| Thu 10 Jun 2004, 12:49 | | Richemont - Results For The Year Ended 31 March 20 |
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Richemont - Results For The Year Ended 31 March 2004
Richemont Securities AG
Share code: RCH ISIN: CH0013157380
RESULTS FOR THE YEAR ENDED 31 MARCH 2004
Richemont, the Swiss luxury goods group, announces its results for the year
ended 31 March 2004
March 2004 March 2003
Sales euro 3 375 m euro 3 651 m - 8 %
Operating euro 296 m euro 259 m + 14 %
profit
Net profit
- parent and euro 238 m euro 156 m + 52 %
subsidiaries
- share of euro 422 m euro 486 m - 13 %
associated
company
- the Group euro 660 m euro 642 m + 3 %
Earnings per euro 1.193 euro 1.153 + 3 %
unit - fully
diluted basis
Dividend per euro 0.40 euro 0.32 + 25 %
unit
In accordance with the style of presentation used in previous years and for ease
of comparability, these results are presented on an adjusted basis, excluding
the effects of goodwill amortisation in respect of the Group`s investment in
British American Tobacco and exceptional items in both periods.
Despite a difficult first six months, sales in constant currency terms for the
year as a whole were in line with the previous year. Given the strength of the
euro during the year, however, sales at actual exchange rates declined by 8 per
cent.
Although gross margin decreased by 8 per cent to euro 2 092 million, operating
profit increased by 14 per cent to euro 296 million as a result of lower
operating expenses. Operating expenses decreased by 11 per cent. This reduction
reflected the non-recurrence of specific restructuring and impairment charges of
euro 91 million, reported in the prior year, together with the impact of cost
control measures and currency effects.
Free cash flow from operations was euro 349 million, an increase of euro 135
million compared to the prior year. Net borrowings at 31 March 2004 declined by
euro 383 million to euro 794 million.
The Group`s share of the results of British American Tobacco amounted to euro
422 million, a decrease of euro 64 million. This stemmed principally from the
Group`s lower equity interest in the company during the year, combined with
currency effects.
Net profit of the Group on an adjusted basis increased by 3 per cent to euro 660
million. After taking into account goodwill amortisation in respect of the
Group`s interest in British American Tobacco and exceptional items, net profit
on a reported basis declined from euro 728 million to euro 320 million.
Reflecting the Group`s confidence in the future, it is proposed that the
dividend be increased by 25 per cent to euro 0.40 per unit.
This document contains forward-looking statements as that term is defined in the
United States Private Securities Litigation Reform Act of 1995. Such forward-
looking statements are not guarantees of future performance. Actual results may
differ materially from the forward-looking statements as a result of a number of
risks and uncertainties, many of which are outside the Group`s control.
Richemont does not undertake to update, nor does it have any obligation to
provide updates or to revise, any forward-looking statements.
Executive Chairman`s Review
Commenting on the results, Mr Johann Rupert, Executive Chairman, said:
This has been a testing year for Richemont, albeit one that has seen the Group
rise to the challenges that it has faced. Across the Group, there has been an
enhanced sense of urgency and a re-awakening of the understanding of the need to
attract customers with unique products of beauty, of the highest quality and
featuring innovative design and technology. This is evidenced by the new
products that have been launched during the year.
The Group`s results for the year have suffered significantly from the impact of
the SARS crisis during the period from April to June last year. We have,
however, witnessed a gradual improvement in demand since that time, with a more
marked pick-up in the period from December 2003 onwards.
Results for the year
The Group`s sales, at euro 3 375 million, were some 8 per cent below those of
the prior year. Business in the Asia-Pacific market was particularly hit by the
SARS epidemic and the Group`s core market in Europe suffered from the depressed
economic environment. However, we have seen an improvement in the latter part of
the year, with sales in constant currency terms in the final quarter of the
financial year having grown by 10 per cent. This strong performance reflected
particularly good results in the United States and in the Asia-Pacific region
and some signs of recovery in Europe.
Operating profit for the year, at euro 296 million, is 14 per cent above the
prior year`s level, notwithstanding lower sales and gross margin. It should be
noted, however, that provisions for restructuring costs impacted heavily on the
prior year`s results. Excluding the effect of restructuring and impairment
charges in the prior year, operating profit declined by 15 per cent.
I am pleased to report that, across the Group, great attention has been paid
this year to controlling costs and optimising our structures. As announced last
year, we have closed one manufacturing facility in Switzerland and have taken
action to eliminate loss-making boutique operations, most importantly at Alfred
Dunhill and Lancel. In addition, management have critically evaluated the way in
which the Group does business, placing emphasis on increasing efficiency. Our
drive to control costs continues and I expect to see further benefits in the
current year and in the future. Our job now is to grow the business whilst
keeping costs strictly under control.
