Burberry has delivered outstanding shareholder value through brand turnaround and acquisitions. However, its business model relies heavily on licensing and wholesale, limiting upside potential. The key catalyst for growth is expanding sales in Japan, especially of accessories under the Burberry London brand. Burberry has a lower risk profile than luxury peers due to outsourcing and currency hedging. The analyst initiates coverage with an Outperform rating and 400p price target based on growth opportunities in Japan and accessories.

1. 3 March 2004
BRBY.L
OUTPERFORM*
Equity Research
Price (02 March 04): 351p
Europe/United Kingdom
Luxury Goods
MARKET WEIGHT
research team
Anaïs Lallich
44 20 7888 0413
anais.lallich@csfb.com
Neville Pike
44 20 7888 0338
neville.pike@csfb.com
Burberry Group
Rich pickings?
OUTSTANDING TRACK RECORD OF VALUE CREATION
We believe management has created outstanding shareholder value by turning around the existing
business and making sensible acquisitions of brand licensees and distributors.
STRONG GROWTH PROSPECTS
Burberry brand sales exceeded £2bn in 2002/03 but are mainly generated through licence and
wholesale channels in Japan, Spain and the US. In our view, capture of a greater share of the brand
value chain offers further value-creating growth potential. We believe possible integration of
distribution in Japan (not currently in our estimates) is the main positive catalyst for Burberry.
INITIATE WITH AN OUTPERFORM RATING, TARGET PRICE 400P
We believe Burberry has an attractive valuation and lower transactional FX exposure than its luxury
goods peers. We initiate coverage of Burberry with an Outperform rating and a target price of 400p.
The GUS lock-up is due to expire in November 2004. We see this as a potential opportunity to invest
rather than stock overhang.
FOR IMPORTANT DISCLOSURE INFORMATION relating to analyst certification, the Firm’s rating system,
valuation methods and potential conflicts of interest regarding companies that are the subject of this
report, please refer to the Disclosure Section at the end of the report. U.S. Regulatory Disclosure: CSFB
does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the Firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision.

2. Burberry Group
3 March 2004
OUTPERFORM*
Burberry Group BRBY.L
351 (p)
700
400.00 (p)
600
LUXURY GOODS
500
Price (02 Mar 04)
Target price (12 months)
Analyst's Coverage Universe
MARKET WEIGHT
* Stock ratings are relative to the coverage universe in each analyst's or each
team's respective sector.
Weighting (vs. broad market)
Year
3/02A
3/03A
3/04E
3/05E
Revenues (£ m)
499.2
593.6
670.7
104.3
135.7
162.3
85.1
130.4
146.3
269.60
325.30
376.62
426.98
12.13
14.64
18.14
20.25
24.9
27.5
27.9
27.2
28.94
23.98
19.34
17.34
181.45
138.98
127.09
124.69
200
Mar-02
180.9
84.8
300
731.6
EBITDA (£ m)
400
Pre-tax profit (£ m)
IC (p m)
CSFB adj. EPS (p)
ROIC (%)
P/E (x)
P/E rel (%)
Jul-02 Nov-02 Mar-03
Price
Jul-03 Nov-03
Price relative
1mth
3mths
12mths
Absolute (%)
2.0
-22.0
30.0
Relative (%)
-1.7
-25.5
0.8
Performance over
ROIC/WACC
30%
25%
Dividend 2003 (p)
3.01
Dividend yield (%)
0.9
Net debt/equity (3/04E, %)
34
Free float (%)
-22.6
20%
495.20
Number of shares (m)
15%
7.6
10%
Current WACC (3/04E, %)
5%
Historical valuation
Year
3/02A
3/03A
3/04E
3/05E
Y/E closing price (p)
490.00
312.00
351.00
351.00
Market cap. (£ m)
1,145.9
1,175.5
1,738.2
1,738.2
End year debt (£ m)
-21.3
-79.6
-103.6
-103.6
Other liabilities (£ m)
20.0
29.2
29.2
29.2
1,144.56
1,125.12
1,663.73
1,663.73
0%
31 Mar 02A
31 Mar 03A
ROIC
31 Mar 04E
WACC
31 Mar 05E
REV/IC Op. margin
Key historical ratios
1.90
25%
1.85
Enterprise value (£ m)
20%
1.80
EV/Revenue (x)
2.3
1.9
2.5
2.3
EV/EBITDA (x)
11.0
8.3
10.3
9.2
15%
1.75
1.70
EV/IC (x)
P/E at closing price (x)
4.2
3.5
4.4
3.9
21.3
19.3
17.3
5%
1.65
40.4
10%
1.60
0%
31 Mar 02A 31 Mar 03A 31 Mar 04E 31 Mar 05E
Rev/IC
Op. margin
Strategic analysis
Existing strengths: Strong and proven management team. Licensing growth delivers
high incremental return on incremental capital. Heritage products. Flexibility in
production process. Lower transactional exchange exposure than luxury goods peers.
Existing weaknesses: Low vertical integration hinders capture of margin on
manufacturing. Low gearing into potential Japanese upside. Apparel segment, which
has increased fashion risk, accounts for most of company's profits. Scope for further
repositioning?
Existing opportunities: Retail network expansion and widening of distribution.
Expansion of Burberry brand. Development of accessories in Spain and especially
Japan. Increased distribution of Burberry London (Intl) line, especially in Japan.
Existing threats: Control over licence and wholesale accounts. Company is monobrand and trademark check is core, so increased fashion risk? Reliance on third parties
in Japan.
Company description
Burberry is a global high-end apparel company that has recently grown into a multiproduct lines business through brand extension.
2
EV/EBITDA (at historical prices)
12.0
10.0
8.0
6.0
4.0
2.0
0.0
31 Mar 02A
31 Mar 03A
31 Mar 04E
EV/EBITDA
31 Mar 05E
Source: FTI, Company data, Datastream, CSFB (EUROPE) LTD. Estimates
The price relative chart measures performance against the FTALLSH index
On 02/03/04 the FTALLSH index closed at 2267.9
On 02/03/04 the spot exchange rate was £0.66/eu 1. - eu1.22/US$1

3. Burberry Group
3 March 2004
Figure 1: Burberry Investment Summary
4
4
4
3
Catalysts
OUTPERFORM
Risk Containment
351.0p
400.0p
14.0%
Business Momentum
Investment Rationale
Value - 3
As of 2-Mar-04
Mar 04E
Mar 05E
Current
P/E (x)
EV/EBITDA (x)
Fundamentals
3
Value
Share price
Rec. and Target price
Potential up/downside (%)
4
At TP
Trading Range*
24.0
12.4
27.3
14.6
11.1x to 20.1x
6.7x to 11.6x
Mar 04E Mar 05E
130
146
162
181
PBT
EBITDA
Current
19.3
10.3
* Average year high and year low since July 2002
Catalysts - 4
- Development of retail square footage with a focus on increasing retail presence in the US and non Japan Asia.
- Repositioning of men apparel segment.
- Development of accessories.
- In the medium-term, we believe Burberry will have the opportunity to extract value from improving its supply chain management.
- Possible integration of distribution in Japan (not currently in our estimates) is the main positive catalyst for Burberry - We believe this will likely be
through development of accessories within Burberry London (International) line
- Intentions of GUS?
Risks Containment - 4
- Outsourcing of production activities provides increased flexibility
- Lower transactional exposure combined with lower inventory holding period imply low risk profile
BUT
- Burberry is mono-brand and trademark check is core so increased fashion risk?
- GUS fundamentally seller: overhang or opportunity to invest?
Business Momentum - 3
- We believe creation of shareholder value to date has been in part as a result of astute picking of low
hanging fruits after years of brand neglect. In our view, the challenge now is to find significant value
enhancing growth opportunities.
- In the future, we believe that Burberry's advantage from superior pricing power may be diminishing.
- After strong share price performance post listing, share price momentum has recently slowed - Burberry has
underperformed our CSFB Luxury Goods Index by 10% since 20/11/2003.
EPS Sensitivity
10% Turnover
1% EBITA margin
BRBY.L
9.9%
4.4%
Revenue growth Mar 04E*
EPS Growth Mar 03A
EPS CAGR Mar04E-Mar06E
BRBY.L
13.2%
20.7%
12.1%
* Excluding FX effects
Fundamentals - 4
- Strong and proven management team.
- Outstanding track record of shareholder value creation since April 2000.
- Low vertical integration into production provides flexibility and low transactional exchange exposure.
- Growth in licensing activities delivers high incremental ROIIC but upside in revenues is limited to increased royalties
- High fixed assets and working capital efficiency
Investment Rationale - 4
- Burberry has strong fundamentals and an outstanding track record of value creation from expansion and acquisitions of brand licensess and distributors
- We believe Burberry has substantial scope to develop sales of Burberry branded products and capture a greater share of the brand value chain
- Key long-term catalyst is development of sales of International Burberry London line in Japan, mainly through accessories.
- Relative valuation offers potential upside.
Source: Company data, CSFB estimates
3

4. Burberry Group
3 March 2004
Investment summary
Burberry brand sales
exceed £2bn
Outstanding value creation
Burberry is a high-end apparel (60% of 02/03A revenues) and accessories (29% of
02/03A revenues) business. According to company data, total global retail value of
products sold under the Burberry name exceeded £2bn in the year ending March 2003.
Burberry’s business model has evolved substantially over the past few years after
concerted management focus instigated by the company’s main shareholder, GUS Plc,
in 1997. Through turnaround of a neglected brand and sensible acquisitions, Burberry
has delivered outstanding shareholder value (average incremental return on incremental
invested capital of 34.7% over the last three reported years).
However, in our view the current focus of distribution on licensing (10% of 02/03A
turnover but 45% of EBITA) in Japan and wholesale (52% of 02/03A turnover) in Spain
and the US effectively leaves the company with a low gearing to upside potential in
consumer demand in these key markets (Japan represents over 50% of brand sales,
and Spain and the US together account for around 25%).
We believe Burberry has opportunities for future value creation through expanding sales
of Burberry-branded products and especially seizing opportunities to capture a greater
share of the brand value chain.
Main positive catalyst is
Japan, in our view
In particular, we believe the key positive catalyst for the stock will be the actions taken
with regard to Japan. The main licences on this market will likely run until 2020, but the
licence on the Burberry London (International) line will expire in June 2005. The
Burberry London (International) line has been key to the successful repositioning of the
Burberry brand in Europe and in the US, and we believe there is substantial scope to
develop sales of this product line in Japan, mainly through accessories.
Other positive catalysts
include . . .
In our view, other key positive catalysts for the stock include the development of retail
square footage with a focus on increasing retail presence in the US (where the group has
just 26 directly operated stores (DOS) compared with 86 for Louis Vuitton and 39 for Polo
Ralph Lauren) and non-Japan Asia; the repositioning of the men apparel segment and the
development of accessories. Also, in the medium term, we believe Burberry will have the
opportunity to extract value from improving its supply chain management.
Burberry is not a traditional luxury goods company. Rather, we believe Burberry's
business model has attributes of both retail and luxury goods companies.
Figure 2: Summary drivers of value
Burberry
LVMH
Richemont
Swatch
3
3
2
3
3
2
2
3
5
4
2
2
2
2
3
5
4
1
4
W orking capital
5
1
4
4
3
2
3
Vertical integration
1
2
4
4
3
1
3
Management
4
3
2
5
4
1
4
Design / quality
3
3
3
3
3
3
3
21.0
People
Hermès
3
Pricing power
Operational
Gucci
4
Business mix
Structural
Bulgari
Geographical mix
16.0
22.0
29.0
23.0
13.0
22.0
Total
Low score
1
2
3
4
High score
5
Source: CSFB research
4

