentation and Disclosure" and IAS 39 "FinancialInstruments: Recognition and Measurement" with effect from 1 April 2005. Theimpact of these standards on the Group's opening balance sheet is shown below. The principal impact of the adoption of IAS 32 and IAS 39 on the Group'sfinancial statements relates to the classification of redeemable preferenceshares and the recognition of derivative financial instruments. Redeemable preference shares are now considered to be a liability rather thanequity. Notes to the interim financial statements (continued) 3. Changes in accounting policies and presentation (continued) Burberry Group uses derivative financial instruments to hedge its exposure tofluctuations in foreign exchange rates arising on certain trading transactions.The principal derivative instruments used are forward currency contracts takenout to hedge certain future royalty receivables and product purchases. Under UKGAAP, derivative instruments were held off balance sheet. Under IFRS, derivatives are initially recognised at fair value on the date aderivative contract is entered into and are subsequently remeasured at theirfair value. The method of recognising the resulting gain or loss depends onwhether the derivative is designated as a hedging instrument, and if so, thenature of the item being hedged. The Group designates certain derivatives aseither: (1) hedges of the fair value of recognised assets and liabilities or afirm commitment (fair value hedge); or (2) hedges of highly probable forecasttransactions (cash flow hedges). The gain or loss on fair value hedges is taken to the income statement, alongwith the gain or loss on the hedged item. The portion of the gain or loss on cash flow hedges determined to be effective,is initially taken to the hedging reserve within equity. The ineffective portionof the gain or loss is recognised in the income statement within net financeincome. The amount recognised directly to equity is released to the incomestatement, when the underlying transaction affects the income statement. If itis expected that all or a portion of a loss recognised directly in equity willnot be recovered in one or more future periods, the amount that is not expectedto be recovered will be reclassified to the income statement. The adjustments to the opening balance sheet at 1 April 2005 are shown in thetable below, only those line items that have been impacted are shown: Restated Opening opening balance sheet Effect of adoption of position at under IFRS IAS 32 and IAS 39 1 April 2005------------------------------------- ------ -------------------------------- -------- Reclassification Remeasurement £m £m £m £m------------------------------------- ------ ------ ------ ------Current assetsDerivative financial assets - - 5.8 5.8Current liabilitiesDerivative financial liabilities - - (1.6) (1.6)Non-current liabilitiesLong term liabilities (14.8) (0.8) - (15.6)Deferred tax liabilities (13.0) - (1.5) (14.5)------------------------------------- ------ ------ ------ ------Impact on net assets (0.8) 2.7------------------------------------- ------ ------ ------ ------Ordinary Share capital 1.1 (0.8) - 0.3Hedging reserve - - 2.6 2.6Retained earnings 310.7 - 0.1 310.8------------------------------------- ------ ------ ------ ------Impact on equity (0.8) 2.7------------------------------------- ------ ------ ------ ------ Impact of the adoption of Draft Technical Correction 1 Draft Technical Correction 1 is expected to become effective before the end ofthe year. IAS 21 currently requires exchange differences arising on a monetaryitem that forms part of the parent company's net investment in a foreignoperation to be recognised in equity. The application of this requirement isrestricted to funding transacted directly between the parent and the foreignoperation. The proposed amendment clarifies that exchange differences arising ona monetary item that forms part of a reporting entity's net investment in aforeign operation should be recognised in equity irrespective of whether it isthe parent or a fellow subsidiary that enters into the transaction with theforeign operation. In preparing this financial information, the directors haveassumed that this amendment is approved by the EU and can be adopted for theyear to 31 March 2006 and accordingly gains and losses on intercompany balanceshave been recognised directly in equity. The impact of the above treatment is to: (a) reduce net finance income by £0.8m in the six months to 30 September 2004 and £0.7m in the year to 31 March 2005;(b) reduce the taxation charge by £0.3m in the six months to 30 September 2004 and £0.1m in the year to 31 March 2005;(c) reduce the retained earnings