Business Plan Case Study Burberry

Business Plan Case Study Burberry

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Intoroduction Of Business Plan Case Study Burberry

This study is conducted on overall performance analysis of the company for FY 2020 which is compared with FY 2019 to identified key variance due to Covid on the performance of the company. The report will be containing a brief about the company and how the activities are conducted over there. All the activities such as operating, investing and financing are studied here in the annual report. The activities give a fair idea as the profitability of the company also. It is a well-known Fashion Brand that is trying to expand its tentacles all over and the financial performance is also evaluated and analyzed. This report will also tell the changes in the working capital and how much the taxes have been paid by the company and what is the net profit after that. The whole study is divided into three different aspects in which financial investing and operating activities are evaluated for a better understanding of financial performance as per the investor's perspective. In the Initial phase background of the company is discussed which helps in identifying the industry and broad image of the market in which the company operates their market. Further, the Statement of cash flow is analyzed which helps in understanding the overall impact on cash available for working operations of the company.

BURBERRY PLC’S BACKGROUND

The company is listed in 1955 when they are incorporated from an independent family company. The company operates its business activities in the textile segment where Burberry had competitor likes Chanel, Gucci, Prada, Ralph Lauren, Hugo Boss, and Louis Vuitton. The company is a well-known British company that is one of the leading luxury brands known globally. It is also listed on the London Stock Exchange and the company is working or listed since 1955 when the company is reincorporated. It mainly deals with the ready to wear clothing which mainly includes boats, jackets, blazers, leather goods, footwear, accessories, cosmetics, eyewear, fragrances, etc[1]. It is founded in the year 1856 and has always been in the limelight as the latest news in 2021which talked that the company has come up with the augmented reality pocket bag experience and has also launched the Olympia bag campaign and many more. It generally tries to generate as much profit by creating some uniqueness in the brand and to deliver customer satisfaction at the first instance only. It has also done extremely well in the pandemic time where all the companies have faced various challenges. Burberry has also given priority to the employees because they think that the employees are the asset to the company.

Analysis of Statement of Cash Flows

OPERATING ACTIVITIES

These are those activities which are bone by the company to carry out its daily activities. It also shows the amount that the company gains in the daily routine business and the regular activities which are carried on by the company is also stated here in this part. Here the company has started with the operating profit of £m437.2 and £m188.7 in the year 2019 and 2020 respectively[2]. The value of the amortization of intangible asset is almost the same which £27m is around. The depreciation which is borne by the company against property and plant is £83.3m and the depreciation of right use assets are £m221.1 in the year 2020. Whereas the depreciation of plant and machinery is £87.2m in the financial year 2020. In 2020 Company had a finance cost of £109m which is approx. £107.2m higher than 2019. Finance cost highly impacts the profit of the company which is required to be rethought by the management to achieve their sustainability objectives in near future. It has also borne a sum of £m 11.6 and £m 3.9 for the impairment of intangible assets in 2020 and 2019 year respectively. In 2020 the company spends a sum of £m140.3 on the net impairment of right issue assets and gain £m 2.1 in the disposal of the right use of the assets. Whereas it has gain £m 5 and £m 6.9 in the disposal of the beauty products starting from the recent year. In FY 2020 company reflect a decrement in the inventory of £45.8m which is £3.9m in 2019. In FY 2020 company had a decrement of approx... £42m which is due to the pandemic as shops are closed around the world which highly impacts the consumption of inventory and the company is also not able to delivered clothes to their market destination. It has also been seen that the inventories have risen to a sum of £m 59.3 in the year 2019 whereas it has decreased to a sum of 27.4 in the year 2020. There was an increase in the receivables in both the financial year which is nearly about £m 9.8 and £m54.6 respectively and it also states that there is a major downfall in the current year as compared to the previous year which is not good for the company. As the customers had a shortage of funds due to pandemic issues which raised issues in collection and also increased debtors for the company. Also, increment on credit sales overall online portals and offline outlays increased the number of trade debts in the market for the company which is receivables in near future. There is a decrease in the number of payables in the year 2020by £m 84 which is good for a company as compared to the previous year when there was an increase in the payables by £m 54.9. As there is a shortage of raw material in the market so management or company needs to purchased material in cash and also they need to repay their old outstanding due to the lower availability of cash in hand of supplies. Due to pandemic shortage of cash flow effect on the creditability of business and also enforce suppliers to recover funds from their debts for their working life cycle in the market. The net cash flow from this activity in the year 2020 is £m 624.9 which is more than the previous year which was £m 515.9.

