Burberry Interim Results

14 November 2019

 

Burberry Group plc

Interim results for 26 weeks ended 28 September 2019

 

Strategy delivering results

 

"We are pleased with our performance in the half, as we remain on track to deliver the first phase of our strategy. New product now represents a high proportion of our assortment and the customer response has been positive delivering strong double digit growth. We also continued to strengthen momentum around our brand and transform our distribution. We delivered financial results in line with guidance despite the decline in Hong Kong and we confirm our outlook for FY 2020."

Marco Gobbetti, Chief Executive Officer

 

·    Riccardo Tisci's collections delivered strong double digit growth with new product now around 70% of our mainline retail store offer

·    Strengthened our brand with positive momentum across social media, press and influencers

·    Transformation of distribution well underway with wholesale rationalisation and refreshed retail stores in all major cities

·    Launched exclusive, innovative partnership with Tencent to develop social retail in China^#

^#See separate announcement

 

In the current period, we have adopted new accounting standard IFRS 16, recognising operating leases as right of use assets and lease liabilities on the balance sheet. The impact of which is set out on page 20. Throughout this review, to aid comparability, a pro forma H1 2020 (see detail on page 37) has been included to be comparable with H1 2019 results.

 

Period ended	28 Sept 2019	29 Sept 2018	% change reported FX	28 Sept 2019 pro forma*	% change pro forma vs Sept 2018
£ million					reported FX	CER*
Revenue	1,281	1,220	5	1,281	5	3
Retail comparable store sales*	4%	3%		4%
Adjusted operating profit*	203	178	14	187	5	(4)
Adjusted operating profit margin	15.9%	14.6%		14.6%
Reported operating profit	202	173	17	186	8
Adjusted Diluted EPS (pence)*	36.9	32.9	12	36.1	10	1
Diluted EPS (pence)	36.4	31.6	15	35.7	13
Free cash flow*	(29)	46		(29)
Dividend (pence)	11.3	11.0	3	11.3	3

*See page 12 for definitions of alternative performance measures

 

 

Outlook FY 2020

·    Guidance maintained for broadly stable top-line and adjusted operating margin, despite incremental pressure on gross margin from the disruptions in Hong Kong and mix^~

 

^~At CER and excluding the impact of the adoption of IFRS 16. See detailed guidance in Appendix

 

The financial information contained herein is unaudited.
 

All metrics and commentary in the Interim Review exclude adjusting items unless stated otherwise.

 

Constant exchange rates (CER) removes the effect of changes in exchange rates compared to the prior period. This takes into account both the impact of the movement in exchange rates on the translation of overseas subsidiaries' results and also on foreign currency procurement and sales through the Group's UK supply chain. Throughout this review, CER performance will be described by reference to the H1 2020 pro forma.

 

The following alternative performance measures are presented in this announcement: pro forma H1 2020 results, adjusted profit measures, comparable sales, free cash flow and lease adjusted net debt in the prior period.  The definitions of these alternative performance measures are set out in the Appendix on page 12 .

 

Cumulative cost savings are savings compared to FY 2016 operating expenses. The savings relating to the store rationalisation programme are measured compared to the reported costs which were under IAS 17.

 

Certain financial data within this announcement have been rounded.

 

Enquiries

 

Investors and analysts		020 3367 4458
Annabel Gleeson	VP, Investor Relations	[email protected]
Media		020 3367 3764
Andrew Roberts	VP, Corporate Relations	[email protected]

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

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

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

·     Burberry will update on third quarter trading on 22 January 2020

 

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

 

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

BURBERRY, the Equestrian Knight Device, the Burberry Check, and the Thomas Burberry Monogram and Print are trademarks belonging to Burberry.

www.burberryplc.com

Twitter: @BurberryCorp

LinkedIn: Burberry
 

 

 

GROUP H1 2019 FINANCIAL HIGHLIGHTS

 

·   Revenue £1,281m +3% CER, +5% reported

o  Retail comparable store sales +4% (Q1: +4%; Q2: +5%) with new collections growing strong double digits, offset by a softer performance of replenishment product lines

 

Pro forma profit measures:

·   Pro forma adjusted operating profit £187m, -4% CER. As guided, gross margin was down 110bps at CER, largely offset by currency resulting in -10bps at reported

o  Operating expenses were impacted by store impairments, partially offset by cost savings