by £0.5m in the six months to 30 September 2004 and £0.6m in the year to 31 March; and(d) increase the foreign currency translation reserve by £0.5m in the six months to 30 September 2004 and £0.6m in the year to 31 March 2005. This treatment in respect of IAS 21 differs from that adopted in the informationpublished by the company on 10 June 2005 in the document called "Burberry Groupplc financial results under IFRS". Further interpretation of IAS 38 "Intangible assets" Further interpretation of IAS 38 since the company published its IFRSinformation on 10 June 2005, entitled "Burberry Group plc financial resultsunder IFRS", has resulted in monies paid in respect of certain retail propertiesbeing classified as intangible assets rather than within property, plant andequipment. The impact of this reclassification was £9.0m as at 30 September 2004and £8.6m as at 31 March 2005. Notes to the interim financial statements (continued) 4. Segmental analysis (a) Turnover and profit before taxation - by origin Europe comprises operations in France, Germany, Italy, Switzerland, and the UK.North America comprises operations in the USA. Asia Pacific comprises operationsin Australia, Hong Kong, Korea, Malaysia, Singapore and Taiwan. Spain Europe North America Asia Pacific Total--------------------------- ----------- ------------ ------------- ------------ -------------Six months to 30 September 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m £m £m £m £m--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----Gross segment turnover 86.5 89.1 190.0 188.4 73.6 69.4 79.6 70.9 429.7 417.8Inter-segment turnover (0.1) (0.1) (74.7) (69.9) - - - (0.3) (74.8) (70.3)--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----Turnover 86.4 89.0 115.3 118.5 73.6 69.4 79.6 70.6 354.9 347.5--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- ----- --------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----Operating profit beforeAtlas costs 14.4 13.8 60.5 57.9 (1.4) 0.5 5.3 5.4 78.8 77.6Atlas costs - - (3.0) - - - - - (3.0) -Net finance income 0.5 0.4 1.3 1.1 0.1 0.1 0.4 0.2 2.3 1.8--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- -----Profit before taxation 14.9 14.2 58.8 59.0 (1.3) 0.6 5.7 5.6 78.1 79.4--------------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- ----- Year to 31 March 2005 North Asia Spain Europe America Pacific Total £m £m £m £m £m--------------------------------- ------ ------ ------ ------ ------Gross segment turnover 170.3 365.3 157.8 149.1 842.5Inter-segment turnover (0.1) (126.3) - (0.6) (127.0)--------------------------------- ------ ------ ------ ------ ------Turnover 170.2 239.0 157.8 148.5 715.5--------------------------------- ------ ------ ------ ------ ------ -------------------------------- ------ ------ ------ ------ ------Operating profit 23.5 112.9 7.0 17.9 161.3Net finance income 0.7 3.4 0.3 0.5 4.9--------------------------------- ------ ------ ------ ------ ------Profit before taxation 24.2 116.3 7.3 18.4 166.2--------------------------------- ------ ------ ------ ------ ------ The results above are stated after the allocation of costs of a group-widenature. (b) Turnover by destination Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 £m £m £m----------------------------------------- ------ ------ ------Spain 74.5 77.5 168.4Europe 105.5 102.2 188.0North America 77.1 73.8 165.9Asia Pacific 92.8 91.2 186.6Other 5.0 2.8 6.6----------------------------------------- ------ ------ ------Total 354.9 347.5 715.5----------------------------------------- ------ ------ ------ Notes to the interim financial statements (continued) 4. Segmental analysis (continued) (c) Turnover and profit before taxation - by class of business Wholesale and Retail Licensing Total----------------------------- ------------ ------------ ------------Six months to 30 September 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m----------------------------- ------ ------ ------ ------ ------ ------Gross segment turnover 390.1 378.5 39.6 39.3 429.7 417.8Inter-segment turnover (74.8) (70.3) - - (74.8) (70.3)----------------------------- ------ ------ ------ ------ ------ ------Turnover 315.3 308.2 39.6 39.3 354.9 347.5----------------------------- ------ ------ ------ ------ ------ ------ ----------------------------- ------ ------ ------ ------ ------ ------Operating profit before Atlascosts 45.0 43.9 33.8 33.7 78.8 77.6Atlas costs (3.0) - - - (3.0) -Net finance income 2.3 1.8 - - 2.3 1.8----------------------------- ------ ------ ------ ------ ------ ------Profit before taxation 44.3 45.7 33.8 33.7 78.1 79.4----------------------------- ------ ------ ------ ------ ------ ------ Year to 31 March Wholesale and