PERFUME sales helped Burberry, the British fashion house, to deliver a 17 per cent rise in annual profits to £164.4 million yesterday.

Income from licensing rose 20 per cent in the year to March 31 on the back of strong sales of Burberry Brit and the negotiation of a better royalty rate with the fragrance licensee.

The strong performance of Burberry’s licensed merchandise and improved sourcing helped to boost the gross profit margin from 57.9 per cent to 59.3 per cent.

However, Stacey Cartwright, finance director, said that licensing income in the coming year would probably not experience the same level of growth because of a slowdown in the Japanese market.

She blamed a “muted” reaction to Burberry’s spring clothing collection in some markets on poor weather but remained upbeat about the current year.

“We have to clear stock from spring/summer and the excess merchandise will have to go through the sale but we are optimistic about how autumn winter stock has been received in the previews,” she said.

Burberry raised the final dividend 50 per cent to 4.5p, making a full-year dividend of 6.5p.

In the past year sales in the UK, which make up less than 10 per cent of total sales, slowed as US tourists stayed away.

Earlier this year Burberry said that the “chav” factor — the trend among young football fans and others for wearing mostly fake Burberry check clothing — had not helped sales in the UK.

The brand’s retail outlets also saw like-for-like sales fall slightly as Burberry opened more wholesale accounts around the world. Wholesale sales rose 6 per cent in the year compared with a 3 per cent total rise in retail sales.

To improve efficiency, Burberry said that it planned to invest £50 million to update its supply chain and IT systems over the next three years. The company hopes that the investments will shave £20 million off costs once completed and improve margins further.

Burberry will also increase retail space by 8 per cent this year through new store openings, concessions and the expansion of existing sites.

Strong demand for Burberry products in China contributed to a 19 per cent increase in underlying sales in Asia, while the group reported good progress in Japan.

Group turnover increased to £715.5 million during the year against £675.8 million the last time.

Shares in Burberry fell 6p to 385p because of fears of a slowdown in trading. Analysts also cut full-year profit forecasts for 2006 to reflect the £50 million investment in the supply chain and IT system.

Claire Kent, of Morgan Stanley, cut her earnings per share forecast to 22.8p from 25.1p.

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