Compagnie Financière Richemont SA (‘the Company’) and its subsidiaries (together ‘Richemont’ or ‘the Group’) is one of the world’s leading luxury goods groups. The Group’s luxury goods interests encompass several of the most prestigious names in the industry including Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, Jaeger-LeCoultre, IWC, A. Lange & Söhne, Officine Panerai, Baume & Mercier, Alfred Dunhill, Montblanc and Lancel. In addition to its luxury goods businesses, the Group holds a significant investment in British American Tobacco (‘BAT’) – one of the world’s leading tobacco groups.
The Company is registered in Geneva, Switzerland. Shares of the Company are indivisibly twinned with participation certificates issued by its wholly-owned subsidiary, Richemont SA, Luxembourg to form Richemont units. Richemont units are listed on the Swiss Stock Exchange and traded on the virt-x market and are included in the Swiss Market Index (‘SMI’) of leading stocks. Depository receipts in respect of Richemont units are traded on the JSE Limited (the Johannesburg Stock Exchange).
These consolidated financial statements have been approved for issue by the Board of Directors (‘the Board’) on 7 June 2006.
These consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards and International Accounting Standards issued or adopted by the International Accounting Standards Board (‘IASB’) and in accordance with interpretations issued or adopted by the International Financial Reporting Interpretations Committee (‘IFRIC’), (together ‘IFRS’).
The policies set out below have been consistently applied to the periods presented unless otherwise stated.
These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
The consolidated financial statements include the accounts of the Company and its subsidiary undertakings together with the Group’s share of the results and retained post-acquisition reserves of associated undertakings and joint ventures.
The attributable results of subsidiary undertakings, associated undertakings and joint ventures are included in the consolidated financial statements from their dates of acquisition. Results are de-consolidated from their dates of disposal.
Uniform accounting policies have been adopted.
Subsidiary undertakings are defined as those undertakings that are controlled by the Group. Control of an undertaking most commonly exists when the Company holds, directly or indirectly through other subsidiary undertakings, more than 50 per cent of the ordinary share capital and voting rights of the undertaking. The accounts of subsidiary undertakings are drawn up at 31 March of each year. In consolidating the financial statements of subsidiary undertakings, intra-Group transactions, balances and unrealised gains and losses are eliminated.
Associated undertakings are defined as those undertakings, not classified as subsidiary undertakings, where the Group is able to exercise a significant influence. Associated undertakings are accounted for under the equity method. The Group’s share of the results and attributable net assets of the principal associated undertaking, BAT, is derived from accounts drawn up at 31 March of each year. The Group’s shares of other associated undertakings results and net assets are derived by reference to the last audited accounts available.
Unrealised gains on transactions between the Group and its associated undertakings are eliminated to the extent of the Group’s interest in the associated undertaking. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The Group recognises, as equity movements, its share of transactions booked by associated undertakings directly in equity.
Joint ventures are enterprises that are jointly controlled by the Group and one or more other parties in accordance with contractual arrangements between the parties. The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. Under this method the Group includes its share of the joint ventures’ income and expenses, assets and liabilities and cash flows in the relevant components of the consolidated financial statements.
The Group treats transactions with minority interests as transactions with parties external to the Group.
Details on the Group segments can be found under note 5. The Group uses business segments as the primary segments while geographical segments are considered secondary.
(a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). The consolidated financial statements are presented in euros, which is the Company’s functional and presentation currency.
(b) Transactions and balances Foreign currency transactions are translated into the functional currency using the average exchange rates prevailing during the period. The average rates approximate actual rates at the date of transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except where hedge accounting is applied as explained in note 3.2.
(c) Subsidiary and associated undertakings The results and financial position of all group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each income statement are translated at average exchange rates; and
(iii) all resulting exchange differences are recognised as a separate component of equity (cumulative translation adjustment reserve).
Exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to Unitholders’ equity on consolidation. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on disposal.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Land and buildings comprise mainly factories, retail boutiques and offices.
All property, plant and equipment is shown at cost less subsequent depreciation and impairment, except for land, which is shown at cost less impairment. Cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to the income statement during the financial period in which they are incurred.
Depreciation on property, plant and equipment is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, up to the limits, as follows:
| – Buildings | 50 years |
| – Plant and machinery | 20 years |
| – Fixtures, fittings, tools and equipment | 15 years |
Land and assets under construction are not depreciated.
The assets’ residual values and useful lives are reviewed annually, and adjusted if appropriate.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement. Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed.
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary or associate at the date of acquisition.
