| Thu 9 Jun 2005, 8:12 | | Richemont - Results for the year ended 31 March 20 |
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RICHEMONT SECURITIES AG
Sharecode: RCH
ISIN: CH0013157380
RESULTS FOR THE YEAR ENDED 31 MARCH 2005
9 June 2005
Richemont, the Swiss luxury goods group, announces its results for the year
ended 31 March 2005
Adjusted results before exceptional items and goodwill amortisation
March 2005 March 2004
Sales EUR 3 717m EUR 3 375 m + 10 %
Operating profit EUR 505 m EUR 296 m + 71 %
Net profit
- parent and subsidiaries EUR 413 m EUR 238 m + 74 %
- share of associated company EUR 468 m EUR 422 m + 11 %
- the Group EUR 881 m EUR 660 m + 33 %
Earnings per unit
- fully diluted basis EUR 1.588 EUR 1.193 + 33 %
Dividend per unit EUR 0.50 EUR 0.40 + 25 %
Special dividend per unit EUR 0.50
Total dividend per unit EUR 1.00
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.
The consolidated income statement on a reported basis is given on page 18 of
this document.
- The recovery in sales seen in the first half of the year continued into the
second half year, with sales for the twelve-month period increasing by 10
per cent to EUR 3 717 million.
- Operating profit from Richemont's luxury goods businesses was 71 per cent
above the prior year level at EUR 505 million. Higher sales resulted in a
significantly higher gross margin contribution, whilst operating expenses
grew by only 5 per cent.
- Free cash flow from operations was EUR 280 million for the year. Net cash
at 31 March 2005 amounted to EUR 617 million.
- In addition to the 25 per cent increase in the level of ordinary dividend
to EUR 0.50 per unit, a special dividend of EUR 0.50 per unit will also be
paid.
- Richemont's share of the net profit of British American Tobacco, before
goodwill amortisation and exceptional items, grew by 11 per cent to
EUR 468 million. This was despite the Group's reduced effective interest
in BAT during the year.
- Richemont's net profit for the year, before exceptional items and goodwill
amortisation in respect of the investment in BAT, amounted to EUR 881
million, an increase of 33 per cent. After taking into account goodwill
amortisation and exceptional items, net profit for the year on a reported
basis in accordance with Swiss generally accepted accounting principles
increased to EUR 985 million from EUR 320 million in the prior year.
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 and Group Chief Executive Officer's review
We are happy to report strong financial results for the financial year ended 31
March 2005. After the difficulties that the luxury goods industry has faced in
recent years, it is heartening to see such a strong recovery in demand and the
very positive impact that this has had on the Group's profitability.
The higher sales and improved gross margin, linked to an overall increase of 5
per cent in net operating expenses for the year, have resulted in an improvement
of some EUR 209 million in terms of operating profit, which amounted to EUR 505
million for the year. This also reflects the great emphasis that we have
continued to place on containing costs, particularly in terms of support
services in the regions and at the centre.
Profit after tax increased to EUR 415 million, excluding exceptional items, and
the contribution from the Group's investment in British American Tobacco
increased by 11 per cent to EUR 468 million, despite the Group's lower effective
interest in the company during the year. Overall, net profit of the Group, on an
adjusted basis excluding goodwill amortisation in respect of the investment in
British American Tobacco and exceptional items, increased by 33 per cent to EUR
881 million.
Richemont's operating companies have worked hard to achieve these results and we
thank our colleagues throughout the organisation for the contribution that they
have all made to this success.
Richemont's luxury goods businesses
Sales, at EUR 3 717 million, are the second highest in the Group's history and
operating profit at EUR 505 million - whilst not quite at the record levels
achieved in 2000 and 2001 - represents a significant recovery from the results
seen in the last two years.
Richemont Maisons have enjoyed good growth across all geographic regions and all
of our business segments have reported higher sales.
The 'Jewellery Maisons', Cartier and Van Cleef & Arpels, saw their combined
turnover increasing by 8 per cent to EUR 1 956 million. Cartier has performed
strongly in all markets with double-digit growth in underlying sales in all
regions, with the exception of Japan. New watch models such as the Santos 100,
launched in 2004, and jewellery ranges such as the Panthere have all contributed
significantly to the strong performance. Cartier remains the acknowledged global
leader in its market.
Although small in comparison to Cartier, Van Cleef & Arpels has also posted good
growth during the year. Having established a product range that embodies the
values and heritage of the Maison, our goal now is to continue to gradually
expand its global distribution.
This was an excellent year for Richemont's watchmakers. The majority were able
to post double digit increases in sales and demand was strong in all regions.
Particularly strong growth was seen in the Asia-Pacific region and in the
Americas. Notably, IWC has benefited from its roll-out into new markets, linked
to the introduction of exciting new models such as the Aquatimer.
Jaeger-LeCoultre too has continued its global roll-out and is benefiting from
the increased awareness of its character as a true `Manufacture' in terms of
high watchmaking skills.
Montblanc continues to grow its global business, benefiting from the broadening
of its product ranges and the extension of its network of boutiques. Although it
remains focused as the world's leading luxury writing instrument producer,
Montblanc is also seeing strong demand for its watch and leather goods ranges.
The Timewalker range of chronographs has performed extremely well and has helped
the brand to further strengthen its position in terms of distribution through
high-end watch and jewellery retailers.
We are pleased to report that Alfred Dunhill has reduced its level of operating
losses. Sales increased by 5 per cent, with strong growth in Asia-Pacific,
including China, and losses were reduced by 20 per cent.