5. Burberry Group
Business model between
relevant retail and luxury
goods companies
A preferred play in the
sector
3 March 2004
Overall, Burberry is not highly vertically integrated. Most of production activities are
outsourced and integration into retail though increasing still remains rather low.
Significantly, the company has a degree of natural hedging against currency
movements as it has a high diversity of cost and revenue split on the wholesale and
retail segments. Also, because Japan is operated as a licence, Burberry has much
lower transactional exchange exposure on the yen. This lower transactional exposure,
combined with a lower inventory holding period (117 days in 2002/03A), implies that
Burberry has a lower risk profile than other luxury goods companies. Although
diversification of sourcing has helped flexibility and costs, paradoxically, it does lower
the degree of strength obtained from brand legitimacy. In terms of other risks, the
extension of activities in Japan will likely be a difficult task, requiring brand migration
and careful management of existing relationships. In addition, we believe Burberry has
higher fashion risk as it is mono-brand and relies heavily on check.
Our overall assessment of the investment case for Burberry within our luxury goods
universe has been made according to five criteria: Value (how inexpensive is the stock);
Catalysts (what company-specific events will make the stock perform); Risk (risk factors
relating to the stock); Business momentum (is business getting better); and
Fundamentals (best fit with our drivers of value in the sector).
Figure 3: Investment summary
Burberry
Value
Catalysts
Risks
Business m om entum
Fundam entals
Investm ent Rationale
Recom m endation
Current Price
P/E m ultiple at current price
2003E
2004E
Target Price
Bulgari
Gucci
Herm ès
LVMH
Richem ont
Sw atch
3
4
4
3
4
2
2
2
2
3
2
3
5
3
4
3
3
3
4
5
4
3
3
4
4
2
2
3
2
2
4
3
3
3
4
4
2
4
2
3
3
4
OUTPERF.
UNDERPERF.
NEUTRAL
NEUTRAL
351.0 p
€ 7.3
€ 69.8
€ 164.0
€ 62.5
SFr 33.7
SFr 166.3
19.3
17.3
26.1
23.6
21.6
27.8
29.7
26.7
28.1
22.8
22.0
18.3
19.8
16.8
400.0 p
€ 6.3
€ 73.2
€ 145.0
€ 62.5
SFr 24.0
SFr 185.0
Low score
1
2
OUTPERF. UNDERPERF.
3
4
OUTPERF.
High score
5
Source: Datastream, CSFB estimates
GUS relationship
A further factor in the Burberry investment case concerns the position of GUS. In July
2002, Burberry was partly listed on the London Stock Exchange. GUS today owns
approximately 66% of Burberry and has for several years described this investment as a
non-core holding. We believe GUS’ placing of an 11% stake in Burberry in November
2003 reinforced market expectations that Burberry’s free float could increase
substantially over the next few years. GUS’ lock-up expires in November 2004; we see
this as an opportunity to invest rather than stock overhang.
Initiating with an
Outperform rating and a
400p target price
In summary, our view is that Burberry has strong fundamentals and long-term catalysts,
together with an outstanding track record of value creation. We initiate coverage of the
stock with an outperform rating and a 12-month share price target of 400p, based on
DCF valuation. This represents a 14% potential premium to the closing price on
2 March 2004.
5

6. Burberry Group
Importance of contribution
from licensing . . . but
wholesale and retail EBITA
growing
3 March 2004
Figure 4: Turnover and EBITA by class of business
As of March 2001
As of March 2003
Turnover
Turnover
90%
89%
57%
EBITA
55%
EBITA
43%
45%
11%
10%
Wholesale & Retail
Wholesale & Retail
Licence
Licence
Source: Company data, CSFB estimates
Asia Pacific represents
25% of Burberry’s reported
turnover, but Japan alone
accounts for over half of
Burberry brand sales
Figure 5: Turnover by geography,
02/03A
Asia
Pacific
25%
Figure 6: Turnover by product category,
02/03A
Other
1%
Women
33%
Men
27%
Europe
50%
Licence
10%
North
America
24%
Others
1%
Source: Company data
Accessories
29%
Source: Company data
Figure 7: Burberry sales and EBITA by channel and geography (02/03A)
Burberry - Sales by channel and region of destination
Importance of Spanish
wholesale operations to
turnover
Wholesale
Retail
Licence
Total
UK
11%
10%
0%
21%
RO Europe
22%
7%
0%
30%
Americas
9%
14%
0%
24%
Japan
1%
0%
8%
9%
RO Asia
8%
8%
0%
15%
Total sales
52%
38%
10%
100%
RO Asia
4%
5%
0%
10%
Total EBITA
28%
27%
45%
100%
Burberry - EBITA by channel and region of destination
Contribution of Japan
licensing agreements to
group profitability
UK
6%
7%
2%
15%
RO Europe
12%
5%
2%
20%
Americas
5%
10%
2%
17%
Japan
1%
0%
38%
39%
0-5%
Wholesale
Retail
Licence
Total
5-9%
10-19%
20% +
Source: Company data, CSFB research. * Assumes consistent margin across regions—CSFB assumption
6

7. Burberry Group
3 March 2004
Figure 8: Stores
A s of H1 results
160
Korea acquisition in
June 2002 added
47 concess ions
23
80
23
62
120
64
18
14
6
17
6
41
47
49
Mar 01
45
10
34
40
Mar 02
Mar 03
Sept 03
0
Mar 00
DOS
Conc essions
Outlet stores
Source: Company data
Figure 9: Efficiency Matrix
Figure 10: Average IC & Turnover growth
600
3.0
Avg. Inv. Capital Turns
Burberry’s efficiency profile
has changed substantially,
mainly as a result of
acquisition of Spanish
licensee
140%
Sector Avg.
NOPAT Mg.
Mar-00
100%
2.5
Mar-01
400
Mar-03
Mar-04E
2.0
Mar-02
60%
200
Mar-05E
1.5
20%
Sector Avg. IC x
1.0
0
5%
10%
15%
20%
-20%
Mar-00 Mar-01 Mar-02 Mar-03 Mar-04EMar-05EMar-06E
Average IC
NOPAT Margins
Turnover Growth
Av. IC Growth
Source: Company data, CSFB estimates
Source: Company data, CSFB estimates
Figure 11: Price and Price Relative
Figure 12: Summary of brands
3/3/04
Main lines
450
Burberry Prorsum (High fashion range)
400
Burberry London International (Core collection)
350
Spain
Thomas Burberry
300
Burberry London
250
Japan
Burberry London
200
Burberry Blue Label
150
Burberry Black Label
Scotch House
100
J A
S
Burber ry Gr oup
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
Burber ry Gr oup relative to Lux ury Goods Nar r ow Index
Sour ce: DATASTREAM
Others
Accessories (Handbags, scarves, shoes)
Product Licences (Fragrances, Eyewear...)
Source: Datastream
7
Source: Company data, CSFB estimates

8. Burberry Group
3 March 2004
Strategic assessment
Burberry’s distribution is
focused on wholesale and
licensing
Burberry is a high-end apparel (60% of 02/03A revenues) and accessories (29% of
02/03A revenues) business. Although Burberry has achieved significant retail expansion
over the past few years, the distribution still is mainly focused on wholesale (52% of
02/03A turnover) and licensing (10% of 02/03A turnover but 45% of EBITA). Key to
Burberry are the management of licensing relationships in Japan (Sanyo Shokai and
Mitsui & Co) and wholesale relationships in the US, and in Spain (El Corte Ingles).
Burberry also has licensing agreements for certain growing product lines such as
Eyewear, Fragrances, Timepieces, Childrenswear, etc.
Licensing implies lower
gearing to potential upside
in consumer demand
On the positive side, growth in licensing activities requires little additional capital and
has high EBITA margins and so delivers high incremental return on incremental
invested capital. However, if demand rises, Burberry's upside potential in revenues is
limited to increased royalties, which represent only a fraction of sales under its brand
name. It does not benefit from any operational gearing on licensed products. Also, the
importance of wholesale and licensing operations raises control issues, as Burberry
effectively relies on external parties for a large part of group EBITA.
Outsourcing of
manufacturing activities
Over recent years, Burberry has reduced the level of in-house manufacturing activities
to concentrate on core outerwear products where the brand has the greatest legitimacy.
This ensures that Burberry retains key manufacturing skills, while allowing it to fully
capture the value that is added on products that have less fashion risk. Integration into
manufacturing is lowest on fashion lines and non-core products, which exhibit greater
volatility. In this case, products are sourced from third parties mainly located in Europe.
This provides increased flexibility and reduces transactional exposure but reduces the
margin and value capture from manufacturing.
SWOT analysis
A summary SWOT analysis is given in Figure 13.
Figure 13: Burberry: SWOT analysis
Existing Strengths
- Strong and proven management team
- Licensing growth delivers high incremental return on
incremental capital
- Heritage products
- Flexibility in product sourcing
- Lower transactional exchange exposure
Existing Weaknesses
- Low vertical integration reduces capture of margin
and value from manufacturing
- Low gearing into Japanese upside
- Apparel segment which has increased fashion risk
still accounts for most of company's profits
Opportunities
- Retail network expension + Widening of wholesale
distribution
- Extension of apparel offering
- Further development of accessories in Spain and
especially in Japan
- Increased distribution of Burberry London
(International) line, especially in Japan
Threats
- Conflicting interests of GUS and external Burberry
shareholders?
- Reliance on 3rd parties in Japan
- Control over licensees and wholesale accounts
- Company is mono-brand and trademark check is
core so increased fashion risk?
- Counterfeiting
Source: CSFB research
8

9. Burberry Group
3 March 2004
Drivers of value
We have identified seven key drivers of value in the luxury goods sector, our ‘design for
success’. For further detailed discussion on the drivers of value, please refer to our
report, Luxury goods: Handbags at five paces, dated 12 May 2003.
Positioning between
relevant retailers’ and
luxury goods companies’
business models
We illustrate in Figure 14 the positioning of Burberry's business model with respect to
each of these seven drivers. Clearly, Burberry is not a traditional luxury goods company.
Rather, we believe Burberry's business model shares common features with those of
relevant retailers and luxury goods companies. This positioning in Figure 14 is not
qualitative and does not intend to define ‘good’ versus ‘bad’ but rather to enable better
assessment and understanding of Burberry's business model.
We position Burberry by reference to two competitive sets made of independent
European quoted companies covered by CSFB research. The luxury goods competitive
set is made of Bulgari, Gucci, Hermès, LVMH, Richemont and Swatch. We assume a
relevant retail competitive set includes: Hugo Boss, Hennes & Mauritz and Inditex.
Figure 14: Positioning of Burberry's business model
Retail
Luxury Goods
Geographical Mix
Structural
Business Mix
Pricing power
Operational
Working capital
Vertical Integration
Management
People
Design / Quality
Source: CSFB research
On four out of the seven identified drivers, we believe Burberry is more comparable to
companies included in our relevant retail set.
1) Regarding geographical mix, Burberry has low transactional exposure due to
outsourcing of production activities, which allows production in various countries and
currencies. Also, the company has much lower transactional exchange exposure to the
yen because Japan is operated as a licence.
9

10. Burberry Group
3 March 2004
2) Working capital analysis shows that Burberry's cash conversion cycle is short due to
inventories, including low raw materials and WIP materials and mainly finished goods.
This is a direct consequence of the importance of third-party suppliers, which effectively
take on a large share of Burberry's inventories.
3) Burberry is not highly vertically integrated. The company is responsible for or
oversees the design of all ranges and lines but has deliberately limited production
capacities. Despite recent acquisitions of licensees in Spain and distributors in Korea
and the Asia Pacific, combined with ambitious retail extension, over 50% of the total
global retail value of products sold under the Burberry name are sold through licensees
in Japan and 52% of reported turnover in 02/03A was realised through wholesale
distribution.
4) On management, CEO Rose Marie Bravo has a retail and wholesale background
having previously served as President of Saks Fifth Avenue in the US and Chairman
and CEO of Macy's Magnin speciality division.
Burberry's business mix consists almost entirely of apparel and accessories. We
position it mid-way between our relevant retail and luxury goods companies set, as
Burberry’s business mix seems comparable to that of H&M, Hugo Boss and Inditex but
also to that of Gucci and Hermès.
On pricing power, Burberry has common characteristics with both competitive sets. On
one hand, Burberry sells premium products in a high-quality distribution network. This
positioning is synonymous with higher prices and higher distribution costs. However, the
company has much lower transactional exchange exposure than the luxury goods
companies and therefore does not need to make up as much revenue in times of
adverse exchange-rate movements. Also, Burberry has in the past increased fees due
by its Japanese licensees, Sanyo Shokai and Mitsui & Co.
On design and quality, Burberry is clearly akin to the luxury goods companies set.
Burberry has core heritage products, a high fashion range (Burberry Prorsum) launched
in 1999, a core high-end Burberry London (International) product line and a wellrecognised Design Director, Christopher Bailey, who previously worked at Gucci and
Donna Karan.
Assessment of
performance against
drivers of value
Armed with the diagram shown in Figure 14, and assessing the positioning of Burberry's
business model, we will now evaluate the company's performance relative to its peer
group. Figure 15 below summarises our assessment of the performance of Burberry
alongside the companies of the luxury goods universe for each of the seven drivers of
value. This analysis is made in both relative and absolute terms. We look at how
companies compare with one another, but we also set our analysis in a broader context
and assess their performance on an absolute basis.
10

