LONDON — It was poor news all around for Compagnie Financière Richemont AG on Thursday — and executive chairman Johann Rupert is taking his share of the blame.
In the fiscal year ending March 31, Richemont’s net profit plummeted 22.3 percent to $758 million from $975 million stemming from a combination of falling sales, a rising euro, losses in the Alfred Dunhill and Lancel divisions, restructuring and investment costs.
In fiscal 2002, sales dropped 5.4 percent to $4.3 billion from $4.6 billion due to wilting consumer confidence and the impact of the strengthening euro. Excluding the impact of the euro, sales would have been flat year-on-year, the company said.
Net profit at the parent firm fell over 50 percent to $184 million from $391 million. All figures have been calculated from the euro at current exchange rates.
In addition, Rupert said trading in April and May was “poor,” and the outlook for the rest of the fiscal year was uncertain. In the first two months of the current fiscal year, aggregate sales at actual exchange rates were down 27 percent due to the impact of the Iraq war and the SARS virus, a Richemont statement said. In constant currency terms, however, sales were down by 19 percent.
“The fallout from the heady days seen in the run-up to 2000 has been long and severe,” Rupert said in a statement. “The combination of global economic uncertainty and geopolitical instability is unprecedented and could last for some time. It is unlikely that we will see a rapid turnaround in the economic climate and the challenge for this year is to reduce the group’s cost base, both within each of the maisons and, equally, in our central and regional structures.”
In a display of humility, Rupert admitted Richemont was ill prepared for these hard times. “It is disingenuous to blame all our woes on external factors, and I will not do so. To my embarrassment, Richemont was not as prepared as it should have been for these changed circumstances. We were too slow. We will endeavor to be a much stronger and leaner company when the recession ends.”
To wit, Rupert announced that Richemont plans to slash 200 positions — or five percent — of the group’s Swiss-based watch manufacturing workforce. Those job cuts will come as the company terminates its watch-assembly operation at the Cartier factory in Villeret, Switzerland. The assembly will be transferred to the Cartier factory at La Chaux de Fonds, Switzerland, and some staff will be relocated there.
Rupert said the cost of the Swiss watch restructuring measures will be reflected in Richemont’s results for the six-month period ending Sept. 30. While the company did not give any estimates, HSBC said in a brief report Thursday it expects the first-half charge to be $35.4 million.
Meanwhile, Richemont’s operating profit was lower than previously expected, dropping 46 percent to $306 million from $569 million. As reported in March, the company issued a warning that operating profits could fall by “up to 40 percent” due to the economic climate and $59 million worth of restructuring charges linked to the Dunhill and Lancel brands. Excluding those restructuring costs in 2001 and 2002, operating profit would have fallen 32 percent to $413 million. On Thursday, Richemont announced further restructuring and impairment charges to the tune of $46 million.
In a breakdown, Richemont said sales at the group’s jewelry houses, Cartier and Van Cleef & Arpels, dropped 8.5 percent to $2.4 billion from $1.86 billion. The company, however, said 5 percent of the decline was due to the strengthening of the euro against the dollar and the yen. The decline in tourism, particularly in Europe, had a major impact on the businesses, the company said.
The statement said that the 8.5 percent decline in jewelry sales mirrored the decrease in sales at Cartier, Richemont’s largest business, which generates about 55 percent of sales.
During his address to analysts Thursday, Rupert said Cartier’s innovation rate was not sufficient, according to the HSBC report. Rupert said only 5 percent of sales are made with new products, while the appropriate target should be more than 15 percent.
Sales at the textile and leather division, which groups Dunhill, Lancel, Chloé and Hackett, fell 8 percent to $537 million from $584 million, with only Chloé and Hackett showing any growth. Dunhill’s sales alone fell 7 percent, the company said. The combined losses for the Dunhill and Lancel brands was $126 million. Rupert told analysts the two brands would break even after two to three years.