Hystorical Financial Analysis

1


Brief analysis about Burberry Group
P.l.c.
, one of the
most luxury fashion house.








Elaborated by:
Balushkina Tatiana
Campanella Cosimo
Francesca Giulio
Vellucci Antonio



MSc Finance 2013-2014

2

Table of Contents

Introduction 3

1. Common-size Financial Statement 4
1.1 The common-size Balance Sheet 4
1.2 The common-size Income Statement 6

2. Calculation of Financial Ratios 7

3. Analysis of the Financial Performance 10
3.1 Ratios analysis 10
3.2 Financial Highligths 11
3.3 Financial goal setting by Burberry 13

Conclusion 15
Appendix 15
References



3

Introduction
Burberry Group Plc is a British luxury fashion company which has involved in manufacturing
clothing, fragrances, and fashion accessories. By the end of 2011, the Burberry Group Plc has
a large amount of branded stores and franchises across the world. One of the most famous
products of Burberry Group is iconic trench coat, which is firstly found by Thomas Burberry.
In the 2002, the Burberry Plc was initial listed on the London Stock Exchange and is
constituent of the FTSE 100 Index. According to Business Weekly, Burberry is the 98
th
most
valuable brand across around the world. Burberry has over 500 stores in over 50 countries.
Img. 1. Burberry expansion at the world


The present report has the purpose of showing an analysis of historical financial
statements of the last five years and a reformulation of the same in order to achieve a
good knowledge of the company on the side of the corporate valuation. Then the financial
statements are employed in the computation of some relevant ratios. Every ratio is simply
explained and presents a graphic showing the trend during the considered period. The
third part of the report presents a brief analysis of the company in which the
computations made before are literally explained, deeply discussed and implemented
with other observations concerning competitors of the company and the environment in
which it takes place.

4


1. Common-Size Financial Statement
The role of this paragraph is to present the common-size Balance Sheet and Income
Statement for Burberry in the period from 2009 to 2013.

1.1 The Common-Size Balance Sheet
To reach a better comprehension of the financial features and fundamentals of the
company, the original Balance Sheet has been reformulated.
The assets are split up in operating assets (OperA) and financial assets (FinA), the liabilities
are divided into interest bearing debt (IBD) and non-interest bearing debt (NIBD), and the rest
of the right-hand side of the balance sheet is categorized as risk- bearing capital (RBC).
Operating Assets are the ones which can be directly involved within the production procedure
or, more generally, within the core business. Financial Assets are those which can be directly
associated to money and its substitutes.
Interest Bearing Debts are liabilities that are subjected to a certain rate of interest, hence
they produce interest expenses. Non-Interest Bearing Debts are liabilities that are not
affected by any kind of interest.
Table 1


Year to 31 March 2009 2010 2011 2012 2013
m % m % m % m % m %
OPERATING ASSETS
Intangible assets 57,5 9,0% 64,6 12,3% 114,7 16,0% 133,1 15,5% 210,2 19,3%
Property, plant and equipment 258,6 40,6% 256,1 48,6% 281,8 39,4% 328,8 38,4% 409,1 37,6%
Deferred taxation assets 57,7 9,1% 39,2 7,4% 70,4 9,8% 84,1 9,8% 117,6 10,8%
Inventory 262,6 41,3% 166,9 31,7% 247,9 34,7% 311,1 36,3% 351 32,3%
TOTAL 636,4 100,0% 526,8 100,0% 714,8 100,0% 857,1 100,0% 1087,9 100,0%
FINANCIAL ASSETS
Investment Properties 3 0,5% 2,8 0,4% 2,7 0,4%
Trade and other receivables : 196,7 40,2% 139,4 22,7% 147,7 22,7% 167,5 22,2% 199,5 30,3%
- Current 187,2 128,4 132,5 145,2 159,6
- Non-current 9,5 11 15,2 22,3 39,9
Derivative financial assets: 23,2 4,7% 4,3 0,7% 10,8 1,7% 17,9 2,4% 20,3 3,1%
- Current 23,2 2,6 1,6 3,2 20,1
- Non-current 1,7 9,2 14,7 0,2
Income tax receivables 17,1 3,5% 0,7 0,1% 8,3 1,3% 10,1 1,3% 9,4 1,4%
Assets classified as held for sale 13,5 2,1% 8,3 1,1%
Cash and cash equivalents 252,3 51,6% 468,4 76,4% 466,3 71,8% 546,9 72,6% 426,4 64,8%
TOTAL 489,3 100,0% 612,8 100,0% 649,6 100,0% 753,5 100,0% 658,3 100,0%
Reformulated Common-Size Balance Sheet