·   Pro forma operating profit £186m, +8% after adjusting items of £1m (H1 2019: £173m)

 

·   Pro forma adjusted diluted EPS 36.1p, +1% CER, supported by ongoing share repurchases and a 200bps effective tax rate reduction

 

Reported profit measures:

·   Operating profit £202m, +17% reported due to a currency benefit and the positive impact of IFRS 16, under which lease costs are split between operating expenses and interest

 

·   Diluted EPS 36.4p, +15% reported principally due to the impact of currency, tax and a small positive impact from the adoption of IFRS 16

 

Cash measures:

·   Free cash outflow of £29m (H1 2019: inflow of £46m) due predominantly to the accelerated timing of UK tax payments resulting from the new HMRC rules

 

·   Net cash £670m at Sept 2019 (£647m at Sept 2018) after returning £144m cash to shareholders through dividends (£129m) and share buyback (£15m)

 

·   Interim dividend 11.3p, +3% year-on-year (H1 2019: 11.0p)

 

Summary income statement

 

Period ended   £ million	28 Sept 2019	29 Sept 2018	% change reported FX	28 Sept 2019 pro forma*	% change pro forma vs Sept 2018
					reported FX	CER
Revenue	1,281	1,220	5	1,281	5	3
Cost of sales	(416)	(395)	5	(416)	5
Gross profit	865	825	5	865	5
Gross margin %	67.5%	67.6%	(10bps)	67.5%	(10bps)
Operating expenses**	(662)	(647)	(2)	(678)	(5)
Opex as a % of sales	51.6%	53.0%		52.9%
Adjusted operating profit**	203	178	14	187	5	(4)
Adjusted operating margin %	15.9%	14.6%	130bps	14.6%	0bps	(100bps)
Adjusting operating items	(1)	(5)		(1)
Operating profit	202	173	17	186	8
Net finance (charge)/credit~	(9)	1		3
Profit before taxation	193	174	11	189	9
Taxation	(43)	(42)		(42)
Attributable profit	150	132		147
Adjusted profit before taxation**	195	180	8	191	6	(3)
Adjusted EPS (pence)**^	36.9	32.9	12	36.1	10	1
EPS (pence)^	36.4	31.6	15	35.7	13
Weighted average number of ordinary shares (millions) ~	412.5	417.2		412.5

* We have included a pro forma for H1 2020 to make it comparable to H1 2019. The basis for this pro forma is set out on page 37. ** Excludes adjusting items.  ~ Includes adjusting finance charge of £1m (H1 2019: £1m). ^ EPS is presented on a diluted basis
 

 

 

BUSINESS AND FINANCIAL REVIEW

 

FY 2020 is the second year of our multi-year plan to transform Burberry. Our focus in this first phase is on re-energising our brand and aligning our distribution to our new positioning in luxury fashion as well as establishing a new product offering. Against these objectives, we made good progress in the half as we increased the availability of products designed by Riccardo Tisci and continued to evolve our retail and wholesale network.

 

In this half, our mainline stores benefited from a meaningful proportion of new product. The response from consumers was very promising. The new product delivered strong double-digit percentage growth compared to equivalent collections in the prior year, with growth in all regions. The response was also strong in luxury wholesale doors. At the end of the period, new product comprised around 70% of the assortment in our mainline stores, including a more comprehensive leather goods range.

 

In September, we presented Spring/Summer 2020 in our first carbon neutral runway show. The collection, Evolution, was influenced by the Victorian era and celebrated our new house codes as well as mixing innovative techniques with classic fabrications. The response to the show was exceptional. Compared to the Autumn/Winter 2019 show, global press reach grew by more than 50%, total reach on Instagram more than doubled and the show was one of the top five trending topics globally on Twitter.

 

We also strengthened brand momentum. In H1, our social first approach drove double digit year-on-year growth in our reach, engagement rate and followers across both Instagram and WeChat. We also continued to localise our China communications. For example, we delivered a dedicated campaign to celebrate Qixi Jie, an equivalent of Valentine's Day in China, which resulted in over 200m views across local social media platforms and contributed to strong double digit quarter-on-quarter growth in our WeChat engagement rate in Q2.

