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Financial Report
Burberry Group Plc

Group Members:
Mubeen Muhammed (H00157204)
Shizah Shaukat (H00151175)
Raj Bahrani (H00171499)
Mohammed Salman (H00173156)
Husam Al Jabbar Khan (H00131717)
Shaheer Ghanchi (H00151171)

Lecturer-Ms. Sunita Mathur

Table of Contents:
1-Executive Summary

page 3

2-Major Financial Reporting Issues

page 3

3-Analysis of Annual Report

page 4 to 5

4-Predictive Values

page 6

5-Potential Pitfalls

page 7 to 8

6-Conclusion

page 9

7-References

page 10

8-Appendices

page 11 to 15

Executive summary:
Burberry plc was established in 1856.It is a worldwide extravagant and luxury brand. The
companys distinguishing tartan pattern has become one of its most widely copied trademarks.
Burberry is known mostly for its iconic trench coat, which was designed by the founder Thomas
Burberry himself. In the beginning of 1998, the new management group at Burberry set out its
tactics to reposition and revitalize the brand, which brought about fundamentally enhanced
outcomes and fortified the base to build the business. With continuous growth since five years,
Burberry has confronted new difficulties of brand sustainability and positioning in an
unpredictable industry. Hence, it requires a plan that lays foundations for long-term growth and
also helps the company to address and solve the issues. For a luxury brand, the maintenance of
the brand image comes as a first and foremost factor in order to sustain in the market. Hence, the
company should target its core customers and make sure that the customers are completely
satisfied. By implementing this alternative, Burberry will be able to prolong its brand positioning
in the fashion industry.

Major Financial Reporting Issues:

There are small financial reporting issues related to the financial instruments by Burberry.
Regarding the wholesale company and separating its Beauty, the business expects sales at certain
trade rates to minimize by a very small percentage until the 31st of March 2015 (2014-240
million).
The company threatened that if trade rates stayed consistent then it would have a materialistic
effect on income. If 2014 income is rebased with the current trade rates, then the newly reported
profits would dramatically reduce by a whopping 25 million pounds. Thus, this number will
cause a decrease of 0.5% from 17.5% to 17.0%.
Since most of Burberrys sales come from travelers, tourists and residents, this leads to floating
international exchange rates. Researchers in the management sector investigated that sales
growth decreased by Chinese customers whilst in the household or online.

Analysis of Annual Report:

From the chairmans perspective and the references and numbers provided in the financial
statements of Burberry Company, Mr. John Peace very clearly stated that the company is
declaring a strong year in 2013-14.

From the above numbers we can see that the company is growing continuously in the right
direction with generating good amount of profits with high sales as recorded. Therefore the
company is continuously trying to invest its huge amount in putting resources into ranges that
encourage the further improvement in different sectors, including internal correspondence
exercises, carrier advancement opportunities, remuneration plans and hierarchical activities. Not
only this the company invest a large sum of capital in opening of 25 stores and second head
office constructing in London toward the end of the year.
The total revenue of the company increased substantially to 2,330million from 1,999million in
the previous year. This is an increase of 331million, which states an approximate increase of
17%. The revenue does not only account for one sector but it is widely spread through different
means of channels for selling its products, such as wholesale, retail and licensing.

For 2013 to 2014 the retail and wholesale accounted for 70% and 27% of revenue respectively.
The retail revenue for the year was 1,623million with an underlying growth of 15% and 12%
comparable store sales growth. On the other hand for the wholesale channel, the companys
revenue accounted for 628million and a 32% underlying growth. In its first year of operation,
Beauty contributed to wholesale revenue of 144million, which is a positive number for the first
year of approach. Moving on to the licensing channel, the company has licensing agreements
globally. The licensing revenue for the year ended up to be 79million with a 2% growth
excluding the fragrance license income. This income reflected growth in global categories to
energize the phase of its development with a slight fall in legacy licenses which accounted for
23% underlying decline.
Even after all these increments, the company still aims to move progressively. Not only this, but
these financial numbers are also consistent with the Chairmans Review, Business Review and
the Group Financial Highlights. No contradiction can be seen throughout the annual report.

Predictive values:
Year over year, Burberry has been successful in growing their profits primarily through
increasing their revenues. While the costs linked with cost of goods sold, general expense and
income tax all increased as a proportion of sales, the growth in sales contributed enough to attain
a strong annual financial performance for 2013/14. Burberry cost of goods sold has increased by
20% as well as operating expense enlarging by 18%; the company has still achieved an 8%
increase in adjusted before tax profit in the year 2013 to 2014 from 428 million to 461 million,
which was possibly achieved through its 19% gain in revenue.
As shareholders mainly focus on the success and profit of the business, Burberrys strategy has
been established effectively in both concept and implementation to produce outstanding results
and strengthen the organization for future success. The company plays an important role in
valuing their shareholders through rewards such as dividend, as the company board has
encouraged a 10% increase in full year divided from 29.0p to 32.0p.Apart from this, the
company board intention is to move increasingly over the coming three years to 50% dividend
payout ratio.