5




















INTEREST BEARING DEBT
Long term Liabilities (23,8) 8,9% (26,5) 11% (84,4) 33,4% (104,9) 33,4% (108,0) 45,3%
Derivative Financial liabilities (0,4) 0,1% (0,2) 0% 0,0 0,0% (0,2) 0,1% (0,7) 0,3%
Bank Overdrafts and Borrowings (244,7) 91,0% (206,4) 89% (168,4) 66,6% (208,6) 66,5% (129,8) 54,4%
TOTAL (268,9) 100,0% (233,1) 100% (252,8) 100,0% (313,7) 100,0% (238,5) 100,0%
RISK BEARING CAPITAL
Minority interests in equity 4,6 0,8% 13,4 2% 20,1 2,7% 24,1 2,7% 35,8 3,4%
Retained earnings 199,2 36,6% 241,4 40% 366,4 49,9% 507,1 56,9% 615,9 58,5%
Ordinary Share Capital 0,2 0,0% 0,2 0% 0,2 0,0% 0,2 0,0% 0,2 0,0%
Share Premium Account 175,9 32,3% 186,1 31% 192,5 26,2% 202,6 22,7% 203,6 19,3%
Capital Reserve 27,2 5,0% 27,2 5% 28,9 3,9% 33,9 3,8% 37,0 3,5%
Hedging Reserve (13,4) -2,5% (1,1) 0% 2,4 0,3% 4,9 0,5% 9,3 0,9%
Foreign currency translation reserve 150,2 27,6% 136,3 23% 123,2 16,8% 118,6 13,3% 151,0 14,3%
TOTAL 543,9 100,0% 603,5 100% 733,7 100,0% 891,4 100,0% 1.052,8 100,0%
NON INTEREST BEARING DEBT
Deferred taxation liabilities (2,3) 0,7% (1,6) 0,5% (1,8) 0,5% (1,4) 0,3% (0,8) 0,2%
Other liabilities (139,7) 44,6% (95,2) 31,4% (82,5) 21,8% (63,8) 15,7% (93,9) 20,6%
Trade and other payables (162,4) 51,9% (200,2) 66,1% (283,4) 75,0% (324,4) 80,0% (339,8) 74,7%
Retirement benefit obligations (0,6) 0,2% (0,5) 0,2% (0,6) 0,2% (0,8) 0,2% (0,6) 0,1%
Provisions for liabilities and charges (7,9) 2,5% (5,5) 1,8% (9,6) 2,5% (15,1) 3,7% (19,8) 4,4%
TOTAL (312,9) 100,0% (303,0) 100,0% (377,9) 100,0% (405,5) 100,0% (454,9) 100,0%

6


1.2 The common-size Income Statement
The below common-size Income Statement has been reformulated in order to highlight
all the significant items, otherwise not immediately noticeable in a standard Income
Statement.
The main idea that guides the reformulation of Income Statement is the same: to draw a
marked line between the operating items and the financial ones. To reach this purpose, some
original items have been grouped in order to make the Income Statement clearer and more
suitable for ratios calculation.
Thus, the crucial item is Net Operating Income because it divides the previous operating items
from the financial ones. Sales Revenues counts for the 100% and so they represent the
starting point from which we add or subtract the following items.
Another task faced is underlining important measures as EBIT and EBITDA.
This reformulated Income Statement is built to be easy and to offer the main information at
the first sight.