11. Burberry Group
3 March 2004
Figure 15: Summary drivers of value
Burberry
LVMH
Richemont
Swatch
3
3
2
3
3
2
2
3
5
4
2
2
2
2
3
5
4
1
4
Working capital
5
1
4
4
3
2
3
Vertical integration
1
2
4
4
3
1
3
Management
4
3
2
5
4
1
4
Design / quality
3
3
3
3
3
3
3
21.0
People
Hermès
3
Pricing power
Operational
Gucci
4
Business mix
Structural
Bulgari
Geographical mix
16.0
22.0
29.0
23.0
13.0
22.0
Total
Low score
1
2
3
4
High score
5
Source: CSFB research
Geographical mix
Vertical integration
2
1
4
4
3
1
3
Bulgari
Burberry
Gucci
Hermès
LVMH
Richemont
Swatch
Burberry reports in British pounds. Assuming no variation from exchange rates as of
5 January 2004, we expect a favourable euro movement of 7.3%, an adverse yen
movement of 2.0% and an adverse US dollar variance of 10.3% for the year ending
March 2004. We expect that the trade-weighted impact of exchange movements on
Burberry revenues will be –0.5%.
Figure 16 and Figure 17 below show Burberry's geographical mix of revenues and
currency exposure.
Figure 16: Geographical mix of revenues
Figure 17: Estimated currency mix
02/03A
02/03A
Asia
Pacific
25%
Other
1%
Japanese
Yen
23%
British
Pound
21%
Europe
50%
North
America
24%
Source: Company data
US Dollar
24%
Euro
32%
Source: Company data, CSFB estimates
However, the revenue exposure is only one element of the equation. From discussion
with Burberry management, we understand that the Burberry London (International) and
Burberry Prorsum lines are manufactured as follows: 20% in the UK, 70% in Italy and
10% in other countries including the US, where Burberry owns a factory. Burberry
London (Spain) and Thomas Burberry (mainly sold in Spain) are manufactured locally
out of Spain, Portugal and Morocco. Finally, the Japanese lines, Burberry Blue and
Black labels, Burberry London and Scotch House are made 100% locally.
11

12. Burberry Group
3 March 2004
The diagram shown in Figure 18 is a simplified presentation of Burberry's exchange rate
exposure. It shows how Burberry is positioned compared with the relevant retail and
luxury goods competitive sets by reference to two metrics: diversity of revenue split (X
axis) and diversity of cost split (Y axis).
Figure 18: Summary presentation of exchange-rate exposure
3 - Deflationary pressures
4 - Hedged
Diversity of cost split
Retail
1 - Domestic Goods
Burberry
2 - Transactional exchange exposure
Corner
shop
Luxury
Goods
Diversity of revenue split
Source: Company data, CSFB estimates
- Quadrant 1 (low diversity of cost split and revenue split) “corner shops”, i.e. local
retailers of locally produced goods, which due to the domestic nature of their business
do not have exchange exposure.
- Quadrant 2 (low diversity of cost split and high diversity of revenue split) includes
luxury goods companies, which typically sell their products globally but manufacture
them in euros or Swiss francs. The value proposition of these products is often closely
linked to particular geographical regions (e.g. Swiss watches). This discrepancy
between cost and revenue currencies gives rise to transactional exchange-rate
exposure, accentuating the impact of adverse currency movements, especially if
inventory turns are low.
- Quadrant 3 (high diversity of cost split and low diversity of revenue split) includes
retailers, which source their products from a wide variety of regions and in a variety of
currencies but sell them in a small number of markets. The ability to source products
from a variety of third parties in all countries gives rise to intense competition on prices
and therefore leads to deflationary pressures.
- We position Burberry in Quadrant 4, i.e. high diversity of cost and revenue split. On the
wholesale and retail segments (i.e. 90% of 2002/03A turnover), we believe that Burberry
has a natural hedge against currency movements, as it manufactures products in
several different countries and currencies and sells them in the US, Asia Pacific and
12

13. Burberry Group
3 March 2004
Europe. Also, because Japan is operated as a licence, Burberry has much lower
transactional exposure on the yen. Figure 19 shows our estimates of Burberry's split of
sales and cost of goods sold (COGS) by currency for the year ending March 2003.
Figure 19: Split of turnover and cost of goods sold by currency (02/03A)
COGS
Pound (£)
Euro (€)
Dollar ($)
Yen (¥)
Total
Pound (£)
5%
16%
21%
Turnover
Euro (€)
Dollar ($)
6%
5%
26%
12%
7%
32%
24%
Yen (¥)
23%
23%
Total
16%
54%
7%
23%
100%
Source: Company data, CSFB research
From the analysis shown in Figure 19, we conclude that Burberry is long US dollar
revenues and long euro costs with a neutral exposure to the yen. Therefore, we believe
that Burberry has lower transactional exchange exposure than other luxury goods
companies.
Business mix
Busine ss m ix
2
2
3
5
4
2
2
Bulgari
Burberry
Gucci
Herm ès
LVM H
Richemont
Swatch
The luxury goods companies show a great diversity of business mix across a variety of
different product areas including, fashion and leather, watches and jewellery, perfumes
and cosmetics, wines and spirits and luxury retailing. Being mainly focused upon one of
these segments—"fashion and leather"—through its womenswear, menswear and
accessories product categories, Burberry is more narrowly focused.
While the fashion and leather segment is our preferred luxury segment, we believe
Burberry has increased fashion risk relative to its luxury goods peer group due to three
main reasons.
1) The company is mono-brand.
2) The apparel segment accounts for a vast majority of revenues and profits.
3) The trademark check remains core even if its visibility has been subtly adjusted over
the past few years. Today, the apparel collection is made up as follows: 10% with the
check as an obvious logo, 10% with the check as a seasonal variation, 40% with the
check as a lining and the remaining 40% of the collection is check free.
However, it is fair to point out that the various Burberry product lines provide the
company with a reasonable range of price points.
13

14. Burberry Group
3 March 2004
Pricing power
Pricing power
2
2
3
5
4
1
4
Bulgari
Burberry
Gucci
Hermès
LVMH
Richemont
Swatch
The ability to raise prices without negatively affecting demand is, in our view, critical to
long-term value creation in luxury goods. This is particularly so at a time of downward
pressure on revenues resulting from adverse currency movement. Looking at EBITA
margin relative movement (as we had previously done for the rest of the Luxury Goods
sector) does not provide very useful information on pricing power in the case of
Burberry, considering the changes the company has been through over recent years.
However, the analysis in Figure 20 leads us to conclude that Burberry does have pricing
power. Retail sales (excluding the impact of the Korea acquisition) have increased over
the last few years, quicker than retail square footage, leading to a progression in retail
sales per square foot. In the meantime, EBITA margin on the Wholesale and Retail
channel has increased. If sales per square foot have increased as well as margins, then
this is prima facie evidence that the growth has been achieved without having to resort
to additional discounting.
Figure 20: Extension of retail sales and square footage (excl. impact of Korea acquisition)
£ in millions, unless otherwise stated
Mar-01
Retail Sales
Mar-02
Mar-03
Mar-04E
143.2
156.9
228.4
262.7
288.9
9.6%
45.6%
15.0%
10.0%
262,774
310,073
353,273
393,593
18.0%
13.9%
11.4%
597
737
744
734
9.6%
12.1%
13.5%
13.8%
Revenue Growth
Retail Square footage (sq ft m)
Retail Square Footage Growth
Retail Sales per square foot (£)
Wholesale and Retail Margin
7.6%
Mar-05E
Source: Company data, CSFB estimates
Our analysis is backed by discussions with the company, which confirmed that EBITA
margin progression over recent years was partly explained by increased prices, together
with increased volumes. Pricing has increased as part of the repositioning, and Burberry
today sells premium products in a high quality distribution network. Higher prices partly
compensate for higher distribution costs.
Company policy is to pass the adverse impact of exchange rates on to customers.
Management stated that for the Spring 2003/04 collection, US dollar denominated retail
prices would increase by about 3%. As regards next autumn’s collection, US dollar
denominated retail prices should increase by 3–4%. Although these increases are lower
than those announced by other luxury goods companies, including LVMH, an important
factor to take into account is that Burberry has lower transactional exchange exposure
than other European luxury goods companies and therefore does not need to make up
as much revenues in times of adverse exchange-rate movements.
Finally, Burberry has increased royalty fees due by its Japanese licensees, Sanyo
Shokai and Mitsui & Co. The Japanese licensing agreement was renegotiated in late
2000 and runs until 2010, with a ten-year renewal close based on volumes. The next
and last increase in royalty fees will take place in January 2005 and will represent £3m.
From then on, there will be no increases until 2010.
In the future, we believe that Burberry's advantage from superior pricing power may
however be diminishing. Retail prices have increased as part of the repositioning which
14

15. Burberry Group
3 March 2004
is now largely complete. In addition, there is no further increased in Japanese royalties
planned until at least 2010 and possibly 2020.
Working capital
Working capital
1
5
4
4
3
2
3
Bulgari
Burberry
Gucci
Hermès
LVMH
Richemont
Swatch
We believe that inventory holding periods become highly significant during periods of
fluctuating exchange rates. After successive adverse foreign-exchange movements in
recent years, companies with high inventory holdings and transactional exposure are
effectively locked into sustained downward pressure on margins, in our view. With a low
inventory holding period (117 days in 2002/03A) and a low transactional exposure,
Burberry has a risk profile lower than companies in our luxury goods competitive set.
The table in Figure 21 shows the details of Burberry's cash conversion cycle as well as
the average inventory holding period for the luxury goods and relevant retail competitive
sets. For the purpose of this analysis, we show inventories of "watches and jewellery"
companies (Bulgari, Richemont and Swatch) separately.
Figure 21: Burberry working capital analysis and inventories comparison
2000
2001
2002
2003E
2004E
2005E
157
23
-29
151
121
60
-44
137
121
57
-40
138
117
53
-38
132
117
53
-38
132
117
53
-38
132
Burberry
Inventory - future days COGS
Days sales in trade receivables
Accounts payable (days COS and SG&A)
Cash conversion cycle
Inventory: Luxury Goods competitive set (excluding Watches and Jewellery)*
Gucci
Hermès
LVMH
Average
168
209
265
214
205
224
292
240
213
236
274
241
200
210
265
225
200
210
260
223
200
210
250
220
588
371
198
386
657
461
227
448
599
440
240
426
600
420
226
415
610
405
224
413
610
405
225
413
Inventory: Watches and Jewellery companies*
Bulgari
Richemont
Swatch
Average
Inventory: Relevant Retail competitive set*
Hennes & Mauritz
108
82
75
Hugo Boss
Inditex
Average
121
70
100
149
83
105
162
72
103
Source: Company data, CSFB estimates *Based on future days COGS.
Inventory turns are closest to our relevant retail set of companies and especially H&M.
However, it is important to point out that even if Burberry has lower inventories than
companies in the luxury goods sector, it still bears an indirect economic risk. Production
by third parties is made at the request of Burberry and, if a supplier does not manage to
sell its stock of Burberry-branded products through the ‘fault’ of Burberry, then Burberry
will generally either purchase the inventories or compensate the supplier through other
means. Discussions with management confirmed that although Burberry does not own
the title to inventories held at third parties, it does bear a degree of economic risk
attributable thereto.
15

