Good morning. Welcome to our preliminary results presentation for the year ended March 31st, 2013. Our '12-'13 financial performance has been strong in a challenging market. Revenue was up 8% to GBP 2 billion. Adjusted profit before tax up 14% to GBP 428 million, and we increased the dividend by 16% to GBP 0.29. This year, we've once again consistently delivered against our five key strategies, including the integration of beauty under leverage the franchise, continued investment in our retail store footprint, as well as the digital customer experience on and offline, and evolution of our China business, still an under-penetrated market. This performance is a great testament to the strength of the brand and the talented team behind it.
As you're aware, Stacey is leaving us in July. She has been a great partner to the business and to me personally, and we'd like to thank her for her dedication and her commitment over the last nine years. This morning, I'm also delighted that Carol Fairweather, our CFO Designate, will present the financial review. As you will have seen from this morning's separate announcement, Carol formally joins the Burberry board this July. Congratulations, Carol. Members of the team that have led the integration of beauty will update you on the current progress since April 1st and future growth opportunities in this, our newest and fifth product division. First, let me summarize the achievements of the financial year 2013.
As I stated, revenue growth this year was led by retail, up 12%, now at 75% of sales in the second half, compared to 50% five years ago. Wholesale and licensing were in line with guidance for the year, both broadly unchanged as we balance growth and continue brand legacy cleanup. Our brand momentum remains strong with record engagement through traditional and social media, further innovation around our runway shows, investment in iconic out-of-home advertising, especially in key airports and flagship markets, while bringing Art of the Trench, our social platform, to life to support our flagship launches. In September, we introduced the concept of Burberry World Live with the opening of our Regent Street flagship.
This environment blurs the physical and the digital for the first time, bringing all aspects of our website to life, including the first physical introduction of Burberry Bespoke, allowing the customization of an iconic trench coat, to Burberry Acoustic, hosting live performances by British bands while testing and refining retail disciplines and services. Turning to retail, we're pleased with our performance. Up against a historic year of double-digit comps in '12-'13, we saw comp sales growth of 5% on average, ranging from 1% in Q2 to 8% in Q4. Mainline store traffic was soft globally, while online traffic grew significantly, reflecting the evolving consumer shopping behavior.
In an uneven trading environment, our teams focused on optimizing conversions via the aggressive rollout of our Burberry private client services, which we talked about last year, an expanded and richer consumer engagement both on and offline, along with compelling festive assortments, all supported by higher average transaction values as consumer preference continued to lean towards Prorsum and Burberry London. In line with our retail-led growth strategy, 2012-2013 was another year of strong space growth, adding 13% on top of 14% in 2012. This investment was clustered in flagship markets and more biased towards larger format stores than in previous years. These stores enable a full representation of the brand, more in tune with what consumers see online. This connectivity is critical as consumer buying preferences continue to shift, and Burberry is in an excellent position to capitalize on this trend.
Servicing customers across countries, formats, and devices is a key part of our retail-led growth strategy. As we look forward to 2013-2014, there's no change in our real estate expansion strategy. We plan to open about 25 mainline stores focused in flagship markets and high-potential markets such as China, Latin America, and the Middle East. We will continue to close and relocate smaller stores as appropriate. Looking out three years, we still continue to expect net new space to contribute a mid-single-digit percentage to retail revenue growth on average each year. Still testing every project against our internal 25% IRR hurdle rate. Wholesale was up 1% underlying, and performance was balanced with growth from North America, Asia travel retail, and emerging markets, offset by weak domestic demand in Europe and the continued impact of our own actions, be it opening price point product or specialty account rationalization.
We felt it was worth reminding you of how the wholesale business has evolved. Americas has grown, driven by U.S. department stores. Asia-Pacific has been driven by travel retail. Rest of the world expanded through our franchises. While we have, through our own actions, scaled back other activities, whether converting to retail or exiting the local collection in Spain. Today, we're much more balanced in wholesale, which will always form a part of our route to market, especially with the integration of the new beauty business. While customers globally are currently buying cautiously, and we're still gradually rationalizing accounts, we now have a healthier exposure to growth markets. Licensing revenue for this year declined 1% as guided with continued non-renewals in Japan, offset by double-digit growth in the product licenses.
As you'll hear shortly, innovation is key in these licensed products, this slide shows some recent launches realigning our licensed products more closely to the brand's luxury fashion positioning, from Body Tender to The Britain watch and Aviator in Splash sunglasses. With the advertising and marketing campaigns always featuring core outerwear. Now a quick word on Japan, which is still the third-largest luxury market in the world behind the U.S. and China. Japan last year was just over 60% of our licensing revenue. As you're aware, the apparel license expires in June 2015, enabling us to remove the more premium position licensed product from Japan and start to more aggressively import and sell our global luxury apparel and accessory collections. Although this transition is still two years away, it is top of mind for management, and we look to offset the lost royalty income.
Some of this will come from within Japan, where our small retail and digital operations we have selling the global collection is performing well. We're also confident that there's other parts of the core business, particularly beauty, that can drive above-average long-term growth. We look very forward to outlining our plans for you next May. By region, Asia Pacific and the rest of the world led the way with double-digit revenue growth, with Europe and the Americas delivering mid-single-digit growth. In retail, China, Hong Kong, and India were strong. France and Germany remained robust, while Italy and Korea were weak. Given the importance of the Chinese consumer, we continue to focus on understanding and engaging with these high-growth customers. We continue to evolve the retail portfolio, both on and offline, from 50 stores in 30 cities at the time of acquisition to 69 stores in 35 cities today.
We have already closed 15 of the smaller, less brand-enhancing stores we acquired with more planned over time. We're opening larger stores with more appropriate adjacencies, such as the first three new stores in Shanghai. Our presence online is beginning to resonate, with Chinese traffic up 70% last year. We've also undertaken proprietary consumer research to better understand the influences and preferences of this new first-generation luxury customer, as well as the more established core and ultra-high net worth luxury customers. We see opportunities to refine our assortments, extending product sizing and fit, especially in men's apparel, where huge growth opportunities exist. In accessories, including men's and our new watch collection, and in beauty by adding local colors and products. We must continue to invest in training and service, especially Burberry private client teams, and leverage our in-store technology investments such as iPads and retail theater screens.
We're now offering customer service support on Sina Weibo, the Chinese equivalent of Twitter. The Burberry brand has been in China for 20 years, so we're simply re-educating today's luxury consumers about the modern Burberry brand, strengthening our digital presence in line with other large markets and creating bespoke content across multiple platforms for major festive periods like Chinese New Year. Turning to our performance by product division, where the portfolio continues to be very balanced. There was solid growth in core outerwear, especially children's, due to the recent campaign. Women's, our biggest apparel division, still saw great growth. Men's, once again, our strongest performing division, is on a historic small base. Tailoring is now in 70 stores globally and nearly doubled online. The first dedicated trial menswear store opened in Knightsbridge in London.
