Good morning. Welcome to Burberry's Interim Results Presentation. I'm going to make some introductory comments mainly around revenue, and then I'm going to hand over to Stacy, who will review our overall financial performance. And I'm thrilled to say we've got Pascal Perrier, our President of Asia Pacific with us today, and he's going to update you on better the progress in this key growth region. I'll then come back up briefly to discuss some of the second half priorities before Stacy and I then take your questions.
So Bvlry has had a great start to the year, delivering record first half profits of $129,000,000 up nearly 50% with revenue growth up 21%. Net cash is up to $181,000,000 and we're increasing the interim dividend by 43%. During the half, we acquired our retail business in China and I'm thrilled by the progress Pascal and his team has made
in the last few months.
And as you'll hear this morning, we invested in growth initiatives while continuing to clean up legacy issues. I would like to remind you all that our commentary today excludes the discontinuing business in Spain. Stacy will give you the details later, but I'd like to also thank our teams in Spain and in London for all of their time and efforts to assure this difficult transition is handled so smoothly. Turning to revenue. For the first half, revenue grew 21% reported, up 17% underlying.
And by channel, retail contributed 57% of sales or just over 60% if we were to include China retail on a pro form a basis for the 1st 6 months. DTS sales were up 20% underlying, 7% from new space, 4% from China and 9% from comp store growth with mainline directly operated stores consistently outperforming outlets. This was good quality growth as we continued to execute strategies implemented in the second half of last year, which increased average retail selling prices as well as mainline sell through. We introduced our iconic pricing policy, reduced initial inventory procurement, improved replenishment and implemented a much more dynamic pricing model to ensure our price value and relative positioning were both appropriate. And all were underpinned by continued product innovation and high impact monthly presentations, which I'll touch on shortly.
Turning now to the store portfolio where you know we are increasing our investments. In the first half, we spent nearly $30,000,000 on new stores and refurbishments, a 50% increase year over year. In the first half, we opened 20 new stores excluding those acquired in China. These were not concentrated in any one geographical region, but in line with our flagship cluster strategy, were concentrated in high demographic markets such as London, New York, Hong Kong, Tokyo, Shanghai and new markets like Mumbai and Brasilia. We added 8% selling space in the first half and will add an additional 25% during the second half, split broadly 15% from China and 10% from other regions.
Headline growth in wholesale revenue was up 17% underlying. If we exclude China in both 'nine and 'ten, wholesale revenue was up 21% underlying, slightly ahead of our guidance, benefiting from strong branch performance as well as customer restocking following the reduced demand in the same period last year. Asia Pacific, the Americas and Emerging Markets all showed growth in excess of 20%. And meanwhile, the planned ongoing rationalization of small specialty store accounts continues to depress Europe's relative performance. For the second half, excluding China, we expect wholesale revenue to be up around 10% led by emerging markets and travel retail.
Licensing revenue was down 3% on an underlying basis, but up 9% reported benefiting from the head scan rate. There was negative impact from terminating the final MIMSIR licenses and the Japanese Levongage license. Japan remained a difficult market, although our royalty income from the apparel license, as you know, is guaranteed until 2015. And we saw good growth in royalty from our global license partners. We continue to work with our eyewear and our watch partners to more closely connect their assortments to the brand and as you can see from these images from the current advertising campaign.
And as we said in the Q1 of this statement, we will continue to evaluate integration opportunities across our licensed businesses in line with our brand strategy. In the first half, we saw growth across all regions. Asia Pacific showed the largest increase of 37% at 29% of our retail wholesale revenue. It's now larger than the Americas and much more in line with our luxury peers. This percentage will increase further in the second half when China is included for the full 6 months.
Europe saw revenues increased by 12% on an underlying basis with strong double digit percentage growth in retail led by the U. K, Italy and France and helped by tourist spend in this key flagship city. In the Americas, we continue to focus on improving margins, which resulted in 1st pass comp store sales being broadly unchanged year on year. And as planned, mainline stores strongly outperformed Atlas, improving profitability. Wholesale also posted strong growth and at only 8% of group sales still remains a key growth opportunity for Verbally.
And we continue to make good progress in emerging markets. Parts of the Middle East such as Dubai and Kuwait remained somewhat inconsistent, while we had excellent growth elsewhere, including Turkey, India and Lebanon. We continue to enter new markets with partners in Egypt and Israel, both targeted for the second half. And finally, turning to revenue by product category. The diversity and balance of our product divisions, as you know, is one of our greatest strengths.