16. Burberry Group
3 March 2004
The acquisition of the Spanish licensing operations, in June 2000, has contributed to
better working capital management. The Burberry Spain acquisition included a welldeveloped supply chain capability, which has been inspirational to the rest of the
company. In addition, Burberry has begun a pilot programme looking at direct shipping
of finished goods from suppliers to wholesale accounts in specific regions, which also
contributes to shorten the company's cash conversion cycle.
Vertical integration
Vertical integration
2
1
4
4
3
1
3
Bulgari
Burberry
Gucci
Hermès
LVMH
Richemont
Swatch
Overall, Burberry is not highly vertically integrated. Most of production activities are
outsourced and integration into retail though increasing still remains rather low, with a
marked preponderance of wholesale and licensing activities. On balance, we prefer
companies that are highly integrated into production, as it reinforces the legitimacy of
the brand, and into retail, as it enables higher capture of margin and economic value
from these elements of the product value chain.
Figure 22 shows fixed asset efficiency for Burberry compared with our luxury goods set
and our relevant retail set. Burberry fixed asset turns are relatively high, and if the
intensity had been calculated based on the retail value at brand sales, rather than
reported turnover, then the fixed asset turns would have been much greater and the
level of vertical integration indicated manifestly lower.
Figure 22: Retail distribution and fixed asset efficiency
1999
2000
2001
2002
45
34
-24.4%
4.3
2.6%
41
20.6%
4.0
2.8%
47
14.6%
3.7
3.2%
7.7
4.8
3.6
3.4
5.3
4.1
8.0
3.7
3.1
2.9
4.3
3.9
8.8
2.8
3.0
3.3
4.6
3.6
7.4
10.6
2.5
7.5
6.6
2.6
8.7
6.0
3.0
Burberry
Number of directly operated stores
Growth in number of stores
Fixed Assets turns *
D&A (excl. G/W) to sales
3.9
2.5%
Fixed Asset turns of Luxury Goods competitive set *
Bulgari
Gucci
Hermès
LVMH
Richemont
Swatch
7.2
3.6
3.3
3.0
6.1
3.6
Fixed Asset turns of Relevant Retail competitive set *
Hennes & Mauritz
Hugo Boss
Inditex
11.0
10.0
2.3
Source: Company data, CSFB estimates.
* Excluding adjustment for operating leases due to lack of comparable data.
In terms of integration into manufacturing, Burberry is responsible for or oversees the
design of all ranges and lines but has chosen to limit in-house production capacities.
The strategy adopted as part of the brand repositioning has been to maintain
manufacturing competency in core outerwear products and outsource the rest of the
production to specialised third-party suppliers with few long-term agreements.
16

17. Burberry Group
3 March 2004
As regards integration into retail, despite recent acquisitions of distributors in Spain
(June 2000), Korea (March 2002) and Asia Pacific (December 2001) and ambitious
retail extension, over 50% of the total global retail value of products sold under the
Burberry name are sold through licensees in Japan and 52% of reported turnover in
02/03A was realised through wholesale distribution.
The table in Figure 22 highlights the growth in directly operated stores. Yet retail
represented only 38% of turnover in the year ending March 2003. Total retail selling
space expanded from approximately 260,000 square feet as of March 2002 to
approximately 360,000 square feet as of March 2003 (including 50,000 square feet
attributable to the ‘Korea’ acquisition), and company guidance suggests above 400,000
square feet of selling space as of March 2004.
Looking at licensing and wholesale arrangements, Burberry has long lasting and key
relationships with Sanyo Shokai and Mitsui & Co, its Japanese licensees, and with
wholesale accounts in the US and especially in Spain (El Corte Ingles). Burberry also
has licensing agreements for certain growing product lines such as Eyewear,
Fragrances, Timepieces, Childrenswear, etc. On the positive side, licensing growth
delivers high incremental return on incremental capital and outsourcing of production
provides added flexibility. However, we believe low vertical integration hinders the
capture of margin and also economic value on manufacturing, and the licences in Japan
result in a low gearing into potential upside. Also, the high importance of licensees and
wholesale accounts raises control, dependence and legitimacy issues, in our view.
Overall, Burberry’s fixed asset turns are
- Higher than for Hermès, LVMH and Gucci, as the company is less vertically integrated
and captures lower value from the product chain.
- Lower than for Bulgari and Richemont. But in the case of watches and jewellery
companies, fixed asset intensity is less of an issue because the cost of materials and
the inventory holdings period are so high.
- Lower than for H&M and Hugo Boss, which is to be expected in our view, considering
H&M and Hugo Boss are pure retailers.
We believe that the low level of integration of Burberry represents an opportunity for the
company. In our view, Burberry has scope to increase integration into distribution,
particularly in Japan.
Management
Management
3
4
2
5
4
1
4
Bulgari
Burberry
Gucci
Hermès
LVMH
Richemont
Swatch
Consistent with plans to reinvent Burberry as a luxury brand, a new management team
was hired by GUS Plc from 1997. The most publicised of these appointments was the
hire of Rose Marie Bravo to the position of CEO. Ms Bravo had previously worked as
President of Saks Fifth Avenue in the US and had an extensive knowledge of
merchandising and distribution, together with a valuable wholesale understanding and
network.
Management has focused on:
1) eliminating inappropriate wholesale accounts, mainly to put an end to parallel trading;
2) renegotiating Japanese licences agreements;
17

18. Burberry Group
3 March 2004
3) closing unprofitable and non-core retail stores; and
4) acquiring the Spanish licensee and the Asian and Korean distributors.
Our assessment of management has been made on the premise that management
should be judged on its historical record and on the merits of the strategy for taking a
group forward and should be held to account for its performance in successfully
delivering against this strategy.
As shown in Figure 23, Burberry has consistently delivered incremental return on
incremental capital. Incremental ROIIC has averaged 34.7% between the last three
reported years.
Figure 23: Returns on invested capital and incremental invested capital
£ in millions, unless otherwise stated
Mar-00
Mar-02
Mar-03
Mar-04E
Mar-05E
Mar-06E
86
13
30.1%
Invested capital
NOPAT @ 30% tax
ROIC
ROIIC
Mar-01
238
48
29.7%
23.1%
270
63
24.9%
47.7%
325
82
27.5%
33.2%
377
98
27.9%
31.8%
427
109
27.2%
22.0%
498
123
26.5%
19.0%
Source: Company data, CSFB estimates
We believe management has delivered outstanding value creation in turning Burberry
around, both through existing operations and acquisitions. Management has a proven
ability to generate returns. In our view, the challenge now is to find significant valueenhancing growth opportunities.
Figure 24 shows the direction of our invested capital turn and NOPAT margin
assumptions going forward. We believe ROIC improvement will be driven by margins
rather than invested capital efficiency.
Figure 24: Efficiency matrix
3.0
Mar-01
Invested Capital Turns
Mar-00
Sector Avg.
NOPAT Mg.
2.5
Mar-03
2.0
Mar-02
Mar-04E
Mar-05E
1.5
Sector Avg. IC x
1.0
WACC line
at 7.6%
0.5
0.0
0%
2%
4%
6%
8%
10%
NOPAT Margins
Source: Company data, CSFB estimates
18
12%
14%
16%

19. Burberry Group
3 March 2004
Design/quality
De sign / qua lity
3
3
3
3
3
3
3
Bulgari
Burberry
Gucci
Hermès
LVMH
Richemont
Swatch
In 1998, Roberto Menichetti joined Burberry as Design Chief and Creative Director. The
following year, Burberry launched the high-fashion Prorsum range, featured at the Milan
fashion week. This range is the source of inspiration of other Burberry lines. It was
established to reinforce Burberry’s luxury goods positioning and be a source of indirect
marketing through the attraction of considerable media attention. In May 2001,
Christopher Bailey was appointed to replace Mr Menichetti. Mr Bailey joined from Gucci,
where he had been working since 1996 as Senior Designer, and previously worked as a
designer for Donna Karan.
Also, as part of the repositioning, the Burberry London (International) line has been
upgraded through the rationalisation of sourcing, pricing and product variations.
In our view, the absolute core business of a luxury goods company is in product design
and brand management, as this establishes the ‘DNA’ of a brand. It follows then, that
design and quality of products is a key driver of value creation. As with management,
design and quality in the luxury goods industry is linked to abilities, personality and the
reputation of certain high-profile ‘stars’—and there are many of these in the sector.
If evaluation of management is unavoidably highly subjective and also highly
contentious, then in our view, the evaluation of design and quality issues is the most
highly subjective and potentially the most contentious. Accordingly, we do not
distinguish between the merits of the various companies.
19

20. Burberry Group
3 March 2004
Relationship with GUS
GUS originally acquired Burberry in 1955. After Burberry's repositioning in the late
1990s, GUS decided to float 23% of Burberry on 18 July 2002. After a further placing in
November 2003, GUS’ remaining shareholding in Burberry is approximately 66%.
Relationship agreement
Ongoing relationships between GUS and Burberry are regulated by the "Relationship
Agreement" signed on 11 July 2002. The rights and obligations of GUS under this
agreement depend on the percentage of issued share capital held by GUS and are
summarised in Figure 25 below.
Figure 25: Summary presentation of relationship agreement
Currently GUS
owns 66% of
Burberry
Majority
shareholding (>50%)
- GUS has the right to appoint
the Chairman of BRBY’s board
- GUS is provided with BRBY’s
business plan after board approval
Controlling shareholding (>30%)
-GUS can appoint up to 1/3 of directors
- GUS provided with specific information (incl.
management accounts, board minutes and press releases)
- GUS does not take any action with could prejudice BRBY’s listing
Minimum Shareholding (15%)
-Independence of BRBY is maintained in accordance with listing rules and
majority of non-executive directors on BRBY’s board are independent
- 2/3 of BRBY’s executive directors independent from GUS
- GUS is entitled to nominate one of the directors
- Directors who have a conflict of interest are not entitled to vote at board’s meetings
- All transaction are conducted at arm’s length and on a normal commercial basis
- BRBY provides certain legal and regulatory information to GUS
Source: Company data, CSFB research
We believe there is an inherent risk associated with GUS’ controlling shareholding in
Burberry. GUS interests could conflict with those of external Burberry shareholders. In
addition, GUS has the discretion to sell a further stake of its shareholding in Burberry or
transfer a controlling interest in Burberry to a third party, which could adversely affect
the price of Burberry's shares. Following the 11% placing in November 2003, GUS
undertook to not sell further shares in Burberry for a period of 360 days from the date of
completion of the placing (24 November 2003).
Burberry is considered as
a non-core holding by GUS
GUS has for several years described Burberry as a non-core holding. We believe that
under Lord David Wolfson, GUS’ CEO until the late 1990s, GUS considered selling the
business but couldn’t find an offer that it thought the business deserved. In order to
maximise value for its shareholders ahead of a potential exit, GUS has been a willing
provider of support and capital. GUS appointed Rose Marie Bravo and provided
management support in Burberry’s renegotiation of its Japanese licensing agreements.
20

21. Burberry Group
3 March 2004
Under GUS’ control, Burberry has been given the funds to buy control of operations in
Spain and Asia Pacific ex-Japan and to build out a store network.
Burberry is an important
provider of liquidity to GUS
From the point of view of GUS’ shareholders, we believe this loyalty has paid off.
Burberry represents 8.9% of March 2004E and 9.7% of March 2005E sales, and 16.0%
and 17.1% of the respective years’ operating profits. GUS’ 66% stake in Burberry would
be worth £1,319m at CSFB’s target price of 400p. This dwarfs our projected year-end
net debt of £957m and provides considerable liquidity to balance the company’s
significant off-balance-sheet lease liabilities, which we estimate at about £3.46bn
following the acquisition of Homebase in November 2002. This presents GUS with an
interesting conundrum about how best to make use of the proceeds of any further
reduction in its stake, as full repatriation would likely tend to reduce its credit rating,
which is only just investment grade (Moody’s Baa1 stable and Standard & Poor’s BBB+
positive). We do not believe that GUS would incur any tax liability on the disposal under
current UK tax policy, so tax efficiency would not affect GUS’ decision-making about
how to exit its position, in our view.
GUS Analyst: Nathan Cockrell +44 20 7888 0320
21