The Group`s equity-accounted share of the profits of British American Tobacco
amounted to euro 422 million for the year under review. This is 13 per cent
below the previous year, largely as a consequence of the change in accounting
treatment of Richemont`s interest in its holding of BAT preference shares
together with the adverse effect of the strengthening of the euro against
sterling.
The investment in British American Tobacco represents a strong foundation for
Richemont. It contributes significantly to Group profits and, in cash terms,
Richemont received dividends of euro 252 million over the past year.
Cash flow
During the year ended 31 March 2004, Richemont`s operations - excluding the
contribution from British American Tobacco - generated euro 349 million in free
cash. In difficult times, this is testimony to the strength of the underlying
business and the effectiveness of management in monitoring working capital.
Equally, following recent years when capital expenditure on manufacturing
facilities has been running at relatively high levels, we are now seeing a
return to more normalised levels of capex.
The strong cash generation from the luxury goods businesses, combined with the
dividend flow from British American Tobacco, has resulted in the Group`s net
debt at 31 March 2004 being reduced to euro 794 million. On 4 June 2004,
Richemont received the proceeds of the disposal of its interest in the
preference shares issued by British American Tobacco as part of the
consideration for the merger of Rothmans International in 1999. These proceeds
amounted to GBP 544 million or some euro 828 million.
As a consequence of the cash inflow from the preference shares, Richemont is now
in a net cash position. In today`s business climate, I find that an attractive
position for the Group.
British American Tobacco (`BAT`)
Investors will recall that Richemont`s holding of preference shares represented
part of the consideration received in 1999 at the time of the merger of Rothmans
International and BAT. Richemont was obliged under the terms of the merger
agreement to either sell those shares in the market or otherwise see them
redeemed by BAT on the fifth anniversary of the transaction in June this year.
In anticipation of this deadline, the Group had issued convertible call warrants
over the preference shares in January 2003. The warrant holders have now
exercised their rights to take delivery of new ordinary shares issued by British
American Tobacco, thereby diluting Richemont`s effective interest from 19.6 per
cent at 31 March 2004 to 18.6 per cent today.
Assuming that BAT will continue its own buy-back programme, I expect that
Richemont`s effective interest in the ordinary capital will once again gradually
increase. Given prevailing stock exchange regulations and our undertakings to
BAT, however, Richemont`s effective interest cannot increase above 20 per cent
of the ordinary capital.
Dividend
Given the Group`s healthy cash position and the improvement that we have seen in
recent months in trading conditions, the Board feels it appropriate to recommend
an increase of 25 per cent in the dividend payable in the current year. The
dividend per unit will therefore be euro 0.40.
Richemont`s businesses
I mentioned earlier that Richemont`s Maisons have responded excellently to the
challenges that have been presented to them, bringing new products to market and
attracting customers to our stores. Everyone in the organisation has focused on
the need to enhance the levels of creativity, excellence and service that are
the cornerstone on which the businesses have been built. I would like to thank
all our managers and employees for the manner in which they have contributed to
the improvements that we have seen this year.
New products have been brought to market with shorter lead times in terms of
design, prototyping and production cycles. These products are some of the most
exciting that the Maisons have launched in recent years. In this respect,
Cartier is to be complimented for its award-winning Declaration range of ladies
watches and the new Santos collection of men`s and ladies watches launched
earlier this year. The new Santos models celebrate 100 years of the design,
which was originally created to celebrate the pioneering Brazilian aviator,
Alberto Santos-Dumont.
Whilst all of the Group`s watchmaking Maisons offer products of the highest
calibre, I would single out Jaeger-LeCoultre for a special mention this year. At
the Salon International de la Haute Horlogerie held in Geneva in April 2004,
Jaeger-LeCoultre presented the world`s first spherical tourbillon movement, a
masterpiece of engineering and miniaturisation and a tribute to the skill of the
watchmakers involved in its conception, design and production. A limited edition
of 75 Gyrotourbillon I watches will be produced, all of which had been sold by
the end of the Salon.
Montblanc, our principal writing instrument manufacturer, continues to broaden
its appeal in new market areas, with new product ranges and with enhanced
distribution, for example through its flagship boutique on Madison Avenue in New
York, which opened during the year.
The year has seen significant progress being made at both Alfred Dunhill and
Lancel. The very high losses in the year to 31 March 2003, which included
substantial restructuring charges, will not be repeated and I believe that both
companies are on track for recovery. Alfred Dunhill has enhanced its wholesale
distribution activity, particularly in the United States and Europe, and is
successfully growing its business in Mainland China. Lancel is focusing on the
domestic French market, whilst developing a wholesale business in selected
territories overseas.
