27th May 2011
Burberry's pretax profit climbed to £295.7m from £211.4m last year, as revenue increased 27pc to £1.5bn in the year to the end of March, reported the Daily Telegraph.
According to the report, Burberry said emerging markets such as China, Brazil and India accounted for 16pc of retail and wholesale revenue in the year, up from 11pc of the total last year.
Also, Burberry is taking aim at the Asian and Latin American markets, where its haute couture trench coats and high-end leather goods are becoming increasingly popular with affluent shoppers, adds the Daily Mail.
The company, famous for its camel plaid, opened 26 new shops in the year, mainly in "high potential" markets like India and Mexico.
However, Victhebrit comments on the report in the Daily Telegraph: "Burberry seems to have lost out to others – Prada in particular, in Japan. Japanese buyers are a rum lot. They insist on top quality and don't mind paying for it if they feel they're getting it."
Eku Kobayashi, Economist at H2O Markets, said emerging markets were crucial for Burberry. He is quoted in the Guardian: "While the aftermath of the financial crisis two years ago has left High Street spending on the back foot, Burberry's unique position as a luxury goods retailer has ensured continued growth across almost all of its markets with the notable exception of Spain, says the report. It is the exposure to emerging markets rather than recession-hit western nations that has driven profitability at a difficult period in the economic cycle."
But what other companies will benefit from growth in the region?
Alec Letchfield, manager of the HSBC UK Focus fund and chief investing officer, says: "There are a broad range of companies that benefit from demand from emerging markets – they tend to either be those that produce superior, value added products or ones that provide something that countries such as China are short of."
He said there are three ways to play on emerging market growth. One sector is mining, with stocks such as BHP Billiton and Rio Tinto benefitting from urbanization in countries like China. "Most of the demand for metals and minerals comes from China," says Letchfield.
Another method is to consider the types of companies – which includes the likes of Burberry – that make aspirational, desirable brands.
Letchfield says: "Companies such as Burberry and BMW produce products that people aspire to own in emerging markets."
Finally, he adds: "Another space to look at is industrial/engineering companies such as Spectris, which produces precision instruments and AVEVA which is a software design company for the oil and gas mining industrials. China is making use of these products."
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