Source - RNS
RNS Number : 2475B
Burberry Group PLC
05 June 2019
 

 

5 June 2019

 

Burberry Group plc - Annual Financial Report

The following documents have today been made available to shareholders of Burberry Group plc

(the "Company"):

 

1.   Annual Report and Accounts for the financial year ended 30 March 2019;

2.   Notice of the 2019 Annual General Meeting; and

3.   Form of Proxy for the 2019 Annual General Meeting.

Pursuant to Listing Rule 9.6.1, each of these documents has been submitted to the National Storage Mechanism and they will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

In accordance with Disclosure Guidance and Transparency Rule ("DTR") 6.3.5(3), the Annual Report and Notice of 2019 Annual General Meeting are also available on the Company website at www.burberryplc.com.

The 2019 Annual General Meeting (the "AGM") will take place on Wednesday, 17 July 2019 at Conrad London St. James, 22-28 Broadway, London, SW1H 0BH. The total of the votes cast by shareholders for or against or withheld on each resolution to be put to the meeting will be published on www.burberryplc.com as soon as possible after the meeting.

In compliance with DTR 6.3.5, the information in the Appendix below is extracted from the Company's Annual Report and Accounts for the financial year ended 30 March 2019 (the "2018/19 Annual Report and Accounts") and should be read in conjunction with the Company's preliminary announcement issued on 16 May 2019 (the "Preliminary Announcement"), both of which can be viewed at www.burberryplc.com. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the 2018/19 Annual Report and Accounts in full. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2018/19 Annual Report and Accounts.

The information contained in this announcement and in the Preliminary Announcement does not constitute the Company's statutory accounts, but is derived from those statutory accounts. The statutory accounts for the financial year ended 30 March 2019 have been approved by the Board and will be delivered to the Registrar of Companies following the AGM.

Enquiries

Investors and analysts                                                                                                
Annabel Brownrigg-Gleeson
Director, Investor Relations       
[email protected]
020 3367 4458

Media
Andrew Roberts
VP, Corporate Relations
[email protected]
020 3367 3764

APPENDIX: ADDITIONAL INFORMATION REQUIRED BY DTR 6.3.5

AUDIT REPORTS

The Preliminary Announcement includes a condensed set of financial statements. Audited financial statements for the financial year ended 30 March 2019 are contained in the 2018/19 Annual Report and Accounts. The Independent Auditors' Report on the Company financial statements and the parent company financial statements (the "Audit Report") is set out in full on pages 153 to 159 of the 2018/19 Annual Report and Accounts. The Audit Report is unqualified and does not contain any statements under section 498(2) (regarding adequacy of accounting records and returns) or under section 498(3) (regarding provision of necessary information and explanations) of the Companies Act 2006.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following information is extracted from page 152 of the 2018/19 Annual Report and Accounts.

The directors consider that the Annual Report, taken as a whole, is fair, balance and understandable and provides the information necessary for shareholders to assess the Group and the Company's position and performance, business model and strategy.

Each of the directors, whose names and functions are listed on pages 94 to 97 confirm that, to the best of their knowledge:

-       the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;

-       the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

-       the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that it faces.

PRINCIPAL RISKS

The following information is extracted from pages 74 to 86 of the 2018/19 Annual Report and Accounts.

OUR APPROACH TO RISK

The Group's strategy takes into account risks, as well as opportunities, which need to be actively managed. Effective risk management is essential to executing our strategy, achieving sustainable shareholder value, protecting the brand and ensuring good governance.

The Board is ultimately responsible for determining the nature and extent of the principal risks it is willing to take to achieve our strategic objectives (the Board's risk appetite), and challenging management's implementation of effective systems of risk identification, assessment and mitigation.

The Audit Committee has been delegated the responsibility for reviewing the effectiveness of the Group's internal controls and risk management arrangements.

Ongoing review of these controls is provided through internal governance processes and the work of the Group functions is overseen by the Executive Committee, particularly the work of Group Risk and Internal Audit and the Risk and Ethics Committees.

An integral part of our business, our risk management process is co-ordinated by our Group Risk team, reporting to our Chief Operating and Financial Officer. Risk management activities include identifying risks, undertaking risk assessments and determining mitigating actions. These activities are reviewed by our Internal Audit and other control functions, which provide assurance to our Risk Committee, and ultimately to our Board and Board Committees, as shown in the diagram on page 102.

RISK APPETITE

The Board reviews and validates the Group's risk appetite on an annual basis. This is integrated into our wider risk management framework to support better decision-making and prioritisation.