However, this is still an unsatisfactory situation. The focus for the year ahead
will be to significantly improve operating efficiency within the Maison, whilst
continuing to expand the sales base, particularly in China where the brand
already enjoys a very strong position.
Lancel has had a testing year. With its business largely centred on the French
domestic market, it has suffered from the depressed local economy and the
continued low level of tourism. Sales were broadly in line with the prior year.
We expect to see an improved performance in the current financial year, although
much will depend on consumer confidence and levels of demand in France.
The year saw the further development of Richemont's retail distribution network.
The Group opened 25 new stores, including 13 for Montblanc, and continued the
programme of remodelling and refurbishing of existing stores.
Cartier opened its 7th store in mainland China at Bund 18 in Shanghai in
December 2004 and now has 9 boutiques in the country. The totally renovated
Vacheron Constantin boutique at the home of the Maison in the heart of Geneva
was reopened in December 2004, in time for the Maison's 250th anniversary year
in 2005. Van Cleef & Arpels also opened a flagship boutique in London's Bond
Street, whilst September saw the opening of the refurbished Lancel store at its
home on the Place de l'Opera in Paris.
British American Tobacco plc (`BAT')
The past year saw the disposal of the final tranche of BAT preference shares
last June, in accordance with the terms of the 1999 merger agreement, and a
disposal by the Group to Remgro Limited, our joint venture partners in the
investment in BAT, of a 0.6 per cent interest in the ordinary shareholding.
As a result of these factors, mitigated to some extent by BAT's own share buy-
back programme, Richemont's effective interest in BAT declined from 19.6 per
cent at 31 March 2004 to 18.3 per cent at the end of the current financial year.
Nonetheless, the investment in BAT continues to represent over 40 per cent of
the Group's balance sheet total and to account for more than 50 per cent of the
Group's net income on an adjusted basis, before goodwill amortisation and
exceptional items.
BAT contributed EUR 468 million to Group profit for the year, an increase of 11
per cent over the prior year, despite the lower effective interest.
Cash flows
Richemont's luxury goods businesses generated a cash flow from operations this
year of EUR 481 million before net acquisitions of fixed assets and taxation
payments. Whilst this is lower than the prior year, the difference is largely
due to an increase in raw materials inventories, including gemstones and
precious metals. In addition to the cash inflow of EUR 1 007 million in respect
of the BAT preference shares and the sale of the 0.6 per cent interest in BAT
ordinary shares, the Group received dividends of EUR 267 million from BAT.
Taking into account the Group's own dividend payment, taxation and other
investing and financing activities, cash resources increased by a net EUR 1 147
million during the year. The Group's net indebtedness has been paid down during
the year and at 31 March 2005 the Group had cash on hand, net of structural long
term borrowings, of EUR 617 million.
We believe that this cash generative capacity and the resultant sound financial
position is one of Richemont's principal strengths. Whilst we are very confident
of the prospects for the luxury goods industry, we acknowledge that the business
is susceptible to the impact of economic forces and external shocks, together
with the swings in consumer confidence that these can cause.
The Group's financial strength is, therefore, an insurance against whatever the
future may hold.
Dividend
Recognising the significant upturn in Richemont's luxury goods businesses, the
continuing strength of its tobacco interests and the elimination of the Group's
debt, the Board has decided to recommend the payment of a total dividend of EUR
1.00 per unit this year. This comprises the regular dividend of EUR 0.50 per
unit, an increase of 25 per cent over the prior year, together with a special
dividend, funded from the proceeds of the liquidation of the BAT preference
shareholding, of EUR 0.50 per unit.
The regular dividend will be paid jointly by Richemont SA, Luxembourg - which
will pay EUR 0.46 per unit - and Compagnie Financiere Richemont SA - which will
pay EUR 0.04 per unit. The dividend payable by Compagnie Financiere Richemont SA
will be subject to Swiss withholding tax of 35 per cent. The special dividend
will be payable by Richemont SA, Luxembourg. No withholding tax will be
deductible in respect of the dividends payable by Richemont SA, Luxembourg.
Sale of Hackett
The Group has announced the sale of its investment in Hackett, one of the
Group's smaller businesses. Although a well-established part of the Group and a
growing business, Hackett is focused on the highly competitive men's tailoring
business. This is an area where there are only limited synergies within the
Group and, after a detailed review of the options open to Richemont, we felt
that a sale to an industry specialist, which could take Hackett to the next
stage in its development, was the right thing to do. The transaction will have
no material impact on Richemont's balance sheet, cash flow or results for the
year ending 31 March 2006.
American Depository Receipt Programme
In 1995, Richemont launched a sponsored American Depository Receipt ('ADR')
programme in conjunction with Bank of New York. The ADR's were not listed but
were traded 'over the counter' in the United States. This was seen as a means to
allow US investors access to Richemont and mirrored the South African Depository
Receipt programme launched when Richemont was founded in 1988.
Over the years, Richemont has attracted a significant US shareholder base.
However, this has largely comprised institutional investors, who have preferred
to invest in Richemont 'A' units directly, through the Group's principal listing
on the SWX Swiss Exchange. As such, the number of ADR's in circulation remains
only a small percentage of the 'A' unit capital and, after an evaluation of the
alternatives, the Board has decided that the ADR programme should be withdrawn.
We will work together with Bank of New York to ensure that ADR holdings are
converted into 'A' units or sold, in accordance with ADR-holders' wishes. Bank
of New York will contact holders with further information in due course.
No changes are planned to the South African Depository Receipt programme, which
today accounts for some 30 per cent of the `A' units in issue.
Current trading and outlook for the year
The pattern of steady sales growth seen in the first quarter of calendar 2005
has continued into the months of April and May, when sales for the Group overall
have increased by 15 per cent at actual exchange rates.