 

Social media and store experiences are playing an increasingly important role in inspiring luxury consumers and the customer journey between these touch points is becoming more fluid. Responding to this, we have entered into an exclusive partnership with Tencent to develop social retail in China. Together we will pioneer a concept that blends social media and retail, creating digital and physical spaces for engaged communities to interact, share and shop. This partnership will begin with Burberry opening a social retail store in Shenzhen, China in the first half of next year, powered by Tencent technology.

 

More widely in distribution, as planned, we continued to transform our network. In retail, we now have at least one creatively aligned store in each major city globally and a cumulative 15 of the smaller, non-strategic stores previously announced for rationalisation, have now been closed. In wholesale, we continued to rationalise space in non-luxury doors in the US and EMEIA and we remain on track for the closures in the US to be largely completed by the end of the financial year.

 

Finally, we continued to lead the way in building a more sustainable future for luxury fashion. We achieved our highest ever score on the Dow Jones Sustainability Index. We innovated with raw materials, introducing ECONYL, a nylon yarn made from regenerated fishing nets, fabric scraps and industrial plastic, into men's and women's outerwear and bags. And we were a founding signatory of The Fashion Pact, a global alliance between 56 of the world's leading fashion companies to limit global warming, protect the world's oceans and restore biodiversity.

 

 

First half performance

By the end of September the proportion of new product was around 70% of the mainline retail offer compared to 10-15% in March. This underpinned the improvement in comparable store sales growth to +4% in H1 and an acceleration to 5% growth in Q2 despite considerable disruptions in Hong Kong. Revenue growth at CER was 3%, impacted by the headwind from the closure of non-luxury wholesale doors in the US.

 

Group adjusted pro forma operating profit declined 4% in the half at CER, as guided. This predominantly reflected pressure on gross margin resulting from the continuing investment into product quality and deeper discounts on older product lines as well as store impairments relating to Hong Kong. These were partially offset by our continued focus on efficiency, productivity and simplification. Reported operating profit grew 17% due to the benefit of currency and the impact of IFRS 16, under which lease costs are split between operating expenses and interest.

 

There was a free cash outflow in the half, predominantly reflecting the accelerated timing of UK tax payments, higher capex year-on-year as guided and higher payables relating to the timing of inventory payments.

 

 

Revenue analysis

 

Revenue by channel

 

Period ended	28 Sept	29 Sept		% change
£ million	2019	2018		Reported FX	CER
Retail	1,004	944		6	4
Retail comparable store sales	4%	3%
Wholesale	253	254		0	(2)
Licensing	24	22		6	4
Revenue	1,281	1,220		5	3

 

Retail

·   Retail sales +4% at CER; +6% reported

·   Impact of new space -0.5%

 

First half comparable store sales +4% (Q1: +4%; Q2 +5%).

 

By region

 

Asia Pacific grew by a mid-single digit percentage

·    Mainland China grew mid-teens, Korea grew high-single digits and Japan was up mid-single digits. However, Hong Kong declined double digits

 

EMEIA grew by a mid-single digit percentage

·    The UK grew high single digits and Continental Europe grew mid-single digits. The Middle East returned to growth in Q2 but was negative in the half overall

 

The Americas grew by a low-single digit percentage

·    The US grew low-single digits with a consistent performance across quarters, whilst Canada and Brazil saw improved trends in Q2

 

By product

·   Consumers responded positively to new product, which delivered strong double digit percentage growth. However, this was partially offset by replenishment lines, which were softer year-on-year

·   In retail stores, men's apparel grew by a double digit percentage and women's apparel grew high-single digits as full look merchandising continued to drive strength in tops, trousers and skirts

·   The trend in accessories was softer year-on-year, albeit it improved significantly through the period with consumers responding positively to newly launched bags as we continued to build out a fuller assortment

 

 

Store footprint

The transformation of our distribution is well underway:

·    Store openings included mainline stores in China World in Beijing and IAPM in Shanghai, and we undertook a major expansion of our store in GUM, Moscow

·    All major cities now incorporate a store aligned to our new creative vision

·    Cumulative 15 stores closed to date as part of the non-strategic store rationalisation programme

 

 

Wholesale

Wholesale revenue declined 2% at CER, flat at reported, with double digit growth in continuing luxury accounts offset by non-luxury door closures. This was slightly better than our expectations due to the timing of shipments and stronger than expected in season orders.