Current trading and outlook for the year
Although the year under review started with a combination of extremely adverse
conditions, there has been a steady improvement in global sentiment since last
summer. That has translated into a recovery in terms of Richemont`s businesses.
The improvement in sales picked up markedly from December 2003 and continued
into the final quarter, with very strong performances being seen in the United
States and Asia.
We have also seen strong demand in April and May 2004, with increases in sales
at actual exchange rates of 23 and 21 per cent, respectively. Although coming
off a low base last year, as a consequence of the SARS crisis and the war in
Iraq, the Group`s results in the first half of this year will inevitably benefit
from the improved performance that we are currently seeing.
Nevertheless, we prefer to take a cautious stance as to the outlook for the
remainder of the financial year. There are, however, some grounds for optimism
and I am confident that the Group is now well positioned to benefit from any
improvement in consumer demand that we may see in the months ahead. Given the
potential of the underlying businesses and the strength of Richemont`s balance
sheet, my colleagues and I look to the future with confidence.
Business Review
Sales and operating profit
March 2004 March 2003
euro m euro m
Sales 3 375 3 651 - 8 %
Cost of sales (1 283) (1 367)
Gross margin 2 092 2 284 - 8 %
Net operating expenses (1 796) (2 025) - 11 %
Operating profit 296 259 + 14 %
Although underlying sales in local currencies were in line with the prior year,
the strengthening of the euro, in particular against the dollar and the yen,
resulted in sales at actual exchange rates being 8 per cent below the prior
year`s levels, at euro 3 375 million. Whilst sales in the first six months of
the year were down by 14 per cent, trading in the second six months showed
promising signs of recovery. In constant currency terms, sales during the final
quarter of the year increased by 10 per cent.
The gross margin percentage declined from 62.6 per cent to 62.0 per cent.
Currency movements had an adverse impact given the predominantly euro and Swiss
franc cost base of the Group, whilst manufacturing capacity utilisation remained
below optimum levels.
Net operating expenses, including the impact of restructuring and impairment
charges in the prior year, decreased by 11 per cent. This more than offset the
decrease in gross margin and resulted in a 14 per cent increase in operating
profit compared to the prior year.
Restructuring and impairment charges in the prior year of euro 91 million
related to the restructuring of Alfred Dunhill and Lancel activities, the
rationalisation of the Group`s manufacturing operations and the termination of
certain lease commitments. No material restructuring or impairment charges are
included in the results for the year under review.
Operating profit increased to euro 296 million and the operating margin improved
by 1.7 percentage points to 8.8 per cent.
Analysis of sales and profitability by business area
The following table analyses the sales and operating contribution of the Group`s
five main areas of activity. In contrast with the presentation adopted last
year, a new business segment, `Leather and accessories`, which comprises Alfred
Dunhill and Lancel, has been introduced. In addition, restructuring and
impairment charges totaling euro 91 million in respect of the prior year have
been allocated to each respective area of activity. Appendix 1 to this report
provides a reconciliation to the previously presented figures.
March 2004 March 2003
- restated
euro m euro m
Sales
Jewellery Maisons 1 808 1 994 - 9 %
Specialist watchmakers 780 808 - 4 %
Writing instrument 389 394 - 1 %
manufacturers
Leather and accessories 258 302 - 15 %
Maisons
Other businesses 140 153 - 8 %
3 375 3 651 - 8 %
Operating result
Jewellery Maisons 367 421 - 13 %
Specialist watchmakers 95 80 + 18 %
Writing instrument 55 68 - 19 %
manufacturers
Leather and accessories (42) (107) + 61 %
Maisons
Other businesses (9) (25) + 64 %
466 437 + 7 %
Unallocated costs (170) (178) - 5 %
Operating profit 296 259 + 14 %
In the table above, those Maisons which are principally engaged in a specific
business area have been grouped together. Accordingly, those businesses which
have a heritage as producers of high jewellery and jewellery watches - Cartier
and Van Cleef & Arpels - are grouped together as jewellery Maisons. Their entire
product ranges, including watches, writing instruments and leather goods, are
reflected in the sales and operating results for that segment.
The Group`s jewellery Maisons reported a decline of 9 per cent in sales at
actual exchange rates, although sales were only 1 per cent lower at constant
rates. This was largely attributable to the weakness of the dollar and yen
against the euro during the year under review. During the year, Cartier launched
many new jewellery products, including Les Secrets du Boudoir and Les Delices de
Goa lines, extensions to the Le Baiser du Dragon collection, launched in the
previous year, and the Charms range. Cartier watch sales included the
contribution from the Declaration range as well as new models in the Roadster
collection. Van Cleef & Arpels` sales - in constant currency terms - increased,
reflecting better trading in the brand`s boutique network and the benefit of the
new product ranges, including Midsummer Night`s Dream and Frivole.