The Group's watch businesses, in particular, have continued to show strong
levels of growth in the first two months of the current financial year.
The Asia-Pacific and Americas regions have been the principal drivers of growth,
although Europe has also produced double-digit growth during the period.
Notwithstanding the relatively strong euro, we are optimistic that, barring
unforeseen developments, the year ahead will be a good one for the Group.
Whilst we cannot control the external market environment, we are hopeful that
the positive sales trends seen during the year gone by and in recent months will
continue. Equally, the steps we have taken and are still implementing to
optimise the Group's operations and improve effectiveness will continue to
benefit the Group. We will do our utmost to ensure that the central and regional
service functions are optimally structured to service the needs of the Maisons
and that they, in turn, are well positioned in terms of creative design, new
products and resources to allow Richemont to grow and prosper in the current
financial year and in the years ahead.
Johann Rupert Norbert Platt
Executive Chairman Group Chief Executive Officer
Compagnie Financiere Richemont SA
Geneva, 9 June 2005
Business Review
Sales and operating profit
March 2005 March 2004
EUR m EUR m
Sales 3 717 3 375 + 10 %
Cost of sales (1 325) (1 283)
Gross margin 2 392 2 092 + 14 %
Net operating expenses (1 887) (1 796)
Operating profit 505 296 + 71 %
Sales in the year increased 10 per cent to EUR 3 717 million. This increase
includes unusually high rates of growth in the first two months of the financial
year, when sales grew by more than 20 per cent. These high rates reflect the
impact of SARS in the comparative period. The improvement in sales continued for
the rest of the year, albeit at a more moderate rate, including the important
pre-Christmas quarter, when sales increased by 9 per cent.
The gross margin percentage increased from 62.0 per cent to 64.4 per cent,
reflecting both changes in product mix and a higher utilisation rate within the
Group's manufacturing facilities. In addition, price increases had a positive
influence on the gross margin percentage, offsetting the negative impact of the
weaker dollar seen during the latter part of the financial year.
Net operating expenses increased by 5 per cent, largely due to increased
communication, selling and distribution costs; communication costs having
increased by 14 per cent to EUR 414 million. As a percentage of sales, however,
communication costs represented 11.1 per cent, a marginal increase over the
prior year. Administration and other expenses decreased by 5 per cent to EUR 550
million, partly offsetting the increases described above. There were no
material, exceptional charges in either period.
Operating profit increased by 71 per cent to EUR 505 million and the operating
margin improved by 4.8 percentage points to 13.6 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.
March March
2005 2004
EUR m EUR m
Sales
Jewellery Maisons 1 956 1 808 + 8 %
Specialist watchmakers 885 780 + 13 %
Writing instrument manufacturers 427 389 + 10 %
Leather and accessories Maisons 265 258 + 3 %
Other businesses 184 140 + 31 %
3 717 3 375 + 10 %
Operating result
Jewellery Maisons 460 367 + 25 %
Specialist watchmakers 148 95 + 56 %
Writing instrument manufacturers 59 55 + 7 %
Leather and accessories Maisons (40) (42) + 5 %
Other businesses 3 (9)
630 466 + 35 %
Corporate costs (125) (170) - 26 %
Operating profit 505 296 + 71 %
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 an 8 per cent increase in sales at actual
exchange rates. During the year, Cartier launches included the new Panthere high
jewellery range and the relaunch of the Trinity collection.
Cartier watch sales included a significant contribution from the Santos range,
including the Santos 100 and Santos Dumont models. Van Cleef & Arpels' sales
increased, reflecting the effects of boutique openings and the launch of new
products, including the Hawaii line. For the segment as a whole, increasing
sales and continuing cost control have generated an operating profit of EUR 460
million and an operating margin of 24 per cent, 4 percentage points above the
prior year.
The Group's specialist watchmakers reported a 13 per cent increase in sales,
with almost all brands reporting double-digit growth. Operating profit increased
by 56 per cent to EUR 148 million, representing an operating margin of 17 per
cent compared with 12 per cent in the prior year.
Richemont's writing instruments manufacturers - Montblanc and Montegrappa -
reported sales growth of 10 per cent for the year. This was, in part,
attributable to the expansion of Montblanc's retail network but also reflected
an increase in demand across its product ranges. Writing instrument sales
particularly benefited from continued demand for the Starwalker collection,
launched last year. Leather goods, watches and other accessories now account for
more than one third of the Maison's sales. Despite the additional costs
associated with an expanding retail network, the segmental operating margin was
in line with the prior year at 14 per cent. The Montegrappa brand reported
strong growth, albeit from a small base, supported by the Group's wholesale
distribution network.
The Group's "Leather and accessories" businesses, being Alfred Dunhill and
Lancel, have reported lower levels of losses as the benefits of earlier
restructuring steps flow through into results. Despite the weaker currencies in
the brand's key Asian markets, losses at Alfred Dunhill were reduced by 20 per
cent to EUR 24 million. Lancel's results included non-recurring charges of some
EUR 7 million principally linked to its French operations as the Maison suffered
from weak demand in its principal market, France.
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 recognizes the
disparity in size between them and the Group's larger operations. Chloe, in
particular, has enjoyed an excellent year, with revenue growth of 54 per cent.
The Maison has extended its wholesale network, has received numerous design
awards and has gained a significantly higher profile in the fashion world.
Operating profit before corporate costs totalled EUR 630 million, an increase of
35 per cent compared to the prior year. The operating margin before corporate
costs consequently increased from 14 per cent to 17 per cent.