Licensing Total Retail £m £m £m----------------------------------------- ------ ------ ------Gross segment turnover 764.1 78.4 842.5Inter-segment turnover (127.0) - (127.0)----------------------------------------- ------ ------ ------Turnover 637.1 78.4 715.5----------------------------------------- ------ ------ ------ ----------------------------------------- ------ ------ ------Operating profit 94.3 67.0 161.3Net finance income 4.9 - 4.9----------------------------------------- ------ ------ ------Profit before taxation 99.2 67.0 166.2----------------------------------------- ------ ------ ------ The results above are stated after the allocation of costs of a group-widenature. (d) An analysis of turnover by product category is presented as additionalinformation Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 £m £m £m----------------------------------------- ------ ------ ------Womenswear 119.2 118.5 242.1Menswear 99.9 95.1 194.5Accessories (including Childrens) 94.8 93.3 197.6Other 1.4 1.3 2.9----------------------------------------- ------ ------ ------Wholesale and Retail 315.3 308.2 637.1 Analysed as:----------------------------------------- ------ ------ ------Wholesale 191.1 197.2 371.9Retail 124.2 111.0 265.2----------------------------------------- ------ ------ ------Licence 39.6 39.3 78.4----------------------------------------- ------ ------ ------Total 354.9 347.5 715.5----------------------------------------- ------ ------ ------ Number of directly operated stores,concessions and outlets open at endof period 177 151 157----------------------------------------- ------ ------ ------ 5. Atlas costs Operating profit for the six months to 30 September 2005 includes charges of£3.0m (2004: £nil) relating to Project Atlas, our major infrastructure redesigninitiative, which was announced in May 2005. In addition, a total of £3.9m(2004: £nil) has been spent on capitalised IT investment for Project Atlas inthe six months to 30 September 2005. This project is designed to create asubstantially stronger platform to support long term operation and growth of theGroup. Investment in Project Atlas is expected to be around £50m over the threeyear period to 2007/08. 6. Taxation The effective rate of tax is based on the estimated tax charge for the full yearat a rate of 32.0% (2004: 31.2%). The actual effective rate of tax for the yearto 31 March 2005 on this basis was 32.1%. Notes to the interim financial statements (continued) 7. Earnings per share The calculation of basic earnings per share is based on attributable profit forthe period divided by the weighted average number of Ordinary Shares in issueduring the period. Basic and diluted earnings per share before Atlas costs arealso disclosed to indicate the underlying profitability of the Burberry Group. Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 £m £m £m----------------------------------------- ------ ------ ------Attributable profit for the periodbefore Atlas costs 55.2 54.6 112.8Effect of Atlas costs (after taxation) (2.1) - ------------------------------------------ ------ ------ ------Attributable profit for the period 53.1 54.6 112.8----------------------------------------- ------ ------ ------ The weighted average number of Ordinary Shares represents the weighted averagenumber of Burberry Group plc Ordinary Shares in issue throughout the period,excluding Ordinary Shares held in Burberry Group's ESOPs. Diluted earnings per share is based on the weighted average number of OrdinaryShares in issue during the period. In addition, account is taken of any awardsmade under the share incentive schemes, which will have a dilutive effect whenexercised (full vesting of all outstanding awards is assumed). Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 Millions Millions Millions----------------------------------------- ------ ------ ------Weighted average number of OrdinaryShares in issue during the period 475.2 496.2 494.1Dilutive effect of the share incentive schemes 13.6 10.9 10.4----------------------------------------- ------ ------ ------Diluted weighted average number ofOrdinary Shares in issue during theperiod 488.8 507.1 504.5----------------------------------------- ------ ------ ------ Basic earnings per share Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 Pence Pence Pence----------------------------------------- ------ ------ ------Basic earnings per share before Atlascosts 11.6 11.0 22.8Effect of Atlas costs (0.4) - ------------------------------------------ ------ ------ ------Basic earnings per share 11.2 11.0 22.8----------------------------------------- ------ ------ ------ Diluted earnings per share Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 