In a highly uncertain consumer spending environment, management and the Board began the financial year planning to stay the strategic course. At the highest level, the Group’s primary objectives are the continued elevation and building of the Burberry brand, and ensuring the Company remains firmly on a path of sustained, profitable growth over the long term. During the two and a half years prior to the financial crisis, Burberry’s strategies had proven effective at delivering on these objectives. As we moved into 2009/10, our analysis indicated that the fundamentals which had driven expansion of the luxury sector historically were likely to remain relevant. We also believed that Burberry was relatively well positioned for progress under most economic recovery scenarios. In this context, we elected to stay the course.

At the same time, management tailored execution in keeping with existing market conditions. This is captured by the following three themes:

• Maintaining investment in consumer-facing elements. Through investment prior to the crisis, the brand had achieved strong momentum, which had been a clear driver of Group performance. Management believed compromising on investment in Burberry’s consumer-facing elements would restrict both current and future performance. In line with this, we undertook several key initiatives in the year:

• – Burberry continued to build sector-leading digital marketing expertise, enhancing the Group’s ability to develop compelling content and distribute it effectively. A highlight in the year was the launch of artofthetrench.com, a social media website which introduces the iconic trench coat to the digital generation and is attracting a new, younger customer to the brand.
• – We marked the 25th anniversary of London Fashion Week, by relocating the women’s Spring 2010 runway show to London from Milan in September. This geographical reconnection of Burberry with its British heritage brought extensive press and editorial coverage. Burberry’s reputation as a digital leader was further enhanced with the Autumn 2010 show, which, in addition to live streaming over the internet, was broadcast in 3D in five cities around the globe and allowed consumers to purchase runway items directly for expedited delivery - both firsts in the luxury sector.
• – The relabelling of the casual component of the women’s and men’s apparel lines as Burberry Brit brought greater clarity to the brand’s segmentation. This separation from the more sartorial Burberry London portion of the lines allows the businesses to offer more complete assortments in each of these segments and target distribution more effectively.
• – Burberry stores are among the best vehicles to communicate the full brand message to consumers. Management selectively added stores in high-potential urban markets and upgraded important stores in prominent locations, as well as opening the first standalone test stores for the Burberry Brit and London lines. In the ongoing effort to improve the customer experience, the Group extended the roll-out of the Burberry Experience, a comprehensive sales and service programme, to all stores worldwide.
• – As part of the ongoing strengthening of the important wholesale operations, we opened new headquarters with state-of-the-art showrooms in New York City and Tokyo.

• Emphasising profitability over revenue growth. Historically, Burberry has pursued strong revenue growth while maintaining profitability. In 2009/10, the dramatically slowed consumer environment pressured both gross margin and expense structure with a leveraged adverse effect on income. Moderating its growth orientation in the near term, management entered the year emphasising profitability over revenue growth.

• – To maximise gross margin, merchant teams continued to reduce assortment sizes across categories. This resulted in more focused collections leading to enhanced sourcing efficiencies, more consistent in-store presentation and improved sell-through rates. The teams also revised mark-down policies to capitalise on the less seasonal elements of the collections. Retail/wholesale gross margin increased from 52.1% in 2008/09 to 59.7% in 2009/10.
• – Management successfully executed the £50m cost efficiency programme announced in 2008/09. Approximately half of the gains were driven by supply chain and corporate process efficiencies with cost reductions accounting for the remainder.
• – Leveraging the investment in systems and planning expertise, the Group improved inventory management in the year. Inventory levels were reduced 36% year over year.
• – The Group also undertook the restructuring of the business in Spain against a backdrop of deteriorating performance and the poor state of Spain’s economy. While difficult, the closing of that operation in favour of integrating this market with the global Burberry business is in the long-term best interests of the brand.

• Prepared to respond to a changing environment. Recognising that the trading environment was likely to be volatile, management monitored conditions carefully to respond quickly to new opportunities and emerging risks.

• – Although starting the year with a conservative inventory plan, we prepared to respond to changes in demand. As the tone of business improved, management capitalised on supply chain investment and restructuring during the past three years to speed deliveries of future season product. In addition, the April Showers capsule collection was designed and delivered to stores through an expedited 12-week cycle - this was similarly enabled by supply chain and systems investments over the past several years.
• – With an improving pace of business, the team used the Group’s strong financial position to complete additional attractive real estate transactions, against a conservative plan. In total, Burberry added net 21 stores with 9% space expansion.
• – The challenging consumer conditions in Japan afforded the Group the opportunity to amend its largest licence agreement in this market. With the amendment, Burberry has greatly enhanced its long-term strategic options in Japan.

Through these efforts and execution of Burberry’s remaining core strategies, the team achieved strong financial results. Total revenue grew 7% to £1.3bn. Retail performed well, increasing revenue 19% on a 7% comparable store sales gain. Driven by Spain, wholesale declined 11%. Licensing increased 18% with a decline in Japan offset by growth in global product licences and favourable exchange rate movements. Adjusted operating profit reached a record £220m, on a 25% retail/wholesale increase. The Group generated £254m of cash, resulting in a £262m year end cash balance.

With the changed operating environment, management also conducted a full review of Burberry’s strategic plan during the year. We continue to see opportunities across the product portfolio - whether the heritage menswear business, the young childrenswear division, or quickly developing shoe category. While emerging markets such as China offer great excitement, excellent potential remains in all geographic regions. Penetration of these markets will be enabled by retail enhancements, new store formats and wholesale advances. Ongoing efficiency improvements are also expected to contribute to profit growth.

In renewing our plan to be a great brand, we also updated our aspirations to be a great company. Internally, we continue work to establish Burberry as the leading employer in the luxury sector. During the year, we formed the Leadership Council, a forum to develop the next generation of Burberry’s leadership. We also reinforced mechanisms to enhance communication and celebrate our successes as a team. Externally, the Burberry Foundation continued its work to empower the creativity of young people, while our commitments to ethical trading and preserving the environment continued to progress.

Looking forward, Burberry is well prepared to achieve its goals in the years ahead. With a strong balance of analytics and intuition, senior management has added expertise and grown as an integrated team during the past three years. Our teams globally are fully united under our brand. And we thank the extended team - suppliers, large customers, licensing and franchise partners - for their continued support. Together we look forward to reasserting Burberry’s growth agenda while continuing to invest in the future of the brand.