·    Asia Pacific declined low double digits. This reflected the annualisation of Chinese consumers shifting their spend into Asian tourist geographies, which resulted in exceptional growth in Asia travel retail in the prior year

·    EMEIA grew low double digits, benefiting from stronger than expected in season orders as well as the timing of shipments

·    The Americas declined double digits, in line with guidance, with the headwind from the strategic rationalisation of non-luxury doors partly offset by growth in continuing luxury doors

 

 

Licensing

Licensing revenue was up £2m year-on-year (+4% at CER), predominantly due to a strong eyewear performance.

 

 

 

Operating profit analysis

 

Adjusted operating profit

 

Period ended     £ million	28 Sept 2019	29 Sept 2018	% change reported FX	28 Sept 2019 pro forma	% change pro forma vs Sept 2018
					reported FX	CER
Revenue	1,281	1,220	5	1,281	5	3
Cost of sales	(416)	(395)	5	(416)	5
Gross profit	865	825	5	865	5
Gross margin %	67.5%	67.6%		67.5%
Operating expenses	(662)	(647)	(2)	(678)	(5)
Opex as a % of sales	51.6%	53.0%		52.9%
Adjusted operating profit	203	178	14	187	5	(4)
Adjusted operating margin %	15.9%	14.6%	+130bps	14.6%	0bps	(100bps)

    

Pro forma adjusted operating profit declined 4% and margin decreased by 100bps at CER.

·    As guided, gross margin was negatively impacted by investments in design, product development and quality and deeper discounts on older product lines. However, these were almost fully offset by a currency benefit

·    Opex as a percentage of sales decreased by 10bps, reflecting an incremental £9m of restructuring savings and £3m of store rationalisation savings. However, this was offset by £14m of store impairments relating to Hong Kong, continued inflationary pressures and a rebalancing of marketing spend after the lower level in the prior year

 

Including a £16m currency benefit, pro forma adjusted operating profit was +5% reported and the margin was flat.

 

After a net finance charge of £8m, reported adjusted profit before tax was £195m.

 

Adjusting items^*

Adjusting items were £2m (H1 2019: £6m) with £1m relating to adjusting operating items and £1m relating to finance items. There is no change to the total estimated one-off costs associated with our cost and efficiency programme of c.£110m and our target of cumulative annualised cost savings of £135m in FY 2022.

Reported operating profit was £202m (H1 2019: £173m) due to the underlying movements, adjusting items, currency and the positive impact of IFRS 16 on operating profit, under which lease costs are split between operating expenses and interest. 

 

*For detail on adjusting items see Appendix and note 4 of Condensed Consolidated Interim Financial Statements

 

Taxation

The effective rate of tax on adjusted profit for FY 2020 is estimated to be 22.0% (FY 2019: 23.1%) and we have applied this at the half (H1 2019: 24.0%). The resulting effective tax rate on H1 2020 reported profit before taxation is 22.1% (H1 2019: 24.2%, FY 2019: 23.0%). Tax on adjusting items has been recognised at the prevailing rates as appropriate. 

 

 

 

Cash flow

There was a free cash outflow* of £29m in the half compared to the prior year inflow of £46m. The current year outflow primarily reflected accelerated timing of UK tax payments, higher capex year-on-year, as guided, and a payables outflow relating to the timing of inventory payments.

The major components were:

·   A working capital outflow of £120m (H1 2019: £98m) predominantly due to an outflow from trade and other payables due to the timing of inventory payments

·   Tax paid of £88m (H1 2019: £40m) reflecting the accelerated timing of UK tax payments resulting from the new HMRC rules

·   Capital expenditure of £68m (H1 2019: £51m) as we invest into store refurbishments and IT platforms

 

Net cash at 28 September 2019 was £670m, compared to £647m at 29 September 2018 and £837m at 30 March 2019.  During the half £144m was returned to shareholders, with final dividends of £129m and share buyback of £15m out of the previously announced full year programme of £150m. Our net debt^~ including reported lease liabilities was £416m (30 March 2019: Lease adjusted net debt £409m).

*For a definition of free cash flow see page 13.

~ For a definition of net debt see page 13.

