Burberry profits dip as it steps up investment in SAP roll-out

Fashion house Burberry saw operating profits rise just 2% for the year after taking a £21.6m hit for the costs of its Project Atlas IT infrastructure redesign.

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Fashion house Burberry saw operating profits rise just 2% for the year after taking a £21.6m hit for the costs of its Project Atlas IT infrastructure redesign.

The clothing and accessories firm, famous for its raincoats and distinctive check fabric, saw underlying revenues for the year to 31 March rise 15% to £850.3m in its 150th anniversary year.

Burberry’s preliminary results show a rise 12% rise in adjusted pre-tax profits, to £185.1m. But operating profits were only slightly up on last year - from £154.5m to £157m - as the company completed the second year of a five-year IT overhaul centred on a large-scale SAP implementation. The company also took a £6.5m charge from closure costs of its factory in Wales.

Burberry is expecting the Atlas deployments to create a stronger platform to support its long-term operations and growth.

But costs for the scheme have stepped up as it has rolled out, with this year’s £21.6m figure nearly double the £11.1m spend reported in 2006. The five-year project launched in 2005 is expected to cost £50m in the three years to 31 March 2008.

In a statement released with the results, the fashion house described Atlas as “the cornerstone of Burberry’s efforts to improve operational efficiency”. Over the past year, key systems deployments were implemented “as scheduled, with minor alterations to originally planned phasing to better accommodate changes in Burberry’s business”, it said.

Completed SAP deployments included UK-based financial and non-stock procurement, production planning, manufacturing and procurement systems.

Burberry said it had also “initiated a tactical software solution” during the second half of the financial year to provide improved visibility of retail sales and inventory.

Atlas is expected to generate £20m savings a year from 2007-08,
improved supplier management, product development processes and more efficient non-stock procurement. It is also expected to improve the company’s decision making and ability to respond to market changes.

But the annual results show the project had already brought £6m of savings over the year, from reduced procurement and sourcing costs and gains from improved stock replenishment.

The company is “on schedule” for major deployments over the next six months, which are expected to see the most intensive stage of the project. Forthcoming SAP deployments are set to be made in core product development operations and key geographical units.

Chief executive Angela Ahrendts, said a 21% increase in adjusted earnings per share and the 15% underlying revenue gain made it “an outstanding year for Burberry”.

She added: “On the strategic front, we advanced the luxury component of the brand, accelerated retail expansion and continued to evolve the operating model. We face the current year with confidence, given the strength of our
brand, effectiveness of our strategies and talent of our teams around the world.”

Atlas was launched two years ago to address business functions that Burberry believed had become inconsistent with large-scale expansion across product areas, geographical and distribution channels over the previous few years.

The infrastructure overhaul is aimed at improving the firm’s supply chain, from the procurement of raw materials and sourcing of finished goods, to distribution of products both to wholesale customers and its increasingly important direct retail outlets.

Atlas is also designed to provide information integration and transparency, with a consistent retail data system operating across Burberry’s global network of stores, replacing a variety of unintegrated legacy systems.

The project is also expected to produce more effective tools and organisational structures across Burberry’s global support services.

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