22. Burberry Group
3 March 2004
Financial analysis and projections
Background
Brief history
Burberry was founded in 1856 when Thomas Burberry, then aged 21, opened an
outfitters shop in Basingstoke. Business flourished and several years later, in 1879,
Burberry invented gabardine, a weatherproof and resistant fabric. This process, which
was patented in 1888, is at the root of the company's development. Interestingly,
Burberry lived around the same time as Louis and Georges Vuitton. In fact, in 1888
also, Georges Vuitton invented and patented the chequered canvas pattern and a few
years later, in 1896, he registered the Louis Vuitton Monogram canvas as a trademark.
In the early 1900s, Burberry was chosen as a supplier of officers' raincoats to the British
army. During the First World War, the original raincoat design was adapted, leading to
the creation of the ‘trench coat’ and a few years later, the Burberry check, registered as
a trademark, was introduced as a lining. Building on the company's success, Burberry
expanded internationally, selling its products in France, the US and Japan.
In 1955, Burberry was acquired by GUS. Over the following decades, we believe that
implemented distribution strategies for retail, wholesale and licensing channels lacked
focus and resulted in Burberry exercising lower control over its brand. Additionally, the
company suffered from a lack of investments in key operational and support functions,
in our view. In the late 1990s, GUS decided to reposition the brand "in line with its luxury
heritage" and hired a new management team, led by Rose Marie Bravo. This strategy
having been successful, GUS decided to crystallise part of Burberry's value, which
resulted in the partial flotation on 18 July 2002 of 23% of the company. After a further
placing in November 2003, GUS’ remaining shareholding in Burberry is approximately
66%.
Figure 26 summarises Burberry’s brands, and Figure 27 shows Burberry’s turnover by
geography.
Figure 26: Summary of brands
Figure 27: Turnover by geography 02/03A
Main lines
Burberry Prorsum (High fashion range)
Burberry London International (Core collection)
Asia
Pacific
25%
Other
1%
Spain
Thomas Burberry
Burberry London
Europe
50%
Japan
Burberry London
Burberry Blue Label
Burberry Black Label
Scotch House
North
America
24%
Others
Accessories (Handbags, scarves, shoes)
Product Licences (Fragrances, Eyewear...)
Source: Company data
22
Source: Company data, CSFB research

23. Burberry Group
3 March 2004
EVA® analysis
Figure 28 plots invested capital turns against NOPAT margins over the period March
2000A—March 2005E.
Figure 28: Efficiency matrix
Figure 29: Average IC & turnover growth
600
Avg. Inv. Capital Turns
3.0
140%
Sector Avg.
NOPAT Mg.
Mar-00
2.5
100%
Mar-01
2.0
Mar-02
400
Mar-03
Mar-04E
60%
200
Mar-05E
1.5
20%
Sector Avg. IC x
1.0
0
5%
10%
15%
NOPAT Margins
20%
-20%
Mar-00 Mar-01 Mar-02 Mar-03 Mar-04EMar-05EMar-06E
Average IC
Turnover Growth
Av. IC Growth
Source: Company data, CSFB estimates
Impact of Burberry Spain
acquisition on efficiency
profile
Source: Company data, CSFB estimates
The chart illustrates that the efficiency profile of Burberry has substantially changed over
the last few years (by way of additional explanation, the further away a point on the
chart is from the origin, the higher the ROIC).
1) Burberry's average invested capital turns decreased substantially in the year to
March 2002, reflecting mainly the impact of the Burberry Spain (June 2000) and Asia
(December 2001) acquisitions. Notably, the £151m acquisition in Spain represented a
modest 7.6 EBIT multiple. In addition, the upgrade and extension of the retail network
weighed on asset efficiency.
2) However, the decrease in asset efficiency was compensated by a substantial
increase in NOPAT margins between March 2000 and March 2002, mainly due to the
Burberry Spain acquisition and the renegotiation of the Japanese licensing agreements.
The Spanish licensing operation had a hefty operating margin (+15% in the year to
March 2000, +14.4% in the year to March 2001).
Figure 28 also illustrates that:
- Invested capital turns are still well above the sector average. This is consistent with
lower integration into manufacturing and the importance of licensing and wholesale
operations.
- NOPAT Margins are above the sector average. This is explained by the licensing
activities, which have very high EBITA margin. In the year to March 2003, licensing
represented 45% of EBITA with an EBITA margin of 89.7% compared with 12.1% for
the 'Wholesale and Retail' segment.
In Figure 29, we illustrate that, according to our forecasts, Burberry continues to steadily
invest capital to sustain future growth in turnover.
23

24. Burberry Group
Outstanding creation of
shareholder value through
existing business and
acquisitions
3 March 2004
In our view, too much attention is paid to the absolute level of ROIC in any one year
relative to WACC, rather than the directional movement of the ROIC-WACC spread.
Invested capital is essentially an historical figure and is therefore of less relevance.
What matters to value creation is how incremental capital is invested in the business to
derive incremental returns to shareholders. In our view, within the luxury goods sector,
Burberry has been second to none in terms of value creation over the period since April
1999. As shown in Figure 30, using a standard cash tax rate of 30% throughout the
period (to better enable comparison across periods and groups), incremental ROIIC
over the period March 2000 to March 2003 was 28.7%, well above the company's
WACC of 7.6%.
Our conclusions from this analysis are:
- Through the repositioning of the brand, Burberry has created outstanding shareholder
value. We believe that this has been in part a result of astute picking of low-hanging
fruits after years of brand neglect, as well as sensible brand extension and acquisitions.
- Historical acquisitions (Spain, Asia, Korea) have proved that they have contributed to
shareholder value. The Spanish licensing operations were acquired for £151.1m, a very
reasonable 7.6x EBIT multiple. Also, the acquisitions in Spain, Asia and Korea offer
great development potential, in our view.
- Going forward, our estimates assume that EBITA margins are going to improve
slightly. Regarding the 'Wholesale and Retail' segment, we assume changes in
business mix, sourcing and pricing will drive EBITA margins up. On the 'licence'
segment, we believe that the EBITA margin will benefit until March 2005 from the last
scheduled increases in fees payable by the Japanese licensees (representing around
£3m each year). We assume net working capital will grow in line with sales (i.e. NWC
turns will remain constant), and we increase fixed assets in line with sales growth,
taking into account Burberry's retail expansion plans. This results in ROIC at 28.1% in
the year to March 2004E, 26.8% in the year to March 2005E and 25% in the year to
March 2006E.
Figure 30: Returns on invested capital and incremental invested capital
£ in millions, unless otherwise stated
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04E
Mar-05E
Mar-06E
Invested capital
NOPAT @ 30% tax
ROIC
ROIIC
86
13
30.1%
238
48
29.7%
23.1%
270
63
24.9%
47.7%
325
82
27.5%
33.2%
377
98
27.9%
31.8%
427
109
27.2%
22.0%
498
123
26.5%
19.0%
NOPAT @ cash tax rate
13
29.4%
46
28.6%
22.2%
63
24.9%
53.3%
82
27.5%
33.2%
98
27.9%
31.8%
109
27.2%
22.0%
123
26.5%
19.0%
ROIC
ROIIC
Source: Company data, CSFB estimates
24
Incremental
Mar-00
Mar-03
to Mar-03 to Mar-06
239
173
69
41
28.7%
23.7%
69
28.9%
41
23.7%

25. Burberry Group
3 March 2004
Projections
Figure 31 shows a summary of our projections for the group. The details of our
estimates are shown in Figure 51 to Figure 53.
Figure 31: Burberry: Summary of earnings data
£ in millions, unless otherwise stated
Mar-02A
EBIT
Margin (%)
Net income
CSFB EPS (Pre GW & excep.) (p)
Mar-03A
Mar-04E
Mar-05E
Mar-06E
499.2
Turnover
593.6
670.7
731.6
796.3
85.4
17.1%
56.5
12.13
110.3
18.6%
52.2
14.64
133.6
19.9%
85.3
18.14
149.5
20.4%
95.9
20.25
168.9
21.2%
108.9
22.82
Source: Company data, CSFB estimates
We believe that several sales, profitability and capital efficiency drivers provide Burberry
with interesting growth opportunities in the years ahead.
Sales projections and drivers
Sales projections
Our revenue assumptions are given in Figure 32. The headline growth in revenue
results from combination of assumptions regarding the underlying organic growth in
turnover and the effects of changes in foreign-exchange rates.
Figure 32: Burberry: Revenue growth assumptions
Headline
Organic
Mar-02A
Wholesale
Retail
Licence
Total Burberry
Mar-03A
Mar-04E
Mar-05E
Mar-04E
Mar-05E
20.9%
9.6%
16.8%
16.7%
6.3%
45.6%
9.0%
18.9%
11.5%
15.0%
13.0%
13.0%
8.0%
10.0%
11.0%
9.1%
11.1%
15.8%
14.6%
13.2%
12.2%
15.0%
13.8%
13.5%
Source: Company data, CSFB estimates
We have assumed that exchange rates remain constant at levels as of 5 January 2004:
euro/pound = 1.49, dollar/pound = 1.89 and yen/pound = 201.5. On the basis of such
consistency, we expect that the average euro exchange rate for 2003/04E relative to the
pound will strengthen by 7.3% on top of a 3.8% positive variance in 2002/03A. For the
dollar, we estimate a negative currency impact of 10.3% in 2003/04E on top of an 8%
adverse movement in 2002/03A. For the yen, we estimate the adverse currency
variance in 2003/04E to be 2.0% on top of a 5.2% adverse variance in 2002/03A.
Sales drivers
We believe that Burberry should benefit from substantial top-line growth opportunities in
the coming years thanks to:
- sustained growth in retail square footage;
- development in the US and non-Japan Asia; and
- repositioning of men apparel and development of accessories
In addition, we believe there is further upside potential in revenues to be gained from
the development of the Burberry London (International) line in Japan. This is not
currently factored into our estimates.
25

26. Burberry Group
3 March 2004
Sustained growth in retail square footage
Retail square footage will
expand by around 12% in
2003/04E and then by
around 10% for the next
two years
According to company guidance, retail square footage will expand by around 12% in the
year to March 2004 and then by around 10% for the next two years. This sustained
retail expansion should drive top-line growth. By way of comparison, we estimate that
Louis Vuitton DOS have increased from 244 to 318 since 1998, which we believe
represents an average yearly increase in retail square footage of 15%.
Figure 33: Burberry: Expansion of retail franchise
Mar-02A
Mar-03A
Mar-04E
Mar-05E
Mar-06E
37%
12%
10%
10%
97,226
43,200
40,320
44,352
262,774
360,000
403,200
443,520
487,872
41
47
Square Footage Growth
Incr. Retail Square Footage
Retail Square Footage @ YE
Number of DOS @ YE
19% attributable to
Korea acquisition
Source: Company data, CSFB estimates
In particular, Burberry plans to focus retail expansion on the US and Non-Japan Asia
(see below). In addition, we believe that Burberry may look to open a new DOS in
Madrid (Currently Burberry has only one DOS in Spain, in Barcelona, opened in
Summer 2002). Also, the company says Italy is an important market. So far, there is
only one Burberry store in Milan, which opened in Fall 2003. However, on Friday,
27 February, Burberry announced plans for a new 8,000 square feet store in Rome, on
Via Condotti, to open in late 2004.
Development in the US and non-Japan Asia
Retail expansion in the US
Completion of Asian
acquisition integration
Burberry had 47 DOS as of March 2003, including 26 stores in the US. The company
believes that there is room for further retail expansion in this market and plans to open
three or four new stores a year. The US market represented 24% of revenues in
2002/03A, helped by wholesale contribution. By way of comparison, Louis Vuitton
currently has 86 stores and Ralph Lauren 39 stores in the US.
As regards non-Japan Asia, acquisition of distributors in the region were made only
recently (Korea in March 2002, Hong Kong, Singapore and Australia in December
2001). Burberry believes there is still work to be done on the integration of these
acquisitions in order to maximise their potential upside. Burberry will accompany
development these regions by gradually adding stores in order to increase its retail
presence.
26