The Group`s specialist watchmakers reported a 4 per cent decrease in sales at
actual exchange rates. At constant exchange rates, however, sales were 4 per
cent above the prior year. Good sales growth was reported by Jaeger-LeCoultre,
IWC, Officine Panerai and Vacheron Constantin. Both Jaeger-LeCoultre and IWC
benefited from the development of new markets, largely linked to their move on
to the Richemont regional distribution platforms. New model ranges helped all of
the watchmaking Maisons generate stronger sales in the second half of the year.
Richemont`s writing instruments manufacturers - Montblanc and Montegrappa -
reported constant currency sales growth of 6 per cent for the year. This
increase was largely attributable to the further expansion of Montblanc`s retail
network, including the opening of a North American flagship boutique in New
York. Whilst writing instrument sales benefited from the launch of the
Starwalker collection, the growth in sales of other products, including leather
goods and watches, confirms the success of Montblanc`s diversification strategy.
These products now account for 36 per cent of the brand`s sales. The developing
Montegrappa brand increased sales by almost 50 per cent in the year, albeit from
a small base.
The Group`s `Leather and accessories` businesses, being Alfred Dunhill and
Lancel, have reported lower levels of losses as the benefits of the
restructuring steps taken last year begin to flow through into results. In the
prior year, restructuring and impairment charges contributed euro 52 million to
operating losses. Excluding the impact of store closures for both Maisons, sales
at constant exchange rates decreased by 3 per cent for the year as a whole.
Lancel`s focus is now on France, the brand`s traditional base, and China, where
11 franchised stores have already been established.
The `Other businesses` segment includes Chloe, Hackett, Purdey and Old England
as well as certain watch component manufacturing activities for third parties.
The inclusion of these smaller businesses in one segment recognises the
disparity in size between them and the Group`s larger operations. These Maisons
are still in a developmental phase, albeit that some - such as Chloe and Hackett
- are growing rapidly. Sales of these businesses reflected the trends seen
during the year, with the first half being extremely difficult and a return to
growth in constant currency terms in the second half of the year.
Operating profit before unallocated costs totalled euro 466 million, an increase
of 7 per cent compared to the prior year. This reflects the lower gross margin
contribution, offset by reductions in operating expenses and significantly lower
restructuring and impairment charges. Unallocated costs represent the costs of
general management, marketing support and related central marketing initiatives
as well as any central service costs which cannot be directly allocated to
segments. Central services include, for example, the IT, legal, intellectual
property and finance functions of the Group.
Sales by region
March March at at
2004 2003 actual constant
euro m euro m exchange exchange
rates rates
Europe 1 458 1 558 - 6% - 5%
Japan 625 705 - 11 % - 3 %
Asia-Pacific 637 695 - 8 % + 7 %
Americas 655 693 - 5 % + 11 %
3 375 3 651 - 8 % + 0 %
Sales in European markets account for 43 per cent of sales, making this the
Group`s most important geographic region. With the combined effects of lower
tourist numbers as well as weak domestic economies, sales in the region
decreased by 6 per cent for the year, although encouraging signs emerged in the
final quarter with growth at constant exchange rates of 8 per cent being
reported. At constant exchange rates, full year sales in France and Italy
declined by 13 per cent and 7 per cent respectively, whilst sales in the United
Kingdom, where the economic climate was more positive, increased by 5 per cent.
Sales in Germany decreased by 12 per cent.
Sales in Japan decreased by 3 per cent in constant currency terms or 11 per cent
on conversion into euros at actual exchange rates. The weaker yen resulted in
price increases during the year. The impact of these increases, together with a
limited offering of engagement rings and jewellery lines at lower price points,
in particular at Cartier, contributed to a relatively weak performance.
Sales in the Asia-Pacific region increased by 7 per cent in constant currency
terms but were 8 per cent lower at actual exchange rates. These encouraging
figures reflect strong sales growth in the second half of the year under review,
given the negative impact of the SARS epidemic earlier in the period. In
constant currency terms, annual sales in Hong Kong and China increased by 5 per
cent and 24 per cent, respectively. As elsewhere, the positive trend seen in the
latter part of the year continued, with sales in the Asia-Pacific region showing
growth of 18 per cent in constant currency terms during the final quarter.
The Americas region showed sales growth of 11 per cent in constant currency
terms, reflecting the strong economy and renewed consumer confidence. In euro
terms, however, sales decreased by 5 per cent for the year as a whole. Again,
the final quarter of the financial year showed particularly strong growth, with
sales increasing by 23 per cent at constant rates.
