| Tue 11 Oct 2005, 17:55 | | Richemont Securities AG - Transition To IFRS |
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Richemont Securities AG - Transition To IFRS
Richemont Securities AG
(Incorporated in Switzerland)
JSE Code : RCH
ISIN: CH0013157380
("Richemont")
PRESS RELEASE
TRANSITION TO IFRS
In accordance with the listing requirements of the Swiss Stock Exchange (SWX),
Richemont, the Swiss luxury goods group, will adopt International Financial
Reporting Standards (IFRS) in place of generally accepted accounting principles
in Switzerland (Swiss GAAP) for the preparation of its consolidated financial
statements for the year ending 31 March 2006. These financial statements will
include restated comparatives for the year ended 31 March 2005. This
announcement describes the effects of the transition to IFRS on the year ended
31 March 2005.
The main changes to the Group"s reported results arising from the transition
relate to:
* The reversal of goodwill amortisation in respect of its investment in British
American Tobacco plc (BAT) and the recognition of BAT"s IFRS adjustments;
* A charge in respect of the Group"s employee unit option plan;
* A net charge in respect of foreign exchange movements, due to a change in the
classification of intercompany financing.
Year ended 31 March 2005
Swiss GAAP on Swiss GAAP
an adjusted basis* as reported IFRS
Sales Euro 3 717 m Euro 3 717 m Euro 3 671 m
Operating profit Euro 505 m Euro 505 m Euro 561 m
Net profit attributable to
unitholders
- parent and subsidiaries Euro 413 m Euro 494 m Euro 414 m
- share of associated company Euro 468 m Euro 491 m Euro 798 m
- the Group Euro 881 m Euro 985 m Euro 1 212 m
Earnings per unit - fully
diluted basis Euro 1.588 Euro 1. 775 Euro 2.185
* Swiss GAAP results on an adjusted basis are presented excluding all
exceptional items and the effects of goodwill amortisation in respect of the
Group"s investment in British American Tobacco plc.
The following summarises the impact of the transition to IFRS on the Group"s
previously reported Swiss GAAP financial statements. Further details are
provided on pages 3 to 9 and in the Appendix to this press release, which
includes a reconciliation of Swiss GAAP adjusted results to IFRS as adjusted.
Sales are marginally reduced due to the reclassification of certain selling
costs and royalty income. Operating profit is increased by Euro 56 million to
Euro 561 million, primarily due to a reclassification of the gain on disposal
of 0.6 per cent of the Group"s effective interest in BAT (Euro 76 million),
offset by a charge for employee unit options (Euro 31 million). The net profit
from the parent and its subsidiaries was reduced by Euro 80 million, primarily
reflecting the charge for employee unit options and the impact of intercompany
foreign exchange adjustments resulting in a net charge of Euro 40 million. The
Group"s share of the results of BAT, an associated company, was increased by
Euro 307 million to Euro 798 million. This increase relates primarily to the
non-amortisation of goodwill (Euro 222 million) and the recognition of the
Group"s share of BAT"s IFRS remeasurements (Euro 85 million).
The Group"s net cash position at 31 March 2005, at Euro 617 million, was
unaffected by the transition. Equally, the Group"s cash flows from operations
were not affected.
As a result of these IFRS adjustments, earnings per unit attributable to
unitholders on a fully diluted basis have increased to Euro 2.185, and net
profit attributable to unitholders has increased by Euro 227 million to Euro
1,212 million.
Since its formation in 1988, the Group has reported its financial performance
using Swiss GAAP, reflecting its Swiss domicile and its listing on the SWX. In
accordance with the SWX listing requirements, listed companies may no longer
prepare their consolidated accounts using Swiss GAAP for financial years
commencing on or after 1 January 2005, but must report using either IFRS or US
GAAP. The Group has elected to apply IFRS with effect from 1 April 2005.
The Group will adopt IFRS for the first time in its consolidated financial
statements for the year ending 31 March 2006. The IFRS which will be effective
at the reporting date for first-time adoption (31 March 2006) are, except where
specific exemptions apply, to be applied retrospectively to the opening balance
sheet (as at 1 April 2004), to the comparative year (for the year ended 31 March
2005) and to the reporting year (for the year ending 31 March 2006).
The information included in this press release does not comprise a full set of
consolidated financial statements, but is being issued to enable investors to
familiarise themselves with the Group"s IFRS financial statements prior to the
issuance of the interim results for the six months ended 30 September 2005, due
on 17 November 2005.