27. Burberry Group
3 March 2004
Repositioning of menswear and further development of accessories
Burberry is originally a
men’s brand
Burberry has four main product segments: womenswear, menswear, accessories and
licences (Figure 34).
Figure 34: Turnover by product category 2002/03A
Women
33%
Men
27%
Licence
10%
Others
1%
Accessories
29%
Source: Company data, CSFB research
Menswear is the least invested of these categories, even though Burberry was originally
a men’s brand. This is due to the fact that Burberry's repositioning has been driven by
an initial focus on womenswear and later accessories. Figure 35 and Figure 36 clearly
demonstrate the discrepancies in terms of growth patterns between the different
segments. Management has said that Burberry will now focus its efforts on menswear,
as it believes this segment can be developed further. Menswear represented 27.4% of
turnover as of March 2003 and womenswear 33.3%. However, in terms of brand sales,
the two segments generated approximately the same value. This is due to the fact that
part of menswear is licensed.
Figure 35: Detailed progression of menswear and womenswear sales
Mar-00A
Mar-01A
Mar-02A
Mar-03A
£73.8m
32.7%
£142.4m
33.3%
93.0%
£149.4m
29.9%
4.9%
£162.8m
27.4%
9.0%
£63.4m
28.1%
£134.7m
31.5%
112.5%
£165.2m
33.1%
22.6%
£197.9m
33.3%
19.8%
Menswear
Sales
% of turnover
Growth YOY
Womenswear
Sales
% of turnover
Growth YOY
Source: Company data
Accessories could
represent 35% of turnover
in the medium term
In addition, management believes there are opportunities to further develop the
accessories segment. This segment is mainly made up of handbags, scarves and
shoes, with handbags being the largest accessories product category. Accessories rose
27

28. Burberry Group
3 March 2004
from 22.2% of turnover in the year to March 2000 to 28.6% of turnover in the year to
March 2003. The company believes that accessories could represent 35% of turnover in
the medium term. One of the drivers of this progression is expected to be shoes, which
were launched in Autumn/Winter 2002 and are designed to complement the apparel
collection. In accordance with management’s comments, we believe that accessories
represent only a small percentage of sales in Spain and Japan. These two markets
therefore will be areas of focus for the development of the accessories segment.
Figure 36: Detailed progression of accessories sales
Mar-00A
Sales
% of turnover
Growth YOY
Mar-01A
Mar-02A
Mar-03A
£50.2m
£98m
£125.8m
£169.5m
22.2%
22.9%
95.2%
25.2%
28.4%
28.6%
34.7%
Source: Company data
Further development of Burberry London (International) line in Japan
In addition, we believe there is further upside potential in revenues to be gained from
the development of the Burberry London (International) line in Japan. This is not
currently factored into our estimates.
Burberry has eight main product lines worldwide. Burberry Prorsum is the high-fashion
range, Burberry London (International) is the core collection, and Thomas Burberry is
sold mainly in Spain together with Burberry London (Spain). Burberry Blue and Burberry
Black labels are sold exclusively in Japan, as well as Scotch House and a locally
sourced Burberry London line (see Figure 54 for details of Burberry lines and
positioning).
The Burberry London (International) line has been key to the repositioning of the
Burberry brand, and we believe there is further scope to develop sales of this product
line, especially in Japan.
Currently, the Burberry London (International) line is hardly developed in Japan
compared with Burberry Blue and Burberry Black labels, Burberry London (Japan) and
Scotch House. After the expiration of the international Burberry London (International)
licence in June 2005, Burberry will have the flexibility to freely develop this line in Japan.
We believe this represents a substantial opportunity in terms of top-line growth,
especially with the development of Burberry London (International) accessories.
In order to avoid confusion between the Burberry London (International) and Burberry
London (Japan) lines, we illustrate in Figure 37 their characteristics and positioning.
28

29. Burberry Group
3 March 2004
Figure 37: Characteristics and positioning of Burberry London (International) and Burberry
London (Japan) lines
Burberry London (International) line
Burberry London (Japan) line
- Core collection
- Sold only in Japan and made locally
- High-end positioning
- High quality apparel but lower positioning than
Burberry London (International) line (lower price
point)
- Key to the turnaround of the Burberry brand
-Strong womenwear and accessories segments
-Main markets currently are in Europe and the US
- Products mainly sourced in Europe and the UK
- Weaker accessories mainly due to licenses
held by small local manufacturers
Source: Company data, CSFB research
A summary of the main implications of the relevant Japanese licensing agreement is
shown below, in Figure 38.
Figure 38: Summary presentation of relevant Japanese licensing agreements
Burberry London (International) line
Burberry London (Japan) line
- Mitsui and Sanyo have an exclusive
agreement to distribute the Burberry London
(International) products in Japan.
- Mitsui and Sanyo have the right to design,
market and distribute Burberry London (Japan)
products until 2020.
- These distribution arrangements expire in
June 2005.
- 16 licensees in Japan produce accessories for
the local Burberry London (Japan) line. These
arrangements expire in June 2005.
After June 2005, Burberry effectively has “carte blanche” to
develop the Burberry London (International) line in Japan.
Development of accessories will be facilitated by expiration
of licensing agreements on accessories of Burberry London
(Japan) line.
Source: Company data, CSFB research
In Japan, Mitsui & Co. and Sanyo Shokai have the exclusive right to sell the Burberry
London (International) products until June 2005. They also have the licence to sell the
locally sourced Burberry London (Japan) products until 2020, as part of the Japanese
licensing agreement, which also includes Burberry Blue and Burberry Black labels. Also,
a group of other licensees in Japan has the right to produce the accessories range of
the Burberry London (Japan) line. Mitsui and Sanyo assist Burberry in monitoring and
managing these licensees; these arrangements terminate in June 2005.
Taking these elements into consideration, we believe that when Burberry will have the
opportunity to freely develop the Burberry London (International) line in Japan, after
June 2005, the company will focus initially on the accessories segment. In our view, the
development of accessories of the Burberry London (International) line would be
facilitated by the termination of licensing agreements on accessories of the Burberry
London (Japan) line.
29

30. Burberry Group
3 March 2004
In our view, the opportunity to develop Burberry London (International) accessories in
Japan after June 2005 is compelling.
1) Currently, sales of accessories in Japan are limited. According to Burberry
management, the locally sourced Burberry London line is made of high-quality apparel,
but accessories are weaker, mainly because they are not manufactured by Mitsui & Co.
and Sanyo Shokai but by smaller local players.
2) Over the last few years, Burberry has substantially developed accessories sales in
Europe and the US, which in our view provides the company with valuable experience in
this segment.
3) Through the Japanese licensing agreements, Burberry benefits from Mitsui’s
capabilities in supply-chain management and logistics and Sanyo’s abilities to design,
produce and distribute Burberry’s apparel. In our view, these long-lasting relationships
are key to the success of the Burberry brand in Japan. As mentioned above, it is a
group of smaller licensees that produces accessories for the Burberry London (Japan)
line. Therefore, the initial focus on accessories within the Burberry London
(International) line should allow Burberry to not directly compete with its two main
licensees and therefore should not have an adverse impact on Burberry’s relationships
with Mitsui and Sanyo.
4) Accessories generally have higher gross margin relative to apparel partly because of
the higher proportion of continuity products and lack of size differences (except for
shoes).
5) The higher proportion of continuity products and lack of size differences (except for
shoes) referred to in point 4 should also facilitate adaptation to the local market. Apparel
products require cutting and sizing adjustments, which is not the case for accessories.
In addition, we believe the greater proportion of continuity products could facilitate
logistics aspects.
6) Accessories have a wide range of price points, which should provide accessible entry
points to the Burberry brand.
In the longer term, we would expect Burberry to continue to develop other product
ranges within the Burberry London (International) line in Japan. Capture of a greater
share of the product value chain in Japan represents a great opportunity with substantial
upside potential, in our view. However, we believe it is fair to point out that development
of Burberry London (International) line is not without risk and challenges. In order to
achieve successful roll-out of accessories in Japan, Burberry might need to first
establish the premium positioning of the Burberry London (International) line in Japan,
as distinct from the lower positioned Burberry London (Japan) line. Also, Burberry will
have to continue managing its licensing relationships with Mitsui and Sanyo on the other
product lines.
30

31. Burberry Group
3 March 2004
Profitability estimates and drivers
Going forward, we estimate that Burberry should be able to further improve its EBITA
margins by 121bps by March 2006 (see Figure 39 for details). This is broadly consistent
with management guidance. For the 'Wholesale and Retail' segment, we believe
changes in business mix, retail presence, pricing and supply-chain management should
drive EBITA margins up. On the 'licence' segment, we believe that the EBITA margin
will benefit until March 2005E from the last scheduled increases in fees payable by the
Japanese licensees (representing around £3m each year).
Figure 39: EBITA margins assumptions by class of business
Mar-00A
Wholesale & Retail
Licence
Total Burberry
Mar-01A
Mar-02A
Mar-03A
Mar-04E
Mar-05E
Mar-06E
-3.4%
81.5%
8.2%
7.6%
86.2%
16.1%
9.6%
89.0%
18.1%
12.1%
89.7%
19.7%
13.5%
88.5%
20.9%
13.8%
89.0%
21.3%
14.5%
89.0%
22.0%
Source: Company data, CSFB estimates
We believe that the main drivers of the reasonable improvement in profitability that we
expect at Burberry are the following:
- improved business mix;
- increased retail presence;
- price increases;
- supply-chain management; and
- increase in fees on Japanese licences.
Improved business mix
Development of
accessories
In our view, the development of the accessories segment will be an important factor
behind margin improvements in coming years. In fact, accessories generally have
higher gross margin due to the absence of size differences and the higher proportion of
continuity products. Handbags are the largest accessories product category for
Burberry, and cashmere scarves have historically been a core product. However, the
positive impact on profitability is slightly mitigated by the growing importance of shoes,
which require a wide assortment of sizes and variations.
Increased retail presence
Burberry is guiding to sustained retail expansion over the coming three years. Figure 40
shows the split of Burberry sales by channel as of March 2003.
31

32. Burberry Group
3 March 2004
Figure 40: Turnover by channel (02/03A)
License
10%
Wholesale
52%
Retail
38%
Source: Company data
Retail channel effectively
captures the entire
mark-up on products as
opposed to wholesale
Figure 41 shows the growing importance of retail sales within Burberry.
This increased focus on retail should contribute to higher EBITA margins as sales
through the retail channel effectively capture the entire mark-up on products as opposed
to just the wholesale margin.
Figure 41: Progression of retail sales
£ in millions, unless otherwise stated
Mar-00A
Mar-01A
Mar-02A
Mar-03A
Mar-04E
Mar-05E
Mar-06E
99.1
44%
143.2
33%
44.5%
89.5%
156.9
31%
9.6%
16.7%
228.4
38%
45.6%
18.9%
262.7
39%
15.0%
13.0%
288.9
39%
10.0%
9.1%
314.9
40%
9.0%
8.8%
Retail Sales
Retail Sales as a % of turnover
Retail Sales Growth YOY
Burberry Total Sales Growth YOY
Source: Company data, CSFB estimates
Price increases
Company policy is to pass the adverse impact of exchange rates on to customers.
Management stated that for the Spring 2003/04 collection, dollar-denominated retail
prices would increase by about 3%. As regards next fall’s collection, dollar-denominated
retail prices should increase by 3–4%. Although these increases are lower than those
announced by other luxury goods companies, including LVMH, an important factor to
take into account is that Burberry has lower transactional exchange exposure than other
European luxury goods companies and therefore does not need to make up as much
revenue in times of adverse exchange-rate movements.
32

33. Burberry Group
3 March 2004
Supply-chain management
Burberry also has purchasing power with its third-party suppliers; especially when
increasing the size of an order, the company has room for negotiating lower prices. As
well, we believe there is value to be extracted from inventory management, but this will
take time and we currently assume that inventories grow in line with sales, i.e. inventory
turns remain constant.
Increase in fees on Japanese licensing agreements
The Japanese licensing agreement with Sanyo Shokai and Mitsui & Co was
renegotiated in late 2000 and runs until 2010, with a ten-year renewal clause based on
volumes. The final increase in royalty fees (before 2010) is due to take place in January
2005 and will represent £3m. From then on, there will be no increases until at least
2010.
33