Sales by distribution channel
March 2004 March 2003
euro m euro m
Retail sales 1 392 1 496 - 7 %
Wholesale sales 1 983 2 155 - 8 %
3 375 3 651 - 8 %
Retail sales remained in line with the previous year at 41 per cent of total
sales. At constant exchange rates, retail sales were 2 per cent higher, the
modest increase reflecting good growth in Asia-Pacific and the Americas, largely
offset by weakness in Japan. European retail sales were broadly in line with the
prior year.
In constant currency terms, wholesale sales were in line with the prior year, a
shortfall in Europe offsetting growth in other regions. At actual exchange
rates, total wholesale sales decreased by 8 per cent to euro 1 983 million.
The Group`s network of owned stores grew by 14 during the year to 552 outlets.
Cartier opened 6 new boutiques in the year but also closed 6, whilst Van Cleef &
Arpels opened one new boutique, in Japan. Most of the overall increase relates
to the 14 new openings by Montblanc, including a New York flagship store for the
US market. The continuing rationalisation of the Alfred Dunhill retail network
led to the net closure of 9 stores. The increase in `Other` reflects the
internalisation of certain Chloe franchise stores in Japan.
Retail network (number of points of sale)
Owned Franchised Total
Cartier 157 55 212
Van Cleef & Arpels 33 7 40
Piaget 19 14 33
Montblanc 141 87 228
Alfred Dunhill 73 85 158
Lancel 70 52 122
Hackett 26 0 26
Other 33 13 46
552 313 865
Profit and loss account and results of associated company
March 2004 March 2003
euro m euro m
Operating profit 296 259
Net investment income/(expense) 6 (56)
Profit before taxation 302 203
Taxation (64) (50)
Profit after taxation 238 153
Minority interests 0 3
Net profit of the parent and 238 156
its subsidiaries
Share of results of associated
company
- British American Tobacco 422 486
Net profit of the Group 660 642
Following the change of accounting treatment in respect of the British American
Tobacco preference shares as a consequence of the issue of call warrants over
those shares in January 2003, income of euro 40 million (2003: euro 9 million)
has been included within the net investment income/expense caption in terms of
the adjustment to the net present value of the shares. Interest expense in
respect of the Group`s net debt during the year reflected the continuing low
level of interest rates globally and lower levels of net debt during the year.
In the prior year, net investment expense included provisions of some euro 20
million to write down unlisted investments to the prevailing valuation as at 31
March 2003.
The Group`s effective taxation rate for the year declined from 24.7 per cent to
21.2 per cent. This reflected the ongoing benefits of operational integration
and the continuing pattern of lower corporate tax rates globally.
Associated company - British American Tobacco (`BAT`)
The Group`s share of the results of its associated undertaking, BAT, decreased
by 13 per cent to euro 422 million.
The figure in respect of the Group`s share of the results of BAT represents the
Group`s 19.2 per cent share of BAT`s results for the six months to 30 September
2003 and its 19.6 per cent share of BAT`s results for the six months to 31 March
2004. The movement in the Group`s percentage holding of BAT`s ordinary capital
is due to the share buy-back programme carried out by BAT during the year. The
Group does not participate in the buy-back programme.
The results for the comparative period reflected the Group`s 21.0 per cent
effective interest for the nine months to 31 December 2002 and a lower interest
of 18.6 per cent for the three months to 31 March 2003. The reduction in the
effective interest followed the issue of warrants over the BAT convertible
redeemable preference shares by R & R Holdings SA, Richemont`s joint venture
interest, in January 2003 and the resultant change in the accounting treatment
of the preference shares. The warrants were exercised on 28 May 2004, resulting
in the preference shares being converted into ordinary shares. Given the
increase in the number of ordinary shares as a consequence of the conversion of
the preference shares, Richemont`s effective interest in the ordinary capital of
BAT has now decreased to 18.6 per cent.
On 4 June 2004, Richemont received GBP 544 million in respect of its holding of
the preference shares. In euro terms, this amounted to euro 828 million.
BAT`s attributable profit, excluding goodwill amortisation and exceptional
items, was 1 per cent higher than the prior year. However, after taking into
account the adjustment to the present value of the preference shares and
preference share dividends, the results for 2004 were.1.per cent below the
comparable figure in the prior year. Taking into account the Group`s reduced
equity interest and the 8 per cent strengthening of the euro against the pound
over the prior year, the Group`s share of BAT`s results in euro terms declined
by 13 per cent.
In its financial year to 31 December 2003, BAT had shipments of 792 billion
cigarettes, an increase of 2 per cent over the prior year. Their four global
`drive` brands, Kent, Dunhill, Lucky Strike and Pall Mall grew by 13 per cent
between them over the prior year. Kent`s volumes reached almost 30 billion, up
14 per cent, while Dunhill, already over the 30 billion mark, was up 8 per cent.