Goodwill arising on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisition of associated undertakings is included in the carrying value of the investment in the associated company.
Goodwill arising from subsidiaries is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of a subsidiary include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The cash-generating units represent the Group’s investments in assets grouped at the lowest levels for which there are separately identifiable cash flows.
(b) Computer software and related licenses
Costs that are directly associated with developing, implementing or improving identifiable software products having an expected benefit beyond one year are recognised as intangible assets and amortised using the straight-line method over their useful lives, not exceeding a period of five years. Licenses are amortised over their contractual lives. Costs associated with evaluating or maintaining computer software are expensed as incurred.
(c) Research and development, patents and trademarks
Research expenditures are recognised as an expense as incurred. Costs incurred on development projects are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have a finite useful life and that have been capitalised are amortised from the commencement of commercial production of the product on the straight-line method over the period of its expected benefit.
(d) Leasehold rights and key money
Premiums paid to parties other than the lessor at the inception of operating leases for leasehold buildings are capitalised and amortised over their expected useful lives or, if shorter, the lease period.
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. The Group has identified goodwill as the only category of asset with an indefinite life.
All other fixed and financial assets are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be fully recoverable.
An impairment loss is recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value, less costs to sell, and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
2.8. Other financial asset investments
The Group classifies its investments in the following categories: financial assets held at fair value through profit or loss, loans and receivables and held-to-maturity investments. The classification depends on the purpose for which the investment was acquired. Management determines the classification of its investments at initial recognition.
(a) Financial assets held at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at initial recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are categorised as held for trading. Assets in this category are classified as current if they are either held for trading or are expected to be realised within the next 12 months.
Purchases and sales of these financial assets are recognised on the transaction date. They are initially recognised at cost, which represents fair value. Fair value adjustments are included in the income statement in the period in which they arise.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active or if the assets comprise unlisted securities, the Group establishes fair value by using valuation techniques which include the use of recent arm’s length transactions, reference to other instruments that are substantially the same and discounted cash flow analysis refined to reflect the issuer’s specific circumstances.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets held with no intention of trading and which have fixed or determinable payments that are not quoted in an active market. They are included in trade and other receivables within current assets, except for maturities greater than 12 months which are classified as other non-current assets.
(c) Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the intention and ability to hold to maturity. The Group did not hold any investments in this category during the year.
The Group holds a collection of jewellery and watch pieces primarily for presentation purposes to promote the Maisons and their history. They are not intended for sale.
Maisons collection pieces are held as non-current assets at cost less any permanent impairment in value.
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Cost is determined using either a weighted average or specific identification basis depending on the nature of the inventory. The cost of finished goods and work in progress comprises raw materials, direct labour, related production overheads and, where applicable, duties and taxes. It excludes borrowing costs.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The movement of the provision is recognised in the income statement.
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.
(a) Share capital and participation reserve
Shares issued by the Company are indivisibly twinned with participation certificates issued by its wholly-owned subsidiary, Richemont SA, Luxembourg, to form Richemont units, and are classified as share capital and participation reserves attributable to Unitholders.
(b) Treasury units
All consideration paid by the Group in the acquisition of treasury units and received by the Group on the disposal of treasury units is recognised directly in Unitholders’ equity. The cost of treasury units held is deducted from Unitholders’ equity. Gains or losses arising on the disposal of treasury units are recognised within retained earnings directly in Unitholders’ equity.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Taxes on income are provided in the same period as the revenue and expenses to which they relate. Current taxes include capital taxes of some jurisdictions.
Deferred income tax is provided using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences and the carryforward of unused tax losses can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the Group controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
(a) Retirement benefit obligations
The Group operates a number of defined benefit and defined contribution post-employment benefit plans throughout the world. The plans are generally funded through payments to trustee-administered funds by both employees and relevant Group companies taking into account periodic actuarial calculations. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive post-employment, usually dependent on one or more factors such as age, years of service and compensation.
The liability recognised in the balance sheet in respect of defined benefit plans is the present value of the defined benefit obligations at the balance sheet date less the fair values of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligations are calculated on a regular cyclical basis by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using the yields available at balance sheet dates on high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity consistent with the terms of the related pension liability.
Past service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (‘the vesting period’). In this case, the past service costs are amortised on the straight-line method over the vesting period.
Actuarial gains and losses in excess of the greater of 10 per cent of the value of plan assets or 10 per cent of the defined benefit obligations are charged or credited to income over the expected average remaining service lives of employees.
For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
(b) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to, either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
(c) Bonus plans
The Group recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation.