34. Burberry Group
3 March 2004
Invested capital movements
Going forward, we maintain working capital turns constant, assuming working capital
grows in line with sales in accordance with Burberry’s guidance. We also grow capex in
line with sales so that there effectively is enough capital to pay for top-line growth. See
Figure 42 for more details.
Figure 42: Average IC and turnover growth
600
140%
100%
400
60%
200
20%
0
-20%
Mar-00
Mar-01
Mar-02
Average IC
Source: Company data, CSFB estimates
34
Mar-03
Mar-04E
Turnover Growth
Mar-05E
Mar-06E
Av. IC Growth

35. Burberry Group
3 March 2004
Valuation and catalysts for change
Discounted free-cash-flow analysis
In order to value Burberry, we have taken into account a discounted free-cash-flow
model. We also show in this section a comparison with multiples of industry peers and
the results of our analysis under the CSFB HOLT valuation framework.
Discounted free-cash-flow valuation
In order to assess the impact of Burberry's future value creation in our valuation, we
have used a discounted free-cash-flow model to convert future free cash flows into an
equivalent share price. Figure 43 sets out our detailed projections for Burberry, which
take into account only the development of the existing business and not possible future
acquisitions.
Figure 43: Summary of DCF assumptions
Mar-04E
13.0%
Mar-05E
9.1%
Mar-06E
8.8%
Mar-07E
7.0%
Mar-08E
7.0%
Mar-09E
7.0%
Mar-10E
7.0%
Mar-11E
7.0%
Mar-12E
7.0%
Mar-13E
7.0%
20.9%
14.0%
21.3%
14.3%
22.0%
14.7%
22.0%
14.7%
22.0%
14.7%
22.0%
14.7%
22.0%
14.7%
22.0%
14.7%
22.0%
14.7%
22.0%
14.7%
Change in Working Capital (% of sales)
2.2%
1.5%
1.5%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
Capex (% of sales)
9.0%
9.0%
9.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
Cash tax rate (%)
33.0%
33.0%
33.0%
33.0%
33.0%
33.0%
33.0%
33.0%
33.0%
33.0%
Sales Growth (%)
EBITA Margin (%)
NOPAT Margin (%)
Competitive Advantage Period
Terminal growth rate (%)
WACC (%)
Cost of debt (%)
Cost of equity (%)
Debt (as a % of debt + equity)
10 years
0
7.6%
3.5
7.6
0
Source: CSFB estimates
In our discounted cash-flow model, the value per share with reference to any one year is
equal to the present value of cumulative cash flows to that point, plus a terminal value
based on the following year’s NOPAT (discounted at WACC) with no growth in
perpetuity.
We have set our fair value
against a ten-year
competitive advantage
period
The horizon that any particular investor will wish to look at depends upon the
assessment of long-term growth prospects for the company and/or perceived risk. The
CAP might reasonably be extended where a company has a superior business model
and/or there are significant barriers to entry such that supernormal growth and superior
returns on invested capital might be maintained in the longer term.
In the case of Burberry, we have taken the assumption of a ten-year CAP, in line with
the rest of the luxury goods sector.
Fair value of 391.9p,
based on our DCF, using
effective tax rates
Using the company’s real tax rate, our DCF model leads to a fair value of 391.9p per
share, on the basis of a CAP of ten years and no growth thereafter (Figure 44). Using
the company’s effective tax rate (currently 33%) is the best approach, in our view, as it
is sustainable and more conservative.
35

36. Burberry Group
We estimate a fair value of
412.4p, using a standard
tax rate of 30%
3 March 2004
For reasons of consistency and better comparability across the sector, we have also
taken into account a standardised 30% tax approach in our valuation process. On this
basis, our DCF model leads to a fair value of 412.4p per share on the basis of a CAP of
ten years and no growth thereafter (Figure 44).
Figure 44: DCF based on accounting tax rate and cash tax rate
Mar-04E
1
DCF based on accounting tax rate (33%)
Fair value per share
Current share price
% up/downside
DCF based on standard tax rate (30%)
Fair value per share
Current share price
% up/downside
Mar-05E
2
Mar-06E
3
Mar-07E
4
Mar-08E
5
Mar-09E
6
Mar-10E
7
Mar-11E
8
Mar-12E
9
Mar-13E
10
294.8 p
316.7 p
325.7 p
336.8 p
347.9 p
358.8 p
369.7 p
380.6 p
391.4 p
391.9 p
-18.3%
-12.3%
-9.8%
-6.7%
-3.6%
-0.6%
2.4%
5.4%
8.4%
8.6%
307.8 p
331.1 p
341.0 p
352.9 p
364.7 p
376.5 p
388.2 p
399.9 p
411.5 p
412.4 p
-14.7%
-8.3%
-5.5%
-2.2%
1.0%
4.3%
7.5%
10.8%
14.0%
14.2%
Source: CSFB estimates
Alternatively, at the current price of 351p per share and based on our projections and
the company's accounting tax rate, the market-implied competitive advantage period is
six years.
Figure 45 shows the detail of our DCF model based on Burberry's accounting tax rate.
36

37. Burberry Group
3 March 2004
®
Figure 45: Burberry: EVA /DCF valuation
£ in millions, unless otherwise stated
Mar-04E
1
Net Sales
Growth
Operating costs
Op cost %
Depreciation
Depn %
EBITA
EBITA margin
Taxes on EBITA
Cash tax rate
NOPAT
Depreciation
Gross Cash Flow
Change in op. net working capital
Change in wc %
Capex - tangible and intangible
Capex %
Gross investments
Free Cash Flow
Discount rate (%)
Discounted FCF
Cumulative Free Cash Flow
Residual value (t+1)
PV of residual
PV of cumulative free cash flow
Net (Debt) Cash
PV of Equity
Outstanding shares
Value per share
Mar-05E
2
Mar-06E
3
Mar-07E
4
Mar-08E
5
Mar-09E
6
Mar-10E
7
Mar-11E
8
Mar-12E
9
Mar-13E
10
671
732
796
852
912
976
1,044
1,117
1,195
1,279
12.99%
508
75.81%
22
3.31%
140
20.88%
(46)
33.00%
94
22
116
(15)
2.2%
(60)
9.00%
(75)
41
1.00
41
41
9.08%
551
75.28%
25
3.41%
156
21.31%
(51)
33.00%
104
25
129
(11)
1.5%
(66)
9.00%
(77)
52
0.93
49
90
8.85%
592
74.38%
29
3.61%
175
22.01%
(58)
33.00%
117
29
146
(12)
1.5%
(72)
9.00%
(84)
62
0.86
54
144
7.00%
634
74.38%
31
3.61%
188
22.01%
(62)
33.00%
126
31
156
(17)
2.0%
(60)
7.00%
(77)
80
0.80
64
208
7.00%
678
74.38%
33
3.61%
201
22.01%
(66)
33.00%
134
33
167
(18)
2.0%
(64)
7.00%
(82)
85
0.75
64
271
7.00%
726
74.38%
35
3.61%
215
22.01%
(71)
33.00%
144
35
179
(20)
2.0%
(68)
7.00%
(88)
91
0.69
63
335
7.00%
776
74.38%
38
3.61%
230
22.01%
(76)
33.00%
154
38
192
(21)
2.0%
(73)
7.00%
(94)
98
0.64
63
397
7.00%
831
74.38%
40
3.61%
246
22.01%
(81)
33.00%
165
40
205
(22)
2.0%
(78)
7.00%
(101)
105
0.60
63
460
7.00%
889
74.38%
43
3.61%
263
22.01%
(87)
33.00%
176
43
219
(24)
2.0%
(84)
7.00%
(108)
112
0.56
62
522
7.00%
951
74.38%
46
3.61%
281
22.01%
(93)
33.00%
189
46
235
(26)
2.0%
(90)
7.00%
(115)
120
0.52
62
584
1,374
1,374
41
74
1,490
1,545
1,436
90
74
1,600
1,653
1,428
144
74
1,646
1,769
1,420
208
74
1,702
1,893
1,412
271
74
1,758
2,025
1,404
335
74
1,813
2,167
1,396
397
74
1,868
2,319
1,389
460
74
1,923
2,481
1,381
522
74
1,978
2,556
1,322
584
74
1,980
505.3
294.8 p
505.3
316.7 p
505.3
325.7 p
505.3
336.8 p
505.3
347.9 p
505.3
358.8 p
505.3
369.7 p
505.3
380.6 p
505.3
391.4 p
505.3
391.9 p
Source: CSFB estimates
37

38. Burberry Group
3 March 2004
Comparable valuation analysis
We believe Burberry competes with the following (non-exhaustive) list of brands:
Armani, Donna Karan, Ermenegildo Zegna, Gucci, Hugo Boss, Max Mara, Prada, Ralph
Lauren, etc. However, many of these brands are owned by private companies or are
part of bigger luxury groups.
For our comparable valuation analysis, we believe that in addition to the European
luxury goods companies, the valuations of European and US branded apparel
companies provide relevant points of comparison for Burberry.
Figure 46 shows that Burberry's valuation on a P/E multiple basis is lower than the
valuation of the luxury goods set. The luxury goods competitive set trades on a market
capitalisation weighted P/E of 29x for 2003E and 24.1x for 2004E. Burberry has a P/E of
19.3x for March 2004E (2003E) and 17.3x for March 2005E (2004E), which represents
a discount of 33% and 28%, respectively, compared with the Luxury goods set.
Also, Burberry’s P/E multiples appear lower than our relevant retail set (European
branded apparel). European branded apparel companies trade on a market
capitalisation weighted P/E of 23.8x for 2003E and 19.4x for 2004E.
We include the valuation of US branded apparel companies for illustrative purposes. US
branded apparel companies generally trade on lower P/E multiples. We believe the
company most comparable to Burberry is Polo Ralph Lauren, which trades on a March
2004E P/E of 18.6x and a March 2005E P/E of 14.0x.
Figure 46: Comparable valuation table
Ticker
Company
LFY
Current
Target Rating
Price
Price
351 p
400 p
BULG.MI Bulgari
GCCI.AS Gucci
HRMS.PA Hermès
LVMH.PA LVMH
CFR.VX Richemont (Luxury)
UHR.VX Swatch
European Luxury Goods
Dec-02
€ 7.3
Jan-03
€ 69.8
Dec-02
€ 164
Dec-02
€ 62.5
Mar-03 33.7 CHF
Dec-02 166.3 CHF
HMb.ST Hennes & Mauritz
BOSG_p.F Hugo Boss
ITX.MC Inditex
European branded apparel
Nov-03 201.5 SKr
Dec-02
€ 18.7
Jan-03
€ 17.9
JNY
Jones Apparel
LIZ
Liz Claiborne
RL
Polo Ralph Lauren
TOM
Tommy Hilfiger
US branded apparel
Dec-03
Dec-03
Mar-03
Mar-03
BRBY.L
Burberry
Mar-03
$ 37.7
$ 37
$ 33.5
$ 16.2
2004E PE
PE
2002
2003E
2004E
at Tgt Price
O
24.0
19.3
17.3
19.8
€ 6.3
€ 73.2
€ 145
€ 62.5
24 CHF
185 CHF
U
N
N
O
U
O
25.0
21.6
27.3
37.4
23.6
19.3
30.0
26.1
27.8
29.7
28.1
37.2
19.8
29.0
23.6
22.6
26.7
22.8
30.6
16.8
24.1
20.3
23.8
23.6
22.8
21.8
18.7
22.3
160 SKr
€ 17.6
€ 17
U
N
N
26.1
17.7
24.6
25.2
23.7
16.2
25.0
23.9
20.2
14.4
18.7
19.4
16.1
13.5
17.8
16.6
39 $
39 $
na
21 $
N
N
O
O
15.2
14.5
18.1
11.6
15.0
13.7
13.4
18.6
11.1
14.0
12.3
12.1
13.9
12.4
12.5
12.8
12.8
15.4
16.2
13.6
Source: Company data, CSFB estimates. Note: Share prices are as of 2 March 2004.
38

