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Richemont Earnings

LONDON -- A slowdown in sales and an increase in costs dragged down Compagnie Financiere Richemont AG's fiscal 2001 profits by two-thirds, and the firm's chief executive said he sees no signs of immediate relief.<P>For the fiscal year ended March...

LONDON — A slowdown in sales and an increase in costs dragged down Compagnie Financiere Richemont AG’s fiscal 2001 profits by two-thirds, and the firm’s chief executive said he sees no signs of immediate relief.

For the fiscal year ended March 31, Richemont’s net income fell 66.1 percent to $404.6 million, or 73 cents a diluted share, from $1.19 billion, or $2.12, in the prior year. Excluding profits generated by associated companies, the profit decline was 86.6 percent, to $142.7 million from $1.07 billion. Sales nudged ahead 4.8 percent to $3.65 billion from $3.48 billion. Dollar figures have been converted from the euro at current exchange.

“Overall, sales in April and May show virtually no growth,” said Richemont chief executive Johann Rupert in a statement, adding that he hoped to see gradual recovery in demand as the year progresses.

The steep decline in profit came as no surprise, and was due chiefly to exceptional gains in 2000 on the sale of shares in British American Tobacco, Richemont’s sale of its investment in Vivendi, and goodwill amortization linked to three watch brands acquired in December 2000. On an adjusted basis, net profit slid 38 percent to $312.6 million from $502.6 million.

The sales increase was due mainly to the inclusion for the first time of the Jaeger-LeCoultre, IWC and A. Lange & Sohne watch brands. Excluding new or sold businesses, sales would have declined 1 percent.

Like so many of Europe’s luxury goods companies, Richemont has been suffering from a slowdown in demand since the final quarter of 2000. In addition, Rupert had warned analysts in November — when Richemont’s half-year results were released — that the year was going to be a disappointing one. As a result, Thursday’s figures were largely in line with analysts’ expectations.

Sales in the Americas declined by 6 percent to $661.2 million, while those in Europe rose 13 percent to $1.62 billion thanks to the three new watch brands. Excluding those brands, sales would have grown only 2 percent in Europe, the statement said. In Japan, sales grew 3 percent to $706.8 million, but fell 1 percent to $675 million in the rest of the Asia-Pacific region. Rupert said that growth in Japan had come from a weak yen, which discouraged Japanese tourism abroad, and encouraged the purchase of luxury goods in the domestic market.

Watch sales grew by 9 percent to $1.7 billion, thanks to the new watch brands, but on a like-for-like basis they fell by 4 percent. The company said that in general sales of the more expensive gold and jewelry watch ranges fared “somewhat better” than the market for steel and steel-gold watches.

High-end jewelry registered a 2 percent drop to $817 million due to declines at Cartier and Van Cleef and Arpels. Montblanc performed well last year: Sales of writing instruments rose 8 percent to $270.8 million while the Montblanc leather goods ranges offset a downturn in the travel-related business, the company said. Sales of other leather goods fell 3 percent to $287.9 million. Meanwhile, sales at the clothing and other divisions rose 7 percent to $587.1 million.

Operating profit fell by 32 percent to $457.9 million from $676.4 million due to a combination of difficult trading conditions, exchange rate movements and a rise in operating expenses from the new watch businesses, the ongoing development of retail stores, investments in manufacturing infrastructure and multi-brand service platforms.

Rupert acknowledged that Richemont’s major investments in infrastructure — some $142.5 million have been invested over the past three years in expanding production facilities for the watch brands, for example — are coming at a time when sales are not spectacular. But he said it’s the big picture that counts.

“Provided that these and other indirect costs correlate to sales trends, we remain convinced that this strategy will ensure the continuing growth of Richemont’s businesses over the long term,” he said.

Indeed, Andrew Gowen, an equities analyst at Lehman Bros. in London, said he was projecting top-line growth of 2 percent “if not slightly better” in the current fiscal year, which ends next March.

The firm also announced in a statement that chairman Nikolaus Senn would step down at the company’s annual general meeting later this year, and be replaced by Rupert, whose title will be executive chairman. The group also plans to transfer its corporate head office to Geneva from Zug, Switzerland next year. The move is part of an ongoing consolidation of Richemont’s operations.”