(d) Share-based payment
The Group operates an equity-settled share-based compensation plan based on options granted in respect of Richemont units. The fair value of the employee services received in exchange for the grant of options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimate of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement over the remaining vesting period and a corresponding adjustment to equity.
Provisions for restructuring costs, legal claims and other liabilities are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring and property related provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value at the balance sheet date of management’s best estimate of the expenditure required to settle the obligation. The pre-tax discount rate used to determine the present value reflects current market assessments of the time value of money and the risk specific to the liability. Any increase in provisions due to the passage of time are recognised as interest expense.
(a) Goods and services
Sales revenue comprises the fair value of the sale of goods and services, net of value-added tax, duties, other sales taxes, rebates and trade discounts and after eliminating sales within the Group. Revenue is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Where there is historical experience of agreeing to customer returns, accumulated experience is used to estimate and provide for such returns at the time of sale.
(b) Interest income
Interest income is recognised on a time-proportion basis using the effective interest method.
(c) Royalty income
Royalty income is recognised on the accruals basis in accordance with the substance of the relevant agreements.
(d) Dividend income
Dividend income is recognised when the right to receive payment is established.
(a) Operating leases
Payments made under operating leases (net of any incentives received) are charged to the income statement on the straightline method over the lease term. Sub-lease income (net of any incentives given) is credited to the income statement on the straight-line method over the sub-lease term.
(b) Finance leases
At commencement of the lease term, assets and liabilities are recognised at the lower of the present value of future minimum lease payments or fair value of the leased item. Property, plant and equipment so recognised are depreciated over the shorter of their expected useful lives or the lease term.
In cases where land and buildings are acquired under finance leases, separate values of the land and buildings are established.
Dividend distributions to the Richemont Unitholders are recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the shareholders of the Company and of Richemont SA.
2.21. Changes to IFRS
Certain new accounting standards issued by IASB and new interpretations issued by IFRIC are mandatory for accounting periods beginning on or after 1 January 2006. These will not affect the Group’s result but will affect disclosures. The standards that will affect disclosures are IFRS 7 Financial Instruments: Disclosures and an amendment to IAS 1 Presentation of Financial Statements – Capital Disclosures, both effective for accounting periods beginning on or after 1 January 2007. It is not expected that the application of these new standards will have a material impact on the Group’s consolidated financial statements.
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk, cash flow and fair value interest rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by a central treasury department (‘Group Treasury’) under policies approved by the Board. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board has approved formal written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity.
(a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Swiss franc, US dollar, HK dollar and Yen. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.
Entities in the Group use forward contracts to manage their foreign exchange risk arising from recognised assets and liabilities. Foreign exchange risk arises when recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. Group Treasury oversees the management of the net position in each foreign currency by using external forward currency contracts.
External foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on specific assets, liabilities or future transactions on a gross basis.
The Group’s risk management policy is to hedge up to 70 per cent of anticipated net exposure arising in US dollars, HK dollars and Yen for the subsequent 12 months. A significant portion of projected sales in each major currency qualifies as ‘highly probable’ forecast transactions for hedge accounting purposes.
The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies.
(ii) Price risk
The Group is exposed to equity securities’ price risk because of investments held and classified in the consolidated balance sheet as financial assets held at fair value through profit or loss. The Group is exposed to commodity price risk relating to the purchase of precious metals and stones for use in its manufacturing processes.
(b) Credit risk
The Group has no significant concentrations of credit risk. It has policies in place to ensure that sales of products are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions.
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate level of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury aims to maintain flexibility in funding by keeping committed credit lines available.
(d) Cash flow and fair value interest rate risk
The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s cash flow interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. The Group raises long-term borrowings at floating rates and swaps them into fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); hedges of highly probable forecast transactions (cash flow hedge); or hedges of net investments in foreign operations.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
The fair values of various derivative instruments used for hedge purposes are disclosed in note 14. Movements in the hedge reserve in Unitholders’ equity are shown in note 16.5.
(a) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss (for example, when the forecast transaction that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a nonfinancial asset (for example, inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
(b) Net investment hedge
Hedges of net investments in foreign operations are accounted for in a similar manner to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Gains and losses accumulated in equity in respect of a foreign operation are included in the income statement on disposal of that operation.
(c) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Such derivatives are classified as at fair value through profit or loss, and changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.
The fair value of financial instruments traded in active markets (such as publicly traded derivatives, trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date.
The nominal values less estimated credit adjustments of trade receivables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.