Corporate costs, which include general administration, central service functions
and central marketing initiatives, included certain provisions in the prior
year, the non-recurrence of which contributed to the reduction of 26 per cent
overall.
The improvement in the trading result, together with the reduction in corporate
costs, has resulted in an improvement in the Group's overall operating margin
from 8.8 to 13.6 per cent.
Details of sales by product line are given in Note 1 to the abridged financial
statements.
Sales by region
March 2005 March 2004 at actual at constant
EUR m EUR m exchange exchange
rates rates
Europe 1 607 1 458 + 10 % + 10 %
Japan 642 625 + 3 % + 5 %
Asia-Pacific 766 637 + 20 % + 26 %
Americas 702 655 + 7 % + 14 %
3 717 3 375 + 10 % + 13 %
Sales in European markets accounted for 43 per cent of sales; Europe remaining
the Group's most important geographic region. The good performance in the region
reflects both the strength of the Group's principal Maisons in their home
markets and signs of a recovery in terms of tourist numbers in some countries.
At constant exchange rates, full year sales in France and Italy increased by 11
per cent and 8 per cent respectively, whilst sales growth in the United Kingdom,
which has seen a number of years of good growth, slowed to 2 per cent.
Sales in Japan increased by 3 per cent, with growth driven by Cartier and the
specialist watchmakers. The Japanese market continues to grow, despite economic
factors that have slowed its development in recent years, such as weaker
exchange rates, demographic changes and the lack of growth in the broader
economic environment.
Sales in the Asia-Pacific region increased by 20 per cent. It should be noted
that sales in the first quarter of the comparative year suffered from the
adverse effects of SARS on tourism, but sales in the important pre-Christmas
quarter, unaffected by the crisis, were up 16 per cent at constant exchange
rates. At constant exchange rates, sales in Hong Kong and China increased by 32
per cent and 44 per cent, respectively.
The Americas region reported underlying sales growth of 14 per cent in constant
currency terms, reflecting the strength of demand in the USA and double-digit
growth from the Group's Jewellery Maisons and Specialist Watchmakers. At actual
exchange rates, sales in euro terms increased by 7 per cent.
Sales by distribution channel
March 2005 March 2004
EUR m EUR m
Retail sales 1 509 1 392 + 8 %
Wholesale sales 2 208 1 983 + 11 %
3 717 3 375 + 10 %
Retail sales increased by 8 per cent, with double-digit growth in Europe and the
Asia-Pacific region partly offset by lower rates in Japan and the Americas.
As a proportion of total sales, retail sales were in line with the previous year
at 41 per cent.
With strong demand for watch products, wholesale sales increased in all regions
and by 11 per cent overall.
The Group's network of owned stores grew by 25 during the year to 577 outlets.
Whereas Cartier's investments were primarily in the refurbishment of existing
stores, other Maisons expanded their retail networks, with most of the overall
increase relating to Montblanc and Alfred Dunhill. Montblanc developments
included the opening of 3 new stores in China and the takeover of 8 franchises
in Mexico. Alfred Dunhill's network increased by 8 boutiques, mainly due to the
takeover of franchises in Korea. Lancel's network decreased during the year,
reflecting its withdrawal from own-store retail activities in Japan.
Retail network (number of points of sale)
Owned Franchised Total
Cartier 154 70 224
Van Cleef & Arpels 35 9 44
Piaget 21 17 38
Montblanc 154 93 247
Alfred Dunhill 81 92 173
Lancel 65 53 118
Hackett 28 - 28
Other 39 30 69
577 364 941
Income statement on an adjusted basis
March 2005 March 2004
EUR m EUR m
Operating profit 505 296
Net investment income 2 6
Profit before tax 507 302
Taxation (92) (64)
Profit after tax 415 238
Minority interests (2) -
Net profit of the parent and its subsidiaries 413 238
Share of results of associated company
- British American Tobacco 468 422
Net profit of the Group 881 660
Net investment income was broadly in line with the prior year, in spite of a EUR
33 million decrease in income relating to the British American Tobacco
preference shares which were disposed of in June 2004.
This decrease was largely offset by a significant reduction in net interest
expense, reflecting the elimination of net debt during the year.
The Group's effective taxation rate for the year declined from 21.2 per cent to
18.1 per cent. Following the completion of a programme to integrate operations,
the Group is now more efficiently structured. With both its headquarters and a
large element of its manufacturing operations in Switzerland, the Group also
benefits from the comparatively low rate of Swiss corporate taxes.
Associated company - British American Tobacco ('BAT')
In the year under review, the Group's share of the results of its associated
company, BAT, increased by 11 per cent to EUR 468 million.
In its financial year to 31 December 2004, BAT's adjusted diluted earnings per
share, a good measure of its underlying performance, grew by 10 per cent to
75.83 pence per share. This reflects the higher operating profit, the reduced
effective tax rate, lower minority interests and the positive impact of BAT's
share buy-back programme.
In the quarter to 31 March 2005, BAT's adjusted diluted earnings per share
calculated using International Financial Reporting Standards showed an increase
of 26 per cent over the comparable period.
In the year to 31 December 2004, BAT - in line with UK accounting practice -
included within its equity an amount of GBP 918 million, being the gain on the
disposal of subsidiaries and some GBP 216 million in respect of goodwill
reinstated on its balance sheet. These items were linked to the deemed disposal
of its US operations as a consequence of the Reynolds American transaction.
Under the Group's accounting policies, Richemont has included its share of the
gain on disposal of EUR 252 million within exceptional items in its profit and
loss account on a reported basis for the year ended 31 March 2005.