Each product division and core categories saw good growth. Non apparel now 40% of sales increased 26 percent driven by continued innovation and replenishment. While outerwear and large leather goods, they've reached 2 core categories drove about half of the growth in retail. Hence shoes and children's wear, 2 key wholesale growth initiatives, made excellent progress with children's wear showing the growth of 40%. Each level of our product pyramid, porcelain, London and Brit, performed strongly.
And it was great to see porcelain delivering some fantastic figures up about 50% in the half in our retail stores. And remember, Porsen is a small percentage of the overall business at about 5%, but it's the halo that sets the seasonal image for the brand. Finally, we are very pleased with the accelerated growth in menswear, reflecting the early success of some of the strategies that Andrew Ladd talked to you about last May. As you know, we've terminated all of the menswear licenses for springsummer 2011 is the 1st truly global Burberry menswear collection. We've seen very positive trends in the order book, men's apparel and non apparel categories, the fastest growing businesses.
Urban London contributed 30% of the men's order book, up from 26 percent last year with strength in tailoring. For example, jackets are a 4 fold and 2 took 3 fold, albeit from a small base. So before handing over to Stacy, let me show you a short clip which highlights some of our achievements in the first half of this year.
And this is for the 6000 survey staff around the world. Thank you so much.
Good morning, everyone. As you can see from the DVD, it's been a busy 6 months at Erbri. So let me now explain how this has driven our financial As you heard from Angela, revenue was up 21% and adjusted profit before tax was a record for the first half at GBP 128,500,000 up 49%. And we finished the period with £181,000,000 of cash. Our dividend policy remains to pay out 50% of adjusted earnings in the full year.
We've increased the first half dividend by 43% to 0.05p per share, but it is a measure of the Board's confidence in the future, but also to start rebalancing between interim and final dividends. This slide shows our adjusted operating profit increased by 44 percent to £130,000,000 including currency benefit. At constant FX rate, retail and wholesale profit grew by nearly 70% or £35,000,000 continuing the momentum from the second half of last year. Our licensing business saw a small decrease as expected. And there were 2 things which impact all of our numbers for the first half, being China and Spain, which I'd like to talk you through.
Firstly, China. This slide summarizes the transaction. As you know, we announced in mid July that we'd agreed to pay around £70,000,000 to acquire the 50 stores in China run by our franchise partners, although we now expect the total cost to be closer to £65,000,000 reflecting final inventory numbers. An existing strategic partner has retained a 15% economic interest in the business subject to customary coaching call options. And on revenue, let me just remind you that the strong over 25% comparable store growth in China in the first half wasn't included in our H1 comps and of course won't be until the anniversary of the acquisition in September next year.
And then separate, we're expecting the deal to be broadly neutral to adjusted earnings for this financial year but to add up to £20,000,000 to adjusted operating profit next year. Secondly, let me comment on Spain, where our restructuring is now well advanced. As I said, we've excluded the discontinuing business in Spain in the numbers for the half, excluding all retail concessions and wholesale accounts reported as part of Europe in the regional disclosure. There's no material change to the financial implications we expect for this year and mix, but we have summarized the key figures on this slide for completeness. Now moving on to look at retail and wholesale.
Revenue was up 23% recorded. Gross margin as a percentage of sales was up 6 70 basis points to 64.3%, a record high for us, while operating costs increased as planned to 39.5% of sales. Overall, the EBIT margin improved to 14.8%, and we're delighted with the 4 10 basis points improvement in operating margin in the first half, which follows a 6 30 basis points improvement in the second half of last year. But please do bear in mind as you look out to the second half of this year that we are now facing stronger comps. Comp sales were up 2% in the first half of last year but accelerated to up 10% in the second half, while gross margin and operating margin recovered sharply in the second half as well.
As Angela explained, we had high quality sales growth in the half with the team very focused on margin, long than just driving comp sales. Gross margin was up significantly, driven almost exclusively by the strategy to increase food price sales force, which had already been implemented in the second half of last year. The 6 70 basis point improvement in the first half followed the 1400 basis points improvement in the second half last year. The comparables are again stronger. So, competently, for the second half of this year, we're we're expecting a modest increase in gross margin.