We've increased focus on advertising and men's marketing, we're thrilled to be bringing the menswear show back to London next month. In ladies' large leather goods, the core of accessories, we've been rebalancing our assortments between core iconic products and the new fashion leather groups. Ahead of industry trends and driven by innovation in fabric and shape, as shown on this slide, much as we do in outerwear and our other core categories. In conclusion, the Burberry team has achieved another record year enabled by consistent communication, collaboration to unite and inspire our highly connected culture, always underpinned by our five key strategies. Before I hand over to Carol, let me play for you our highlights video showing all that this team has accomplished in just the last six months.
Ma, it's another pale gray, Ma. The siren of an ambulance comes howling right through the center of town and no one blinks an eye. I look up to the sky for the path of a lightning bolt. Met her at the angel's party for her. She only brought me torture. That's what happens when you do the devil in the path of a lightning bolt. Everyone I see just walks the walk with gritted teeth. I just stand by, and I wait my time. They say you gotta toe the line. They want the water, not the wine. When I see the signs, I'll jump on that lightning bolt. The chances, people tell you not to take chances. Gonna tell you that there aren't any answers. I was starting to agree. I woke suddenly in the path of a lightning bolt.
Everyone I see just walks the walk with gritted teeth. I just stand by, and I wait my time. They say you gotta toe the line. They want the water, not the wine. When I see the signs, I'll jump on that lightning bolt. The chances, people tell you not to take chances. Gonna tell you that there aren't any answers. I was starting to agree. I woke suddenly in the path of a lightning bolt. Fortune, people talking all about fortune. Do you make it, or does it just call you? In the blinking of an eye, just another passerby in the path of a lightning bolt. Everyone I see just walks the walk with gritted teeth. I just stand by, and I wait my time. They say you gotta toe the line. They want the water, not the wine.
When I see the signs, I'll jump on that lightning bolt. The chances, people tell you not to take chances. Gonna tell you that there aren't any answers. I was starting to agree. I woke suddenly in the path of a lightning bolt. Fortune, people talking all about fortune. Do you make it, or does it just call you? In the blinking of an eye, just another passerby in the path of a lightning bolt. Everyone I see just walks the walk with gritted teeth. I just stand by, and I wait my time. They say you gotta toe the line. They want the water, not the wine. When I see the signs, I'll jump on that lightning bolt. In the silence, I was lying back gazing skyward when the moment got shattered.
I remember what you said. She fled in the path of a lightning bolt.
Good morning. It gives me great pleasure to present the financial results for 2012-13. As Angela referenced, the headline numbers were strong, with revenue up 8% and adjusted PBT and EPS up 14%. We generated over GBP 500 million worth of cash from operations, funding investment of around GBP 320 million, and we have declared a 16% increase in the full-year dividend, returning about GBP 130 million worth of cash to shareholders. We grew adjusted operating profit by 14%, with almost all of the increase coming from retail wholesale, where profit was up 17% on sales growth of 8%. Our retail wholesale margin reached 17.8% compared to 16.4% in the prior year, this 140 basis point increase does require some explanation. It is important to note that around 70 basis points of this improvement came from a GBP 12 million benefit from a lower performance-related pay charge.
Without this benefit, the operating margin would have been 17.1%, up 70 basis points from last year. In the current financial year, our aim is to modestly increase the retail wholesale margin from this normalized 17.1% base. Turning now to gross margin, which was up 250 basis points to 70.6%, with a stronger-than-expected performance in the second half. The key drivers for the year were higher average unit selling prices from mixed and modest underlying price increases, continued FX benefits from sourcing, especially from the euro, where we source the majority of our products, and the ongoing mix shift to retail. In the second half, with less benefit from FX, our gross margin was helped by stronger retail sales compared to the first half and the continuing benefit from improved inventory management processes.
We procured less at the start of the season, which contributed to an improvement in full price sales compared to the prior year. We further refined the global brand buy, which ensured greater consistency across the retail channel, driving revenue growth and increased inventory efficiency, where rationalizing the size of the assortment enabled us to buy key products in key colors in greater depth, driving margin. Having delivered significant improvement in the gross margin over the last two years, the rate of progress will now naturally start to moderate in the coming years. Operating expenses increased by GBP 94 million, or 110 basis points, to 52.8% of revenue, or 53.5% excluding the benefit from the lower charge for performance-related pay. The key driver was the continuing shift to retail, with new space contributing over half the increase in GBP millions.
As the external environment remained challenging throughout the year, we tightly controlled discretionary spend in both the regions and at corporate. For example, spend in the three largest functions, marketing, IT, and product and design, fell as a percentage of sales. This allowed us to continue to invest for future growth in areas including digital, mobile, and customer insight. On licensing, we delivered GBP 92.5 million worth of operating profit, up 3% on revenue of GBP 109 million. Note that of the GBP 109 million of revenue, GBP 27 million was royalty income from the fragrance and beauty license with Inter Parfums, which of course will not continue this year. Excluding this, we have guided to slightly positive growth at constant exchange rates in the current financial year. Turning now to the income statement.
I would highlight a net finance charge of GBP 0.3 million, with facility fees offsetting the low interest income on our cash balance. For the current year, we would expect the interest charge to be broadly neutral. Consistent with what we told you at the interim, the exceptional item of GBP 77 million is composed of a number of moving parts, including GBP 83 million from the termination of the license relationship, of which GBP 71 million relates to the termination payment itself, plus an additional GBP 9 million of setup costs and GBP 3 million of other costs that we have incurred in this year that will not repeat going forward. Secondly, the valuation of the China put option liability has resulted in a non-cash credit for the year of GBP 5 million. The tax charge is GBP 92 million, and the tax rate on adjusted PBT is 25.8%.
We anticipate that the tax rate will be around 25% in 2013-14, reflecting the lower U.K. tax rate, where we pay a significant amount of our taxes. Finally, the non-controlling interest of GBP 4.9 million represents our partners' share of income, with the impact of profits in China and the Middle East balanced by losses in some of our under-penetrated markets such as India and the Japanese retail business. As part of our preparation for the transition in Japan in 2015, we have effectively taken full ownership of our small retail business there, which will adversely impact the non-controlling interest number in 2013-14. As you can see from this slide, Burberry is a strong cash generator, with cash flow from operations exceeding GBP 2 billion over the last five years, and more than 100% of operating profit converting into operating cash flow in each of these years.