In the year to 31 March 2005, Richemont's interest in BAT generated cash
totalling EUR 1 274 million. This is made up of dividends on its ordinary and
preference shares totalling EUR 267 million (2004: EUR 252 million), the
proceeds on the effective disposal of Richemont's interest in the preference
shares of some EUR 828 million as well as EUR 179 million on the disposal of a
0.6 per cent effective interest in BAT to Remgro Limited, announced in March
2005. Richemont now has an effective interest in 390 036 627 BAT ordinary
shares.
BAT has reported under UK accounting standards ('UK GAAP') for its financial
year ended 31 December 2004. From 1 January 2005, BAT has adopted International
Financial Reporting Standards ('IFRS'). In Richemont's consolidated financial
statements for the year ended 31 March 2005, the Group has included its share of
BAT results for the nine months to 31 December 2004 using UK GAAP based figures
provided by BAT. To reflect Richemont's April to March financial year, BAT's
results for the quarter ended 31 March 2005 and its balance sheet at that date,
which were prepared by BAT in accordance with IFRS, were adjusted to reflect
consistent accounting policies for the full 12-month period.
The Group's percentage interest in the ordinary capital of BAT fluctuated during
the year as a result of the conversion of the BAT preference shares into
ordinary shares on 28 May 2004 upon their sale to third party investors and the
indirect sale, announced in March 2005, of a 0.6 per cent interest in BAT shares
to the Group's joint venture partner, Remgro Limited, offset to some extent by
the effect of the share buy-back programme carried out by BAT during the year.
The following table shows the percentage interest held by Richemont in BAT
during the financial year as well as the percentages applied to the prior year.
For the year ended 31 March 2005:
1 April 2004 to 31 May 2004 19.7 %
1 June 2004 to 30 September 2004 18.7 %
1 October 2004 to 31 December 2004 18.8 %
1 January 2005 to 28 February 2005 18.8 %
1 March 2005 to 31 March 2005 18.3 %
For the year ended 31 March 2004:
1 April 2003 to 30 September 2003 19.2 %
1 October 2003 to 31 March 2004 19.6 %
BAT's own attributable profit, excluding goodwill amortisation and exceptional
items, was 9 per cent higher than the previous year at GBP 1 698 million.
However, after accounting adjustments to reflect the present value of the
preference shares and preference share dividends, BAT's results for 2005 were 11
per cent higher compared to the previous year. Notwithstanding Richemont's
reduced equity interest, the 2 per cent strengthening of sterling against the
euro and the improved profitability of BAT resulted in the Group's share of
BAT's results increasing in euro terms by 11 per cent to EUR 468 million.
In July 2004, BAT completed the agreement to combine its Brown & Williamson
(`B&W') US domestic businesses with that of R.J. Reynolds (`RJR') under Reynolds
American Inc, a new holding company 58 per cent owned by RJR shareholders and 42
per cent by BAT. BAT also sold Lane, its US-based pipe and smoking tobacco
business, to Reynolds American for $ 400 million in cash. As a consequence of
the merger, B&W and each of its affiliates (other than Reynolds American and its
subsidiaries) will be indemnified by Reynolds American for all existing and
future litigation relating to the US tobacco business.
BAT expects that the transaction will significantly improve its competitive
position in the US domestic market.
The following comments on BAT's performance have been extracted from the BAT
annual report for its financial year ended 31 December 2004:
During BAT's financial year ended 31 December 2004, cigarette volumes, including
make-your-own 'stix', grew by 8 per cent to 853 billion cigarettes.
The additional volumes were mainly gained from acquisitions together with the
impact of the Reynolds American transaction. Excluding these benefits, the
growth in sales volume would have been 0.4 per cent. Cigarette sales volumes
include the whole of the Reynolds American volume, as is the case with BAT's
other associated companies in India and Denmark. The US volumes, therefore,
include seven months from Brown & Williamson and five months from Reynolds
American. Excluding merger benefits, there were strong volume performances in
Russia, Turkey, India and Pakistan, offset by declines in Germany, France,
Canada and Japan. The global drive brands - Dunhill, Kent, Lucky Strike and Pall
Mall - grew by 2 per cent. Kent's volume increased by 10 per cent to a new
record high of 33 billion.
BAT's operating profit, before goodwill amortisation and exceptional items, was
2 per cent higher at GBP 2 830 million. These results were adversely affected by
average sterling exchange rates strengthening against almost all currencies.
At comparable rates of exchange, operating profit, before goodwill and
exceptional items, would have risen by 7 per cent, reflecting the benefit from
the Ente Tabacchi Italiani S.p.A. ('ETI') acquisition at the end of 2003 and a
good performance in all regions except America-Pacific.
Profit from the America-Pacific region was GBP 795 million, a decrease of GBP
200 million from the same period last year. This was the result of lower profits
in Canada and Japan, further accentuated by the translation of US and Canadian
results into sterling. Volumes in the region were up 27 per cent to 131 billion,
mainly as a result of the Reynolds American transaction, with higher volumes
from South Korea more than offset by declines in Canada and Japan.
In Asia-Pacific, regional profit rose by GBP 42 million to GBP 515 million as
strong performances in Australia, New Zealand, Malaysia, Vietnam, Pakistan,
India and the duty-free business were only partially offset by reduced profit
from Indonesia and Taiwan. Regional volumes at 201 billion were 4 per cent
higher than last year, with strong increases in India, Vietnam, Pakistan and
Bangladesh partially offset by declines in Indonesia and Malaysia.
In Latin America, a decrease in profit of GBP 12 million to GBP 428 million was
mainly the result of many currencies in this region weakening against sterling.