The financial information in this announcement has been prepared on the basis
of IFRS expected to be applicable at 31 March 2006. Standards and related
interpretations are the subject of review and possible amendment by the
authoritative bodies and there is a possibility that financial information
included in the Group financial statements at 31 March 2006 may differ from the
information set out in this announcement.
Richemont owns a portfolio of leading international brands including Cartier,
Van Cleef & Arpels, Alfred Dunhill, Montblanc and Lancel as well as the
prestigious watch manufacturers Jaeger-LeCoultre, Piaget, Baume & Mercier, IWC,
Vacheron Constantin, A. Lange & Sohne and Officine Panerai.
In addition to its luxury goods business, Richemont holds an 18.5 per
centeffective interest in British American Tobacco plc.
Richard Lepeu
Group Finance Director
Compagnie Financiere Richemont SA
Geneva, 11 October 2005
Income statement on a reported basis for the year ended 31 March 2005
Swiss GAAP Reclassifications Remeasurements IFRS
Euro m Euro m Euro m Euro m
Sales 3 717 (46) - 3 671
Cost of
sales (1 325) (90) - (1 415)
Gross margin 2 392 (136) - 2 256
Net
operating
expenses (1 887) 222 (30) (1 695)
Operating
profit 505 86 (30) 561
Exceptional
item 81 (76) (5) -
Net
investment
income /
(expense) 2 (10) (40) (48)
Share of
results of
associate 491 - 307 798
Profit
before
taxation 1 079 - 232 1 311
Taxation (92) - (5) (97)
Net profit 987 - 227 1 214
Attributable
to Unitholders 985 1 212
Minority
interests 2 2
987 1 214
Swiss GAAP IFRS
Earnings per unit on a reported basis Euro Euro
- basic 1.798 2.212
- fully diluted 1.775 2.185
Sales
Euro m
Sales reclassifications
Sales-related discounts (30)
Royalty income (16)
Volume- and other sales-related discounts of Euro 30 million, previously
recognised as selling and distribution costs, have been reclassified as
deductions from sales in accordance with IAS 18 Revenue.
In addition, the Group has elected to reclassify royalty income previously
reported as sales to `other income", a separately identified component of net
operating expenses. For comparative purposes, sales for the year ended
31 March 2005 have been reduced by Euro 16 million to conform with this change
in presentation to be made in the current year. There is a corresponding
reduction in net operating expenses.
None of the adjustments to sales has a material effect on any business or
geographic segment.
Cost of sales
The Group has elected to reclassify product repair and directly related costs,
previously reported as operating expenses, to cost of sales for the year ending
31 March 2006. For comparative purposes, the cost of sales reported in the
income statement for the year ended 31 March 2005 has been adjusted by
Euro 90 million to conform with this change in presentation to be made in the
current year.
Net operating expenses
Euro m
Net operating expense reclassifications
Sales-related discounts 30
Royalty income 16
Product repair and directly related costs 90
Exceptional gain on indirect disposal of BAT ordinary shares 76
Foreign exchange differences 10
222
In accordance with IAS 1 Presentation of Financial Statements, the Euro 81
million gain on the indirect disposal of 0.6 per cent of the Group"s effective
interest in BAT, adjusted for IFRS reporting to Euro 76 million, has been
reclassified from exceptional items to net operating expenses.
In addition to the reclassifications between sales and cost of sales above, the
Group has elected to reclassify foreign exchange gains and losses arising on
intercompany monetary items (Euro 10 million) from net operating expenses to a
component of net investment income/(expense) to reflect operating results on an
ongoing basis for the year ending 31 March 2006. The income statement for the
year ended 31 March 2005 has been adapted to conform with this change in
presentation to be made in the current year.
The Group has retrospectively applied IFRS 2 Share-based Payment for unit
options granted after 7 November 2002 and still unvested at 1 January 2005. The
application date of this standard was 1 April 2005. Accordingly, an increase in
net operating expenses of Euro 31 million has been recorded for the year ended
31 March 2005. This charge is matched by an increase to the unit option reserve,
an element of equity. Accordingly, there is no net impact on equity for the year
ended 31 March 2005 specific to the adoption of IFRS 2. In addition, the
remeasurement of pension-related obligations under IFRS has reduced pension
charges within net operating expenses by Euro 1 million.
Net investment income/(expense)
The Group has significant intercompany financing arrangements in place.