And secondly, remember the supply chain team do continue to make savings through vendor negotiations and process improvements. But from the second half, these are increasingly being used to mitigate raw material price increases rather than benefit the bottom line. And this trend will continue into the next financial year. In May, we said we expected operating expenses to be around 50 increase of £67,000,000 around 9 look at the increase of £67,000,000 around £9,000,000 comes from FX and around £4,000,000 from higher share spin costs. Looking at the balance, around half comes from our conscious decision to increase investment in creative media, digital, IT and customer services as well as the higher OpEx for new businesses, including Latin America, the Japanese non apparel JV and 1 month of China.
The other half of the increase in operating expenses relates to sales growth, new space and general inflation, which together grew less than sales. Many of these factors will continue into the second half. So for the full year, we're still expecting the OpEx ratio to be around 60% of sales. Remember that we will have 6 months of China retail operating expenses, which will add over £20,000,000 alone to OpEx in the second half. Returning to licensing.
Sales and mass gross margin were down 3% on an underlying basis, as Andrew has already discussed. With only a small increase in operating expenses, the margin rose slightly to 86.7%. Returning now to the income statement. The net finance charge before exceptionals is £1,200,000 reflecting the fees on our banking facilities and of course, low interest rates on our cash position. As we guided at the preliminary results, we expect this number to rise to the lowtomidsingledigit pounds 1,000,000 interest charge for the full year.
I'll cover the exceptional items on the next slide. The tax charge is in line with our guidance of an effective underlying rate of 28% on adjusted PBT. The reported rate is higher as there's no tax relief assumed on the Spanish exceptional items. And the €1,400,000 minority or non controlling interest, as it's now called, relates to our partner's share of profit from China, Burberry Middle East and the trading losses from the Japanese non apparel JV and Burberry India. We do have a number of small exceptional items to call out in the half.
Firstly, the operating losses from the discontinuing Spanish business, which amounted to £2,700,000 in the half. We continue to expect to see a full year loss here of around £10,000,000 as the business downsizes fully. And secondly, the final €7,600,000 of costs associated with the Spanish restructuring, slightly less than we expected in May. Finally, as I said earlier, one partner does retain a 15% economic interest in the acquired China business. There are puts and calls actions in place on this.
And accounting rules state that we have to recognize this future potential liability on the balance sheet at its net present value and make, among other things, a related notional interest charge through the P and L account every year. The net €500,000 long cash charge taken in the first half represents 1 month of this adjustment. There are further details in this morning's announcement for those of you who are still interested. Turning now to the cash flow. Let me highlight a few items.
The cash spend on restructuring in Spain was €9,500,000 in the first half with a fine risk of £20,000,000 still to come. Depreciation increased to £29,000,000 with full year guidance of around £60,000,000 following tight control of working capital at an unprecedented level last year, we did see a more normal seasonal outflow in the first half of this year. Underlying, inventory was up around 7% year on year with a further 10% added by the Chinese acquisition. Looking forward to March, we'd expect inventory levels at that year end point in time to be higher than retail wholesale sales growth. The £167,000,000 inventory level at March 2010 was well sustainably low as evidenced by the need for the April showers capsule, for example.
We also need to stock our stores in China to appropriate levels, as you'll hear from Pat Gao. And as we restock to optimize strong growth trends, especially on top replenishment styles, this will result in higher inventory levels at 31 March 2011. That has also increased in line with the recovery in wholesale revenue. And let me just comment on capital expenditure. As we discussed in May, we're significantly increasing our capital expenditure this year, nearly doubling it versus last year.
We're still expecting to spend around £130,000,000 with the increase due to the investment in China new opening largely offset by timing differences around certain refurbishments. By region, the spend is fairly evenly spread. And with about 20% of our capital now going to new emerging markets and businesses, including China, Brazil, India and the Middle East and the Japanese non apparel JV. That compares to only 5% last year. The only other things to highlight on this slide are that we made an initial payment of £39,000,000 to acquire our Chinese business, a further £10,000,000 or so filled in the second half of the circa £65,000,000 is therefore deferred.