This masked good performances in local currency terms as the region benefited
from an improvement in margins. Regional sales volume at 148 billion was down by
2 billion mainly as a result of increased pressure from growing illicit trade,
especially after excise driven price increases in Brazil and Argentina. This was
partly offset by the additional volumes from the new business acquisition in
Peru, good performances in the majority of the Central American markets and
growth in Venezuela.
In Europe, profit increased by GBP 190 million to GBP 726 million, mainly driven
by the inclusion of the ETI in the results from the beginning of 2004.
Excluding ETI, there was good profit growth of 10 per cent at comparable rates
of exchange. There were excellent performances in Russia and Romania. The
Smoking Tobacco and Cigars business performed well and benefits were realised
from cost savings following the closure of factories and a number of
reorganisations. These more than offset the adverse impact of markets where
excise increases resulted in lower volumes. Regional volumes grew by 7 per
cent, reaching 268 billion, primarily due to incremental volume from newly
acquired businesses and growth in Russia, partly offset by market-related
declines in Western Europe.
Profits in the Africa and Middle East region grew by GBP 29 million to GBP 366
million with strong performances from South Africa, Nigeria and the Caucasus,
partly offset by the cost of continued investment in new markets and a large
fall in profit from Zimbabwe. Volumes rose by 7 per cent to 105 billion mainly
as a result of the significant growth in Turkey as well as increases in the
Caucasus and Nigeria, partly offset by declines in South Africa and Zimbabwe.
Cash flow
March 2005 March 2004
EUR m EUR m
Operating profit 505 296
Depreciation and other non-cash items 113 151
Earnings before interest, tax and depreciation 618 447
(Increase) / decrease in working capital (137) 114
Cash generated from operations 481 561
Returns on investments and servicing of finance 5 (26)
Taxation paid (79) (68)
Net acquisitions of fixed assets (127) (118)
Free cash flow from operations 280 349
Dividends received from associate - BAT 267 252
Proceeds from disposal of BAT preference shares 828 -
Proceeds from indirect sale of BAT ordinary 179 -
shares
Other investing activities, net (5) 30
Net cash inflow before financing activities 1 549 631
Dividends paid to unitholders (219) (176)
Buy-back of Richemont units, net 44 (98)
Other financing activities, net (257) (13)
Exchange rate effects 30 29
Increase in cash, cash equivalents 1 147 373
and short-term borrowings
Cash and cash equivalents at beginning of year (371) (744)
Cash and cash equivalents at end of year 776 (371)
Long term borrowings (159) (423)
Net cash / (borrowings) 617 (794)
During the financial year, Richemont repaid its net borrowings such that, at 31
March 2005, its net cash position was EUR 617 million. The EUR 1 411 million
change from the prior year reflects principally the cash generated from
operations as well as the funds received from the settlement of the BAT
preference shares, together with the proceeds of the minor disposal of BAT
ordinary shares to Remgro.
Earnings before interest, tax and depreciation amounted to EUR 618 million, an
increase of 38 per cent compared to the prior year, reflecting the increased
sales and the Group's operating leverage. Working capital requirements
increased by EUR 137 million during the year, primarily reflecting inventory
movements. As a result, EUR 481 million of cash was generated from operations.
Capital expenditure, net of disposals, was broadly in line with the
depreciation charge for the year, reflecting the planned slowdown in the rate
of expansion of the Group's retail network and lower investment in the
expansion of watch manufacturing capacity.
Dividends received from BAT comprised the final dividend in respect of BAT's
financial year ended 31 December 2003 and the interim dividend in respect of
the 2004 financial year. Total dividends received amounted to EUR 267 million,
including EUR 32 million in respect of the final dividend on the preference
shares.
Proceeds from the disposal of the preference shares in BAT in 2004 amounted to
EUR 828 million. The payment represented the second and final tranche of the
redeemable preference shares issued by BAT as part of the consideration for the
merger with Rothmans International in 1999. The proceeds from the indirect sale
of ordinary shares in BAT to Remgro Limited, the Group's joint-venture partner,
in March 2005 amounted to EUR 179 million.
Summarised balance sheet
31 March 2005 31 March 2004
EUR m EUR m
Long-term assets
Fixed assets 733 743
Investment in associated undertaking - BAT 2 746 2 454
Other long-term assets 377 381
3 856 3 578
Net current assets 1 628 2 359
Net operating assets 5 484 5 937
Net cash / (borrowings) 617 (794)
Cash 1 409 186
Bank loans and overdrafts (633) (557)
Short-term portion of long-term borrowings (4) (359)
(155) (64)
Long-term borrowings
Other long-term liabilities (143) (171)
5 958 4 972
Equity
Unitholders' funds 5 952 4 968
Minority interests 6 4
5 958 4 972
At 31 March 2005, the Group's interest in BAT ordinary shares amounted to 18.3
per cent and BAT's market capitalisation, based on 2 137 million ordinary
shares in issue, amounted to EUR 28 992 million (GBP 19 935 million). The fair
value of the Group's investment in BAT ordinary shares therefore amounted to
EUR 5 292 million. Details of movements in the Group's effective interest in
BAT ordinary shares are given in the review of the Group's associated company.
The decrease in net current assets was largely due to the June 2004 settlement
of the warrants issued in respect of the Group's preference shareholding in
BAT. The warrants were exercised by holders in June 2004 resulting in a net
cash inflow to Richemont of EUR 828 million. Compared to March 2004, net
inventories increased by 9 per cent to EUR 1 522 million; finished goods
inventories remained stable with the largest increase being in raw materials.
Stock rotation marginally increased to 14 months.