Following the adoption of IAS 21 Revised The Effects of Changes in Foreign
Exchange Rates, the Group is required to recognise certain exchange gains and
losses on intercompany financing within the income statement. These exchange
movements were previously recognised as cumulative translation adjustments
within equity. As a consequence of the revised Standard, a net charge amounting
to Euro 40 million has been recognised within net investment income/(expense)
for the year ended 31 March 2005. This includes a foreign exchange gain of Euro
29 million and a foreign exchange loss of Euro 69 million, both relating to
intercompany financing.
Taxation
Upon adoption of IAS 12 Income Taxes, the Group is required to recalculate
deferred taxation at 1 April 2004 on the unrealised profit arising on
intercompany transfers of inventory. Accordingly, an increase in deferred
taxation expense of Euro 5 million has been recorded in the income statement for
the year ended 31 March 2005 relating to the change in deferred taxation on
intercompany profit elimination recorded during the period.
As a consequence of the remeasurements described above, the Group"s effective
tax rate has increased from 18.1 per cent to 22.2 per cent under IFRS. The
increase is primarily due to non-cash charges realised in lower tax rate
jurisdictions, such as employee unit options charges and the recognition of
intercompany foreign exchange adjustments.
Share of results of associated company
Euro m
Share of results of associate remeasurements
Non-amortisation of goodwill 222
Share of associate"s exceptional gain adjustment 60
Share of associate"s other IFRS adjustments 25
307
Goodwill amortisation charges of Euro 222 million have been reversed in
accordance with IAS 38 Intangible Assets. In addition, the Group has recorded
its share of all of its associate"s other IFRS transition adjustments. These
other adjustments amount to Euro 85 million, Euro 60 million of which relates to
an adjustment to the exceptional gain on the sale of subsidiaries.
Cash flow impact
There is no impact on cash generated from operations or free cash flow from
Group operations for the year ended 31 March 2005 as a result of the
restatement from Swiss GAAP to IFRS.
Results on a Swiss GAAP adjusted basis
For a reconciliation from Swiss GAAP adjusted basis to IFRS adjusted basis,
please refer to the Appendix.
Analysis of sales and profitability by segment for the year ended 31 March 2005
Swiss GAAP Royalty Discount IFRS
Euro m reclassification reclassification Euro m
Sales
Jewellery
Maisons 1 956 (5) (13) 1 938
Specialist
watchmakers 885 - (15) 870
Writing
instrument
manufacturers 427 (2) (1) 424
Leather and
accessories
Maisons 265 (5) (1) 259
Other
businesses 184 (4) - 180
3 717 (16) (30) 3 671
Operating Remeasurements &
result Swiss GAAP Reclassifications Unit options IFRS
Jewellery
Maisons 460 - (4) 456
Specialist
watchmakers 148 - (3) 145
Writing
instrument
manufacturers 59 - (1) 58
Leather and
accessories
Maisons (40) - (1) (41)
Other
businesses 3 - (1) 2
630 - (10) 620
Corporate costs
- Head Office
costs (112) 1 (21) (132)
- Other
operating
(costs)/income (13) 86 - 73
Operating
profit 505 87 (31) 561
Summarised balance sheet as at 31 March 2005
Swiss GAAP Remeasurements IFRS
Euro m Euro m Euro m
Non-current assets
Fixed assets 733 - 733
Investment in associated company -
BAT 2 746 306 3 052
Other non-current assets 377 39 416
3 856 345 4 201
Net current assets 1 628 - 1 628
Net operating assets 5 484 345 5 829
Net cash 617 - 617
Bank and cash 1 409 - 1 409
Bank overdrafts (633) 407 (226)
Borrowings (159) (407) (566)
Other non-current liabilities (143) (22) (165)
5 958 323 6 281
Equity
Unitholders" funds 5 952 323 6 275
Minority interests 6 - 6
5 958 323 6 281
Investment in associated company - British American Tobacco
The following remeasurements are required to account for the Group"s equity
investment in BAT at 31 March 2005:
Euro m
The reversal of previously amortised goodwill during the year 222
The Group"s share of BAT"s own transition adjustments
from UK GAAP to IFRS, excluding the goodwill reversal above 82
Other IFRS transition-related adjustments relating to the investment and
transactions which occurred during the year, net 2
306
The IFRS carrying value of the Group"s investment in BAT at 31 March 2005 is
Euro 3 052 million. The fair value of the Group"s investment at that date, based
on the market capitalisation and the Group"s 18.25 per cent effective interest,
was Euro 5 292 million.