39. Burberry Group
3 March 2004
Share-price performance
Burberry was listed on the London Stock Exchange on 18 July 2002 with an initial offer
price of 230p. Since then, Burberry’s share price has risen by approximately 52%,
outperforming the FTSE All Share by 45.2% and our CSFB Luxury Goods Narrow index
by 25%. However, over recent months, Burberry’s share-price momentum has slowed.
Since 20 November 2003, Burberry has underperformed the FTSE all shares by 12.8%
and our Luxury Goods Narrow index by approximately 10%.
Burberry reported its H1 results to September 2003 on 18 November and on 19
November, GUS announced its intention to place about 11% of its stake in Burberry,
taking its shareholding down to around 66%.
Figure 47: Burberry share-price performance
3/3/04
450
400
350
300
250
200
150
100
J
A
S
Burber ry Gr oup
O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
Burber ry Gr oup rel at e to Lux ury Goods Nar r ow Index
iv
Sour c e: DATASTREAM
Source: Datastream
39

40. Burberry Group
3 March 2004
CSFB HOLT valuation
The basic concept of the CSFB HOLT approach is to get to the underlying cash returns
of a business and to minimize the impact of different accounting practices. One of the
central pieces in the CSFB HOLT framework is the cash flow return on investment, or
®
®
CFROI . To calculate CFROI CSFB HOLT takes the historical gross investment (the
cash invested in the business) and inflation-adjusts it to bring it into line with current
prices. It then looks at the cash flows from these investments, again in current prices.
Finally it translates the ratio of gross cash flow to gross investment into an internal rate
of return by recognising the finite economic life of depreciating assets and the residual
life of non-depreciating assets, such as working capital and land. This internal rate of
return is directly comparable to a market-derived cost of capital also calculated by
CSFB HOLT.
We present a more detailed explanation of the CSFB HOLT methodology in Appendix 2
(pages 48–52).
We believe that the CSFB
HOLT default scenario is
not appropriate
The CSFB HOLT warranted price for Burberry is 316p based on consensus estimates, a
potential downside of approximately 10% from recent trading levels. We believe that the
CSFB HOLT default scenario is not appropriate for three main reasons.
1) Asset growth rates are overstated in forecast years. The CSFB HOLT methodology
assumes that the capital structure remains constant and that all of the free cash flow
generated by Burberry will be invested back in the company. Despite the opportunities
in Japan, this is unlikely, in our view.
®
2) CFROI s in the default scenario fade over the five-year forecast window. We believe
®
Burberry will increase its CFROI s over the coming years, mainly through increases in
EBITA margins (See Projections section on page 25).
3) We believe Burberry’s fade window should be extended from five to ten years to
reflect the value of the Burberry brand. Burberry today is a high-end apparel and
accessories business with core heritage products.
Market implies slightly
increasing CFROI® over
the ten-year window and
modest asset growth
Current market expectations from CSFB HOLT. To reach an approximate warranted
price of £3.52 (around which the stock has been trading recently), CSFB HOLT
®
methodology implies that CFROI will slightly increase from 14% at t+1 to 16% at t+10,
with a real asset growth rate fading from 7.5% to 4% over the ten-year forecast window.
We believe this represents conservative margin improvement assumptions, in line with
company guidance and modest asset growth rates, considering Burberry's retail
expansion plans.
40

41. Burberry Group
3 March 2004
Figure 48: Burberry Relative Wealth Chart at current price
Source: CSFB Holt
Our fair value of 400p
implies increased asset
growth rate under
CSFB HOLT
®
In order to reach our target price of 400p, we assume that CFROI s improve from
14.0% in t+1 to 16% in t+10 similarly to our ‘implied at market’ scenario described
above. However, we increase asset growth rate so as to take into account Burberry's
future growth opportunities, and especially what we see as the company’s ambitious
retail expansion plans.
41

42. Burberry Group
3 March 2004
Figure 49: Burberry Relative Wealth Chart at target price
Source: CSFB HOLT
Looking at the valuation matrix at target price illustrates that, assuming margins grow in
line with company guidance, an increase in warranted share-price depends on asset
growth (Figure 50).
Growth t+10
Figure 50: Burberry: CSFB HOLT Valuation Sensitivity Matrix at target price
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
12%
2.77
2.88
3.00
3.12
3.26
3.41
3.57
3.74
3.93
4.13
Source: CSFB HOLT
42
13%
2.96
3.08
3.21
3.35
3.50
3.67
3.84
4.03
4.24
4.46
14%
3.15
3.28
3.42
3.58
3.74
3.92
4.12
4.33
4.55
4.80
CFROI (t+10)
15%
3.34
3.48
3.64
3.81
3.99
4.18
4.40
4.62
4.87
5.14
16%
3.53
3.69
3.86
4.04
4.24
4.45
4.68
4.92
5.19
5.48
17%
3.72
3.89
4.08
4.27
4.48
4.71
4.96
5.23
5.51
5.82
18%
3.92
4.10
4.30
4.51
4.74
4.98
5.25
5.53
5.84
6.16
19%
4.12
4.31
4.52
4.75
4.99
5.25
5.53
5.84
6.16
6.51

43. Burberry Group
3 March 2004
Catalysts for change
Following on from our strategic and financial analysis, we believe the determinant factor
likely to positively affect the valuation of Burberry will be the actions taken with regard to
Japan. In the year ending March 2003, sales at retail value exceeded £1bn in the
Japanese market but represented less than 10% of the company’s reported turnover.
The main licenses on this market will likely run until 2020, but the licence on the
Burberry London (International) line will expire in June 2005. The Burberry London
(International) line has been key to the successful repositioning of the Burberry brand in
Europe and the US, and we believe there is substantial scope to develop sales of this
product line in Japan, mainly through accessories.
In our view, other key positive catalysts for the stock include:
- development of retail square footage with a focus on increasing retail presence in the
US and non-Japan Asia;
- repositioning of men’s apparel segment;
- development of accessories; and
- in the medium term, we believe Burberry will have the opportunity to extract value from
improving its supply-chain management.
For further discussion on catalysts, please refer to the Projections section on page 25.
43

44. Burberry Group
3 March 2004
Figure 51: Burberry: Profit and loss account
£ in millions, unless otherwise stated
1999/2000
2002/2003
2003/2004E
2004/2005E
499.2
593.6
670.7
731.6
796.3
(223.1)
204.7
(248.1)
251.1
(261.3)
332.3
(295.1)
375.6
(321.9)
409.7
(350.4)
446.0
(87.1)
SG&A
Amortization of GW
Total Operating Profit
2001/2002
427.8
(120.1)
105.6
Cost of sales
Gross profit
2000/2001
225.7
Total turnover
2005/2006E
(160.8)
(4.9)
85.4
(215.6)
(6.4)
110.3
(235.6)
(6.4)
133.6
(253.8)
(6.4)
149.5
(270.7)
(6.4)
168.9
18.5
(136.0)
(3.6)
65.1
Non-operating/exceptionnal items
Profit on ordinary activities before interests
0.0
19
2.9
68
0.0
85
(22.0)
88
134
149
169
Interest income (expense), net
Other financial income (expense)
Financial income, net
Profit on ordinary activities before taxation
2.9
0.6
3.5
22.0
5.1
7.4
12.5
80.5
(0.5)
(0.1)
(0.6)
84.8
(1.0)
(2.2)
(3.2)
85.1
(3.2)
130.4
(3.2)
146.3
(3.2)
165.7
Income tax
Consolidated net income
(6.6)
15.4
(26.1)
54.4
(28.3)
56.5
(32.9)
52.2
(45.2)
85.3
(50.4)
95.9
(56.8)
108.9
3.1p
3.0p
3.1p
3.0p
3.0p
10.9p
10.7p
11.2p
11.1p
10.3p
11.3p
11.2p
12.3p
12.1p
11.2p
10.5p
10.3p
14.9p
14.6p
13.4p
17.2p
16.9p
18.5p
18.1p
16.9p
19.4p
19.0p
20.7p
20.2p
19.0p
22.0p
21.6p
23.3p
22.8p
21.6p
498.2
498.2
506.3
498.2
498.2
506.3
498.2
498.2
506.3
498.1
498.1
506.2
495.2
495.2
505.3
495.2
495.2
505.3
495.2
495.2
505.3
(18.3)
(18.3)
-
-
(219.0)
(15.0)
(234.0)
3.0p
3.5x
(16.5)
(16.5)
3.3p
5.2x
(18.2)
(18.2)
3.7p
5.3x
(20.0)
(20.0)
4.0p
5.5x
(2.9)
54.4
56.5
(181.8)
68.8
77.8
88.9
19
19
80
69
104
90
136
117
162
140
181
156
204
175
Earnings per share
Basic
Diluted
Basic - Adjusted
Diluted - Adjusted (CSFB EPS)
IBES Definition (Diluted, clean of exceptionals
only)
Number of shares:
Total shares outstanding (m)
Average shares outstanding (m)
Fully diluted shares (m)
Dividend
Dividend paid to GUS - pre-flotation
Dividend payable
Total dividend
Dividend per share
Dividend cover
Retained earnings
EBITDA
EBITA
Source: Company data, CSFB estimates
44

45. Burberry Group
3 March 2004
Figure 52: Burberry: Balance sheet
£ in millions, unless otherwise stated
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004E
2004/2005E
2005/2006E
Cash and cash equivalents
Inventories
Trade debtors
Prepayments and accrued income
Deferred tax assets
Other debtors
Trading balances owed by other GUS
Group companies
Other Current Assets
Total current assets
13.3
51.6
14.0
8.0
3.7
0.8
18.3
73.7
70.5
13.5
8.5
1.0
30.2
82.3
77.7
12.1
7.8
1.5
86.6
83.8
86.1
11.3
18.3
6.1
110.5
94.4
97.0
11.3
18.3
144.3
103.2
106.1
11.3
18.3
168.2
112.4
115.5
11.3
18.3
0.3
0.9
0.3
0.2
1.1
91.7
1.9
186.4
1.8
211.9
6.3
292.4
6.3
337.8
6.3
389.5
6.3
432.0
Net PP&E
Intangible assets
Investment
Total non-current assets
57.5
0.0
0.0
57.5
100.2
89.9
0.1
190.2
124.4
95.8
0.1
220.3
161.4
123.7
3.4
288.5
199.6
117.2
3.4
320.2
240.6
110.7
3.4
354.7
283.6
104.2
3.4
391.2
149.2
376.6
432.2
580.9
658.0
744.2
823.2
1.0
9.4
17.2
3.8
6.6
26.6
32.2
18.9
8.9
27.0
37.3
28.9
14.0
45.4
24.3
108.6
23.8
125.9
7.0
26.9
54.5
22.1
10.0
30.6
151.1
7.0
30.3
57.9
22.1
11.5
30.6
159.4
7.0
33.1
61.9
22.1
13.2
30.6
167.9
7.0
36.1
65.3
22.1
15.0
30.6
176.0
0.0
0.6
4.8
5.4
6.3
15.2
6.8
28.3
0.0
23.1
0.8
23.9
0.0
35.2
4.6
39.8
0.0
35.2
4.6
39.8
0.0
35.2
4.6
39.8
0.0
17.1
4.6
21.7
98.4
239.7
282.4
390.0
458.8
536.5
625.5
1.1
122.2
25.2
47.1
704.1
(509.7)
390.0
1.1
122.2
25.2
47.1
704.1
(440.9)
458.8
1.1
122.2
25.2
47.1
704.1
(363.2)
536.5
1.1
122.2
25.2
47.1
704.1
(274.2)
625.5
Total assets
Short-term debt
Trade payables
Accruals and deferred income
Corporation tax
Dividends payable
Other Current Liabilities
Total current liabilities
Long-term debt
Other non-current liabilities
Provisions for liabilities and charges
Total non-current liabilities
Net Assets
Called up share capital
Share premium account
Revaluation reserve
Capital Reserve
Other Reserve
Profit and Loss account
Total Shareholders' funds
98
45
282
98.4
Source: Company data, CSFB estimates
240
239.7
282.4