Table 2
(see appendix for a different version)

Year to 31 March
2009 2010 2011 2012 2013
m % m % m % m % m %
OPERATING INCOME
Revenues 1.201,5 100,0% 1.279,9 100,0% 1.501,3 100,0% 1.857,2 100,0% 1.998,7 100,0%
Cost of sales (535,7) -44,6% (475,9) -37,2% (491,6) -32,7% (558,3) -30,1% (556,7) -27,9%
Gross Margin 665,80 55,4% 804,00 62,8% 1.009,70 67,3% 1.298,90 69,9% 1.442,00 72,1%
Adjusted Operating expenses (485,0) -40,4% (584,1) -45,6% (708,6) -47,2% (922,0) -49,6% (1.013,9) -50,7%
Other Operating Income (Expense) -190,7 -15,9% -48,8 -3,8% 1 0,1% 0 0,0% -82,3 -4,1%
Operating income [EBIT] 9,9 - -0,8% 171,1 13,4% 302,1 20,1% 376,9 20,3% 345,8 17,3%
FINANCING
Finance Income 7,2 0,6% 1,1 0,1% 1,9 0,1% 2,9 0,2% 3,4 0,2%
Finance Expense -13,4 -1,1% -6,2 -0,5% -5,1 -0,3% -3,6 -0,2% -3,7 -0,2%
Other financing income/(charges) 0 0,0% 0 0,0% -3,2 -0,2% -10,2 -0,5% 5,2 0,3%
Net Finance Income -6,2 -0,5% -5,1 -0,4% -6,4 -0,4% -10,9 -0,6% 4,9 0,2%
Operating Income (before taxation) [EBT] 16,1 - -1,3% 166,0 13,0% 295,7 19,7% 366,0 19,7% 350,7 17,5%
Taxation 11 0,9% -83,8 -6,5% -83,2 -5,5% -100,6 -5,4% -91,5 -4,6%
Discounted Operation 0 0,0% 0 0,0% -6,2 -0,4% -0,3 0,0% 0 0,0%
Operating Income (after taxation) 5,1 - -0,4% 82,2 6,4% 206,3 13,7% 265,1 14,3% 259,2 13,0%
Minority Interest -0,9 -0,1% -0,8 -0,1% 2,1 0,1% -1,8 -0,1% -4,9 -0,2%
NET INCOME 6,0 - -0,5% 81,4 6,4% 208,4 13,9% 263,3 14,2% 254,3 12,7%
Reformulated Common-size Income Statement

7

2. Calculation of Financial Ratios
Operating Profit Margin
The OPM shows how much profit does the company make for each money-unit ( in this
case). It is defined as the net operating income of the period (before interests and taxes)
divided by the sales:

For the considered period (from 03/2009 to 03/2013), Burberrys Operating Profit Margin
and its average value over the same years are the following:
2009: -0,80%
2010: 13,40%
2011: 20,10%
2012: 20,30%
2013: 17,30%
AVERAGE: 14,1%


Net Profit Margin
NPM is a measure of profitability that indicates how much the firm increases its profits after
taking into account all the financing activities.

(with

Net Income and

Minority Interest)

From 2009 and 2013, the Net Profit Margin of Burberry is:

2009: -0,60%
2010: 6,30%
2011: 14,00%
2012: 14,10%
2013: 12,50%
AVERAGE: 9,30%




8


Return on Net Operating Assets
RNOA is defined as the profitability of the operating activities. It can be calculated as:

Note that in this case this ratio has been computed using the Net Operating Assets of the
same period; However, it has to be highlighted that it is possible to use either
1
or the
average (
1
+

)/2. The formula above has been presented given the fact that
both
1
and (
1
+

)/2 produce a critical problem: the first introduces a lag

in the computation because is referred to the past period whereas the second is a mean
between the past period and the present one and still bring a temporal bias.
The RNOA for Burberry over the considered period is:

2009: -0,90%
2010: 15,50%
2011: 23,80%
2012: 25,30%
2013: 21,40%
AVERAGE: 17,00%



Return on Risk Bearing Capital
The RRBC is defined as the return given to the shareholder for bearing risk. It is calculated
as:

(with PFI profit after financial items and RBC risk bearing capital)

Note that also in this case we have divided for the value of the same period. The RRBC for
Burberry PLC is:

2009: -3,00%
2010: 27,50%
2011: 40,30%
2012: 41,10%
2013: 33,30%
AVERAGE: 27,84%


9


Return on Capital Employed
ROCE is the sum of EBT and finance expenses divided by the Capital Employed (CE) defined
as the sum of Interest Bearing Debt and Risk Bearing Capital:

=

And in the considered period we observed:

2009: -1,20%
2010: 20,50%
2011: 30,60%
2012: 31,30%
2013: 26,80%
AVERAGE: 21,60%



Debt Ratio
This ratio is also known as Financial Leverage. It is obtained dividing the net financial
obligations with the equity and gives a measure of riskiness of a company.

Stated this, the following results are obtained:

2009: 0,49
2010: 0,39
2011: 0,34
2012: 0,35
2013: 0,23
AVERAGE: 0,36






10

Interest Cover Margin
ICM measure the capacity of the firm to pay the interest on the debt. It is computed as the
Operating Profit (before taxes) divided by the finance expenses:

=

Over the considered period, Burberry PLC presents these ICMs:

2009: - 0,74
2010: 27,60
2011: 59,24
2012: 104,69
2013: 93,46
AVERAGE: 56,85




3. Analysis of the Financial Performance
3.1 Ratios Analysis
Comparing Burberrys ratios with the ratios of another fashion brand, TODS, we notice
some interesting results. First of all, looking at the Return On Capital Employed, it is clear that
the trend of the two firm is almost the same over the period 2010 2013
1
. What has to be
highlighted is that in 2009, TODS ROCE was far more greater than Burberrys one. The reason
may be that TODS production is an highly luxury one whereas Burberry has developed over
the years different categories of products which are not necessarily designed for the luxury
markets. Since a more luxurious brand is fewer influenced by recessions, in 2009 Burberrys
ROCE was smaller than TODS one.


1
Notice that TODS Annual Report is due on the 31 of December while Burberrys closure is on 31 of March. For this
reason, 2009 ROCE is, as a matter of fact, the 2008 ROCE for TODs (as 31th December), while represents the ROCE
from 31th March 2008 to the 31th March of 2009 for Burberry.
2009 2010 2011 2012 2013
ROCE
(Burberry)
-1,20% 20,50% 30,60% 31,30% 26,80%
ROCE
(Tod's) 31,16% 20,45% 26,13% 30,08% 30,50%

-10,00%
0,00%
10,00%
20,00%
30,00%
40,00%
2009 2010 2011 2012 2013
ROCE performance
ROCE (Burberry) ROCE (Tod's)

11



Moreover, the average ROCE for Burberry is equal to 21,60% while TODS average ROCE is
obviously higher (28%) given the higher performance in 2009. Therefore it can be stated that
TODS was on average more profitable than Burberry in the considered period. Anyway, from
2010 to 2012 Burberry showed a constantly higher ROCE with respect to the same ratio
showed by TODS; this means that Burberry has been able to generate more profits from his
asset and liabilities than TODS.

On the other hand, if we look at the values of the Return on Net Operating Assets in the
period 2009 2012, it is noticeable that TODS RNOA is constantly higher than the Burberrys
one. Since RNOA measure the capability of the company to create profit from each piece of
equity, TODS was able to earn more than Burberry from each euro that this firm has invested
over the considered period.


2009 2010 2011 2012 2013
RNOA
(Burberry)
-0,90% 15,50% 23,80% 25,30% 21,40%
RNOA
(Tod's) 22,85% 22,94% 31,32% 35,24% 30,87%






3.2 Financial Highlights
If we look at the Income Statement, we can see that Burberry Plc has achieved total
revenues of 1201,5 million in 2009. What is important to notice in this case is that from
2009 to 2013, revenues have risen constantly. The most higher jump is between 2010 and
2011 when the firm decided to start a restructuring plan in the Spanish market where it was
getting several losses. However, the company got negative net income in the year 2009, that
may be caused by the influence of global financial crisis which significantly increase the
companys financial costs.




