Corinne Gretler Zurich
RICHEMONT’S full-year profit dropped about 36 percent after the euro’s plunge triggered writedowns to the value of cash deposits held in that currency.
Non-cash losses were recorded reflecting changes in the market value on money and hedging instruments in the 12 months to March, the Geneva-based company said yesterday.
The stock closed 1.28 percent higher at R106.60 on the JSE yesterday.
The losses are the latest fallout from the Swiss National Bank’s (SNB) surprise decision to unleash the franc. The owner of the Vacheron Constantin and IWC brands is in the crossfire of currency swings as it produces high-end timepieces in Switzerland, gets a large part of its revenue in dollars and reports results in euros.
The losses had no material impact on a net cash position that expanded to e5.4 billion (R70.2bn) from e4.3bn six months earlier, the luxury-goods maker said.
Operating profit for the year rose about 10 percent, helped by a capital gain from selling real estate on New York’s Fifth Avenue for $700 million (R8bn), almost double the purchase price three years ago.
“The market reaction is negative because next to the mark-to-market loss, which is the bulk of the profit warning, the underlying performance is also 4 percent to 5 percent lower than expected,” Luca Solca, an analyst at Exane BNP Paribas, said.
Chinese slowdown
Richemont has been enduring a slowdown in China, previously the strongest motor for the luxury industry. Revenue stagnated for the first time in six years in the key October to December period as the government in that country discouraged extravagant consumption and tried to eliminate bribery and corruption, the firm said previously.
The largest part of the losses are from euro deposits from Richemont subsidiaries that report in francs, according to a company spokesman. The euro has slumped 15 percent against the franc since the SNB’s January policy shift.
The shares, which had dropped as much as 2.6 percent in early trading, erased some of that decline. They have dropped 7.4 percent in the past 12 months.
“At first glance, people might think it looks really bad,” Patrik Schwendimann, an analyst at Zuercher Kantonalbank, said. “But if you look at it more closely, you’ll see it’s the usual story with the euro conversion and the strong dollar. Revenue and operating profit look better than expected, and those are the important numbers to look at.” – Bloomberg