We will pursue growth and are prepared to accept a certain level of risk to firmly establish our position in luxury fashion and inspire our customers with our unique British twist. We operate in a competitive, dynamic sector with long-term growth potential. Within categories of risk, our tolerance for risk may vary.

Complying with applicable laws and doing the right thing is part of our culture and underpins our strategic ambition. In exploring risks and opportunities, we prioritise the interests and safety of our customers and employees, we seek to protect the long-term value and reputation of the brand, maximising commercial benefits to support responsible and sustained growth, and in doing so minimise risk.

OUR PRINCIPAL RISKS

Our risk management process has identified a broad range of risks and uncertainties, which we believe could adversely impact the profitability or prospects of the Group. Our principal risks are defined as those that we regard as the most relevant to our business. These are the risks that we see as most material to our performance and could threaten our business model or the future long-term performance, solvency or liquidity of Burberry.

Our risk framework is structured around the following categories of risk: Strategic and Financial, Operational and Compliance. Each principal risk is linked to one of these categories and may impact one or more of our strategic priorities.

We have reviewed and updated the descriptions and mitigating actions of our principal risks to reflect new emerging external risks and any new strategic priorities that have been announced. We reviewed whether the level of risk associated with each of the principal risks is increasing or decreasing compared to the previous financial year and noted new risks, which do not have a basis for comparison.

RISK MANAGEMENT PROCESS

BOARD AND BOARD COMMITTEES

Responsible for regular oversight of risk management, annual strategic risk review, and setting the Group's risk appetite.

Monitors risks through Board processes including regular reviews of strategy, management reports and deep dives into selected risk areas.

Audit Committee reviews effectiveness of risk management process with

support from Internal Audit.

 

 

MANAGEMENT RISK COMMITTEE (CHAIRED BY CHIEF OPERATING AND FINANCIAL OFFICER)

 

Reviews external and internal environment for emerging risks. Performs deep-dive reviews of principal risks.

 

Reviews risk register updates from risk owners.

Meets at least three times per year and reports key findings to the Audit Committee.

 

Cross-functional attendees, encompassing senior management from IT, Finance, Legal, HR, Supply Chain and Retail.

Identifies changes to significant risks and the effectiveness and adequacy of

mitigating actions to achieve agreed risk tolerance levels.




GROUP RISK AND ASSURANCE TEAM

ETHICS COMMITTEE

FUNCTIONS AND BUSINESS RISK OWNERS

INTERNAL AUDIT AND COMPLIANCE FUNCTIONS

• Establishes risk

management

framework.

• Facilitates updates

to risk registers.

• Provides resources

and training to

support risk

management process.

• Prepares Board and Risk Committee

updates.

• Reviews and monitors ethical risks, as well as behavioural and responsibility practices across the Group. Approves policies relating to such ethical matters, including the Group's codes of conduct.

• Performs deep-dive reviews and assesses results of investigations

and corrective actions.

• Supports the Group in managing ethical and associated reputational

risks, including overseeing awareness

and training across the Group to reinforce business ethics and good practice.

• Carry out day-to-day

risk management

activities.

• Identify and assess

risk and implement

action to mitigate risk

within their area.

• Assign owners to risks

to update risk

registers.

• Review risk

management process

periodically.

• Compliance functions provide independent

assurance to

management and the Board on risk status (Health and Safety, Legal, Brand Protection, Quality, Asset and Profit Protection,

Responsibility).

 

 

 

 

STRATEGIC AND FINANCIAL RISKS

EXECUTION OF STRATEGIC PLAN

Focused execution of the strategy through our six strategic pillars (Product, Communication, Distribution, Digital, Operational Excellence and Inspired People) is 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.

 

We operate in the global luxury market, where competition is intensifying. Today's luxury customers demand creativity, curation, excitement, innovation and personalisation. Our ability to make the right strategic investment decisions in response to these changes is vital to our success.

No Change

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

All strategic pillars.

• Throughout FY 2018/19 we focused on building the capabilities to develop and deliver our strategy. Key executive-level appointments

were made to drive the Communication and Distribution strategies.

• The Executive Committee is accountable for the conduct of these programmes and delivery of outcomes in accordance with our Board-approved plan.

• A Transformation Management Office          co-ordinates delivery of the programme, monitors the risks associated with each of the major programmes, and tracks progress and benefits.

• We have increased our focus on measuring and demonstrating progress in our transformation. We have designed a set of lead

indicators to assess progress in product, communications, store performance and service.