 

Summary outlook

Whilst mindful of the global economic uncertainty, we maintain our FY 2020 guidance of broadly stable revenue and pro forma adjusted operating margin* at CER including the delivery of £120m cumulative cost savings.**

·    As previously guided, in H2, we expect full price sales to benefit from new product. However, this will be partially offset by reduced markdown inventory available for sale and we also expect sales in Hong Kong to remain under pressure

·   We now expect gross margin to be down around 150bps (previously 100bp decline). The incremental 50bps largely reflects mix and the disruptions in higher margin market Hong Kong

 

At 1 November spot rates, the impact of year-on-year exchange rate movements is expected to be a benefit of £4m on adjusted operating profit and a benefit of £13m on revenue.

*This excludes the impact of the adoption of IFRS 16. See detailed guidance in Appendix.

**The base year for the cumulative cost savings is 2016
 

 

 

APPENDIX

 

Adjusting items* Period ended £ million	28 Sept 2019	29 Sept 2018
Disposal of Beauty business	-	6
Restructuring costs	(1)	(10)
Revaluation of deferred consideration liability	-	(1)
Adjusting operating items	(1)	(5)
Adjusting financing items	(1)	(1)
Adjusting items	(2)	(6)

*For additional detail on adjusting items note 4 of Condensed Consolidated Interim Financial Statements

 

Disposal of Beauty business

The net income of £6m in the prior year was predominantly due to positive resolution of some distributor negotiations associated with the transfer of Beauty operations to Coty in October 2017.

 

Restructuring costs

Restructuring costs of £1m were incurred relating to our cost and efficiency programme. We continue to expect charges of £16m in FY 2020. There is no change to the total estimated one-off costs of the programme of around £110m.

 

Revaluation of deferred consideration liability

The £1m prior year charge principally reflects foreign exchange rate movements for the Burberry Middle East transaction.

 

Adjusting finance charge

The £1m charge relates to the deferred consideration that arose from the Burberry Middle East and Burberry Manifattura transactions.

 

 

Detailed guidance for FY 2020*

Item	Financial impact
Revenue	Revenue expected to be broadly stable at CER
Impact of retail space on revenues	No expected impact from net space on our retail revenue with the headwind from the non-strategic store rationalisation programme offset by strategic store openings
Wholesale revenues	Wholesale revenues expected to decline by a low-single digit percentage reflecting the strength from continuing luxury doors partly offsetting non-luxury door closures. This is ahead of previous guidance for a mid-single digit decline.
Gross margin	We now expect gross margin to be down around 150bps, below our previous expectation for a 100bp decline. The incremental 50bps primarily reflects mix and the disruptions in higher margin Hong Kong market.
Cost savings	Cumulative cost savings of £120m, an incremental £15m in the year
Operating margin#	Adjusted operating margin expected to be broadly stable at CER
Tax	We anticipate a further c100bps reduction to around 22%
Currency	At 1 November spot rates, the impact of year-on-year exchange rate movements is expected to be a £4m benefit on adjusted operating profit and a £13m benefit to revenue.
Restructuring costs	£16m (including the non-strategic store rationalisation)
Capital expenditure	We now expect capex of £180m below our previous expectation for £200m, predominantly due to the timing of projects
Share buyback	£150m

*Guidance assumes constant exchange rates, a stable economic environment and current tax legislation. It excludes the impact of the UK's possible withdrawal from the EU without an agreement. In the event of the UK withdrawing from the European Union without an agreement, there is likely to be a material but manageable operational and financial impact on Burberry's business. We continue to prepare mitigating actions to limit the operational and financial impact in the short term.

^# The operating margin guidance excludes the impact of the adoption of IFRS 16, which is expected to benefit FY 2020 operating profit by £30m-£35m and profit before tax by £5m-£10m

 

 

Exchange rates
Forecast effective rates for FY 2020			Actual average exchange rates
£1=	1 November 2019	28 June 2019	H1 2020	H1 2019	FY 2019
Euro	1.14	1.12	1.12	1.13	1.13
US Dollar	1.28	1.27	1.26	1.33	1.31
Chinese Renminbi	8.92	8.73	8.71	8.78	8.82
Hong Kong Dollar	9.97	9.93	9.82	10.42	10.26
Korean Won	1,500	1,473	1,486	1,463	1,460

 

 

 