At 31 March 2005, net cash amounted to EUR 617 million. Cash balances were
primarily denominated in euros, whereas borrowings were spread across the
principal currencies of the countries in which the Group has significant
operations, namely, euros, yen, dollars and Swiss francs. Borrowings reflect
the financing of net operating assets in the countries concerned.
Consolidated income statement - on a reported basis
March 2005 March 2004
EUR m EUR m
Operating profit 505 296
Exceptional items 81 -
Profit before net investment income 586 296
Net investment income 2 6
Profit before taxation 588 302
Taxation (92) (64)
Profit after taxation 496 238
Minority interests (2) -
Net profit of the parent and its subsidiaries 494 238
Share of net profit of associated company 491 82
Share of net profit on an adjusted basis 468 422
Goodwill amortisation (222) (196)
Share of exceptional items reported by associated
company 245 (144)
Net profit of the Group on a reported basis 985 320
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 basis 985 320
Elimination of goodwill amortisation - associated
company 222 196
Elimination of exceptional items (326) 144
Gain arising on BAT ordinary shares (81) -
Share of exceptional items reported by associated
company (245) 144
Net profit on an adjusted basis 881 660
After taking into account goodwill amortisation in respect of the Group's
interest in BAT and exceptional items, net profit on a reported basis increased
from EUR 320 million to EUR 985 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. All goodwill amortisation thus relates to the Group's interest in BAT,
the Group's associated company.
During the year under review, Richemont disposed of a 0.6 per cent effective
interest in BAT to its joint venture partner, Remgro Limited ('Remgro'). This
followed an approach from Remgro, which wished to increase its effective
interest in BAT to 10 per cent but was precluded from buying shares in the
market by the terms of the Standstill Agreement entered into between BAT,
Remgro and Richemont in 1999. The disposal was completed on 4 March 2005 and
the Group realised an exceptional gain of EUR 81 million on the transaction. As
a consequence of the disposal, the Group's effective interest in BAT declined
from 18.8 per cent at the time of the transaction to 18.2 per cent.
Exceptional items reported in the Group's share of BAT's results amounted to
EUR 245 million. The items primarily related to gains on the disposal of
subsidiaries and the Reynolds American transaction. In the prior year, the
exceptional items reported by BAT primarily related to restructuring costs in
the UK and Canada, the Group's share of these costs amounting to EUR 144
million.
Richemont's net profit for the year, before exceptional items and goodwill
amortisation in respect of the investment in BAT, amounted to EUR 881 million,
an increase of 33 per cent. After taking into account goodwill amortisation and
exceptional items, net profit for the year on a reported basis in accordance
with Swiss generally accepted accounting principles increased to EUR 985
million from EUR 320 million in the prior year.
Proposed dividend
The Board of Directors has proposed a dividend of EUR 0.50 per unit, an
increase of 25 per cent over the prior year's level. In addition, the Board has
proposed that a special dividend of EUR 0.50 per unit should be paid to
unitholders, reflecting the significant amount of cash received in respect of
BAT shares disposed of during the year. The dividends will be payable following
the annual general meeting in September 2005.
The regular dividend will be paid as follows:
Gross Withholding Net
per unit tax @ 35 % per unit
Richemont SA, Luxembourg EUR 0.46 - EUR 0.460
Compagnie Financiere Richemont SA,
Switzerland EUR 0.04 (EUR 0.014) EUR 0.026
EUR 0.50 (EUR 0.014) EUR 0.486
The special dividend of EUR 0.50 per unit will be paid in full by Richemont SA,
Luxembourg without deduction of withholding tax.
Annual General Meeting
The Annual General Meeting of shareholders of Compagnie Financiere Richemont
SA will be held at 10.00 am in the Salon St Gervais of the Hotel du Rhone,
Quai Turrettini 1, Geneva on Thursday, 15 September 2005.
Compagnie Financiere Richemont SA Geneva, 9 June 2005
EXTRACTS FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AT 31 MARCH 2005
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH
2005 2004
Notes EUR m EUR m
Sales 1 3 717 3 375
Cost of sales (1 325) (1 283)
Gross profit 2 392 2 092
Net operating expenses 2 (1 887) (1 796)
Operating profit 505 296
Exceptional items 3 81 -
Profit before net investment income 586 296
Net investment income 4 2 6
Profit before taxation 588 302
Taxation (92) (64)
Profit after taxation 496 238
Minority interests (2) -
Share of results of associated company 5 491 82
Net profit 985 320
Earnings per unit 6 EUR EUR
Earnings per unit on a reported basis - basic 1.798 0.582
Earnings per unit on a reported basis - fully
diluted 1.775 0.578
A summary of net profit, adjusted to exclude the effects of
goodwill amortisation and exceptional items, is set out below:
2005 2004
Note EUR m EUR m
Net profit as reported 985 320
Goodwill amortisation in respect of
associated company 222 196
Exceptional item reported by Group (81) -
Exceptional items reported by associated
company (245) 144
Net profit on an adjusted basis 881 660
Earnings per unit 6 EUR EUR
Earnings per unit on an adjusted basis - basic 1.608 1.200
Earnings per unit on an adjusted basis -
fully diluted 1.588 1.193
The above summary of adjusted profit is supplementary to the requirements of
Swiss generally accepted accounting principles.