Lucky Strike had a difficult time but performed more strongly as the year
progressed. Pall Mall broke the 30 billion barrier for the first time, up 32 per
cent, largely due to an impressive performance in Italy.
During the year, BAT acquired Tabacalera Nacional S.A.A. in Peru and Duvanska
Industija Vranje in Serbia. Effective 31 December 2003, it also acquired Ente
Tabacche Italiani S.p.A. in Italy. The major transaction announced by BAT during
the year was the proposed creation of Reynolds American, combining R. J.
Reynolds (`RJR`) and the US businesses of BAT`s American subsidiary, Brown and
Williamson, to form Reynolds American, a holding company to be 58 per cent owned
by RJR shareholders and 42 per cent owned by BAT. In addition, Lane Limited,
BAT`s US smoking tobacco and cigar business, will be sold by BAT to Reynolds
American for $ 400 million in cash. Reynolds American will have a combined share
of approximately one third of the US domestic market. Subject to regulatory
approval, BAT anticipates that this transaction will be completed later this
year.
On a regional basis, BAT`s operating profit - excluding goodwill and exceptional
items - was 4 per cent higher at GBP 2 781 million, with higher contributions
from Asia-Pacific, Latin America and Africa and Middle East regions. The growth
of profit at comparable rates of exchange would have been 3 per cent as the
impact of a stronger euro and South African rand more than offset the continued
weakness of the US dollar and currency devaluations in Latin America.
During the year to December 2003, BAT`s profit from the America-Pacific region
was GBP 955 million, down GBP 23 million from the previous year, as US dollar
exchange rate movements and the very difficult trading conditions in the US
cigarette business were only partly offset by a strong profit increase from the
rest of the region. Volumes were down 4 per cent to 103 billion, as the
increases from South Korea and Japan were more than offset by the impact of
lower industry volumes in the US and Canada.
In Asia-Pacific, regional profit was up GBP 10 million to GBP 473 million over
the prior year with outstanding performances in Australia, Malaysia, Vietnam and
India, partially offset by reduced profit from Cambodia, Indonesia and duty
free. Regional volumes remained constant.
In Latin America, profits were up GBP 47 million to GBP 440 million due to
increases from many markets in the region and the first-time contribution from
the acquisition in Peru. The excellent regional results were achieved despite
the impact of currency devaluations compared to the previous year and difficult
economic conditions in many of the countries. Volumes in the region declined by
2 per cent mainly due to Brazil.
Total profit in Europe was down GBP 11 million to GBP 536 million, despite the
strengthening of the euro. While there were good performances in Eastern and
Central Europe, led by Russia and Romania, these were insufficient to cover the
lower profit generated in Western Europe. Volumes were up 7 per cent with strong
growth from Russia, Romania and Italy, partially offset by decreases in France
and Germany.
In the Africa and Middle East region, profit at GBP 337 million was up by GBP 77
million. This very good performance was achieved despite the cost of continuing
investments in this region and reflected generally good performances, as well as
the favourable impact of the stronger South African rand. Volumes were up 7 per
cent and net turnover at comparable rates of exchange was 14 per cent higher.
In the year to 31 December 2003, BAT carried out a detailed review of its
manufacturing operations and organisational structure, including an initiative
to reduce overheads and indirect costs, that resulted in the consolidation of
its manufacturing operations in the UK, a major restructuring of its business in
Canada and an agreed closure plan for a factory in Belgium. The operating
results for the year included an exceptional charge of GBP 437 million for these
restructuring activities. In addition, BAT also included in its exceptional
items for the year a write down of a loan to a joint venture of GBP 87 million
and the loss on the disposal of a subsidiary of its Canadian operation of GBP 76
million.
Using BAT`s adjusted diluted earnings per share as an indicator of its
underlying performance, in the year to December 2003 earnings grew by 4 per cent
to 69.21 pence per share, benefiting from the higher operating profit and the
impact of its share buy-back programme. This trend continued in the quarter to
March 2004 with adjusted earnings per share up 6 per cent on the comparable
period.
During the year to 31 March 2004, Richemont received dividends from BAT on both
its ordinary and preference shares totalling euro 252 million.