• FY 2018/19 was an important year in advancing our Product and Communication strategies with significant interest generated

ahead of commercialising Riccardo Tisci's first collections. The product assortment and cadence of release has been altered with a

stronger focus on leather goods and collaborations, and some ranges being sold exclusively through digital channels.

• We continued to increase our focus on digital and ensure that our social channels and their content are relevant for the different

markets in which we operate.

• Our Inspired People initiatives include leading the Group-wide engagement survey. This has shown a marked increase in the understanding of our strategic goals and transformation plan

within the Group.

• Our Operational Excellence programme continues apace and has now delivered cost savings of £105 million since its inception in

FY 2016/17.

• Our IT strategy, prepared by the Chief Information Officer and the IT Leadership Team, comprises a portfolio of IT projects linked to the Group's strategic objectives. IT projects are managed by the IT Portfolio Forum.

RISK TOLERANCE

We will pursue growth and accept a certain level of risk to ignite brand heat and firmly establish our position in luxury fashion.

We approve capital investment in strategic projects and accept moderate to high earnings volatility in pursuit of innovation and profitable growth, balancing a reasonable return on capital for a reasonable level of commercial risk within the approved capital allocation framework.

EXAMPLES OF RISKS

• Firmly positioning the brand in luxury is

dependent on creating new and innovative luxury products that excite our global customers. If we are unable to innovate effectively and get these new products into the market with speed, our sales or margins could be adversely affected.

• Our development and deployment of content

through communication channels does not create sufficient brand heat globally.

• We do not achieve the required organisational alignment and enhance our capabilities and culture to compete and grow effectively and at the pace required to deliver the targets.

• Failure to sufficiently transform operational

processes could undermine our ability to

deliver the required cost savings and

margin improvements.

• Failure to deliver the technology innovation

required to empower changes in the Group's

business model and to deliver the anticipated

benefits from key investment strategies in

Digital, Retail and Group Operations.

 

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.

 

As our customers continue to engage with the brand through social media, a misleading perception of the Group's values and performance could potentially lead to a slowdown in sales.

 

Burberry's increasing reliance on influencers in its marketing and on collaborations in product design exposes the Group to increased reputational risk.

New

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

All strategic pillars.

• Training and monitoring of adherence by personnel to the requirements in the Group's Responsible Business Principles.

• Codified incident management policy, monitoring of social networks and response procedures.

• Oversight of mitigation of reputational issues by the Ethics and Risk Committees.

• The Group has established Corporate Responsibility (CR) standards, which aim to ensure compliance with labour, human rights, health and safety and environmental standards across our operations and extended supply chain.

• Supplier audits and supplier training programmes are examples of the actions and programmes that have been put in place in day-to-day operations.

• Strengthening our approval processes and editorial controls to ensure all product and content is reviewed and signed off prior to external release.

• Introducing additional training to strengthen our understanding of and sensitivity to a range of perspectives to help us live our values and fully embrace diversity and inclusion.

• Establishing employee councils focused on diversity and inclusion.

• Assembling an advisory board of external experts to provide insight and help raise Burberry's consciousness and understanding of social issues.

• Increasing awareness of and training with respect to Burberry's Model Wellbeing Policy to all people who engage with model on Burberry's behalf, including employees, freelancers, casting agents, contractors and

external third parties to ensure they adhere to the policy.

RISK TOLERANCE

Protecting the brand and its reputation globally is at the heart of everything we do. We take a risk-averse approach, adopting a strategy to avoid or mitigate any reputational/brand risk.

EXAMPLES OF RISKS

• An unfavourable incident relating to a senior executive, erroneous media coverage or negative discussions on social networks could damage Burberry's reputation.

• A celebrity, influencer, collaborator or model associated with Burberry becoming involved in a reputational incident could potentially lead to pressure on Burberry to distance the brand from them and could reflect poorly on Burberry, negatively impacting Burberry's reputation.

• Unfavourable or erroneous media coverage or negative discussions on social networks about the Group's products, content or practices could impact brand reputation.

• Unethical behaviour on the part of individuals or entities connected with the Group could attract negative attention to the brand.

• If suppliers or partners do not respect the Group's Responsible Business Principles this could reflect negatively on Burberry.

• Failure of employees or those acting on Burberry's behalf to adhere to Burberry's Model Wellbeing Policy could result in reputational or legal risk.

• Failure to understand social issues and respect cultural sensitivities could negatively impact Burberry's reputation.