Moreover the above numbers are a key valuation metric for Burberry shareholders, and one can
see that from the last five years the company has achieved a growth in adjusted diluted EPS
(Earning per share) which states that the company net income has been growing continuously in
order to gain a higher level of EPS each year. Apart from this by looking at the financial ratios as
stated below, it is superior for investors to invest in such a company with exceptional financial
performance and who has already issued 443,694,290 ordinary shares as at 31 March, 2014.
Net Profit ratio:

Net Profit
100
Sales

345.8
100
2013: 1998.7
=17.30%

2014:

445.4
100
= 19.11%
2329.8

Return on Capital employed:

2013:

Profit before interest tax

100
Capital Employed

345.8
100
= 32.84%
1052.8

2014:

445.4
100
= 36.87%
1208.0

Potential Pitfalls:
Retail Sector
Gross Profit Margin:

Gross profit
100
sales

2013:

2014:

1332.6
100
= 70.6%
1889.3

1579.3
100
= 70.2%
2250.6

Gross profit margin

72.50%
72.00%

Gross profit
margin

71.50%
71.00%
70.50%
2013

2014

Burberry analyzes their gross profit margins in an organized fashion in order to obtain accurate
measurements of success and efficiency. Although they aim to increase their profit margins,
however Burberrys retail gross profit margin result was formed by a 21% increase in cost of
goods sold, by using higher quality and expensive materials in production. These factors caused
downfall in gross profit from 70.6% to become 70.2% and can therefore be seen as a potential
pitfall.

Operating Profit Margin:

Net profit
100
sales

2013:

2014:

335.6
100
1889.3

393.5
100 = 17.5%
2250.6

= 17.8%

Operating profit margin

72.50%
72.00%

gross profit
margin

71.50%
71.00%
70.50%
2013

2014

It can be observed that there has been a percentage decrease in operating profit from 2013 to
2014. In this case, the decrease has occurred because Burberrys retail operating costs has
increase by 19%. In future, if there is no positive operating profit margin, then the company must
re-plan their business model.
Overall Group Sector
Gross profit
100
Gross Profit Ratio:
sales

2013:

1442.0
100 = 72.14%
1998.7

2014:

1658.5
100 = 71.1%
2329.8

gross profit ratio

72.50%
72.00%

gross profit ratio

71.50%
71.00%
70.50%
2013

2014

Based on the results above, it can be seen that the companys overall gross profit ratio has
dropped with a reduction of 1.5% from 2013 to 2014. This has happened due to increase in cost
of sales. As material purchased from supplier could be of high price.
Therefore, numerical evidences above clearly convey that the Burberry has a very high exposure
to retail and therefore is at greater risk with its inventories and competitors in the market.
Conclusion:
As per the group financial statement of year 2013-2014, the information provided by the board of
directors is responsible and accurate.
The profit for the year 2013 was 259.2 million and 2014 was 323.3 million in the income
statement, which shows an increment of 73.1 Million, which is very important to achieve in
order to gain investors confidence. On an average, the company is performing constructively
well which shows a total revenue growth of 17%. They started with outerwear like trench coats,
First product by Burberry, and then introduced more divisions of product, such as mens wear,
fragrances, accessories, children wear and the company recently lead into beauty as their fifth
division, which is doing extremely well and expects to add the companys future growth by 25%
in the upcoming year. Burberry has a good competitive advantage as they keep introducing new
divisions of product keeping its pace with changing trend in the market.
Burberry values their shareholders with the help of dividends which shows an increment of 10%
for the year 2013-2014 from 29.0p to 32.0p. The management continues to pursue the
progressive dividend policy. Moreover, the company has a future plan to progress from
40%payout ratio to 50%payout ratio over a time period of three years. In Addition, Burberry is
doing incredibly well to maintain customer relation to attract more clients and providing best
guidelines to pull in more customers and protect the interest of their investors. Hence, because of
Burberrys stability and the overall performance, HWC can invest and expect a positive Return
on Investment (ROI). The above statements clearly show that investing in Burberry will result in
a positive outcome.

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References:
Accounting-simplified.com, (2014). Relevance of accounting information and its
examples. [Online] Available at: http://accounting-simplified.com/financialaccounting/accounting-concepts-and-principles/accounting-relevance.html
[Accessed 7 Nov. 2014].
Burberryplc.com, (2014). Burberry Group Plc. [online] Available at:
http://www.burberryplc.com/ [Accessed 7 Nov. 2014].
Plc, b. (2014). BURBERRY GROUP PLC (BRBY: London Stock Exchange): Earnings
Estimates - Businessweek. [Online] Businessweek.com. Available at:
http://investing.businessweek.com/research/stocks/earnings/earnings.asp?
ticker=BRBY:LN [Accessed 7 Nov. 2014].

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