And our tax payments returned to normal levels after prior year refunds. After a £36,000,000 dividend payment in the first half, the cash outflow in the period was £81,000,000 leaving us with net cash of £181,000,000 as of the 30th September. The Board continues to regularly review our capital structure and currently view a prudent balance sheet as appropriate for Burberry, especially given the new business and brand integration investment opportunities available to us. There's no plans to resume a share buyback program at this point. And finally, this slide summarizes our guidance for the current year, which is unchanged from that that we shared with you in October.
We're delighted with our first half performance, which was consistent with the momentum of the second half of last year. And as we look ahead for the rest of this year, do bear in mind that we still got the all important holiday season ahead of us. For the P and L account, we do face stronger comps in terms of sales and margin, while operating expenses as extensive sales are full planned at around 50%. In terms of cash for the second half, although the business remains highly cash generative, we continue to invest in capital expenditure, working capital, the Spain restructuring costs and the China payment. Now let me hand over to Perrier, our President of Asia Pacific.
He's been running this high growth region since 2007 and has been with Burberry since 2,005. By way of introduction, Pascal has spent the last 15 years working in the luxury industry at LVMH and Gucci Boutique class adjoining Burberry. He's worked for 20 years in Japan and in Asia and is now based in Hong Kong, having proven to spend his 1st 4 years with Burberry's in London.
Good morning. Thank you very much, Stacy, for this very kind introduction. I'm thrilled to present today Asia Pacific as we have been very exciting since in this region. I'll start by how our business has developed, then how we have grown it and finally discuss about China. As you can see, the Algaea Pacific business has grown strongly, doubling revenues over 5 years, which first half fare this year exceeding the full year in 2017.
And this is a very profitable region for W2. Asia was a federation of 6 independent businesses, which we brought under 1 regional structure and we have put in place, I believe, a best in class key with strong regional and local management, the most recent addition, the regional strategy to support our growth plans in the region. We have over 200 stores and concession in the region, excluding those run by our license partner in Japan, and we employ over 1800 people in 9 different countries. We've note that our Japan Lightening business is excluded from this chart. By channel, the region is more weighted towards retail at about 2 thirds last year, which will increase to about 80% this year following the acquisition of our China business.
This is a very high control on our brand. Wholesale is predominantly sales to travel retail, by which I mean duty free. It also includes sales to franchise partners in the region. The Burberry Asia travel retail business is worth about $150,000,000 accretail value and is definitely very strongly driven by Chinese customers. By product, the region is slightly more weighted towards non apparel than the broadly average.
We also invested in children's business, leveraging the success we have in Korea and Hong Kong. Having put these businesses together as one region, we have been consistently deploying Double's 5 key strategies. And today, I would like to focus on leverage the franchise and accelerating retail led growth. Under leverage the franchise, there were 3 key unlocks. The biggest unlock was certainly the introduction of original canning and merchandising back in May 2009.
Before, all 9 countries were selecting their product assortment independently. Today, one single team does the buy for the whole region. And doing so, we went from less than 1% of styles coming across all markets to 75% today. And this currency brings further efficiency gains such as in training, but most importantly in inventory management. The second unlock is that regional planning and merchandising enabled us to rationalize our Importantly, there Historically, there was one order per country delivered into that country with no flexibility to relocate inventory.
From the regional hub in Hong Kong today, we are able to use the right product in the right quantity at the right time to the right market. Finally, the connector between the regional planning, merchandising and hub initiatives is exciting. 2020. It's determined through our origin with China to go live next year is starting to show the benefits as the world has already demonstrated. Indeed, with these key initiatives in place, we have been able to increase retail store productivity to further drive margin And we are able to serve our customers better, resulting in double digit comparable store sales growth for the last 18 months.
We now have great confidence in rolling these initiatives in China, which I will touch on later. Now let me discuss about Accelerate Retailer Growth. We are very well positioned to pursue expansion opportunities and look at store network strategically on a city by city basis. In fact, we have nearly doubled the number of directly operated stores opening over the last 2 years. We are implementing the corporate flagship cluster strategy in the key markets.
In Asia, the historical economy had no flagship. Last year, we opened our 1st flagship at Orchard in Singapore, and we are strategically investing for the second half and next year. And looking out to 2012, we will be opening the largest beverage store in the region in Central Hong Kong. And we continue to look for opportunities for at least one flagship in every key market such as Korea and Taiwan. Being a very large profitable market, Hong Kong is an interesting example of how we've been clustering stores and investing.