This has enabled us to invest significantly in growth opportunities, be it retail expansion or refurbishment, in in-house acquisitions such as China, and this year, the one-off payment for terminating the fragrance and beauty license relationship. It is worth reiterating here what Angela has said, that each individual CapEx project is always tested against our 25% IRR hurdle rate. Over the same period, we have paid nearly GBP 400 million worth of dividends to shareholders. Going into the detail of the cash flow statement, we generated GBP 523 million worth of cash from operations, up 8% on the prior year. Depreciation rose to GBP 111 million, and we anticipate that it will increase to roughly GBP 140 million in FY 2013-14. We saw a net working capital outflow over the year of GBP 54 million.
Inventory was tightly controlled, demonstrating the payback from our investment in planning teams and processes. Excluding a GBP 9 million increase for beauty, inventories were up only 7% at constant exchange rates against retail sales up 12%. In 2013-14, we would expect inventory, excluding beauty, to grow at a lesser rate than sales once again. Translating that operating cash flow to net cash, our largest cash outflow was GBP 321 million of investment, including GBP 176 million of capital expenditure and GBP 144 million for the termination of the fragrance and beauty license. With tax, dividends, and ESOP trust purchases totaling GBP 259 million, we finished the year with net cash of GBP 297 million. This year, capital expenditure is planned at around GBP 200 million.
Remember that this number includes some spend for stores that will open next year, as well as refurbishment spend, so is never a direct function of space growth. As you can see from the chart, the majority of spend is again going to retail, with slightly less emphasis this year on flagship markets, reflecting the timing on these larger projects. IT and other spend also increases in areas such as digital and mobile, and we are expanding our Horseferry Road headquarters. This space is needed as the business has grown nearly threefold since we committed to this building in 2006. Looking forward, as you build your models for 2014, let me remind you about the impact of the transition year for beauty, which is unchanged from what Stacey said in November.
At this very early stage, we still expect beauty to add about GBP 140 million to wholesale revenue and to be neutral to adjusted PBT with about GBP 25 million worth of retail wholesale operating profit, offsetting a similar loss of royalty income. Clearly, as we directly operate beauty, we will continue to refine our plans and update guidance accordingly. Secondly, the slide in your pack summarizes our normal guidance. The team remains focused on driving growth and profitability each year, although as the business model evolves, the phasing of profits is changing. Please note our current expectation that half year adjusted profit for this year is currently expected to be below last year's GBP 173 million. There are four key factors which explain this. Firstly, revenue, which continues to be weighted to the second half.
Secondly, wholesale excluding beauty, which is expected to be down 10% in the first half as we guided in April. Thirdly, beauty, which is expected to be dilutive in H1 as the profit from direct operations is currently expected not to fully offset the lost royalty income in the first half. Finally, H1 last year benefited from a lower performance-related pay charge of about GBP 15 million, as we disclosed in November. For the financial year 2014, as Angela said in her quote this morning, while we do expect the macro environment to remain uncertain, we see significant opportunities for the brand and the business, aiming to outperform on revenue growth while modestly improving the retail wholesale margin in the full year from the 17.1% normalized level in 2012, 2013. Thank you for your attention, and I would now like to hand you back to Angela.
Thanks, Carol. Now it gives me great pleasure to introduce some of the team who've been responsible for the successful integration of Beauty, our fifth product division, which includes both fragrance and makeup to start. Having established a team of 90 functional experts from within Burberry and externally, we believe that Beauty will be a key contributor to our future growth as the brand is so under-penetrated in this category compared to our peers, and direct ownership will enable opportunities to be pursued more rapidly. This morning, Alessandro Fabbrini, our Senior Vice President of Licensing, who joined us three years ago from a luxury brand and an FMCG background, will remind you of the size of the opportunity and describe how we're working with our current distributors.
Simona Cattaneo, who joined us from Dior in November as the Senior Vice President of Beauty, will talk through the innovative product strategies. Roberto Canevari, who joined us in September as Chief Supply Chain Officer for the group, will summarize how he and his team have rebuilt a complex infrastructure for Beauty in just six months. Let me now hand over to Alessandro.
Thank you, Angela, and good morning to everybody. Today, I am very pleased to share with you the market opportunities, how we build the Beauty team, and the work that we are doing with our distribution partner. Let me first start with the market opportunities. The premium beauty market, which includes fragrance, makeup, and skincare, it is sized at approximately $100 billion. This premium end, the one in which we play, is expected to continue to outperform us. More specifically, the fragrance market shown in this slide, it is fairly concentrated in few territories. USA and Europe accounts for more than 60% of the total market, and our opportunity here is to grow share.
It is also worth highlighting the faster-growing markets such as China, where the premium beauty industry has doubled over the last five years and is expected to double again in the next five years, according to Euromonitor. As Angela outlined in November, Beauty is also the most widely encountered projection of our brand. It is our opening price point sold through thousands of point of sales. It appeal to younger, more digitally savvy customer, and it represents over a third of our global media spend. The direct ownership will allow greater alignment and synergies across the Burberry businesses, as you will hear this morning. Let us now move to the Beauty team. As you know, to make the transition from Inter Parfums fast and smooth, we had to step into their shoes, effectively working with the same supplier and the same distributors they had in the past.
We now have a team of around 90 people in Beauty. We have recruited exceptional talent who come with great skills and experience from leading beauty company. More specifically, we fill around a third opposition by reallocating internally people who had previous experience in beauty. We hire great talent from outside, from organizations such as Dior, P&G, and Chanel. Finally, we leverage our existing functional expertise in areas such as IT and HR. Of the third party shown in this slide, Roberto will talk about the supply chain related partners, but let me briefly talk about the distributors. Burberry Beauty is already sold in over 100 markets globally via a network of best-in-class distributor partner. While this is a large group, the business is quite concentrated, with 15 of these distributors accounting for over 50% of the total business last year.
In March, we signed a contract with Beauté Prestige International, part of Shiseido Group, to distribute our beauty products in selected regions. We want to build a strong partnership and establish excellent communications with our distributors. To do this, in February, we hosted our inaugural beauty conference where our distributor partners were invited to the autumn/winter Women's Prorsum Show in London. We have rolled out Burberry Chat, our internal social media-based communication platform, to all distributors. We have leveraged the power of our regional infrastructure, delegating them the responsibility for the relationship with the distributors to maximize growth and deliver synergy. Like for any other businesses we have integrated, we will continue to refine distribution strategy, focusing on brand enhancing channel in department stores and travel retail, and focusing on differentiation in retail and beauty.
A strategy that we believe will be particularly relevant to these products and this customer demographic. Let me now introduce Simona Cattaneo, who will outline the product strategy that will drive the growth. Thank you.
Thank you, Alessandro, good morning, everybody. Today, I'm delighted to share with you our vision and development strategy for the newborn beauty division. Essentially, the big idea is to catapult our brand into the worldwide top 10 of beauty brands. Why do we strongly believe we can achieve this? We are convinced that leveraging the best of beauty and the best of Burberry will assure us of a unique position and result in dynamic growth. Leveraging the best of beauty means building on our established positioning in fragrances worldwide, which is 95% of our revenues, and developing our distinctive offer in makeup with huge growth potential. On the Burberry side, what are the key strengths we can leverage to have a solid competitive advantage? I want to emphasize this point. The top 10 is made by established, solid, powerful companies.
