Currency woes and uncertainty dampen Burberry outlook

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British luxury brand Burberry has warned of uncertainty in key markets, as foreign exchange impacts hit its 2016 outlook.

The firm saw seven per cent underlying growth in pre-tax profit in the year to March 31.

A £38m adverse exchange rate impact saw reported profits down one per cent to £456m.

The firm, which employs 3,000 in the UK, slashed its profit guidance for 2016 due to currency impacts.

In April, Burberry advised an expected £50m boost to profits in 2016. This was adjusted to £10m growth if exchange rates remain at current levels.

The adjustment took the shine off otherwise forecast-beating results.

Underlying revenues at the company were up 11 per cent to £2.5bn, with double-digit growth in the Americas and Europe, Middle East, India and Africa (EMEIA) regions.

Year-end net cash was up £150m to £552m, while operating cash flow rose six per cent to £568m.

The group’s full-year dividend increased 10 per cent to 35.2p, reflecting a 46 per cent dividend ration payout.

Growth was driven primarily by the popularity of its heritage trenchcoat - which is produced in Castleford - and cashmere scarves, Burberry said.

It also completed the successful launch of its My Burberry signature fragrance, with a high-profile campaign featuring models Kate Moss and Cara Delevigne.

Christopher Bailey, chief executive and chief creative officer at the company, said the brand delivered a strong financial performance last year, against a “challenging external backdrop”.

This included falling wholesale demand in European markets, weakening consumer demand in China in the second half of the year and disruption in the Hong Kong market due to pro-democracy protests against the Chinese government.

The early weeks of the current financial year have also highlighted further challenges ahead, Mr Bailey said.

He said: “At this early stage of the year, we are seeing increased uncertainty in some markets.

“Against this background, we will continue to manage our business dynamically.”

Hargreaves Lansdown equity analyst Keith Bowman said that despite positive full-year results, the firm’s statement provided “little, if any, reassurance”.

He said: “The outlook for the group’s important Chinese consumer appears to remain finely balanced, whilst currency movements continue to offer significant headwinds.”

Analyst consensus opinion suggested a strong hold recommendation for the firm, “although some downward pressure now appears likely”, he added.

Carol Fairweather, chief financial officer at Burberry, stressed that the adjustment to the 2016 profit outlook is not about the strength of the business.

She said: “There is no change to the underlying guidance for the business in 2016, other than in relation to FX as it affects our translated earnings in pounds.

“It’s not a trading issue, we’re a global business headquartered in the UK. Much like many other businesses, it’s about translation.”

Ms Fairweather refused to be drawn about the potential impact of the UK leaving the EU, saying she would not “speculate” about the outcome of a future referendum.

However, she said the company takes an international view towards its business.

She said: “Burberry is a proudly British company, we’ve got a head office in the UK and a great history of manufacturing our iconic trench products in the UK.

“That said, we are an international brand, with stores right around the world and a global customer base.”

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Star-studded campaigns featuring Romeo Beckham, Kate Moss and Cara Delevigne have helped cement Burberry as a luxury staple.

Demand for its Castleford-produced trenchcoats, featuring the famed camel, red and black-check linings, “underpinned” the firm’s strong financial performance in 2014/2015.

“We’re extremely proud to manufacture out trenchcoat in the UK,” Ms Fairweather said.