We have renovated in all of our stores in 3 years. We have 2 new flagship store openings. We have selectively invested in mainland stores and we are capturing the opportunity in children having opened 4 children stores over the last 18 months. These investments create a powerful brand statement in this important high growth market with a halo effect on the entire region and the returns are among the highest in the world for Derby. I'd like to discuss about China.
Stacy updated you on the financials. And from an operational standpoint, this is very exciting for me and the team because the acquisition brought all the operations under our direct control. Let me remind you of our strategy rationale. 1st, this is in line with the company's strategy to own and control this brand. 2nd, the China market growth is very attractive because it combines increasing wealth and growing demographics and experts predict luxury goods consumption to increase by 30% this year.
There is a third opportunity outside China with 50,000,000 outbound trips in 2009, 90% of which were in Asia. And hence, in the brands in China, we also benefit other regions at Beboe as the Chinese traveler is becoming increasingly important. And third, we feel that our brand is well positioned towards the Chinese customer. China is a well dominated luxury market and we see a large opportunity to grow our merchandise there. It is a big outdoor market with its cold climate in Northern Paris.
With our school recognizable icons in young apparel, we are well placed to capture this huge gifted market. With the 1 child facing, we believe that we have a large opportunity with our children's offer. The Chinese consumer is young. 80% of the population is below the age of 35 compared to 30% in the U. S.
This plays well to our digital marketing capabilities. And the last prudent partaking of the business was at the time was right for us because the business developed to a sufficient scale and because we have the key tool in place. This map shows you the location of the store network we acquired, predominantly in flagships of Tier 1 cities. Specifically, we acquired 13 stores in the flagship markets of Beijing and Shanghai combined and 26 stores in high growth provincial capitals. After announcing the acquisition in July, we rapidly proceeded with our integration plan.
1st, in terms of team. We built a shadow of innovations ahead of acquisition, headed by world class Managing Director, who joined by Slack April with amazing experience in luxury retail in China as well as the team of 45 people he has already hired. 2nd, on the acquisition rate, more than 99% of all the sales associated, that is over 5 50 people were smoothly transferred to Berlin China. And we have already completed the initial training on product and IT. 3rd, we also moved quickly on store operations, aligning all the store visual merchandising with product stores globally and our team is now shipping the right products in the right quantity consistent with the local demand.
Finally, the team has already opened 4 new stores in the first half with about 5 more plants in the second half, all in fraction cities or high growth provincial capital. So what are our plans in China going forward? We will focus on customer acquisition and retail productivity. The Chinese customer already has an affinity for burglary, but we do not believe he or she is fully aware of how much the brand has to offer. We will aggressively invest in the brand, particularly in marketing and PR, using our global marketing tools and digital content, stressing our attributes, especially our Britishness.
And we will bring into play our digital capabilities such as the social networking, capitalizing on the 420,000,000 Internet users currently in China. Retail productivity will be the number one focus us for the China team. Executive defense strategy is proven to be successful elsewhere in the world. We believe we will see rapid progress as we manage the business directly, implementing effective timing and merchandising, introducing replenishment programs to ensure we are not out of stock IT items, deploying global training sales and service programs starting with the daily experience launch next February. And we have transferred some store managers from elsewhere in the region to cascade their retail experience into the China organization.
Finally, as I mentioned earlier, we will start this month the groundwork to roll out SAP in autumn 2011. As a result of these initiatives, we see significant potential to improve the productivity in China. While in productivity gains, our priority, we will also evolve the strong network by renovating, expanding and relocating certain stores, especially because some are too small, inflection cities. And we'll be selective in opening stores, building key partnerships with developers to ensure that we can get the best real estate only opening with the right mix of luxury fields. Finally, we see the potential for around 100 stores in the medium term.
On this slide is an administration of our coming flagship store in Beijing opening this December. It will be Berzary's most advanced digital flagship store and it will set the tone for the brand presence going forward in China. And finally, I'd like to share something exciting with you, which is that the Chinese state season with the reach of more than 200,000,000 people covered our last September fashion show. It is very unusual for the spread channel to broadcast Alexsaryland. This happened just a week after the acquisition and we saw that it was a great welcome to our direct operation in China.
Let's have a quick look at the industry. In conclusion, Asia Pacific is a large, profitable and growing region for beverage, And we are particularly excited about future potential, continuing to execute Bevery key strategic initiatives while capitalizing on