Retail/wholesale revenue by destination
Period ended	28 Sept	29 Sept		% change
£ million	2019	2018		Reported FX	CER
Asia Pacific	500	472		6	4
EMEIA	487	462		6	5
Americas	270	264		2	(3)
Total	1,257	1,198		5	3

 

 

Retail/wholesale revenue by product division
Period ended	28 Sept	29 Sept		% change
£ million	2019	2018		Reported FX	CER
Accessories	457	469		(2)	(5)
Women's	387	360		8	6
Men's	347	309		12	10
Children's & other	66	60		10	8
Total	1,257	1,198		5	3

 

 

Store portfolio
	Directly-operated stores
	Stores	Concessions	Outlets	Total	Franchise stores
At 30 March 2019	233	146	52	431	44
Additions	7	8	3	18	-
Closures	(17)	(6)	(3)	(26)	-
At 28 September 2019	223	148	52	423	44
Store portfolio by region
	Directly-operated stores
At 28 September 2019	Stores	Concessions	Outlets	Total	Franchise stores
Asia Pacific	92	87	16	195	6
EMEIA	62	51	19	132	38
Americas	69	10	17	96	-
Total	223	148	52	423	44

 

 

 

Adjusted operating profit Period ended   £ million	28 Sept 2019	29 Sept 2018	% change reported FX	28 Sept 2019 Pro forma	% change pro forma vs Sept 2018
					reported FX		CER
Retail/wholesale	182	158	15	166	5		(5)
Licensing	21	20	6	21	6		5
Adjusted operating profit	203	178	14	187	5		(4)
Adjusted operating margin	15.9%	14.6%		14.6%

 

 

 

Profit before tax reconciliation
Period ended   £ million	28 Sept 2019			29 Sept 2018	% change Reported FX	28 Sept 2019 pro forma	% change pro forma vs Sept 2018
							Reported FX	CER
Adjusted profit before tax	195			180	8	191	6	(3)
Adjusting items*
Disposal of Beauty operations	-			6		-
Restructuring costs	(1)			(10)		(1)
Revaluation of deferred consideration liability	-			(1)		-
Adjusting financing items	(1)			(1)		(1)
Profit before tax	193			174	11	189	9

 *For additional detail on adjusting items see note 4 of Condensed Consolidated Interim Financial Statements

 

 

Alternative performance measures

Alternative performance measures (APMs) are non-GAAP measures. The Board uses the following APMs to describe the Group's financial performance and for internal budgeting, performance monitoring, management remuneration target setting and for external reporting purposes.

APM	Description and purpose	GAAP measure reconciled to
Pro forma results	This measure is an estimation of the results for the period when applying the previous accounting standard for leases, IAS 17 Leases. It has been included as IFRS 16 was adopted without restatement of the prior period.	Reported results for the same period This is set out on page 37.
Constant Exchange Rates (CER)	This measure removes the effect of changes in exchange rates compared to the prior period. It incorporates both the impact of the movement in exchange rates on the translation of overseas subsidiaries' results and also on foreign currency procurement and sales through the Group's UK supply chain.	Results at reported rates
Comparable sales	The year-on-year change in sales from stores trading over equivalent time periods and measured at constant foreign exchange rates.  It also includes online sales.  This measure is used to strip out the impact of store openings and closings, allowing a comparison of equivalent store performance against the prior period.	Retail Revenue:   Period ended YoY% 28 Sept 2019 29 Sept 2018 Comparable sales 4% 3% Change in space - (1%) IFRS 15/Retail Calendar - (1%) FX 2% (1%) Retail revenue 6% 0%
Adjusted Profit	Adjusted profit measures are presented to provide additional consideration of the underlying performance of the Group's ongoing business.  These measures remove the impact of those items which should be excluded to provide a consistent and comparable view of performance.	Reported Profit: A reconciliation of reported profit before tax to adjusted profit before tax is included in the income statement on page 15. The Group's accounting policy for adjusted profit before tax is set out in note 2 to the financial statements.