 

 

GLOBAL CHINESE CONSUMER SPENDING

Global Chinese consumer spending patterns significantly change having an immediate adverse impact on Group sales.

Any significant change to Chinese consumer spending habits or the economic, regulatory, social and/or political environment in China could adversely impact the domestic consumer group's disposable income or confidence. Such changes could also lead to Chinese consumers scaling back on international travel, which could impact the Group's revenue and profits outside China.

New

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

All strategic pillars.

• The Group has strengthened the leadership team across Asia and has made continued investment in new stores, including new openings in China, and the refurbishment of stores such as Kerry Centre in China.

• Development and execution of China strategy, including targeted marketing around lunar new year.

• Investment in inventory and technology to support China digital across our own platforms and those of our third-party partner platforms.

• Supporting investment and growth strategies in other global markets to reduce Burberry's exposure to an individual country or group of customers.

RISK TOLERANCE

We will pursue growth and accept a certain level of risk to ignite brand heat with Chinese consumers and firmly establish our position in luxury fashion.

EXAMPLES OF RISKS

• Burberry's growth from Asia does not reach expectations either in magnitude or timing, especially in China (where growth rates are highest).

• Significant short-term slowdown in luxury goods consumption by Chinese consumers.

 

FOREIGN EXCHANGE

Volatility in foreign exchange rates could have a significant impact on the Group's reported results. Burberry is exposed to uncertainty through foreign exchange movements. The outcome of the UK's withdrawal from the EU may have a major impact on foreign exchange rates, which in turn could cause significant change in our Group reported results.

Increased

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Volatility in foreign exchange rates could impact our overall financial performance. 

• Burberry seeks to hedge anticipated foreign currency transactional cash flows using financial instruments. These are mainly in Burberry's centralised supply chain

and wholesale business. Burberry does not hedge intra-group foreign currency transactions at present.

• Burberry monitors the desirability of hedging the net assets of non-pound sterling subsidiaries when translated into pound sterling for reporting purposes. We have only entered into modest transactions for this

purpose in the current and previous year.

• Burberry monitors the overall impact of unhedged exchange movements and provides guidance to shareholders if exchange rates move on a quarterly basis.

RISK TOLERANCE

Burberry does not seek to manage structural foreign exchange risk relating to its overseas retail operations.

EXAMPLES OF RISKS

• Burberry operates on a global basis and earns revenues, incurs costs and makes investments in a number of currencies. Burberry's financial results are reported in pound sterling. Most reported revenues are earned in non-pound

sterling currencies, with a significant proportion of costs in pound sterling. Therefore, changes in exchange rates, which are driven by several factors, such as global economic trends, the form of the UK's withdrawal from the EU or

other developments, could impact Burberry's revenues, margins, profits and cash flows.

 

OPERATIONAL RISKS

LOSS OF DATA OR CYBERATTACK

A cyberattack 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.

No Change

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Having a resilient technology landscape is integral to delivering our Operational Excellence and Digital strategic pillars.

• Governance provided through the cross-functional Cyber Security Steering Group with Executive membership and sponsorship.

• Continued investment in the cybersecurity programme and completion of independent risk assessments to validate the strategy

and identify capabilities required to achieve the appropriate levels of security.

• Expanded cybersecurity scorecard monitoring to Executive and IT management through monthly reporting.

• Security monitoring, which provides monitoring of the network and computers 24/7, 365 days a year, supported by robust security incident response processes.

• Creation of an Information Security Advisory function to embed security in new projects and initiatives.

• Security Training and Awareness rolled out to employees globally with completion monitoring. This included completion of multiple phishing awareness campaigns.

• Implementation of solutions to detect personal and sensitive data loss with improved control over user access management.

• Established process for third-party security assessments.

• Data Privacy Steering Committee, a cross-functional group to review data controls around existing systems as well as assess the

potential data risks (from both a legal and reputational perspective) associated with new IT, Marketing, Retail and Digital initiatives

across Burberry.

• Ongoing collaboration between the Data Protection office, Legal, IT and Information Security to ensure policies are adhered to in

respect to the appropriate collection, security, storage, retention and deletion of personal data.

RISK TOLERANCE

Protecting the brand and its reputation globally is at the heart of everything we do. We take a

risk-averse approach, adopting a strategy to

avoid or mitigate any reputational/brand risk.

EXAMPLES OF RISKS

• Malware results in a loss of system control

causing business disruption and/or major

data loss.

• Credential compromise of customer or

employee accounts leading to business

disruption and/or major data loss.