To succeed, we need to be different and not only a follower me-too brand. In Burberry, we are different. Firstly, we are always one company, one brand. If we consider all the other fashion and beauty brands, the two are separate structures. On the contrary, Burberry Beauty will be fully integrated into our existing organization. Importantly, Christopher Bailey will be our creative lead, allowing us to power up innovation and innovative product. For beauty, innovation is everything. Our second strength is our broad consumer appeal in luxury fashion, where we are already the leading digital player. You would expect us to leverage this to target the millennial consumer as influencer across genders and generation. Our third competitive advantage is our authentic British heritage. Britishness is an integral part of all our strategies at Burberry.
Grounded by our heritage, yet constantly innovating, inspiring, disrupting, Burberry today is the leading British luxury brand globally. Tomorrow, it will be the most iconic British beauty brand. Let's move to what are the key strategies for beauty. As we have achieved with the fashion business, first of all, we want to establish ourselves as a true luxury beauty house. To accomplish this, the most powerful weapon will be using fashion to lead. Our recent fashion show is a great example. Please, let's share a short video.
Do you think of her when you're with me? Repeat the memories you made together. Whose face do you see? Do you wish I was a bit more like her? Am I too loud? I play the clown to cover up all these doubts. Perfect heart. She's flawless, she's the ultimate. Shining in her splendor, you were lost. Now she's gone, and I'm picking up the pieces. I watch you cry, but you don't see that I'm the one by your side. 'Cause she's gone
As you've just seen, makeup, although only a very small business currently for us, was integrated into one of our key brand moments in the autumn/winter 2014 runway show. The show revealed a new Burberry look, and the interactive beauty booth enabled backstage images to be shared with our 2 million Twitter followers, generating over 500,000 views in just over one hour. The images were among the best performing on Instagram. Our next beauty strategies focuses on continuous innovation, which is part of our DNA and essential to our success. Breakthrough products, disruptive communication tools, the digital model, and a unique selling experience will be our priorities. Finally, to be truly effective, we need to be focused on pillar products and stay agile to reduce time to market.
The first question customer ask when they come in the store is, "What's new?" Our plan is to run parallel to the fashion calendar and to create monthly stories to animate point of sales. Having outlined our three key beauty strategies, let me now focus on fragrance. Firstly, I would like to stress once again the importance of developing an innovative and distinctive positioning in fragrance. We really believe that the British fragrance house positioning is a unique and powerful statement. British perfumery has a fascinating history, a story that has never been told before. Very few people know, for instance, that under the reign of Queen Elizabeth I, all public places were scented, since she couldn't tolerate bad smells. That perfumery in England was first introduced through a barber shop in Jermyn Street.
Here, they created toilet waters of jasmine, orange blossom, and lavender, still key notes in the English perfumery. The British story is very different to the better-known French perfumery, which was built around opulence, classicism, Paris, and French art de vivre, the rich interiors, and the Oriental floral lavish scents. By contrast, the British perfumery evocation is dramatically different, with an eclectic mix of British heritage and sharp innovation, homegrown in tradition and eccentricity, and the natural herbal scent of the British countryside fused with a London attitude. We want to acquire true ownership of the British fragrance heritage and taking it a step forward by modernizing it and reinventing it in the Burberry way. Our second strategy for fragrance is the need to elevate the image of fragrance, which is especially important for then supporting the image of makeup.
This will be achieved by partnering with scent experts to develop a truly distinctive scent proposition, focusing on raw materials to play in the luxury arena, and creating a luxury stage to display our fragrances in an appropriate universe, whether it is a new or existing point of sale. Thirdly, we need to optimize our portfolio of fragrances. We showed you in November the range of product that exists in the current portfolio. To be effective, we will focus on our pillar fragrances, a strategy that is in line with our largest peers, where 90% of their business comes from the four or five key pillars that they support continuously. Which are the pillars that we need to support and drive? We want to mirror the positioning of our fashion pyramid. We want Brit to be the fundamental cornerstone and point of entry into the brand.
In any fragrance business, as I have explained, it's important to have an exciting program of new initiatives. In the early autumn, we will launch our new Brit fragrance for men, and we'll follow that with the women's launch in the following year. The London segment that is the most tailored designer expression of the brand is matched by Body, currently a women's only fragrance, but we have plans to launch a men's version. To match the elevated position of our perfume line, we will also launch a collection of very exclusive cologne to affirm our British position. We believe Body is the most powerful of our pillars and has the potential to get into the top 10 as our biggest feminine.
Launched in 2011, Body is our number 1 line in the portfolio and has a very intimate link with the star icon of the brand, the trench coat. As with any pillar, it does need to be continuously supported with the never-ending storytelling. This is just starting with the new Body Tender launch. Fresh, pink, and playful, Tender is a new, younger face of Body, and the first feedback is very positive. It's also the most Asian-friendly fragrance in our portfolio, and we will be launching Body Tender in China in September. I will now hand over to Roberto to highlight some of the amazing feats his team has achieved to establish the organization and supply chain for beauty. Thank you.
Thank you, Simona, and good morning to everybody. I am really delighted to be here today to describe how we have managed to effectively integrate a complex business into our Burberry supply chain in a matter of months. It is worth illustrating the scale and complexity of the operations we have integrated over this accelerated time frame, as while there are similarities with the fashion business in form of brand building, there are fundamental differences in terms of supply chain. The lead time for product development can be in excess of 18 months, meaning that at any one time, we have around 20 separate launches being developed. It is a complex component-based sourcing model with an intricate legal and regulatory landscape. For example, we have needed to re-register all existing products in many jurisdictions in which they are distributed today.
We need as well to synchronize launches to many thousands of point of sales to our distributors network. With the combination of fragrance and makeup and the very large portfolio of products in fragrance currently, we already have business that involves over 80 suppliers, over 500 finished goods SKUs, and over 1,500 components SKUs. This is a year of transition in which we need to take over the existing operations, while at the same time preparing for the ambitious program ahead of us. In order to execute the strategy that you have heard about from Simona and Alessandro, we need two things: organization and infrastructure. Firstly, I want to start with the people. The beauty supply chain team now consists of about 30 people.
About one-third of them have been recruited from outside, bringing functional expertise, while the balance has been reallocated from roles within Burberry to ensure Burberry knowledge and culture. It is a cosmopolitan team, as befits this global product category, with 10 nationalities represented, 11 different languages spoken, and a very high level of energy. As you heard, our approach to the integration process was to replicate the Inter Parfums operating model. Step 1 was to ensure the structure was in place well ahead of the handover on 1st of April. The transition required to establish a relationship with suppliers as a matter of priority, enabling us to start placing our first component orders early in December. From a systems standpoint, we are now managing all our supply chain operations in SAP.