Pence Pence Pence----------------------------------------- ------ ------ ------Diluted earnings per share beforeAtlas costs 11.3 10.8 22.4Effect of Atlas costs (0.4) - ------------------------------------------ ------ ------ ------Diluted earnings per share 10.9 10.8 22.4----------------------------------------- ------ ------ ------ 8. Dividends The interim dividend of 2.5p (2004: 2.0p) per share has been approved by theBoard of directors, after 30 September 2005. Accordingly, this dividend has notbeen recognised as a liability at the period end. The interim dividend will be paid on 2 February 2006 to Shareholders on theRegister at the close of business on 6 January 2006. A dividend of 4.5p (2004: 3.0p) was paid during the period. For the year to 31March 2005, a dividend of 5.0p was paid. 9. Acquisition of subsidiary On 1 August 2005 the Burberry Group acquired the Burberry trade and certainassets and liabilities ("the Burberry Taiwan acquisition") from Chang's Kent Co.Limited and Ming Pu Co. Limited, which were Burberry distributors in Taiwan. The Burberry Taiwan acquisition resulted in the acquisition of 12 retail storesand concessions for £5.8m. A total of £3.8m was paid by 30 September withdeferred consideration of £2.0m payable by August 2006. The fair value of assetsand liabilities acquired was £2.1m of which £1.5m relates to stock. Goodwillarising on this transaction amounted to £3.7m. All assets were recognised at their respective fair values and the residualexcess over the net assets acquired is recognised as goodwill in the financialstatements. The fair value adjustments contain some provisional amounts whichwill be finalised by 31 July 2006. Notes to the interim financial statements (continued) 10. Trade and other receivables As at As at As at 30 September 30 September 31 March 2005 2004 2005 £m £m £m ----------------------------------------- ------ ------ ------Non-currentDeposits and prepayments 3.9 1.2 1.3----------------------------------------- ------ ------ ------Total non-current trade and other receivables 3.9 1.2 1.3 CurrentTrade receivables 122.3 119.5 91.6Other receivables 4.1 1.2 1.5Prepayments and accrued income 17.2 22.5 19.1Trading balances owed byGUS group companies - 0.2 ------------------------------------------ ------ ------ ------Total current trade and other receivables 143.6 143.4 112.2----------------------------------------- ------ ------ ------Total trade receivables 147.5 144.6 113.5----------------------------------------- ------ ------ ------ 11. Long term liabilities As at As at As at 30 September 30 September 31 March 2005 2004 2005 £m £m £m----------------------------------------- ------ ------ ------Unsecured:Other creditors, accruals and deferred income 5.4 4.5 4.8Deferred consideration for acquisition 10.0 10.0 10.0Redeemable preference share capital 0.8 - ------------------------------------------ ------ ------ ------Total 16.2 14.5 14.8----------------------------------------- ------ ------ ------ Deferred consideration due after more than one year arises from the acquisitionof the trade and certain assets of the Burberry business in Korea. 12. Trade and other payables As at As at As at 30 September 30 September 31 March 2005 2004 2005 £m £m £m----------------------------------------- ------ ------ ------Unsecured:Trade creditors 22.0 29.5 27.5Trading balances owed to GUS group companies 6.2 8.4 6.8Other taxes and social security costs 7.5 5.8 6.7Other creditors 19.2 18.5 24.6Accruals and deferred income 65.6 60.4 72.0Deferred consideration for acquisitions 21.8 22.7 22.7----------------------------------------- ------ ------ ------Total 142.3 145.3 160.3----------------------------------------- ------ ------ ------ Deferred consideration due within one year arises from the acquisition ofBurberry (Spain) S.A., Mercader y Casadevall S.A. and the Burberry Taiwanacquisition. Notes to the interim financial statements (continued) 13. Share capital and reserves Foreign Ordinary Share currency Share premium Hedging translation Capital Retained Total capital account reserve reserve reserve earnings equity £m £m £m £m £m £m £m---------------------------------- ------ ------ ------ ------ ------ ------ ------Balance as at 1 April 2005 1.1 136.1 - 5.6 24.9 310.7 478.4Impact of adopting IAS 32 and IAS 39 (see note 3) (0.8) - 2.6 - - 0.1 1.9---------------------------------- ------ ------ ------ ------ ------ ------ ------Restated balance as at1 April 2005 0.3 136.1 2.6 5.6 24.9 310.8 480.3Cash flow hedges - - (2.5) - - - (2.5)Currency translation differences - - - 7.0 - - 7.0Actuarial gains on defined benefitpension scheme - - - - - 1.8 1.8Tax on items taken directlyto