The increased profit was due to the efficient management of the business dynamically to achieve sustainable growth. This includes focusing on operational efficiency, strategic initiatives and responsibility. The tax paid by the company is somewhat around £m 101.1 and £m 46.9 in the financial year 2019 and 2020 respectively. The increment in the Tax Payment of the company indicates that the company had more profit as compared to last year on which they need to pay an additional tax of around £54.2m in FY 2020 for income of 2019. This is also clear that this year is less than the previous year and increased profit for the year[3]. Around 51.1 is the amount of excise duty taxes which the company needs to pay in the year 2019 so management needs to make additional funds for cash and cash equivalent for tax liabilities of excise in 2020 so that they can manage statuary payment and also manage their working capitals.. These include various charges of taxation which include the current tax and previous adjustments which were left beforehand. And this operating profit is somehow more and the company is trying to increase to invest in the further opportunities. The working capital is also shown and the changes are also been shown in the cash flow statement[4]. There is no interest movement but yes the interest is being paid by the company to the bank and the shareholders and investors as a dividend. So, it is rightly said that the investors should be satisfied for a company to grow.

INVESTING ACTIVITIES

These are those activities that are involved in purchasing the various forms of assets and selling various kinds of assets. These include the net purchase and the sales value of the enterprise during the financial year. Here, in Burberry, we can see that in the year 2019 it purchased the plant, property and types of equipment worth £m62.6 and the intangible assets worth £m48. It has also acquired a new subsidiary worth £m14.5 and there were only one sale proceeds from the disposal of beauty operations which was £m.6 only. It has been observed while analyzing that in the year 2020 the purchase of plant and equipment was £m83.5 and £m63.5 was spent in purchasing the intangible assets. It has also received a sum of £m 3 from the sale of the property, plant and machines. Initial direct costs of right use assets were £m5.6 and there were no proceeds in this year by the company. So, the net cash flow is £m 124.5 in the year 2019 and £m151.4in the year 2020. It has been seen that the company is trying to invest in further assets to increase its profit and worth in the future. A company can only invest more and sell less when it has some reserves also and is earning sufficient and there is no liability for the company in the future[5]. A company is looking forward to better supply chain management and additional capacities for the production of their branding clothes for which they invested a fund of £83.5m in Plant and machinery. Furthermore, maybe companies are developing new designs and trends for their customer for which they are taking trademarks and patent rights which can be reflected in capital repayment of £63.5m in FY 2020. These are the expenses that can be considered as the investment for post covid period in which the company can maximize their sales and also produced in the market to generate higher revenue in near future.

FINANCING ACTIVITIES

The financing activities are those activities that show how much the company focus to raise capital and how a firm raises capital and pays it back to investors through capital markets[6]. These activities also include paying cash dividends, adding or changing loans, or issuing and selling more stock. In the year 2019, it has been observed that the dividends paid out was £m 171.1 which is less than the year 2020. This indicates that the company can maintain its dividend payment during this pandemic where many of the industries are collapse. Further, Small increment reflects a positive approach of management towards their shareholder and this also indicates that companies are happier to provide an adequate part of their earnings to their shareholders. The payment of non-controlling interest is £11.1m which is £2.7m in the latest year, And apart from this, in the year 2020 management acquire additional funding of £300m which they utilized in financial repayments of Dividend and principal amount of Lease for company. It is also seen that the company is bearing an amount of £2.3m and £3.8m respectively both the year 2019 and 2020. This indicates that the company regularly issues IPOs and increased their share capital which helps in generating revenue from fresh issues of shares of the company. The net cash flow here is £m 343.4 in the year 2019 and 262.9 in the financial year 2020 which is somewhat less too as compared to the previous year. The main part of the cash flow is the net dividend paid and interest because by this we come to know about the performance of the company as a whole. Burberry is earning sufficient profit to maintain the goodwill and retaining employees[7].

