Luxury jewellery and watch conglomerate Cie. Financiere Richemont SA (Richemont) suffered a 36% drop in profits last year as the company was battered by currency exchange rate volatility and weakness in key Asian markets.
Earnings for the full year to March 31 fell to €1.33 billion ($1.48 billion) from €2.07 billion a year earlier. Sales were up 4% to €10,410m.
The Geneva-based group runs its finances in euros, which has weakened sharply in the past 12 months. The problem is compounded by the soaring Swiss franc, which has driven up the relative cost of its Swiss-based manufacturing.
When the franc was allowed to float against other currencies in January this year, it shot up in value, resulting in a loss of €686 million on financial investments and the falling value of foreign exchange contracts.
“The decision made by the Swiss National Bank in January 2015 to end the ‘peg’ of the Swiss franc to the euro … had a short-term impact on Richemont during the year under review and has the potential to impact the Group on a longer-term basis, depending on how exchange rates develop,” said group chairman Johann Rupert.
On the sales side, Chinese buyers reigned in spending at their favourite shopping destinations of Hong Kong and Macau.
In a trading statement, Mr Rupert said that its brand maisons had responded well to changing conditions. “The Jewellery Maisons and Specialist Watchmakers delivered sales growth and broadly maintained their operating margins through successful product launches and, in certain markets, price increases.
“Lower precious metal prices and cost containment measures helped mitigate the single-digit sales growth and the impact of foreign exchange rate movements,” Mr Rupert said.
Exchange rate volatility continues to create uncertainty for Richemont. It has restated that it will not relocate its head office and manufacturing away from Switzerland, but this could mean adjustment to retail prices in some markets.
“Given the extent of the Group’s activities here in Switzerland, with more than 8,700 employees in our manufacturing, distribution and head office functions, the strengthening of the Swiss franc inevitably means that our costs, measured in euros, will increase,” Mr Rupert said.
“In line with our competitors in the Swiss luxury watchmaking industry, removing these functions from Switzerland is not an alternative open to Richemont. Therefore, we have already implemented certain efficiency measures across the Group and are evaluating other courses of action. Where appropriate, retail prices for our Swiss-made products have already been or will in due course be adjusted to reflect the new exchange rate environment,” he added.
In a conference call with journalists later in the day, Mr Rupert said that there were no immediate plans to change prices. “We are now where we want to be,” he stated.