Burberry delivered its preliminary results for the year to 28th March with 27% decline in Q4 comparable store sales.
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“We have a strong balance sheet and liquidity, with space for investment when markets recover. We have found new ways to strengthen our connection with consumers, drawing on our digital leadership. We have also mobilised our resources in support of the relief efforts. It will take time to heal but we are encouraged by our strong rebound in some parts of Asia and are well-prepared to navigate through this period. Now, more than ever, our strategy to secure our position in luxury fashion is key. I would like to thank our teams for their dedication and leadership during these challenging times.” Marco Gobbetti, Chief Executive Office
FY 2020 was the second year of Burberry’s journey to transform. The focus in this first phase was on re-energising the brand, aligning distribution to new positioning in luxury fashion and establishing a new product offering. Against these objectives, Burberry made strong progress in the year. However, from late January 2020 the outbreak of COVID-19 had a material negative effect on consumer demand. It took rapid action to implement mitigating actions to ensure the safety and well-being of people and limit the financial and operational impact on the business.
Since late January, Burberry’s business has been very materially impacted by the outbreak of COVID-19. In revenue terms, most of the losses in February were in Asian markets. At peak, the majority of the stores in Mainland China were closed and those that remained open operated with reduced hours amid very significant declines in footfall. Towards the end of the year, trading in Mainland China started to improve with the reopening of all stores. However, footfall in other parts of Asia, including Hong Kong S.A.R, remained materially weaker throughout.
EMEIA and the Americas also suffered very significant losses in the last three weeks of the year. By the end of March, in line with government guidelines, all of the stores in these regions were closed with only the digital part of business open for trading.
Burberry also saw disruption across the supply chain. Leather-goods centre of excellence, Burberry Manifattura, and trench coat factory in Castleford, Yorkshire closed in March. Major global distribution centre also closed in Italy in March, with American and UK logistics hubs reducing hours but remaining open to service digital business. Supply chain is reshaped to enable a continued service to those parts of the world that remained open.
In order to limit the impact of the outbreak on the business, Burberry implemented mitigating actions to contain costs and protect financial position. These included renegotiating rents, restricting recruitment, travel and other discretionary spending.
Burberry also leveraged digital platform to continue to connect with customers that were unable to visit stores. This included bringing products to clients through remote selling and roadshows, live streaming events from stores and creating immersive experiences.
During the year, the increased proportion of new product in stores underpinned an improvement in comparable retail store sales growth to +4% for the first three quarters of the year, despite headwinds from the considerable disruptions in Hong Kong S.A.R from August 2019.
Following the end of January 2020, trading deteriorated significantly, impacted by store closures, reduced operating hours and significant footfall declines. As a result, Q4 comparable store sales declined 27% and full year comparable store sales declined -3%. Total revenue including wholesale and licensing channels declined -4% at CER.
Group adjusted pro forma operating profit declined 8% in the year at CER, partially protected by cost mitigation. Reported operating profit declined 57%, predominantly due to the impact of adjusting items relating to the COVID-19 pandemic.
Burberry generated free cash flow of £66m in the year, below the prior year level of £301m. This predominantly reflected a reduction in profits, an increase in working capital, a year on year increase in capital investment of around £40m, as guided and tax payments of £150m (2019: £111m) primarily reflecting the accelerated timing of UK tax payments.
As at 28th March 2020, Burberry had cash balances of £887m (2019: £837m), which included the cash proceeds from the drawdown of a £300m revolving credit facility (RCF).
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In terms of leverage, it had £0.5bn of net debt (including lease liabilities), equating to a net debt (including lease liabilities) to EBITDA ratio of 0.7x, well within its targeted range of 0.5x to 1.0x. Burberry’s position is also well within the RCF covenants. In addition, since the year end, it have secured funding of £300m under the UK Government sponsored COVID Corporate Financing Facility (CCFF) to mid-March 2021.