equity - - 0.9 0.3 - (0.6) 0.6---------------------------------- ------ ------ ------ ------ ------ ------ ------Net income recognised directly inequity - - (1.6) 7.3 - 1.2 6.9Transferred to profit and loss on cash flow hedges - - (1.8) - - - (1.8)Tax on items transferred from equity - - 0.7 - - - 0.7Attributable profit for the period - - - - - 53.1 53.1---------------------------------- ------ ------ ------ ------ ------ ------ ------Total recognised income/(expenses) for the period - - (2.7) 7.3 - 54.3 58.9Employee share option scheme- Value of share options granted - - - - - 3.8 3.8- Exercise of share options - 15.2 - - - 1.8 17.0- Price differential on exercise of shares - - - - - (11.7) (11.7)Share buy back proceeds (0.1) - - - - (64.5) (64.6)Dividend expense for the period - - - - - (21.5) (21.5)---------------------------------- ------ ------ ------ ------ ------ ------ ------Balance as at 30 September 2005 0.2 151.3 (0.1) 12.9 24.9 273.0 462.2---------------------------------- ------ ------ ------ ------ ------ ------ ------ During the six months to 30 September 2005, the company repurchased andsubsequently cancelled 15,892,169 Ordinary Shares, representing 3% of the issuedshare capital, at a total cost of £64.5m. The nominal value of the shares was£7,946, which was transferred to a capital redemption reserve. Retained earningswere reduced by £64.5m. The share repurchase programme commenced in January 2005and since then, a total of 30,607,757 Ordinary Shares have been repurchased andsubsequently cancelled. This represents 6% of the original issued share capitalat a total cost of £122.9m. The nominal value of the shares was £15,304 and hasbeen transferred to a capital redemption reserve and the retained earnings havebeen reduced by £122.9m. The cost of own shares held in the Burberry Group ESOPs has been offset againstretained earnings, as the amounts paid reduce the profits available fordistribution by the Burberry Group and the company. As at 30 September 2005 theamounts offset against this reserve are £16.8m (30 September 2004: £19.5m; 31March 2005: £19.0m). Revaluation reserves of £23.4m (2004: £23.8m) recognised under UK GAAP have beentransferred to retained earnings and are considered non-distributable. Thisamount will become distributable if the revalued properties are sold. Therevaluation reserves recognised under UK GAAP at 31 March 2005 was £23.4m. Dividend distributions are dependent on the company's accumulated retainedearnings. As at 30 September 2005 the retained earnings of the company was£656.6m (30 September 2004: £812.1m; 31 March 2005: £742.8m). Notes to the interim financial statements (continued) 14 Foreign Currency The results of overseas subsidiaries are translated into the Group'spresentation currency of Sterling at the average exchange rate for the period.The average exchange rate is used, as it is considered to approximate to theactual exchange rates on the date of the transactions. The assets andliabilities of such undertakings are translated at year end exchange rates.Differences arising on the retranslation of the opening net investment insubsidiary companies, and on the translation of their results, are takendirectly to the foreign currency translation reserve within equity. Theprincipal exchange rates used were as follows: Average --------------------------------------------- Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005----------------------------------------- ------ ------ ------Euro 1.47 1.49 1.47US dollar 1.82 1.81 1.85Hong Kong dollar 14.17 14.13 14.40Korean won 1,855 2,099 2,041----------------------------------------- ------ ------ ------ Closing --------------------------------------------- As at As at As at 30 September 30 September 31 March 2005 2004 2005----------------------------------------- ------ ------ ------ Euro 1.47 1.46 1.45US dollar 1.76 1.81 1.88Hong Kong dollar 13.68 14.07 14.69Korean won 1,835 2,078 1,920----------------------------------------- ------ ------ ------ The average exchange rate achieved by Burberry Group on its Yen royalty income,taking into account its use of Yen forward sale contracts on a monthly basisapproximately 12 months in advance of royalty receipts, was Yen 189.1: £1 in thesix months to 30 September 2005 (2004: Yen 184.0: £1); year to 31 March 2005 Yen184.3: £1. Notes to the interim financial statements (continued) 15. Transition to IFRS For all periods up to and including the year to 31 March 2005 the Burberry Grouphas prepared its financial statements in accordance with UK generally acceptedaccounting practice (UK GAAP). For the year to 31 March 2006 the Burberry Groupis required to prepare consolidated financial statements