Other non-current assets
As noted in taxation above, the Group was required to change its calculation
method relating to the deferred taxation arising on unrealised profit in
inventories. The effect on the balance sheet at 31 March 2005 was to increase
deferred tax assets by Euro 39 million.
Cash and cash equivalents
In accordance with IAS 7 Cash Flow Statement, the Group has reclassified
short-term loans from bank overdrafts to borrowings. Cash and cash equivalents
is broadly defined as the combination of cash and bank overdrafts. These
amounted to Euro 1 183 million at 31 March 2005.
Other non-current liabilities
The Group has used the exemption available under IFRS 1 First Time Adoption of
IFRS to recognise a previously unrecognised net actuarial deficit relating to
retirement benefit obligations of Euro 23 million directly through equity.
Similarly, the remeasurement of pension-related liabilities under IFRS has
reduced retirement benefit obligations by Euro 1 million. In addition, the Group
has adopted defined benefit accounting for its Swiss pension scheme,
in accordance with IAS 19 Employee Benefits. This adoption has not had an impact
on the Group"s reported earnings and financial position.
Equity
Unitholders" funds have increased by Euro 323 million at 31 March 2005 as a
result of the transition to IFRS, in particular due to the non-amortisation of
BAT-related goodwill during the year and to other BAT-related restatements.
Summarised cash flow for the year ended 31 March 2005
Swiss GAAP IFRS
Euro m Euro m
Operating profit 505 561
Depreciation and other non-cash items 113 57
Earnings before interest, tax and depreciation 618 618
Increase in working capital (137) (137)
Cash generated from operations 481 481
Returns on investments and servicing of finance 5 5
Taxation paid (79) (79)
Net acquisitions of fixed assets (127) (127)
Free cash flow from operations 280 280
Dividends received from associate 267 267
Proceeds from disposal of BAT preference shares 828 828
Proceeds from indirect disposal of BAT ordinary shares 179 179
Other investing activities, net (5) (5)
Net cash inflow before financing activities 1 549 1 549
Dividend paid to unitholders (219) (219)
Buy-back of Richemont units, net 44 44
Other financing activities (257) (227)
Exchange rate effects 30 30
Increase in cash, cash equivalents & short-term
borrowings 1 147 1 177
Cash and cash equivalents at the beginning of year (371) 6
Cash and cash equivalents at the end of year 776 1 183
Long-term borrowings (159) (566)
Net cash 617 617
All IFRS remeasurements are non-cash adjustments and have no effect on free
cash flow from operations.
Appendix
Reconciliation of Swiss GAAP as adjusted, excluding exceptional items and
goodwill amortisation, to IFRS for the year ended 31 March 2005.
Swiss GAAP IFRS
as adjusted Reclassifications Remeasurements as adjusted
Euro m Euro m Euro m Euro m
Sales 3 717 (46) - 3 671
Cost of sales (1 325) (90) - (1 415)
Gross margin 2 392 (136) - 2 256
Net operating expenses (1 887) 146 (30) (1 771)
Operating profit 505 10 (30) 485
Net investment
income/(expense) 2 (10) (40) (48)
Profit before taxation 507 - (70) 437
Taxation (92) - (5) (97)
Profit after taxation 415 - (75) 340
Minority interests (2) - - (2)
Net profit of the parent
and its subsidiaries 413 - (75) 338
Share of results of
associated company
- British American Tobacco 468 - 25 493
Net profit of the Group 881 - (50) 831
Swiss GAAP IFRS
as adjusted as adjusted
Euro m Euro m
Earnings per unit
- basic 1.608 1.517
- fully diluted 1.588 1.498
Swiss GAAP Remeasurements IFRS
Euro m Euro m Euro m
Net profit as adjusted (above) 881 (50) 831
Goodwill amortisation in respect of
associate (222) 222 -
Non-recurring item reported by Group 81 (5) 76
Non-recurring items reported by
associate 245 60 305
Minority interests 2 - 2
Net profit as reported (page 3) 987 227 1 214
Press inquiries: Mr Alan Grieve, Director of Corporate Communications
Tel: + 41 22 715 3736
Analysts" inquiries: Ms Sophie Cagnard-Fabrici, Head of Investor Relations
Tel: + 33 1 5818 2597
COMPAGNIE FINANCIERE RICHEMONT SA
8 BOULEVARD JAMES-FAZY CH-1201 GENEVA SWITZERLAND
Telephone +41 (0)22 715 3500 Telefax +41 (0)22 715 3550 www.richemont.com
11 October 2005
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 11/10/2005 05:55:28 PM Produced by the JSE SENS Department
