Burberry company analysis and management accounting

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Burberry 2012


Burberry was found in 1856 by Thomas Burberry. It is 156 years old company which produces trench coats which was worn by British soldiers during the World War which then later it became a company s icon. Its digital luxury positioning and innovative medium of the trench coat, trademarks and Prorsum knight heritage icon makes the brand purer and more captivating and globally across genders and generation. It has core values of Protect, Explore and Inspire Burberry doesn’t only operate on retailing but also operated with wholesale business and also licensing network. Burberry operates on four main regions which is Europe, America, Asia and Rest of the world. On the revenue 2012 / 2013 Asia Pacific had 39% of retails , Europe 30% , Americas 25% and Rest of World 6%, Burberry product was clothes, bags, cosmetics and fragrances which falls under fashion. Burberry has 500 stores in over 50 countries. Its retail account was 71% revenue and wholesale of 24%.


Thomas s vision of the company was creating “ innovative functional outerwear” which was first vision gradually over the years around 2006 , the vision of the Burberry was to be FIRST company who is FULLY DIGITAL and to a build a SOCIAL enterprise .


Thomas s goals was to create coats that would keep an individual both warm and dry regardless of the weather however latest goals is to totally combination among the company, its employees and customers and its brand.


Its mission statement was to focus on expansion.


Revenue has increase to 8% which is £1999M and then Adjusted profit before tax is £4428M with increase of 14% , Adjusted earnings per share is 70p and the retail revenue is about 1417 M which lead Capital expenditure to be £176M and the Year-end profit is about £297M.


There is a board consist of 4 main committees which are Audit Committee , Nomination Committee and Remuneration and Chief Executive Officer which then has Senior management team and Risk Committee which then branches to Supply chain risk Committee, Global Health and Safety Committee and Global Ethics Committee

2.0 Managerial decision

2.1 Tactical efficiency (pg. 9)

“The Group also acted to enhance near-term efficiency. Discretionary expenses were tightly controlled and inventory was closely managed at all stages of the process in keeping with softer sales.”

2.2 Termination of licence relationship/ Fragrance and beauty intangible asset (pg114)

“The Group made a payment to Interparfums SA of €181.2m on 21 December 2012 to terminate the existing fragrance and beauty licence relationship (£142.2m at the spot rate at the time of exercise). This has resulted in the recognition of an intangible asset of £70.9m and an expense of £71.3m in the current period. In order to identify the carrying value of the intangible asset acquired, management was required to estimate the incremental income that will be earned by the Group from 1 April 2013 to 31 December 2017, which represents the remaining period of the original licence, prior to its termination. A value-in-use calculation has been performed, based on the key forecast assumptions including: sales of products until 2017, by product category; operating margins achieved on this activity; tax charged on the incremental profits; the working capital required to support this activity; and anticipated tax relief on the payment made to acquire the intangible asset. Such forecast assumptions are inherently uncertain and the actual cash flows between 1 April 2013 and 31 December 2017 may differ materially from these assumptions. Refer to notes 6 and 11 for further details of the accounting for this transaction.”

2.3 Cash flow hedges (pg. 137)

“The Group Income Statement is affected by transactions denominated in foreign currency. To reduce exposure to currency fluctuations, the Group has a policy of hedging foreign currency denominated transactions by entering into forward foreign exchange contracts. These transactions are recorded as cash flow hedges. The Group’s foreign currency denominated transactions arise principally from royalty income, sales and purchases. The Group manages these exposures through the use of forward foreign exchange contracts.”

2.4 Share price risk (pg143)

“The Group is exposed to employer’s national insurance liability due to the implementation of various employee share based incentive schemes. To reduce exposure to fluctuations in the employer’s national insurance liability due to movements in the Group’s share price, the Group has a policy of entering into equity swaps at the time of granting share options and awards. The Group does not seek hedge accounting treatment for equity swaps. The Group monitors its exposure to fluctuations in the employer’s national insurance liability on an ongoing basis. An increase/decrease in the share price of 50.0p would have resulted in an increase/decrease in profit after tax of £1.2m (2012: £0.8m).”

2.5 Financial reporting (pg. 88)

“Management is responsible for establishing and maintaining adequate internal controls over financial reporting. These controls are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes”.

2.6 Principal risks (pg60)

“The Board and the executive management team use a combination of different and complementary skills to assess the risks facing the business. In determining its risk appetite the Board considers a variety of information when reviewing the Group operations and in approving key matters reserved for its decision.”

2.7 Operating profit analysis (pg. 57)

“The operating expenses to revenue ratio increased by 110 basis points, driven in part by the shift to retail. Of the £94m increase, over half related to net new space. Spending by the largest corporate functions (marketing, IT, product and design) was tightly controlled, falling marginally as a percentage of sales, funding further investment in areas including digital.”

2.8 Financial risk management (pg142)

“Other than derivatives, the Group’s principal financial instruments comprise cash and short-term deposits, external borrowings, trade and other receivables, and trade and other payables arising directly from operations. The Group’s activities expose it to a variety of financial risks: market risks (including foreign exchange risk, share price risk and interest rate risk), credit risk, liquidity risk and capital risk. Risk management is carried out by Group Treasury to reduce financial risk and to ensure sufficient liquidity is available to meet foreseeable needs and to invest in cash assets safely and profitably. This is done in close co-operation with the Group’s operating units. Group Treasury does not operate as a profit centre and transacts only in relation to the underlying business requirements. The policies of the Group treasury department are reviewed and approved by the Board of Directors. The Group uses derivative instruments to hedge certain risk exposures. Management is responsible for establishing and maintaining.”