CONCLUSION

The report clearly shows how the well-known luxury brand Burberry has been carrying out various activities and managing cash. It has also shown what all changes the company has made in its day-to-day business to grow and how this pandemic has not affected its profitability and work. It has been found out that the Luxury Brand has been doing great over the past years and trying to invest more and more to grow in the future ahead. Financial monitoring has also made the investors to also invest in the company. In the end, it is concluded that the company is profitable and their operating activities are satisfactory for the investor as the company is increasing their cash flow from operating activities from last year. Higher tax payment also indicates that the company generates high profit from their business activities which can be an attractive point for investors. As per the financial activities company or management acquire additional borrowings for repayment of their lease which represents adequate utilization of their fund. As per the investment activities management invested their cash inflow from operations in fixed assets acquisition and also they purchased intangible assets which increased net worth and firm value in the market and also indicates about prospects of the company. The company also adopt stable policies for dividend payment to their shareholder which indicates that company is more concern for overall wealth maximization to their shareholders. In the End, the overall company can be a good choice for investment for invest their funds in shares so that they can also general adequate wealth if other factors are constant in the market.

BIBLIOGRAPHY

Burberry Annual Report, 'Results & Reports' (Burberry Corporate Website, 2021) <https://www.burberryplc.com/en/investors/results-reports.html> accessed 2 June 2021

Davey J, Schneider L, and Davey H, 'Intellectual Capital Disclosure And The Fashion Industry' (2009) 10 Journal of Intellectual Capital

Erickson S, and Stone M, 'Hometown Community Church: Non-Profit Cash Flow Analysis' [2012] SSRN Electronic Journal

Farshadfar S, 'The Usefulness Of Operating Cash Flow Information: Does Format Matter?' (2012) 10 Corporate Ownership and Control

Martani D, and Rahfiani K, 'The Effect Of Financial Ratios, Firm Size, And Cash Flow From Operating Activities In The Interim Report To The Stock Return' (2009) 08 Chinese Business Review

Moore C, and Birtwistle G, 'The Burberry Business Model: Creating An International Luxury Fashion Brand' (2004) 32 International Journal of Retail & Distribution Management

Straker K, and Wrigley C, 'Emotionally Engaging Customers In The Digital Age: The Case Study Of “Burberry Love”' (2016) 20 Journal of Fashion Marketing and Management

[2] Burberry Annual Report, 'Results & Reports' (Burberry Corporate Website, 2021) <https://www.burberryplc.com/en/investors/results-reports.html> accessed 2 June 2021

[3] Moore C, and Birtwistle G, 'The Burberry Business Model: Creating An International Luxury Fashion Brand' (2004) 32 International Journal of Retail & Distribution Management

[4] Davey J, Schneider L, and Davey H, 'Intellectual Capital Disclosure And The Fashion Industry' (2009) 10 Journal of Intellectual Capital

[5] Straker K, and Wrigley C, 'Emotionally Engaging Customers In The Digital Age: The Case Study Of “Burberry Love”' (2016) 20 Journal of Fashion Marketing and Management

[6] Erickson S, and Stone M, 'Hometown Community Church: Non-Profit Cash Flow Analysis' [2012] SSRN Electronic Journal

[7] Straker K, and Wrigley C, 'Emotionally Engaging Customers In The Digital Age: The Case Study Of “Burberry Love”' (2016) 20 Journal of Fashion Marketing and Management