in accordance withInternational Financial Reporting Standards (IFRS) as endorsed by the EuropeanCommission. The Group's transition date to IFRS is 1 April 2004. This has been determined inaccordance with IFRS 1 "First Time Adoption of International Financial ReportingStandards", being the start of the earliest period of comparative information. IFRS 1 allowed an entity to produce comparative information which does notcomply with IAS 32 and IAS 39. The Group has taken advantage of this exemptionand has adopted IAS 32 and IAS 39 with effect from 1 April 2005. The Group hasalso adopted Draft Technical Correction 1 with regard to foreign exchange onintercompany loans during the six months to 30 September 2005. Thereconciliations shown below do not include the impact of adopting IAS 32, IAS 39and Draft Technical Correction 1, the impact of adopting these standards isshown in note 3 - Changes in accounting policies and presentation. To explain the change to IFRS, a reconciliation has been provided of the equityat 1 April 2004, 30 September 2004 and 31 March 2005 and the net income for thesix months to 30 September 2004 and year to 31 March 2005 from the previouslypublished consolidated financial statements, prepared in accordance with UK GAAPto the accompanying consolidated financial statements prepared in accordancewith IFRS. An explanation of the principle adjustments required by BurberryGroup on conversion to IFRS are set out below. This information had beenextracted from the 'Burberry Group plc financial results under IFRS' aspublished by the Group on 10 June 2005, which is available on the Group'swebsite (www.burberry.com). There have been no material adjustments to the cashflow statement. Attributable profit reconciliation between UK GAAP and IFRS: Six months to Year to 30 September 31 March 2004 2005 £m £m--------------------------------------------- ------ ------Attributable profit under UK GAAP 52.3 109.9 Share based payments adjustment (2.1) (5.1)Goodwill no longer amortised 3.3 6.8Deferred tax remeasurement 1.2 1.2Foreign exchange on inter company loans 0.5 0.6Other (0.1) ---------------------------------------------- ------ ------Attributable profit under IFRS 55.1 113.4--------------------------------------------- ------ ------ Equity reconciliation between UK GAAP and IFRS: As at As at As at 30 September 31 March 2005 1 April 2004 £m 2004 £m £m----------------------------------------- ------ ------ ------Shareholders' equity under UK GAAP 480.1 454.6 429.4 Share based payments 1.0 0.7 0.7Goodwill no longer amortised 3.3 6.8 -Deferred tax remeasurement (9.6) (5.3) (12.6)Dividends 10.0 21.7 14.9Other (0.2) (0.1) (0.2)----------------------------------------- ------ ------ ------Shareholders' equity under IFRS 484.6 478.4 432.2----------------------------------------- ------ ------ ------ The significant differences between UK GAAP and IFRS which affect the Group areas follows: a) Share based payments Under UK GAAP, the cost of equity-settled transactions were recognised in theyear of performance to which the scheme related. The charge was recognised basedon the fair market value of the share award at the date of grant, less anyconsideration receivable from the participating Burberry employee. Under IFRS equity-settled transaction charges are recognised from the date ofgrant over the vesting period of the shares. The total charge is determined withreference to the fair value of the equity instruments awarded at the date ofgrant. The fair value at the date of grant has been determined using theBlack-Scholes Option Pricing Model. Where awards are contingent upon future events an assessment of the likelihoodof these conditions being achieved is made at the time of the award. b) Goodwill amortisation Under UK GAAP, goodwill was capitalised and amortised over its estimated usefuleconomic life. Under IFRS, goodwill has been assigned an indefinite life as at the date oftransition and it is no longer amortised. Burberry has elected to apply theexemption related to Business Combinations and has frozen its goodwill at itscarrying value as at 1 April 2004. All accumulated amortisation at this point intime has been reclassified against the cost of the goodwill. Impairment reviewswill be carried out on goodwill on an annual basis and any impairment chargewould be charged and if applicable reported as a material item. Notes to the interim financial statements (continued) 15. Transition to IFRS (continued) c) Foreign exchange on intercompany loans Under UK GAAP, any foreign exchange movements arising on the translation of netassets of foreign subsidiaries were recognised by charging or crediting theamounts directly to the profit