Question 3

Management Accounting is a process of identification , preparation , evaluate and control of information used by management to plan and control within an entity to use accurate information and accountability .Management accounting also allow the preparation of reports for non – management groups such as shareholders , tax authorities . However for managerial accounting, it is about economic and financial information for managers and other internal users (Weygandth, Kimmel, and Kieso 2012). However these, management accounting functions are presenting, analysing and interpreting data.


3. 1


Controlling is a series of steps taken in order to keep company s activities on track. It is a period where the managers firmly decides that the planned goals are met. If the objective of the planned goal is not been met then the managers have the authority to revise the measures and reform the objectives in order to ensure the operation regularly to get back on track. Relating back to 2. 1, Burberry group have decided to control the expenses as well as the inventory were managed well in order to enhance the efficiency of the company.

3.2 Solving problem

Solving problem can be in terms of financial or non-financial problems. However in order for any form of problem there must be logical reasoning. (Weetman, 2003)The information are used to solve the problem throughout the cost which assures the operation would be successful. Relating back to 2. 3 where the licenses of the beauty and fragrance with Interparfum has been terminated for an exchange payment of £ 181.2 m which was a spot rate at that period of £142. 2 m because incurred from the rise of the assets which was £70 .3 m and expenses of £71 .3 m which was functioning from April 1. 2013. However the only way of solving a problem is by selling the fragrances under retail and wholesalers than licenses as the Burberry can make profit from it. In order for the intangible assets to be still in the market, there was a brief run through of the value in use, based on forecast and also working capital as well as operating margin.

3. 3

Decision Making

Decision making defines as a selection among substitute course of action. It is a central to management of a company and decisions are normally about people, products or long and short term investment. It is when a decision is made when there is given more than one options given for the targeted objectives. It plays an important role of the planning and controlling process. The aim of decision making is that to choose to best choice for the action. According to 2. 3, the Burberry s income statement has been affected by foreign currency, therefore a decision was made that the group would bring a policy of hedging foreign currency by involving into forward foreign contracts in order to reduce the exposure of currency fluctuation. So the group decide to manage the exposure by the using foreign exchange contracts.


Decision Making

Making a correct decision is a very essential for a business. However to make decision, the mangers needs information and this information are normally based from performance report and budgets. Management accounting has techniques to help in making short or long term decision. In the case of 2 .4, the problem was that Burberry was exposed to employers national insurance liability due to the share base schemes therefore the correct decision in order to reduce the exposure of the insurance liability due to the undertaking of the share prices, the only choice is by providing a policy of equity swaps which has share options and award. But the group still monitors the exposure of to the fluctuation regarding about the insurance liability. If there is an increase or decrease of the share price, example 50 .0p which means it would be increase or decrease in profit after which could be £ 1.2m.

3. 5


It involves controls as a tool to make sure that operation operates according to the plans made and the objectives are being achieved. Once a decision is made in a management then it is a position to make control. It is a view of outcome to see the plan and to keep track of the objectives so that doesn’t get derived from the plan. According to 2. 5, is that financial reporting is being controlled by management. This control is design for consistency of financial reporting and the preparation of financial statements for external reporting purposes.


Risk Management

A risk management function is to make sure the risk were managed properly. It was the responsibility of the person in charge to look out for the specific risk. Managers required to reduce the risk so that to initiate a safe management. According 2 .7, management uses different and unique combination in asses the risk that has been found. The Burberry board s uses effective information to determine the risk enthusiasm in order to revise the operation and make a proper decision.



It is a function where the measures and control performance by using properly tools such as control rations or budgetary control to attain objectives and goals which would be on track. As for 2 .7 , Burberry has controlled the functions such as IT , marketing department this due to increase in operating expenses and over 94 m for the net new space . The group is investing in different area which includes the digital.


Risk Management

Risk management means that identifying, assisting and economic control of the possible risk for the assets and capacity of the earning in a business. The management has to write a report of risk to the boards and also design a strategy for the risk. According to 2. 8 , Burberry has financial as such cash , external borrowing and many more .However this managed by Group’s Treasury who investigated that the group has been not only known for one risk but many risks such as : share price , credit and liquidity risks . So therefore the management managed to reduce the financial risks and to guarantee a satisfactory liquidity available so that it is proper to invest in cash assets securely and profitably. This is normally done secretly and the Group Treasury is to approve and go through by the Burberry s Directors.


In a nutshell management accounting is first-hand accounting functions that where based on the decision that was made and the it is about relating the functions to the decision in order to make correct decision and control the performance measures . These functions were used in order to help Burberry s managers to make correct decisions, to set up a business strategic in order to earn profit by controlling the business unwanted expenses and also to guarantee a better productive performance. However as Burberry is one of the leading business in British Fashion industries therefore it relies back on the functions in order to increase its efficiency and productivity of performance.