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Luxury Giant Richemont Sees Net Profit Plunge

May 22, 2015
Richemont, the world's second luxury goods group with brands like Cartier and Piaget, confirmed Friday that its annual net profit fell by more than a third due to losses on financial instruments.

Richemont, the world's second luxury goods group with brands like Cartier and Piaget, confirmed Friday that its annual net profit fell by more than a third due to losses on financial instruments.

During its 2014/15 financial year, which ended on March 31, the Swiss company earned $1.4 billion in net profit, down 35% from a year earlier, it said.

The drop was slightly less than the 36% decline Richemont signalled in a profit warning last month, but in line with the expectations of analysts.

The Geneva-based company, which owns top global brands such as Jaeger LeCoultre, Van Cleef & Arpels and IWC, had warned in April of "non-cash, mark-to-market losses on financial instruments, which include monetary items and derivatives."

Multinationals often use financial instruments to try to protect themselves against changes in exchange rates in the different countries they operate, but unexpected changes can lead to losses.

The Swiss central bank in a shock move in January ended an exchange cap of the Swiss franc to the euro, resulting in a sharp rise in the value of the Swiss currency.

"As a consequence, the Swiss franc dramatically appreciated from the pegged level of 1.20 to the euro to 1.04 at 31 March 2015," Richemont chairman Johann Rupert said.

This hit Richemont as it keeps its books in euros, he said, adding there was a possibility that the group would be impacted "on a longer-term basis, depending on how exchange rates develop." 

Richemont however said its sales had inched up four percent during the year to 10.4 billion euros.

The rise, which was only one percent in constant exchange rates, reflected "growth in jewelry, haute horlogerie (high-fashion watches) and steel watches, as well as growing demand in Europe, the Middle East and the Americas," it said. 

Sales slump in key markets

The amount however fell short of analyst expectations that Richemont sales during the year would tick in at 10.9 billion euros.

And the company said its operating profit swelled 10 percent to 2.7 billion euros -- slightly better than analyst expectations -- boosted especially by its sale of an investment property.

Richemont said its sales in April had ballooned nine percent in actual exchange rates compared with the same month last year, but that they slumped eight percent at constant exchange rates.

Richemont's board said it would stick to its aim of gradually increasing the company's dividends over time, and would propose for the financial year 2014/15 dishing out 1.60 Swiss francs ($1.70, 1.50 euros) per share to shareholders, up from 1.40 a year earlier.

Following the news, the company's share price slumped and closed down 1.04% to 85.95 Swiss francs as the Swiss stock exchange's main SMI index slipped just 0.13%. 

Thomas Chauvet, an analyst at Citigroup, said the results were a "non-event" given the profit warning.

But he said the dip in April sales at constant exchange rates compared "unfavorably to flat sales (earlier) and our 2016 financial year sales forecast of plus five percent."

Richemont chairman Rupert, speaking about the April sales, said all regions reported growth at actual rates except for Asia Pacific, which "continues to be affected by a difficult trading environment in Hong Kong and Macau."

"The retail channel grew and significantly outperformed wholesale, where anticipation of worldwide pricing adjustments in May slowed purchases by our wholesale partners," he said, referring to expectations that Swiss luxury watchmakers would adjust their prices following the surge in the Swiss franc.

"The first two weeks of May indicated some normalization of the wholesale market," he said.

Richemont said sales of Piaget watches in Asia, a traditional stronghold for the brand, had been affected.

Copyright Agence France-Presse, 2015

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