-20,00%
0,00%
20,00%
40,00%
2009 2010 2011 2012 2013
RNOA performance
RNOA (burberry)
RNOA (tod's)

12


Looking at the Balance Sheet, it can be summarised that Burberry Plc has greatly increased
its assets from 1125,7 million in 2009 to 1746,2 million in year 2013.

As a result, also total equity has risen over the same period. From 2009 to 2013 it has doubled.
This is caused by the increasing net profit that the company has achieved: net revenues has
the effect of increase the firms assets. Because stockholders equity is the difference
between the firms assets and liabilities, it also has the effect of increasing the stockholders
equity.


13

3.3 Financial goal setting by Burberry
At corporate strategy Burberry is connecting the main strategic themes with some
financial rates (KPI), which indicate the range of realizing this strategy. Also these financial
rates and strategic themes are corresponded with some necessary arrangements, which are
the practical steps of realizing the strategy. All this system (rates-strategic themes-
arrangements) is presented at Tables 3 and 4 (to the beginning and to the end of the period).
Table 3
Summarizing of Burberry strategy at the beginning of the analyzed period (2009)





14


Table 4
Summarizing of Burberry strategy at the end of the analyzed period (2013)

In our opinion, as a whole, from the 2009 to 2013 corporate strategy of Burberry didnt
meaningfully change, but has become more concrete. For example, its possible to notice,
that the 4 from 5 strategic themes and 6 from 7 financial rates are staying stable; Non-
apparel development was concretized and transformed to development at accessorizes
(also the appropriate financial rate was transformed from growth rate in non-apparel revenue
to growth-rate in accessorizes.
The arrangements to achieve the financial goals also has got the unite layout and have
become more concrete, changes at this point means that during the analyzed period the
company achieved some strategic goals or tries to use new approaches for achieving (for

15

example, Burberry meaningfully widened and concretized the list of emerging markets, or
offered to use different marketing approaches for total revenue growth).
The main minus of this type of financial goal setting is that Burberry doesnt connect this
strategic themes KPI and arrangements with some standards of financial rates, analyzing
which it would be possible to understand the degree of achieving the goal, and bases only on
historical, not perspective information. These financial standards would be really useful for
decision making of stakeholders and potential investors.



Conclusion
Looking at the trend of the last five years, is it possible to say that Burberry Group Plc has
grown constantly without any interruption. In the latest year however, the revenues from
sales has decreased. The slowdown has been probably caused by Europe debt crisis which is
eventually having an impact on the luxury sector too. Anyway, this effect is contrasted by the
fact that in the latest years Burberry has changed is policy and start to sell also more common
goods. Moreover, the reducing revenues could be explained by the emerging markets; China,
for example, is one of the most fearful competitor but at the same time this country
represents one of the most profitable market for the firm.

Appendix


16

REFERENCES

Burberry (2009): Burberry Group P.L.C. Annual Report 2008 - 2009

Burberry (2010): Burberry Group P.L.C. Annual Report 2009 - 2010
Burberry (2011): Burberry Group P.L.C. Annual Report 2010 - 2011
Burberry (2012): Burberry Group P.L.C. Annual Report 2011 - 2012
Burberry (2013): Burberry Group P.L.C. Annual Report 2012 - 2013

A. Damodaran (2009), Damodaran On Valuation, 2-dn Edition

J. Berk - P. De Marzo (2008), Finanza Aziendale 2, Ed. Pearson

Burberry Group P.L.C., Investor Realtions,
http://www.burberryplc.com/investor_relations/financial_history, 2013

Burberry Yahoo Finance,
http://finance.yahoo.com/q?s=BRBY.L, 2013

Financial MoringStar,Burberry Ratios,
http://financials.morningstar.com/ratios/r.html?t=brby&region=gbr, 2013

London Stock Exchange, Burberry Group P.L.C.,
http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-
summary.html?fourWayKey=GB0031743007GBGBXSET1, 2013

Tods Group S.P.A. Financial Relase,
http://www.todsgroup.com/en/financial-data/financial-release/, 2013

Tods, Borsa Italiana,
http://www.borsaitaliana.it/borsa/azioni/profilo-societa-dettaglio.html?isin=IT0003007728&lang=it,
2013