Cash flow
March 2004 March 2003
euro m euro m
Operating profit 296 259
Depreciation and other non-cash items 151 228
Earnings before interest, tax and 447 487
depreciation
Decrease in working capital 114 69
Cash generated from operations 561 556
Returns on investments and servicing (26) (37)
of finance
Taxation paid (68) (125)
Net acquisitions of fixed assets (118) (180)
Free cash flow from operations 349 214
Dividends received from associate - 252 258
BAT
Acquisition of subsidiary (7) (106)
undertakings and minority interests,
net of cash acquired
Other investing activities, net 37 17
Net cash inflow before financing 631 383
activities
Dividends paid to unitholders (176) (178)
Buy-back of Richemont units, net (98) (31)
Other financing activities, net (13) (289)
Exchange rate effects 29 94
Increase/(decrease) in cash, cash 373 (21)
equivalents and short-term borrowings
Cash and cash equivalents at (744) (723)
beginning of year
Cash and cash equivalents at end of (371) (744)
year
Long term borrowings (423) (433)
Net borrowings (794) (1 177)
Earnings before interest, tax and depreciation amounted to euro 447 million, a
decrease compared to the prior year largely due to the reduction in non-cash
items in the year under review.
Working capital requirements decreased by euro 114 million during the year,
primarily reflecting the effective management of inventories. As a result, cash
generated from operations increased by euro 5 million to euro 561 million.
Dividends received from BAT comprise the final dividend in respect of BAT`s
financial year ended 31 December 2002 and the interim dividend in respect of the
2003 financial year. Total dividends received amounted to euro 252 million,
including euro 13 million in respect of the preference shares.
The reduction in fixed asset expenditure compared to the prior year reflects the
planned slowdown in the growth of the retail network and after-sales service
centre expansion programmes. After the enlargement of the Group`s watch
manufacturing capacity in recent years, the current year has seen lower levels
of expenditure, the programme being largely completed. Gross capital expenditure
amounting to euro 134 million was broadly in line with the depreciation charge
for the year.
Summarised balance sheet
31 March 2004 31 March 2003
euro m euro m
Long-term assets
Fixed assets 743 801
Investment in associated 2 454 2 590
undertaking - BAT
Other long-term assets 381 1 165
3 578 4 556
Net current assets 2 359 1 795
Net operating assets 5 937 6 351
Net borrowings (794) (1 177)
Cash 186 150
Bank loans and overdrafts (557) (894)
Short-term portion of long-term (359) (23)
borrowings
Long-term borrowings (64) (410)
Other long-term liabilities (171) (176)
4 972 4 998
Equity
Unitholders` funds 4 968 4 992
Minority interests 4 6
4 972 4 998
The carrying value of the `Investment in associated undertaking - BAT`,
amounting to euro 2 454 million, includes only the Group`s investment in British
American Tobacco ordinary shares. At 31 March 2004, the Group`s interest in BAT
ordinary shares amounted to 19.6 per cent and BAT`s market capitalisation, based
on 2 058 million total ordinary shares in issue, amounted to euro 25 162 million
(GBP 16 841 million). The fair value of the Group`s investment in BAT ordinary
shares therefore amounted to euro 4 927 million.
At March 2003, the Group`s BAT preference shareholding was classified as a long-
term asset and at March 2004 as a current asset, the valuation being determined
by reference to the discounted present value of the redemption proceeds and the
anticipated future dividend flows in the period to maturity. On 4 June 2004, the
Group received the proceeds of the disposal of the preference shares amounting
to euro 828 million.
At 31 March 2004, the Group`s net borrowings had been reduced by euro 383
million to euro 794 million. In addition to repayments effected during the year,
this also reflects the weakening of the dollar and related currencies against
the euro from March 2003 to March 2004.
Consolidated profit and loss account - on a reported basis
March March
2004 2003
euro m euro m
Operating profit 296 259
Exceptional items - 272
Profit before net investment 296 531
income/(expense)
Net investment income/(expense) 6 (56)
Profit before taxation 302 475
Taxation (64) (50)
Profit after taxation 238 425
Minority interests - 3
Net profit of the parent and its 238 428
subsidiaries
Share of net profit of associated 82 300
company
Share of net profit on an adjusted basis 422 486
Goodwill amortisation (196) (186)
Share of exceptional items reported by (144) -
associate
Net profit of the Group on a reported 320 728
basis
A summary of the effects of goodwill
amortisation and exceptional items on
unitholders` net profit is shown below:
Net profit of the Group on a reported 320 728
basis
Elimination of goodwill amortisation - 196 186
associated company
Elimination of exceptional items 144 (272)
Gain arising on BAT preference shares - (301)
Write-down of Hanover Direct preference - 29
shares
Share of exceptional items reported by 144 -
associated company
Net profit on an adjusted basis 660 642
After taking into account goodwill amortisation in respect of the Group`s
interest in British American Tobacco and exceptional items, net profit on a
reported basis declined from euro 728 million to euro 320 million. Reflecting
the accounting policy adopted by the Group in the previous financial year,
goodwill arising from the acquisition of subsidiary companies is deducted
immediately from unitholders` funds rather than being capitalised and amortised.