• Accidental personal data loss or disclosure

leading to regulatory fines.

• Attack on www.burberry.com causing business disruption and/or major data loss.

• Compromise or misconfiguration of externally

facing assets causing business disruption and/

or major data loss.

• Fines due to failure to comply with EU General Data Protection Regulation (GDPR) and/or equivalent applicable data protection

legislation globally.

 

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.

No Change

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

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. This is done through fostering a dynamic and inclusive culture where all employees feel engaged, empowering and equipping our leaders, strengthening capabilities and expanding our talent plans, simplifying how we work, and driving positive change and a more sustainable future across every part of our footprint.

Leadership and Culture

• A new Leadership Development Programme, built around Burberry Behaviours, is being rolled out to engage and equip leaders. The programme is run over nine months and comprises 360 feedback, coaching and a

three-day event. To date, the Executive Committee, senior leadership team and 62 leaders have attended the three-day event, with all other leaders to be enrolled by the end of FY 2019/20.

• A second global employee engagement survey was carried out in July 2018, with results published in September, with 87% of employees confirming that they were proud to work at Burberry. Leaders are held accountable for delivering against agreed action plans. A third global engagement survey will take place in July 2019.

• Leaders were equipped with regular strategy updates, including talking points and exercises, to engage their teams on the strategic direction and build a sense of belonging to the inclusive culture at Burberry. The engagement survey illustrated a significant shift in employees'

understanding of the Group's direction (from 68% in 2017 to 74% in 2018).

Talent and Careers

• A new careers site has been created and launched, including experience maps, to engage the workforce on the Burberry careers proposition, in line with feedback received through the employee engagement survey.

• An approach for identifying high potentials across the organisation has been rolled out.

• All line managers have been invited to attend "Career Conversations" training, rolled out for all employees in career development. We have also held Global and Regional Careers Awareness weeks.

Performance, Reward and Recognition

• Simplified, more effective performance management process across the business rolled out with a four-point performance rating scale.

• Continuation of embedding Burberry Behaviours into performance management.

• Our Executive Committee ensures there is a competitive total reward offering, both financial and non-financial, to retain our people and to attract new hires.

Diversity, Inclusion and Employee Relations

• We have developed a plan focused on increasing understanding, diversifying

the pipeline of talent and championing those who help others to ensure we create and promote a more diverse and inclusive workforce.

• We are in the process of hiring a Director of Diversity and Inclusion and a VP, Employee Relations.

Well-being

• 51 UK employees have now been trained as qualified mental health first aiders, with further courses scheduled.

• Further plans to define Burberry's Well-being strategy in place.

RISK TOLERANCE

We recognise the value and importance of

successfully delivering our Inspired People strategy and therefore have a low tolerance for risk in this area.

EXAMPLES OF RISKS

• Failure to engage or equip our teams to

deliver our strategy, or address key capability gaps.

• Failure to build the right capabilities and

behaviours in our leadership population.

• Loss of critical talent/knowledge/ unmanageable levels of attrition

due to ongoing transition period/change fatigue.

• The long-term impact of the UK's withdrawal from the EU on the Group's EU workforce.

 

IT OPERATIONS

IT operations fail to support critical processes across the Group including Retail, Digital and Group functions such as Supply Chain and Finance.

No Change

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

All strategic pillars.

• IT function has been further strengthened with clear alignment between the IT teams, the strategic pillars, business functions and operations.

• Controls to maintain the continuity of the Group's IT systems are in place, including business continuity and IT recovery plans, which would be implemented in the

event of a major failure.

• A tested Group incident management framework is in place to report, escalate and close high-impact events.

• Programmes that will improve IT's ability to support operations are in place with a clear portfolio of IT projects linked to the Group's strategic objectives. Delivery of these projects is overseen by our IT Portfolio Forum, which regularly monitors progress.

RISK TOLERANCE

In operating our business and managing the possible disruption to our IT operations, we have a low tolerance for risk.

EXAMPLES OF RISKS

• Failure to provide technology platforms that meet customer demands and support innovation could result in failure to deliver the strategy and loss of revenue.

• Failure to provide stable and resilient technology platforms that meet business demands 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.

To address long-term sustainability challenges and understand potential impacts of climate change on our business, in both operational and financial terms, we have been working with Forum for the Future to explore global environmental, social and technological trends and how they could affect our business model. This exercise has involved senior leadership from across the business and results are now informing the development of cross-functional action plans to help us mitigate long-term risks and future-proof our business.

