Burberry it Is My Opinion That Burberry

Burberry

It is my opinion that Burberry does not meet the spirit of Section C. The company highlights the risks that it faces on pp.54-56 in the 2011 Annual Report. The company presents, however, only generic risks. Twelve risks are highlighted in total, including the loss of key management team members, IT issues, global catastrophes, risk associated with emerging markets, ethics, regulatory compliance, supply chain issues (twice), licensed business risk, economic downturn and unauthorized trademark use.

The problem with Burberry's discussion of these risks is that it is shallow. The company describes the impact, but in a superficial fashion. For example, economic downturn could "lead to a reduction in demand" and failure to adhere to ethical standards could result in "penalties, adverse press coverage, and reputational damage." There is basically nothing in these statements that provides any insight. The investor is already able to draw the line between, say, a problem with a supplier and "impact on business operations."

Section C. should highlight risks in a clearer manner, and should highlight more risks. The investor should be aware of precisely how the risks will affect the company, and the degree to which the company is exposed to these risks. In addition, there is very little discussion of financial risks. For example, the company should outline under Section C. how it intends to ensure that accounting is done in accordance with IFRS. The company should also outline, for example, how it intends to manager its foreign exchange rate risk.

The company does outline some of the risk minimization strategies that it has. For example, Burberry conducts audits on its suppliers, including visits, to ensure that they are adhering to the company's code of conduct. However, such information is thin in this annual report, and there is no real sense from the reader about what risks the company faces, how significant those risks are or how the company intends to mitigate those risks. The report is thorough in its discussion of new initiatives and strategies, and in the solid financial performance on the company, but the risks are not given the same care and attention, leading the investor to be relatively unaware of the risks that Burberry faces.

The one area where some of the controls are discussed is with respect to the corporate governance, and board performance evaluation. The company notes how it intends to construct the board to maintain balance and independence, and how it intends to evaluate board performance. However, nothing lower than the board level is discussed, and it is precisely at those lower levels that major issues frequently arise.