All goodwill amortisation thus relates to the Group`s interest in BAT, the
Group`s sole associated company.
The exceptional items reported by BAT for the year primarily related to
restructuring costs in the UK and Canada, the Group`s share of these costs
amounting to euro 144 million. In the prior year, BAT reported no exceptional
items. Exceptional gains amounting to euro 272 million in the comparative period
reflect the Group`s deemed sale of BAT preference shares, as a consequence of
the issue of convertible warrants over these shares in January 2003, generating
a gain of euro 301 million, and an exceptional provision of euro 29 million in
respect of the Group`s investment in Hanover Direct Inc., a former associate
company.
Excluding goodwill amortisation and exceptional items from both periods, net
profit of the Group on an adjusted basis increased by 3 per cent to euro 660
million.
Proposed dividend
The Board of Directors has proposed a dividend of euro 0.40 per unit, an
increase of 25 per cent over the prior year`s level. The dividend will be
payable to unitholders on 27 September 2004.
Annual General Meeting
The Annual General Meeting of shareholders of Compagnie Financiere Richemont SA
will be held at 10.00 am in the `Grande Salle` of the Hotel des Bergues, 33 Quai
des Bergues, Geneva on Thursday, 16 September 2004.
Johann Rupert Richard Lepeu
Executive Chairman Group Finance Director
Compagnie Financiere Richemont SA Geneva, 10 June 2004
EXTRACTS FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AT 31 MARCH 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2004
2004 2003
Notes euro m euro m
Sales 1 3 375 3 651
Cost of sales (1 283) (1 367)
Gross profit 2 092 2 284
Net operating expenses 2 (1 796) (2 025)
Operating profit 296 259
Exceptional items 3 - 272
Profit before net investment 296 531
income/(expense)
Net investment income/(expense) 4 6 (56)
Profit before taxation 302 475
Taxation (64) (50)
Profit after taxation 238 425
Minority interests - 3
Share of results of associated 5 82 300
undertaking
Net profit 320 728
A summary of net profit, adjusted
to exclude the effects of goodwill
amortisation and exceptional
items, is set out below:
Earnings per unit 6 euro euro
Earnings per unit on a reported 0.582 1.309
basis - basic
Earnings per unit on a reported 0.578 1.307
basis - fully diluted
The above summary of adjusted profit is supplementary to the requirements of
Swiss generally accepted accounting principles.
2004 2003
Note euro m euro m
Net profit as reported 320 728
Goodwill amortisation in respect of 196 186
associated undertaking
Exceptional items - (272)
Exceptional items reported by 144 -
associated undertaking
Net profit on an adjusted basis 660 642
Earnings per unit 6 euro euro
Earnings per unit on an adjusted 1.200 1.155
basis - basic
Earnings per unit on an adjusted 1.193 1.153
basis - fully diluted
CONSOLIDATED BALANCE SHEET
AT 31 MARCH 2004
2004 2003
Notes euro m euro m
Long-term assets
Property, plant and equipment 684 735
Intangible assets 59 66
Deferred tax assets 187 137
Investment in associated 7 2 454 2 590
undertaking
Other long-term assets 8 194 991
3 578 4 519
Net current assets
Inventories 9 1 402 1 604
Debtors 10 1 835 950
Cash 186 150
Current assets 3 423 2 704
Bank loans and overdrafts (557) (894)
Short-term portion of long-term (359) (23)
loans and finance leases
Accruals and deferred income (170) (171)
Other current liabilities 11 (532) (333)
Current tax liabilities (97) (95)
Provisions (79) (123)
1 629 1 065
5 207 5 584
Equity
Share capital 334 334
Participation reserve 645 645
Unitholders` capital 979 979
Treasury units ( 590) ( 487)
Retained earnings and other 4 579 4 500
reserves
Unitholders` funds 4 968 4 992
Minority interests 4 6
4 972 4 998
Long-term liabilities
Borrowings 64 410
Secured call warrants - 37
Provisions 46 53
Post-retirement and other benefit 89 83
obligations
Deferred tax liabilities 36 3
235 586
5 207 5 584
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2004
Note euro m euro m
Cash generated from operations 12 561 556
Interest income and similar items 19 10
Interest paid and similar items (32) (47)
Dividends from associated 239 258
undertaking
Taxation paid (68) (125)
Net cash inflow from operating 719 652
activities
Investing activities
Acquisition of property, plant and (124) (167)
equipment
Proceeds from disposal of 14 16
property, plant and equipment
Acquisition of intangible assets (10) (30)
Proceeds from disposal of 2 1
intangible assets
Acquisitions of subsidiary
undertakings
and minority interests, net (7) (106)
of cash acquired
Disposal of associated undertaking 1 -