Increased

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Our commitment to being an industry leader in responsible and sustainable luxury underpins our vision to establish ourselves firmly in luxury fashion and deliver sustainable, long-term value.

• Our Chief Supply Chain Officer is responsible for ethical trading, environmental sustainability and community investment matters and reports on these topics to the Ethics Committee, Risk Committee and the Board.

• Long-standing responsibility programmes, coupled with our 2022 Responsibility goals, are driving continuous improvements while supporting our supply chain partners in moving beyond social and environmental compliance. See more on pages 42 to 55.

• We continuously explore more sustainable materials and manufacturing processes. Recent examples are included on page 47.

• During FY 2018/19, we completed three scenario analysis workshops to assess long-term environmental, social and technological trends that could significantly impact our business model and operations over the next 20 years. We explored the uncertainties, risks and opportunities that lie ahead, in light of forecasted climate change impacts to 2040, which will inform our strategic response to climate change.

• We have set science based targets to address our GHG emissions along our entire value chain. Our targets have been approved by the Science Based Target Initiative (SBTi) and are in line with the Paris Agreement to limit global warming to 1.5 degrees from pre-industrial levels.

• We are signatories of the UNFCCC Fashion Industry Charter for Climate Action, which aims to reduce aggregate GHG emissions across the fashion industry by 30% by 2030. Representatives of our Responsibility team

participate in the working groups and chair one of them.

• In September 2018, we were the first luxury company to announce that we were stopping the practice of destroying any unsaleable finished products. We are implementing a zero-waste mindset across our global operations,

with a focus on improving inventory management, extending the life cycle of our products and maximising donation, repurposing and recycling routes, while developing new partnerships and solutions for revaluing waste.

• We are core partners of the Ellen MacArthur Foundation's 'Make Fashion Circular' initiative, which aims to create a new, circular textiles economy, and signatories of the New Plastics Economy Global Commitment, which aims to eradicate plastic waste and pollution by 2025.

• We continue to support programmes led by The Burberry Foundation that tackle educational inequality in Yorkshire, foster community cohesion in Italy, and enhance social and economic empowerment in Afghanistan.

• We use the WWF water risk assessment tool and the Aqueduct Water Risk Atlas to understand potential future strains on water resources and long-term risks in our supply chain. This informs the roll-out of our energy

and water reduction programme to key supply chain partners.

• We are a founding partner of the Sustainable Fibre Alliance (SFA), a UK-based NGO working with key stakeholders in Mongolia to improve the impacts of cashmere production by restoring grasslands, promoting animal

welfare and supporting a decent living for cashmere goat herders.

RISK TOLERANCE

We have a low tolerance for risk, when it comes to protecting the human and environmental resources we all depend on. However, given the long-term nature of some sustainability risks and the level of uncertainty associated with their occurrence and impact, we accept that some risks are inevitable. We therefore

focus on helping to minimise global risks

while building resilience in our operations

and supply chain.

EXAMPLES OF RISKS

• Resource scarcity, coupled with increasing demand, could affect the production, availability, quality and cost of raw materials.

• Increased frequency of extreme weather

events, from floods to droughts, could cause disruption in our supply chain and impact our business model by changing the sourcing of raw materials, as well as the production and distribution of finished goods.

• Increased regulation and more stringent

environmental standards could impact our business by affecting production costs and flexibility of operations.

• Our industry is sustained by many agricultural and manufacturing communities around the world. Failure to support them in preserving key skills and building more sustainable livelihoods could cause social, economic and

operational challenges, from community

tensions and disruption to production to

a reduced talent pool.

 

BUSINESS INTERRUPTION

A major incident at one of the Group's main locations, at its suppliers or affecting key products, which significantly interrupts the business.

This could be caused by a wide range of events, including natural catastrophe, fire, terrorism or quality-control failures.

No Change

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Our Product and Distribution strategic pillars enable us to operate effectively and efficiently, delivering Operational Excellence through continuity of supply of compliant products and services of the highest quality to our customers.

Ensuring our ability to continually execute and operate key sites and factories to develop, manufacture, distribute and sell our products is a key strategic priority.

• We have policies and procedures designed to ensure the health and safety of our employees and to deal with major incidents, including business continuity and disaster recovery.

• The Group continues to evolve its supply chain organisational design to develop its manufacturing base, reducing dependence on key sites and vendors.