and loss reserve account. In addition, anyexchange difference arising on intercompany loans was also taken directly to theprofit and loss reserves account where the loan formed part of the netinvestment in the subsidiary. Under IFRS, any foreign exchange movements arising on the translation of foreignsubsidiaries is to be taken to a separate component of equity, the foreigncurrency translation reserve. Any exchange difference arising on an intercompanyloan should be taken through the income statement, unless the loan is deemed toform part of the direct investment in the subsidiary. Draft Technical Correction 1 was issued on 30 September 2005 to address thismatter with the intention that gains and losses on intercompany balances are nowrecognised directly in equity. The Group has adopted Draft Technical Correction1 in preparing its interim financial statements for the period to 30 September2005 (see note 3 - Changes in accounting policies and presentation). d) Deferred taxation remeasurement Under UK GAAP, deferred tax was recognised for all timing differences, being thedifference between an entities taxable profits and its statutory results, whichare expected to reverse. Deferred tax under IAS 12 "Income Taxes" is recognised on all taxable temporarydifferences and all deductible temporary differences and unused tax losses, tothe extent that there are sufficient taxable profits available in futureperiods. Temporary differences are the difference between the tax base of anasset/liability and its carrying amount in the financial statements. The most significant difference between IFRS and UK GAAP, is that deferred taxis now recognised on the revaluation of fixed assets. The Group is also required, under IFRS, to present deferred tax assetsseparately from deferred tax liabilities. Offsetting of balances is only allowedif the entity has a legally enforceable right to set off the recognised amountsand they intend to settle on a net basis. e) Dividends Under UK GAAP, proposed dividends are recorded as a liability at the balancesheet date. Under IFRS, dividends proposed at the balance sheet date are onlyrecorded as a liability when the Shareholders have approved their distributionor for the interim dividend when approved by the Board. The recognition of the charge in the income statement in relation to dividendsdoes not affect the timing of the payment of dividends or Burberry's dividendpolicy. Independent review report to Burberry Group plc Introduction We have been instructed by the company to review the financial information forthe six months to 30 September 2005 which comprises the consolidated interimbalance sheet as at 30 September 2005 and the related consolidated interimstatements of income, cash flows and statement of recognised income and expensefor the six months then ended and related notes. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with accounting standards adopted for use in theEuropean Union. This interim report has been prepared in accordance with thebasis set out in note 1. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in note 1, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 31 March 2006 are not known with certainty atthe time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six months to30 September 2005. PricewaterhouseCoopers LLPChartered AccountantsLondon14 November 2005 Shareholder information Registrar Enquiries concerning holdings of the company's shares and notification of theholder's change of address should be referred to Lloyds TSB Registrars, TheCauseway, Worthing, West Sussex, BN99 6DA, telephone: 0870 600 3970. Inaddition, Lloyds TSB Registrars offer a range of shareholder information onlineat www.shareview.co.uk. A text phone facility for those with hearingdifficulties is available by calling 0870 600 3950. Share price information The latest Burberry Group plc share price is available on Ceefax and also on theFinancial Times Cityline Service on 0906 843 2727 (calls charged at 60p perminute). Internet A full range of investor relations information on Burberry Group plc, includinglatest share price and dividend history, is available on the Group's website(www.burberry.com). Financial calendar for the year to 31 March 2006 Interim dividend record date 6 January 2006Third quarter trading update 11 January 2006Interim dividend to be paid 2 February 2006Second half trading update 12 April 2006Preliminary announcement of results for the year to 31 March 2006 May 2006Annual General Meeting July 2006 Registered office Burberry Group plc18-22 HaymarketLondonSW1Y 4DQ Telephone: 020 7968 0000 This information is provided by RNS The company news service from the London Stock Exchange