 

 

Free Cash Flow	Free cash flow is defined as net cash generated from operating activities less capital expenditure plus cash inflows from disposal of fixed assets and including cash outflows for lease principal payments and other lease related items following the adoption of IFRS 16 in this period.	Net cash generated from operating activities:   Period ended £m 28 Sept 2019 29 Sept 2018 Net cash generated from operating activities 164 97 Capex (68) (51) Payment of lease principal (115) - Other lease related items (10) - Free cash flow (29) 46
Net Debt	Net debt is defined as the lease liability recognised on the balance sheet, less net cash.   *In the prior year lease adjusted net debt was defined as five times minimum lease payments, adjusted for charges and utilisation of onerous lease provisions, less net cash.	Net cash:   Period ended £m 28 Sept 2019 30 Mar 2019 Net cash 670 837 Lease liability/ Operating lease debt (1,086) (1,246) Net debt (416) *(409)

 

Related parties

Related party disclosures are given in note 17 of the Condensed Consolidated Interim Financial Statements.

 

 

Principal Risks

The principal risks and uncertainties that the Group faces for the remaining 26 weeks of the financial year are consistent with those previously reported and are summarised below:

 

Strategic and Financial Risks

·     Execution of Strategy: Focused execution of the strategy through our six strategic pillars: Product, Communication, Distribution, Digital, Operational Excellence and Inspired People are key to sustainable shareholder value. Success depends on the value and relevance of our brand to luxury consumers around the world and our ability to innovate. Failure to execute the projects that underpin these strategies successfully could result in under delivery on the expected growth, productivity and efficiency targets. This could have a significant impact on the value of the business and market confidence in our ability to deliver the strategy.

·     Image and Reputation: the Group carefully safeguards its image and reputational assets. Unfavourable incidents, unethical behaviour or erroneous media coverage relating to the Group's senior executives, products, practices or supply chain operations could damage the Group's reputation.

·     Global Chinese Consumer Spending: any significant change to Chinese consumer spending habits or the economic, regulatory, social and/or political environment in China could adversely impact the consumer group's disposable income or confidence.

·     Volatility in foreign exchange rates: Burberry is exposed to uncertainty through foreign exchange movements which could have a significant impact on the Group's reported results.

 

Operational Risks

·     A cyber-attack results in a system outage, impacting core operations and/or results in a major data loss leading to reputational damage and financial loss. The Group's technology environment is critical to success.  A robust control environment helps decrease the risks to core business operations and/or major data loss.

·     People: Inability to attract, motivate, develop and retain our people to perform to the best of their ability in order to meet our strategic objectives. Delivery of our strategy relies on our ability to ensure our people continue to be driven and inspired to deliver outstanding results for the Group.

·     Technology and IT Operations support critical processes across the Group including retail, digital and Group functions such as Supply Chain and Finance. Failure to provide technology platforms that meet customer demands and support innovation could result in failure to deliver the strategy and negatively impact operations due to poor system performance and/or system outages.

·     Sustainability and Climate Change: The success of our business over the long term will depend on the social and environmental sustainability of our operations, the resilience of our supply chain and our ability to manage the impact of any potential climate change on our business model and performance.

·     Business Interruption: A major incident at one of the Group's main locations, suppliers or affecting key products significantly interrupting the business. This could be caused by a wide range of events including natural catastrophe, fire, terrorism, or quality control failures.

 

Compliance Risks

·     Regulatory Risk and Ethical/Environmental Standards: The Group's operations are subject to a broad spectrum of national and regional laws and regulations in the various jurisdictions in which we operate. These include product safety, trademarks, competition, employee and customer health & safety, data, corporate governance, employment and tax. Changes to laws and regulations, or a major compliance breach could have a material impact on the business.

·     Sustained breaches of Burberry's intellectual property (IP) rights or allegations of infringement by Burberry. Counterfeiting, copyright, trademark and design infringement in the marketplace could reduce the demand for genuine Burberry merchandise.

 

External Risks

·     Macro-Economic and Political instability: The Group operates in a wide range of markets and is exposed to changing economic, regulatory, social and political developments that may impact consumer demand, disrupt operations and impact profitability. Adverse macro-economic conditions or country-specific civil unrest for example in Hong Kong, may impact spending habits of key consumer groups such as the Chinese consumer and cause increased operational costs. 

·     UK's withdrawal from the EU: The risk to our business of a no deal withdrawal from the EU remains unchanged owing to the continuing political uncertainty. As previously stated, we have prepared for a no deal and have plans in place to limit the impact on business operations and incremental costs, including additional duties.