CONSOLIDATED BALANCE SHEET
AT 31 MARCH
2005 2004
Notes EUR m EUR m
Long-term assets
Property, plant and equipment 681 684
Intangible assets 52 59
Deferred tax assets 188 187
Investment in associated undertaking 7 2 746 2 454
Other long-term assets 8 189 194
3 856 3 578
Net current assets
Inventories 9 1 522 1 402
Debtors 10 817 1 835
Cash 1 409 186
Current assets 3 748 3 423
Bank overdrafts and short-term loans (633) (557)
Borrowings (4) (359)
Accruals and deferred income (173) (170)
Current tax liabilities (120) (97)
Provisions (63) (79)
Other current liabilities 11 (355) (532)
2 400 1 629
6 256 5 207
Equity
Share capital 334 334
Participation reserve 645 645
Unitholders' capital 979 979
Treasury units (560) (590)
Retained earnings and other reserves 5 533 4 579
Unitholders' funds 5 952 4 968
Minority interests 6 4
5 958 4 972
Long-term liabilities
Borrowings 155 64
Provisions 34 46
Post-retirement and other benefit
obligations 75 89
Deferred tax liabilities 34 36
298 235
6 256 5 207
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH
2005 2004
Note EUR m EUR m
Cash generated from operations 12 481 561
Interest income and similar items 20 5
Interest paid and similar items (20) (32)
Other investment income 37 14
Dividends from associated undertaking 235 239
Taxation paid (79) (68)
Net cash inflow from operating activities 674 719
Investing activities
Acquisition of property, plant and equipment (160) (124)
Proceeds from disposal of property, plant and
equipment 41 14
Acquisition of intangible assets (8) (10)
Proceeds from disposal of intangible assets - 2
Acquisition of subsidiary undertakings
and minority interests, net of cash acquired (1) (7)
Proceeds from disposal of share of BAT
preference shares 828 -
Proceeds from the partial indirect sale of
associated undertaking 179 -
Proceeds from sale of assets held for resale - 55
Acquisition of other long-term assets (23) (36)
Proceeds from disposal of other long-term assets 19 18
Net cash generated from/ (used) in investing
activities 875 ( 88)
Net cash inflow before financing activities 1 549 631
Financing activities
Proceeds from long-term borrowings - 303
Repayments of long-term borrowings (253) (317)
Dividend paid on Richemont SA participation
reserve (219) (176)
Buy-back of treasury units and call option
premium (25) (123)
Proceeds from sale of treasury units 69 25
Other (4) 1
Net cash used in financing activities (432) (287)
Net cash inflow after financing activities 1 117 344
Effects of exchange rate movements 30 29
Net increase in cash and cash equivalents 1 147 373
Cash and cash equivalents at beginning of year (371) (744)
Cash and cash equivalents at end of year 776 (371)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH
Translation
Share Participation Treasury and other
capital reserve units reserves
EUR m EUR m EUR m EUR m
Balance at 1 April
2003 334 645 (487) (129)
Exchange adjustments - - - 37
BAT
- prior year
adjustment reported
by BAT - - - -
- change in
percentage holding - - - -
Cash flow and net
investment hedges
- net fair value
losses - - - (24)
- transfer to the
profit and loss
account - - - (1)
Purchase of minority
interests - - - -
Net profit - - - -
Goodwill set off
against unitholders'
funds - - - -
Net movement in
treasury units - - (103) (8)
Release of
unutilised
restructuring
provisions created
on acquisition of
subsidiary
undertakings - - - -
Dividend paid on
Richemont SA
participation reserve - - - -
Balance at 31 March
2004 334 645 (590) (125)
Exchange adjustments - - - 17
BAT
- gain on dilution
in percentage
holding on
conversion of
preference shares - - - -
- goodwill
reinstated on sale
of subsidiaries
by associate - - - -
- change in
percentage holding - - - -
Cash flow and net
investment hedges
- net fair value
gains - - - 10
- transfer to the
profit and loss
account - - - 2
Net profit - - - -
Net movement in
treasury units - - 30 (8)
Dividend paid on
Richemont SA
participation reserve - - - -
Balance at 31 March
2005 334 645 (560) (104)
Total
Retained unitholders' Minority
earnings funds interests Total
EUR m EUR m EUR m EUR m
Balance at 1 April 2003 4 629 4 992 6 4 998
Exchange adjustments (59) (22) - (22)
BAT
- prior year adjustment
reported by BAT (42) (42) - (42)
- change in percentage
holding 33 33 - 33
Cash flow and net
investment hedges
- net fair value losses - (24) - (24)
- transfer to the profit
and loss account - (1) - (1)
Purchase of minority
interests - - (2) (2)
Net profit 320 320 - 320
Goodwill set off against
unitholders' funds (3) (3) - (3)
Net movement in
treasury units - (111) - (111)
Release of unutilised
restructuring
provisions created on
acquisition of
subsidiary undertakings 2 2 - 2
Dividend paid on
Richemont SA
participation reserve (176) (176) - (176)
Balance at 31 March 2004 4 704 4 968 4 4 972
Exchange adjustments - 17 - 17
BAT
- gain on dilution in
percentage holding on
conversion of
preference shares 90 90 - 90
- goodwill reinstated
on sale of subsidiarie
by associate 60 60 - 60
- change in percentage
holding (17) (17) - (17)
Cash flow and net
investment hedges
- net fair value gains - 10 - 10
- transfer to the profit
and loss account - 2 - 2
Net profit 985 985 2 987
Net movement in
treasury units 34 56 - 56
Dividend paid on
Richemont SA
participation reserve (219) (219) - ( 219)
Balance at 31 March 2005 5 637 5 952 6 5 958
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 31 MARCH
Note 1 - Sales
Analysis of sales by major product line
2005 2004
EUR m EUR m
Jewellery 845 789
Watches 1 774 1 560
Writing instruments 298 273
Leather goods