From a logistics perspective, we have worked hard with our colleagues in IT to establish warehousing facilities in France, also fully integrated with our SAP. Our global hub, managed by a specialized logistics service provider, perfectly located as it is 30 minutes away from our main finished goods suppliers, where we produce more than 70% of our volumes. We are delighted to say that we took delivery of product into this facility ahead of the original schedule, and we have started to ship product to our distributors this season. Control of the existing business is not enough. From a product development perspective, we need to work hard to ensure continued progress with the pipeline of new product launches that Simona has talked to you about. How are we doing in this complex environment?
More than 20 million units of product placed, covering over six months of forecasted demand. Approximately 2 million units already live in our distribution network, and approximately 1 million liters of fragrance currently in production. As Simona has talked to you about, we are extremely proud of our most recent launch and the first product being produced by Burberry, Body Tender. We in supply chain have already produced over six months stock coverage. The machine is now built and running, and we believe it is scalable for the market opportunities Alessandro was referring to. Looking forward, this is no different from the rest of our supply chain operations. We need to ensure we are flexible, reducing our time to market. Ultimately, we aim to have the fastest supply chain in the market.
We need to continue to work with our partners upstream and downstream to enhance our supply chain execution, and we are already working on our fulfillment strategy to support our digital journey. We are delighted about the progress in integrating this business, and we are very excited about some of the product strategies that are planning for the coming years. Thank you for your attention, and let me hand you back to Angela.
Thank you very much, Alessandro, Simona, and Roberto. Prerequisite was you had to be Italian before you took a senior role in beauty. I'd also like to take this opportunity to thank the entire integration team for all of the amazing work that they've done, enabling us to now seize the significant opportunity we have in beauty going forward. In conclusion, we've completed another strong year, particularly in retail. The team is closely connected and working to unlock the growth potential in beauty, men's, and retail, both on and offline. We're planning on the basis that the macroeconomic environment will remain uncertain. We've got great confidence in our brand momentum and proven strategies to drive continued outperformance. Thank you very much, and Carol and I will now take your questions.
Good morning. Thomas Chauvet, Citigroup. I have three questions, please. The first one, I saw Pascal Perrier earlier in the room, so I was wondering if we could get an update on Japan. I know you will give technical financial details next year, but two points of interest for me. Firstly, you're talking in your release about limited consumer awareness about the luxury products of Burberry in Japan. How are you working between now and 2015 to change that perception? Secondly, do you expect Japan to be more profitable than your group average margin as it is the case for most of your peers? Secondly, on beauty-
Can we not remember all of them? Can we answer that one first? Let me take the first part of Japan. I'll hand the second part to Carol. I don't have Pascal miked or prepped for this, and I just literally was in Japan with him three weeks ago. There is limited awareness. We're not spending a fortune from a marketing and advertising standpoint. We still have a really giant partner with a very big business there. We've done about three things. One, we continue to have top-to-tops with every major department store because we've got to renegotiate real estate in that large part of the business. Two, we continue to vest in our own real estate in our own stores. He's got a couple of big negotiations underway right now that we can't talk about.
We've got a handful of stores open up, about a dozen shop-in-shops, if you will. I will tell you, those with limited awareness are outperforming the rest of the group in that country. Three, we continue to strengthen the management team. We've got a standalone office. Pascal's hired a great group of people from CFO, et cetera. That infrastructure will mirror the infrastructure we have in other markets like Korea, like Hong Kong, et cetera. That's where we are. He has also hired probably one of the strongest heads of strategy around the world, a very accomplished executive. That is, him and the team are going to Japan monthly now. Again, meeting and laying out what that strategy is. It would be remiss to go into much more detail than that at this stage.
Yes. To your question in terms of impact on margin going forward, again, as Angela says, we're working through all the details. We will come back and talk to you next May in more detail once we have more to share with you. Safe to say, we are working very intensely internally in terms of coming up with those plans. Premature at this moment to share anything on margins.
Yeah. The only thing we do say in the one-on-one meetings is, in that market, we're not going to offset 100% of that profit in that market. You can hear me talk about the relationship with beauty, and if we can drive exceptional growth in a lot of other areas, yes, we'll drive profitability in that market, but it won't 100% offset what's there now. We don't want to be in the 500 points of sale that we're in. We will pull that business back. We'll make a higher percentage of the profit versus just royalty, we'll offset the balance of the profit through other big global initiatives.
Okay, thank you. On beauty, there's one category that's pretty exciting and very exposed to Asia you haven't mentioned is skincare. Is it something you have in mind, and could you elaborate on that, please?
Yeah. Skincare is a very important part of the business. Fragrance is the largest. Next is beauty, depending on the region, meaning makeup, and then skincare. Give us about 18 to 24 months. That is even more regulatory, et cetera. We will get there in the longer term. Phase 1 is, as Simona said, get these pillar fragrances, no different than outerwear in apparel or large leather in non-apparel. These pillar fragrances that are the bread and butter, make sure we can handle the replenishment, the reorders on those. The beauty business is really tiny. She's got phenomenal, her and Christopher, innovative things in place. We need to get a monthly flow of those going, absolutely we'll get into skincare, it's not anything in the short term.
When you talk about narrowing the gap with peers in beauty, I guess skincare is one of the main differences.
We are well aware.
Okay.
We have every fact and figure on our peers. Trust me, we're playing to win in beauty. Why she said the top 10. This is why we have 90 of the greatest experts in the world today on this business. It is the largest growth engine for this company over the next five years.
Okay. Just finally on FX, it helped your gross margin, I think, on sourcing pretty much last year. Can you elaborate on how the weaker pound will affect your P&L, in particular gross margin this year?
There's two aspects. There's the translation aspect, if we simply just translate our profits from overseas at the rates they are today, and that will give us a benefit going forward. Conversely, we have the benefit in gross margin this year from the way principally the euro moved, and again, that may go against us. There's a number of moving parts in there, but just on a translation basis, that would give us a benefit at today's rates, but we are only six weeks in.
Thank you.
I'll let you guys fight for whoever.
Luca Solca from Exane BNP Paribas. You were referring to a challenging environment for luxury goods. I wonder if you could give us a flavor from your viewpoint, where you see demand going by geography, and what are the trends and the challenges that you see in the market. The second question would be about retail productivity. How do you see the evolution of retail productivity, especially looking at the significantly larger stores that you've been opening during 2012-2013? What do you expect this to become going forward? Just a clarification on the fragrances and beauty, is it correct to assume that you're selling in all markets through distributors?
Lastly, when you say that business in Japan is not going to offset the significant profit you have with your license today, is it again fair to assume that it's going to offset possibly at best 20%, while 80% will have to come elsewhere, at least in the short term? Thank you very much.
