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Article Excerpt
UNIDENTIFIED COMPANY REPRESENTATIVE: So, welcome everyone. As this is being webcast live, could I just remind you to please turn off your phones and Blackberries. Thank you.
ANGELA AHRENDTS, CEO, BURBERRY GROUP PLC: Good morning and welcome to Burberry's results presentation for the six months to September 30, 2008.
Although the primary topic that we would -- although the primary topic would normally be the first half of the year, we know that the last six months are a lot less on your mind than really the next six months or the prior year. So, today, while Stacey and I will update you on the first half, we'll actually spend more time than usual discussing future periods.
Looking at the first half on an absolute basis, while not perfect, performance was good. And in the context of a progressively [weakening] external environment, we feel very good. And this is true for both the first, as well as the second, quarter.
On a currency-adjusted basis revenue grew 13%, with a 14% increase in Retail and a 15% increase in Wholesale.
Double-digit growth in all product categories and double-digit growth in all regions, excluding Spain.
Operating profit increased 3% or 7% for one-off costs -- adjusting for one-off costs.
These results were driven by the continued execution of our core strategies, which most of you are familiar with at this stage, and have driven 13 quarters of consecutive double-digit growth at Burberry.
So, today, we'll address both the financial results and strategy during the presentation.
Looking forward in line with our luxury -- in line with the luxury sector, trading has become more difficult since the start of the second half. It must be true for everyone in this room that we've never faced a more uncertain consumer environment on a global basis. So, in response to this uncertainty, although staying true to our core strategies which have been affected while making tactical adjustments, we will discuss increasing investment in Emerging Markets, for example, while at least in the near term taking a more conservative approach to capital expenditure in other markets.
We continue to intensify our non-apparel but impose a more rigorous process to line development.
We're access -- accelerating the realization of benefits from recent investments in supply chain, IT and infrastructure. This will deliver GBP15m to GBP20m of incremental benefits next year. And we're looking at other opportunities for further consolidation and rationalization that may be appropriate in a changed external environment.
So I'll hand the podium first over to Stacey, who will take you through the first half financial performance.
STACEY CARTWRIGHT, CFO, BURBERRY GROUP PLC: Thank you, Angela. Good morning, everybody. I'll start by giving you the financial highlights.
The revenue for the six months was up 20% to GBP539m.
Both adjusted and reported operating profits were up 3%. Excluding the GBP1.8m of SAP rollout costs and GBP2m relating to our move to our new global headquarters and showrooms at Horseferry House, adjusted operating profit was up 7%.
Adjusted earnings per share was also up 3% and we've declared a maintained interim dividend of 3.35p per share.
Let's look closely at revenue first. At reported exchange rates, revenue in the half grew by 20%, or 13% underlying. In a change from recent years FX movements have actually been a boost to our reported numbers with a GBP31m benefit to the top line.
We have included in the Appendix a restatement of our first half profit at current -- well, sort of current, spot rates to give you an idea of the potential ongoing positive translation impact of exchange rates.
Retail revenues increased by 14% underlying, while Wholesale revenue growth marginally outpaced retail, up 15%.
Our Licensing revenue was down 3% underlying and I'll take you through the reasons for that shortly. And given that we've already reported revenue numbers, let me quickly run through these before turning, in more detail, to profit and cash.
If we look at Retail Sales first, which grew by 14% at constant currency, here comparable store growth was 3.4% for the half but, as you're aware, this slowed in the second quarter to 2.6% as the economic environment became more challenging and trading became even more volatile.
A lower proportion of our sales were achieved at full price with an impact on gross margin, which I'll explain later.
The US continued to post double-digit comp growth in the first half, although do note that this has turned negative since the start of the second half.
Asia and Europe also posted positive comp growth in the half and, during the period, we opened a net five mainline stores with a 13% increase in average selling space. And we're expecting to add about 12% new space in the second half.
Momentum continued in our Wholesale business with 15% underlying growth delivered in the half, and this followed 20% underlying growth last year. That was 16% in H1 and 25% in H2.
A key benefit to the Wholesale channel has been the work that we've been doing on the supply chain, which we talked to you about in May. We've been able to deliver orders on time this year, around four weeks to six weeks earlier than last year, protecting against the risk of cancellations and offering more opportunity for reorders.
By region, North America and Europe grew strongly and Emerging Markets were up over 50% in the half.
Again, the US has become more difficult since the start of the second half, but we do continue to gain share with our department store customers.
Licensing revenue was down 3% on an underlying basis. Income from Japan was marginally down for both apparel and non-apparel, reflecting some of the softness that we, and others, have seen in the market.
We've purposely not renewed more of our men's ready-to-wear licenses and that has represented lost sales of around GBP0.6m in the half, with a more than offsetting pickup in our Wholesale business instead.
But we've had good growth from our global product licenses, where we continue to work more closely with our partners on design. For example, for the Spring '09 season the same design (technical difficulty) that are being used on our inhouse jewelery collection are being employed in the licensed eyewear and timepieces, and our watches are now in the Wonder Room at Selfridges.
The global rollout of our women's fragrance, Burberry The Beat, has delivered very pleasing results. And The Beat For Men has just launched exclusively in the US with a global launch in Spring '09.
For '08/'09 as a whole, we're now expecting Licensing revenue to be slightly down on an underlying basis year-on-year, reflecting a modest softening in Japan and lower output versus prior year of certain global licensed products.
As you can see from this chart, we saw good double-digit growth in all of our regions, except for Spain.
In the Americas, which we continue to view as an underpenetrated market, and in Europe and Asia. And the Rest of World segment, which is primarily Emerging Markets, is the fastest growing region where we continue to open new stores in conjunction with partners.
As you're aware, Spain remains a difficult market for us. Comparable store sales continue to be down double-digit year-on-year, and the Wholesale order book is trending down double-digit as we continue to see the contraction of the domestic independent retailers who are our biggest Wholesale customer by type.
We're rigorously examining every option to improve the profitability and efficiency of our Spanish business.
And turning now to profit. Adjusted operating profit increased by 3%, moving from GBP95.1m to GBP98.4m, which includes GBP3.5m currency benefit. On an underlying basis, Retail and Wholesale profits were marginally up on last year and Licensing marginally down.
The operating margin fell from 21.2% to 18.3%, reflecting the continuing planned trend for the lower proportion sales from Licensing, that had about 100 basis point impact, and lower Retail/Wholesale margin, including the impact of Spain.
Looking first at the Licensing profit and loss account. With sales down 3% on an underlying basis, a tight control of operating expenses held profits broadly flat. And the operating profit margin increased to 85.6% (technical difficulty) 3.5% last year.
Turning to Retail/Wholesale, revenue was up 22% reported. Gross margin as a percentage of sales was down 340 basis points, and we incurred Horseferry and SAP costs of GBP3.8m...
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