• A Group incident management framework is in place to ensure that incidents are reported and managed effectively. Across the Group, our Incident Management Teams managed 21 incidents in the year. Twelve of these related

to severe weather warnings, wild fires and natural disasters. Two related to terrorist incidents in cities where we have stores or employees and we moved quickly to ensure our customers, employees and assets remained safe and secure. The remainder were localised issues linked to office, store or system interruptions.

• Our Group Incident Management Team took part in training and incident management exercises involving large parts of the Group, our customers and media relations function. Our plans as tested during the year were found to

be effective.

• Our product suppliers and vendors are subject to a quality control programme,

which includes regular site inspections and independent product testing.

• Robust security arrangements are in place across our store network to protect people and products in case of security incidents.

• Business continuity plans are in place for our 10 main sites including the three major distribution centres and our two UK factories. Business continuity plans are being developed for our third factory Burberry Manifattura in Italy.

• The Group's key IT systems are protected to prevent and minimise any potential interruption. This includes resilient design and the provision of disaster recovery services to continue operating within pre-agreed times in

case of a major incident. Our plans as tested during the year were found to be effective.

• Management regularly reviews and manages business continuity and disaster recovery risks, recognising that these plans cannot always ensure the uninterrupted operation of the business, particularly in the short term.

• A comprehensive insurance programme is in place to offset the financial consequences of insured events, including fires, flood, natural catastrophes and product liabilities.

RISK TOLERANCE

We have a low tolerance for risk in this area, particularly in respect of product safety and quality.

EXAMPLES OF RISKS

• Burberry operates three owned factories and a global network of storage and distribution hubs. These face typical property risks, such as

fires, floods and terrorism.

• Burberry works with several suppliers of luxury goods, which would be difficult to replace quickly. Their loss could interrupt the delivery of core products or a seasonal range.

• A serious product quality issue could

result in a product recall.

 

 

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, data, corporate governance, employment, tax and employee and customer health and safety. Changes to laws and regulations, or a major compliance breach, could have a material impact on the business.

No Change

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Compliance with applicable laws and regulations and behaving in accordance with our values as a business underlie all our strategic pillars.

• The Group monitors and seeks to continuously improve processes to gain assurance that its licensees, suppliers, franchisees, distributors and agents comply with the Group's contractual terms and conditions, its ethical and business policies, and relevant legislation.

• Specialist teams at corporate and regional level, supported by thirdparty specialists where required, are responsible for ensuring the Group's compliance with applicable laws and regulations and that employees are aware of the laws and regulations relevant to their roles.

• Assurance processes are in place to monitor compliance in a number of key risk areas, with results being reported to our Risk Committee and Audit Committee.

• We have an established framework of policies that aim to drive best practice across our direct and indirect operations, including our Responsible Business Principles and Global Environmental Policy. Policies available at

www.burberryplc.com, are owned by senior leadership and are issued to all supply chain partners. Their implementation is monitored on a regular basis.

• We have established a Data Privacy Steering Committee to oversee compliance with applicable data legislation.

• International tax reform is a key focus of attention with significant developments

reported to the Audit Committee.

• Roll out of annual mandatory training to all employees and to targeted functions to ensure awareness and compliance with our policies governing anti-bribery and anti-corruption (ABAC), Market Abuse Regulations, annual conflict declarations, criminal finances, anti-money laundering and privacy.

• Our culture and policies encourage employees to speak up and report any issues

without fear of retribution. A global confidential employee helpline is in place in

almost all countries where we have retail and corporate locations, and where it is legally permitted. All calls and emails are logged and independently reviewed and followed up. During the year 136 cases were received and the results and themes are reviewed by the Ethics Committee. No significant issues were identified from these cases during the year.

• In accordance with our ABAC policy, annual training is required to be performed. This year the annual e-learning module was rolled out to all corporate staff and manufacturing and retail employees of manager level and above, a total of 3,345 employees. The training reached a 96% completion rate. Any incidents or

potential areas of concern are investigated by highly experienced investigators in our Asset Profit and Protection team and ABAC risks are covered as part of the scope of Internal Audit reviews. During the year there were no ABAC-related issues.

RISK TOLERANCE

In complying with laws and regulations, including customer and employee safety, and bribery and corruption, we have a low tolerance for risk.

EXAMPLES OF RISKS

• Regulatory non-compliance.

• Failure by the Group or associated third parties to act in an ethical manner consistent with our code of conduct and our Responsibility

Agenda, for example with regard to model well-being.

• Non-compliance with labour, human rights and environmental standards across our own

operations and extended supply chain would go against our Responsible Business Principles

and could result in financial penalties, disruption in production and reputational damage to our business.