Okay. Japan, we're not going to give you any more color on. You got to be patient with it. There's a lot of work in process. I have no idea what percent. I have a rough idea, but I'm not going to tell you. Sorry. You have to allow us some time on these things. We still have two years. That's one question.
It would be nice to have the rough idea.
Excuse me?
It would be nice to have the rough idea.
I'm not going to tell you that we don't. You know what? Anything I say will be held against me. Just let's do this in bite-sized chunks. There's so much right now short term, and I was going to say, one of those questions was beauty, I think. Refresh for me what you were saying on beauty.
On beauty, I was just wondering.
Burberry cosmetics
Whether it's right to assume that you're selling in all markets through distributors?
Yep. Yes. Absolutely. Again, that's for now. We'll wait and see, market by market, how that evolves. Then, we did do, as Alessandro mentioned, the one big agreement with BPI, which is the big division of Shiseido. They've got some of the large markets, USA, et cetera. Retail productivity, are we going backwards?
No.
You want to take that?
Yeah. We continue to work with all our teams globally to drive retail productivity. In flagship stores, it's not just about, we've talked to you before, there's no typical store. In terms of flagship stores, we will see different levels if you're talking about productivity in terms of sales per square foot. In terms of profitability, the way we can operate those stores, we get leverage. It's not as simple as looking at one metric. Our teams globally do remain intensely focused on driving productivity.
The other segment of that is the technology we've invested in these stores. Every sales associate has an iPad in their hand. That is their global inventory tool. We are averaging higher conversion rates year-over-year because we're not walking as many customers if we're out of a size or we're out of something, right? In a smaller format, they can't have the 5,000 styles that are up online. They can now, and we can ship it anywhere in the world and get it to them in 48 hours, et cetera. This online-offline connection is a huge part of driving productivity. We've also will end the year with close to 100, what we call Burberry private client associates in our flagship stores around the world.
These are the ones that give that extra level of service to these ultra-high net worth customers who possibly don't even want to walk into a store. They want you to take the product to them. It's a very different way of shopping. Service will be one of the biggest differentiators in driving productivity longer term.
Is that current? Is it luxury?
Not that we talk about current trading whatsoever, these are just simply your first question, which was the global environment. If we were all to read the same reports, be it McKinsey, Bain, Altagamma, Forrester Research, so that's where these numbers are going to come from. This is not our current trading numbers, right? China should continue to be the fastest growing market in the world for us, as well as most of the luxury peers. We are not just focused on mainland China. If I believe what I read from McKinsey, 100 million Chinese consumers will leave mainland China, will go to flagship cities all over the world. That's why two years ago, we were focusing on what is our brand presence, what is our service proposition in these flagship markets. We have Mandarin-speaking sales associates in all of those flagship markets.
We've been opening up flagship stores. Again, if you believe what you read, not only will the 100 million travel to the flagship markets, they will spend six to seven times more when they travel versus when they stay at home. China will continue to be large for us. We've been very focused on Latin America. John sitting here, he's relocating from Latin America up to New York now. He's done a brilliant job, him and his team. We've got eight stores open there. They've just signed three more franchise partners. Chile, Bolivia.
Latin America, Chile.
We've got franchise partners in place. Latin America will continue to be very robust for us. We've ended the year with 23 stores in the Middle East. That shows absolutely no signs of slowing down. We've got roughly eight, nine stores in India now. We've done the right amount of investment, and it was dilutive initially while we were doing it in Latin America, in India. They're not now. I think we're well-positioned for the regional growth in those high-growth markets.
Thank you.
Thanks. It's John Guy from Berenberg. Couple of questions from me, please. First of all, just on the leather goods opportunity. You're very well integrated from a vertical standpoint in trench coats. It seems to me that there's a pretty big opportunity for you to maybe look at in-house manufacturing at some point on leather goods and becoming more vertically integrated. I'd like you to maybe talk about the opportunities potentially that you see within that part of your business. The second question is around probably my favorite topic, operating expenses. Carol, you talked about the gross margin, obviously a very strong performance this year. The natural moderation, which I think is fair to accept given where you are excluding the wholesale business, retail standalone looks pretty good now.
Can you talk about how you're going to manage the cost side of the business in order to continue to drive that sort of push-pull on gross margin and expenses going forward.
Okay. Can we stop there and answer those, because otherwise we won't remember.
I'll take that one first, John. In terms of gross margin, operating expenses, no change to strategy there in terms of what we've been saying for the last two, three, four years now. We will continue to moderate between gross margin, balance between moderate and gross margin and operating costs as we go, to ensure that we consistently deliver a modest improvement in the operating margin year-on-year. This year, we've gone from our 16.4% to our 17.1% normalized. We will continue to, as we've demonstrated from last year and the year before, continue to balance between gross margin, taking those opportunities where we can, taking the opportunity to continue to invest in the business, but ensuring that we always continue to deliver that modest improvement in retail wholesale operating margin. It will be a constant balancing act as it has been.
We've got teams that work with us to dynamically manage, and we'll continue to do so.
In regards to leather manufacturing, I would never say never, but we already are a vertical manufacturer, right? We've got a weaving facility in the north of England. We've got a big factory in the north of England. We've got to tightly manage the capital we balance between the investment in stores, the investment in technology, and the investment in our own manufacturing facilities. I will tell you, until we get those state of the art and we get those where we want them, I can't see us investing in another manufacturing facility. We may in due course, but again, we make as much profit from our vertical outerwear facilities as we currently make in large leather goods today. A lot of our peers may be vertical in leather, but they're not vertical in outerwear like we are.
Okay, thanks. Following on, when I look at the stock performance, which is up about 13% year-over-year, and you're obviously talking about slightly reduced space on the back of large space growth over the course of the last 2 years or above average. You feel that stock is well managed, that the quality of the stock is, or the inventory is very good at the moment?
Yes.
Maybe just stop there and I'll let you answer that one.
Yeah, no. I think in terms of the number we've reported today, excluding Beauty, we had GBP 9 million worth of increase relating specifically to the new Beauty business. Take that out at constant FX, we were up 7% on stock with revenue up 12%. We were delighted with the year-end performance on stock. The inventory has never been healthier in terms of the aging. Working with Donald and the magnificent work they've done in the last few years, there is still opportunity to refine that further, we're very happy with where we've ended the year. Plenty more to do in that space, too.
Okay, great. Thanks. Sorry, just one final one. With regards to the Beauty business, obviously the guidance on GBP 140 million revenue and GBP 25 million EBIT still implies less than an 18% EBIT margin, which again, relative to peers, looks a little bit light, especially within the premium segment. I guess you're being reasonably cautious to start with.
