Our framework for long-term value creation centres around three major pillars: revenue growth, operating margin accretion and capital efficiency.
REVENUE GROWTH*
Burberry operates in the luxury goods sector, where industry growth tends to deliver ahead of overall global Gross Domestic Product (GDP) growth per annum. Our ambition, in the medium term, is to drive towards high single-digit top-line growth. We have four strategic pillars supporting revenue growth to enable us to achieve this:
PRODUCT
Evolve our product offer to signal change and attract further luxury consumers.
COMMUNICATION
Develop our communication approach to be led by product and tailored for social channels.
DISTRIBUTION
Transform our distribution to achieve a network that is consistent with our luxury positioning.
DIGITAL
Revolutionise our digital proposition, finding new and exciting ways to engage customers by displaying highly curated product assortments and personalised stories, and editorialising our website.
ADJUSTED OPERATING PROFIT
MARGIN ACCRETION*
Burberry currently generates an Adjusted Operating Profit Margin of 16.1%. In the medium term, our ambition is to deliver meaningful Adjusted Operating Profit Margin improvements each year. There are two significant factors underpinning our ambition:
OPERATING
LEVERAGE
Leverage the fixed and semi‑fixed cost components of our operating expenses.
COST-
EFFICIENCY
PROGRAMME
Work more efficiently and effectively, including adapting our approach to procurement, to generate cost savings. Our current cost-saving programme aims to deliver £135 million annualised cost savings by FY 2021/22.**
This will be achieved by driving simplification and efficiency through our organisation, including optimising back-office functions; generating procurement savings, and through technology initiatives that increase our business agility.
CAPITAL EFFICIENCY
Burberry has a history of strong free cash flow generation, with our cash conversion averaging 106% over the last five years. We have a clear capital allocation framework, which prioritises our uses of cash, while maintaining an appropriate capital structure for the business. Our target is to maintain a strong balance sheet with solid investment grade credit metrics. Our uses of cash are summarised below.
REINVEST
Reinvest for organic growth.
DIVIDEND
Pay our progressive dividend.
STRATEGIC
INVESTMENT
Invest in strategic initiatives.
CAPITAL
RETURNED
Return excess cash to shareholders.
* At constant exchange rates
** Base year FY 2016/17
Our capital allocation framework is set out and discussed in full on page 72 of our Annual Report. Over the past five years, Burberry has returned £809 million to shareholders through dividends, and over the past three years has completed £600 million of share buybacks.