• Failure to comply with GDPR and/or equivalent applicable data protection legislation globally.

• Tax is a complex area where laws and their interpretations are changing regularly. Non-compliance by Burberry and its associated

third parties in this area could result in unexpected tax and financial loss.

 

INTELLECTUAL PROPERTY AND BRAND PROTECTION

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.

 

Failure to implement appropriate brand protection controls in connection with our commitment to stop destroying unsaleable finished products could negatively impact the integrity and the luxury positioning of the brand.

No Change

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Protecting the integrity of the brand, safeguarding and elevating its luxury position, complying with applicable laws and regulations and doing the right thing underlie all our

strategic pillars.

• The Group's global Brand Protection team is responsible for brand protection efforts globally, including in the digital environment. Where infringements are identified these are addressed through a mixture of criminal and

civil legal action and negotiated settlements.

• IP rights are driven largely by national laws, which afford varying degrees of protection and enforcement priorities depending on the country.

• Trademark, copyright and design registrations globally across all appropriate categories.

• The Brand Protection team partners closely with the design and merchandising teams to ensure that our products do not infringe the rights of third parties and to ensure that we have adequate protections in place prior to market entry.

• Exploring new and emerging threats and ways to combat threats.

• Inspiring Burberry associates and partners to engage with us in protecting our brand.

• Partnering with enforcement agencies and our digital partners to minimise the visibility of counterfeit and parallel trade products both online and offline.

• Disrupting the flow of counterfeit products by enforcing at source level.

• Implementation of brand protection controls to safeguard the brand in connection with our commitment to stop destroying unsaleable finished products.

RISK TOLERANCE

We have a low tolerance for risk in protecting the integrity of the brand, asserting our IP rights while ensuring due respect is given to the IP rights of others.

EXAMPLES OF RISKS

• Counterfeiting, parallel trade, copyright, trademark and design infringement in the marketplace can reduce the demand for genuine Burberry merchandise and impact revenues.

• Unauthorised use of trademarks and other IP, as well as the unauthorised sale of Burberry products and distribution of counterfeit products, damages Burberry's brand image

and profits.

• Increased newness and shorter lead times make it more challenging to prevent infringements and counterfeiting of

our brand.

• Allegations from third parties of IP infringement by Burberry could negatively impact Burberry's reputation, result in claims and financial loss through withdrawing

infringing products.

• Distribution outside of our authorised network could negatively impact the demand for Burberry products and negatively impact our luxury reputation.

 

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 changes to the operating or regulatory environment or civil unrest may impact the spending habits of key consumer groups and cause increased operational costs.

No Change

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Volatility in the external environment could impact our overall financial performance and operations.

• Our global reach helps to mitigate reliance on particular consumer groups. In addition, our brand has wide appeal across multiple consumer segments, including a broad set of ages and preferences.

RISK TOLERANCE

We have a low tolerance for risk in this area but recognise external factors are more difficult to mitigate as they are often outside of our control.

EXAMPLES OF RISKS

• The strategy does not address how the changes created by macro-economic trends and uncertainty in the outlook for the luxury sector globally or within significant consumer groups could impact our performance.

 

UK'S WITHDRAWAL FROM THE EU

Various scenarios could impact the Group's financial position, supply chain and people.

Increased

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

Volatility caused by the UK's withdrawal from the EU may impact our overall financial performance and our ambitions under supply chain operational excellence.

• Our steering committee continually

monitors the evolving impact of the UK's withdrawal from the EU and oversees our response.

• We have prepared for a no-deal scenario across all business activities including supply chain, trade compliance, intellectual property and people.

• Any transitional arrangement potentially offers some temporary relief for longer-term mitigation planning and implementation.

• We engage with UK government departments and other external stakeholders to ensure they are fully informed of our circumstances.

RISK TOLERANCE

We have a low tolerance for risk caused by the UK's withdrawal from the EU, however, there remains uncertainty about the long-term impact.

EXAMPLES OF RISKS

• Additional customs duty from exiting the EU single market and the cessation of the UK's access to the EU's free trade agreements.

• Disruption to business operations.

• Impact on some current business road maps.

• Extended supply chain lead times could increase inventory levels.

• Uncertainty over the rights of EU nationals has increased the risk of being unable to recruit and retain talent.

• Exchange rate volatility impacts Group revenues, margins, profits and cash flow.

 

Gemma Parsons
Company Secretary
Burberry Group plc


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