I don't know
If I look at the Burberry Body launch, you broke into the top 10 markets with Burberry Body, I guess there wasn't the same momentum to follow up and continue to sustain a top 10 positioning, especially in the U.S. market. Now you feel the pipeline is significantly stronger and there's a great opportunity to really push through into the U.S. market in particular.
I sure hope that you felt a little of what the presentation was. Go backwards on Burberry Body, because I said it at the last presentation. We were under negotiations with Inter Parfums for over 18 months. 200 distributors weren't sure to invest, not invest, not invest. We absolutely broke into the top 10. It was not sustained. We have gone back with Body Tender. It's already rapidly going up. We're already taking and fulfilling reorders, et cetera. The brand has such momentum and such strength today, and we believe the Body pillar as a franchise, Body will be like a trench coat. Body to fragrance will be what a large leather goods is to accessories. Yes, we absolutely think we can regain that. It was a pity that the negotiations took longer than planned. Slightly incorrect information.
You have a gigantic beauty market. You have a luxury where our peers, Dior, Chanel, et cetera, play, and then you have where the L'Oréals of the world play. Inter Parfums had a very different distribution model. The luxury peers made a lot less than what Inter Parfums did because they own their distribution. Inter Parfums worked through distributors. It's all not apples for apples, and offline the team can go through with you how we're looking at it, et cetera. We are at high levels of profit versus the big luxury peers right now.
That's great. Thanks very much.
Hi. William Hutchings from Goldman Sachs, all the way at the back here. I had two questions, one on your distribution growth, your space expansion, and one on digital. The first one is, with your plan for net 10 store openings, did I read it right that eight of those are going to be in China? I wonder if you could update us on the store plans in Europe, the U.S., et cetera. On digital, given you're not breaking out the numbers in terms of the amount of revenue you're generating from digital explicitly, and you're looking at in terms of the metrics in store, how do you think about the investment program? You said that you're going to continue to invest and grow your cost base on digital. How do you think about calculating that 25% IRR? How should we think about that investment program?
Thank you.
You want to take space, 25 stores?
Yes. In terms of the stores next year, as we always say, it's really around finding. You can't look just in the year in isolation. It's around timing. Last year, we had some great openings. This year, we've got openings that are focused in China and Latin America, that's just simply a function of when the space becomes available, the time it takes to construct the stores, and when they open. We're very happy with the stores. We've got three great new stores opening in Shanghai in the next six months, which were really a flagship luxury market we've been under-penetrated in. I think that will correct the balance there. We're still continuing to do more in Latin America, as Angela said.
In the next year, some of the CapEx we're spending this year in 2013-2014, the GBP 200 million, is to fund some more flagship projects with coming in the 2013, 2014, 2015 year. It's not necessarily a one-for-one equation. You really need to understand the store opening program. We're happy with the plans we've got for next year.
Which continue. There are 25 stores. It's pretty balanced. A little bit more in China, et cetera. As Carol said.
We have some great openings.
L.A., San Francisco, some of the big projects that we're funding this year don't open till the following year. Digital.
Perhaps you could explain, where are the store closures? Are they broadly balanced across the regions as well?
Yeah, they are. Understand closures are not just retail stores. They're concessions, et cetera. This is absolutely nothing new. We're just giving you a little more color this time. Every single year that we have done this, as a great retailer, you will open, you will relocate, you will close X number of stores. We are opening 25 new stores next year, we are closing, if you will, 10, be it stores, concessions, but it's no new news. We have done this every single year. A number of the closures are the smaller stores in China. The smaller stores in Shanghai all go away. You go in with Kerry Centre, a flagship, and two mainline stores, all in new developments, all in the right areas of town, et cetera.
You come out 10 times better in Shanghai than you were before. Just don't get fixated on some of the smaller closures. They're smaller. They weren't worth renovating. It was more cost-effective to move and relocate to another part of town and have a better brand statement. Digital. That is probably the billion-dollar question that we are all working on, and we're working on it inside and outside of the company because consumer behavior is absolutely, positively at an inflection point. It's even trickier because of this traveling luxury customer. Nobody can totally tell you how many people shop online and buy in store. Do they shop online and buy in store in one market? Do they shop online in Beijing and buy in store in London?
I think we told you about two years ago, 18 months ago, we invested in a Senior Vice President of customer insight. Today, he is the Chief Customer Officer. He has a team of people underneath him. We are capturing as much data as we can for ourselves from our partners to analyze these traffic trends. If they log on online, then we can see what happens with them online. We've just launched a test phase. I don't usually tell you about these things until we're further down the line, but we will be in pretty much all stores by the end of the year, but we just launched what's called Burberry 360, which is our clienteling app for all of our 10,000 sales associates around the world.
If a customer walks into a store and identifies themselves from their iPad, they can now see what they did online, what's in their basket, what they've said about us on Facebook, what they tweeted about us on Twitter, how many times they've called customer service, what they bought in any other store from Burberry around the world. We're working towards, we'll have much better analysis going forward. I think we're pretty progressive in this space compared to most of our peers who only have traditional CRM. We're trying to take it to the next stage, but we don't have a lot of data to do that yet. What we do know from all of the research, again, from Bain and Altagamma that we read, you still have to have powerful brand statements.
You don't have that powerful flagship store, then you're not going to be top of mind, and they're not going to engage with you online. It's like nobody stopped going to the movies just because DVDs came out. It's no different. It's a continued evolution, we've got to stay on the forefront as consumer behavior continues to change.
That's great. Thank you.
Hi there. It's Louise Singlehurst here from Morgan Stanley. Just two questions from me, please.
Where are you, Louise? Oh, there you are.
There you are.
Slightly small behind the back. Just in terms of the retail initiative that we were just talking about, obviously, you're annualizing some of the CRM data that you've had in place now. I presume you're annualizing it. I know you highlighted the average transaction spend improving across the customer base during last year. In terms of traffic trends, repeat customers, is there anything that you can share with us on the CRM data to date?
Let's answer them one at a time. Not a ton, Louise, or we would've put it in the presentation. We've been cleansing the database, still a really small database. Once we get a really rich, robust one that we're really confident in, then we'll give you a little bit more color. We're looking right now at conversions. We are looking at loyalty. Loyalty's up, conversions are up, average unit transaction is up on and offline. That's about as specific as we're going to give right now. It is still a very small database. We've only been at this a year and a half.
The plan for beauty, presumably that's targeting a brand new audience, a younger demographic coming through. What are you seeing so far? Is that working in store? I know it's in a limited number of stores at the moment.
The beauty business, not dissimilar to when we shared the shoe strategy with you. We told you 80% of the shoe business would be done wholesale, not in our own stores. Shoes are in our flagship stores. We told you children's, 80% would be done wholesale. We don't want it in every store. It's only in our flagship stores. Beauty will be exactly the same. There will be beauty presence in the 25 flagship markets around the world, our stores. The balance of all beauty will be done through the Sephora of the world, through travel retail, through all the department stores, et cetera.
Is the distribution now where you want it to be for beauty?
Honestly, it depends market by market. I will tell you, in China today, the fragrance is number three, right behind Chanel and Dior. We've had a long-term partner there, I think nearly 18, 19 years. It all depends market by market. America, no. Titanic opportunity, which is why we've been meeting with all the CEOs of every department store. We've got a great new distributor there. We'd have to go through all 80 countries and tell you exactly. Based on the size of the business, I think you can overall say that it's not.
My final question, one for Carol in terms of uses of cash. GBP 300 million of net cash at the end of the year was obviously much stronger, I think, than we all anticipated. What can you tell us about that? Thanks.
We were pleased with our year-end cash position, as you mentioned. We've talked to you constantly about the fact we keep it under constant review with the board, and will continue to do so. We've been happy carrying our prudent balance sheet as we've been through this uncertain macroeconomic environment. We come back to it very regularly at the board, and if we choose to move our balance sheet strategy, we'll come back and share it with you in due course. You'll notice that today, the dividend is nudged up slightly, a 16% increase from the dividend. We'll keep it under constant review.
Mario Ortelli of Sanford C. Bernstein. Two question from me. The first one on pricing strategy. What sort of price increases should we expect for this fiscal year? The second one on brand positioning. Has Burberry reached the target positioning in terms of exclusivity that you have in mind? In particular, till 2011, you were talking about democratic luxury. Now this term is completely disappeared from your communication to customer. Don't you think that too many customer has got still in mind this idea of democratic luxury for Burberry? In case you think so, how long will it take to do the full repositioning of Burberry till a fully aspirational brand?
First of all, we absolutely, positively never use democratic luxury position to a consumer. That was to take you on the journey with us. From where we were to there, to here. The total communication we've always had with consumers is, we've talked to you openly about our pyramid. We basically say that there's three big chunks of consumers. There is your ultra-high net worth, there is a core luxury consumer, and then there is what we call your first-time aspirational luxury customer. You know what? All of our peers have all three of those same customers. We all have them in the same markets. We have Prorsum for this customer, exclusive, limited edition, not in all doors, et cetera. Absolutely not about price, about exclusivity, about innovation. We have our core London collection, what a working man or woman wears.
I was sharing with you some of the statistics on the menswear business, how the tailoring was growing, et cetera. That is what anyone in these flagship markets, local customers need every day. Then, of course, we all are going to have, with the growth coming out of China and the emerging markets, we are all going to continue to have great customers that are just moving up the structure into becoming They want great brands, but they also want a piece of luxury, if you will. We, again, have to have those core products. A huge part of that now can be beauty and fragrance. It is also where your small leather goods and your soft business. It's where Brit plays, whether it's a polo shirt.
Brit is designed as innovatively as the runway collection is, There happens to be some more democratic or accessible items for that first-time customer who's not buying a wardrobe. We used, again, democratic early on internally with you to take you on the journey. The brand is solidly repositioned today. Is each market slightly different? Yes, we're spending a little bit more in China because we just took the business back two years ago. Of course, there's probably more traditional perception, if you will. Again, we play in 80 countries around the world. Each one of them is at a slightly different phase. The more that we do online, more customers are coming to burberry.com. Over tenfold will go to burberry.com this year than will walk into every store around the world combined.
The sharper and the more exciting and the more engaging we get that platform, the quicker it is to change consumer perception all over the world.
About pricing?
We are pretty much, again, if you remembered our original pyramid and you look at the pyramid today between Prorsum, London and Brit, we absolutely love where we're price positioned right now. We've been gradually taking up based on the cost of living, or if all of our peers in one market are up, our teams are very aligned to market by market. If all of our accessory peers have gone up 5%-10%, we're a pretty fast follower. Aside from that, I think you're just going to see pretty modest increases in price going forward. We're pretty much where we want to be right now.
Thank you.
Roger Fujimori, Credit Suisse. I have just one question to Carol on the profitability of your Chinese business. When you acquired the business two years ago, you disclosed an operating margin north of 18%. After all the investment and all the growth, could you give us some feel for profitability stands today? Thank you.
We don't split out profitability by country or by region when we're reporting externally. Obviously, internally we have some numbers, but on a macro level, we don't split that out. We are very pleased with the progress we've made in China, let's just say that. You can see the phenomenal growth we've had in revenue and in elevating the brand. More to go for in China, but we don't disclose profitability by country. GBP 85 million on the front end that went down.
Good morning. [Roger Zheng] from Merrill Lynch. You highlighted Beauty as one of the strongest growth drivers for the next few years. You've got Menswear, which is doing extremely well as well. You talked about it a few months ago. Can you update us on this business and add a little bit of color on the next growth drivers? Thanks.
On specifically in Menswear? Absolutely. I tried to do a little bit of it. I had about four sentences in the presentation. Same exact product pyramid as all of the other businesses. We're thrilled with the Prorsum performance. It's been up double-digits in Men's pretty much all year. Men's London is where we've seen significant growth, mostly through the launch of the tailoring initiative. Suits are a much higher average unit retail than sportswear. We were able to get that solidly positioned with our department store partners. We've got it in about 70 of our own stores today. You will see in the London Collection area, again, which is what a guy wears to work, you'll see tremendous growth there. Then the whole Brit, which is the more casual component of the Men's collection, has also seen nice growth, specifically driven by outerwear.
We think we've even got further penetration opportunities. Men's, it's just on a much bigger base than Beauty is now. Realize Beauty is a small base, right? Men's is really starting to be significant now. It'll be the second-largest growing business for us. Not just apparel. We talked about Men's non-apparel ending the year up 30%. It's now 20% of our total accessory business, Men's accessories. I would argue there's tremendous growth opportunity there, specifically in the Asian region going forward. Terrific. Well, okay, one more. Not four, one.
Just on Korea. It seems like it's been pretty soft for the last 24 months, and looks like it's starting to improve. Maybe just a few comments on what you think has made the difference. Is it a question of bringing a bit more freshness into the lineup in Korea? Any significant macro change in consumer sentiment, or what's suddenly got you out of the darkness in Korea?
Yeah, Korea is still soft, but we've done a couple of things, right? It always begins and ends with people. We had a great new managing director over the country. He has gone in now with every major department store. We were just falling behind in Korea. The brand wasn't keeping pace as it was in all of the other markets. We've got a number of new shop in shops in Shinsegae, Lotte. They are understanding the modern Burberry now. New managing director, new team, new investment going with our department store partners. I don't think it's been formally announced, but you will see a phenomenal flagship opening that Pascal and our brilliant team in Asia have negotiated because we also never had a flagship store in Korea, which was one of our largest markets in Asia.
Thank you very much indeed.
Thank you. Thank you very much. I think there's one final video.