The Group is required to make estimates and assumptions that affect certain balance sheet and income statement items and certain disclosures regarding contingencies. Estimates and judgements applied by management are continuously evaluated and are based on information available, historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances at the dates of preparation of the consolidated financial statements. Principal matters where assumptions, judgement and estimates have a significant role are described in relevant notes to the consolidated financial statements and relate in particular to:
(a) the determination of sales deductions, including rebates, discounts and incentives, which are reported as a reduction in sales;
(b) the determination of carrying values for property, plant and equipment, intangible assets and inventories;
(c) the assessment and recording of liabilities in respect of retirement benefit obligations;
(d) the recognition of provision for income taxes, including deferred taxation, taking into account the related uncertainties in the normal course of business.
A business segment is a group of assets and operations engaged in providing products that are subject to risks and returns that are different from those of other business segments. The Group has opted to use business segments as the primary segments.
A geographical segment is engaged in providing products within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. The Group uses geographical segments as the secondary segments.
(a) Primary reporting format – business segments
For the purposes of clarity and comparability of external reporting, the Group combines internal management units with similar risk and reward profiles into business operating segments, which are constituted as follows:
• Jewellery Maisons – brands whose heritage is in the design, manufacture and distribution of jewellery products; these comprise Cartier and Van Cleef & Arpels.
• Specialist Watchmakers – brands whose primary activity includes the design, manufacture and distribution of precision timepieces. The Group’s specialist watchmakers comprise Jaeger-LeCoultre, Baume & Mercier, IWC, Vacheron Constantin, A. Lange & Söhne, Piaget and Officine Panerai.
• Writing Instrument Maisons – brands whose primary activity includes the design, manufacture and distribution of writing instruments. These are Montblanc and Montegrappa.
• Leather and Accessories Maisons – brands whose activities include the design and distribution of primarily leather goods and other accessories, being Alfred Dunhill and Lancel.
Other Group operations mainly comprise Chloé, royalty income and other businesses. None of these constitutes a separately reportable segment.
Amounts included within the Central Support Services category represent the Group’s corporate operations which cannot meaningfully be attributed to the segments.
The entire product range of a particular Maison, which may include watches, writing instruments, jewellery and leather goods, is reflected in the sales and operating result for that segment.
Segment assets consist primarily of property, plant and equipment, inventories, trade and other debtors and noncurrent assets. Segment liabilities comprise operating liabilities, including provisions, but excluding bank overdrafts, short and long-term loans.
Inter segment transactions are transacted at prices that reflect the risk and rewards transferred and are entered into under normal commercial terms and conditions.
(a) Primary reporting format
The segment results for the years ended 31 March are as follows:
| Sales | Inter segment sales | Total segment sales | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2006 € m |
2005 € m |
2006 € m |
2005 € m |
2006 € m |
2005 € m |
||||||
| Sales | |||||||||||
| Jewellery Maisons | 2227 | 1938 | 15 | 7 | 2242 | 1945 | |||||
| Specialist Watchmakers | 1063 | 870 | 9 | 1 | 1072 | 871 | |||||
| Writing Instrument Maisons | 497 | 424 | 7 | 3 | 504 | 427 | |||||
| Leather and Accessories Maisons | 283 | 259 | 8 | - | 291 | 259 | |||||
| Other Businesses | 238 | 180 | 75 | 87 | 313 | 267 | |||||
| 4308 | 3671 | 114 | 98 | 4422 | 3769 | ||||||
| Total segment sales | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2006 € m |
2005 € m |
||||||||||
| Segment result: | |||||||||||
| Jewellery Maisons | 616 | 456 | |||||||||
| Specialist Watchmakers | 227 | 145 | |||||||||
| Writing Instrument Maisons | 83 | 58 | |||||||||
| Leather and Accessories Maisons | (38) | (41) | |||||||||
| Other Businesses | 22 | 2 | |||||||||
| Central Support Services | (169) | (59) | |||||||||
| Operating profit | 741 | 561 | |||||||||
| Finance costs | 5 | (48) | |||||||||
| Operating profit before share of results of associated undertakings | 746 | 513 | |||||||||
| Share of post-tax profit of associated undertakings | 486 | 798 | |||||||||
| After : | |||||||||||
| Share of other (expense)/income of associated undertakings | (58) | 305 | |||||||||
| Profit before taxation 1 232 1 311 | 1232 | 1311 | |||||||||
| Taxation | (136) | 97 | |||||||||
| Net profit | 1096 | 1214 | |||||||||
The net segment assets at 31 March are as follows:
| Segment assets | Segment liabilities | Net segment assets | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2006 € m |
2005 € m |
2006 € m |
2005 € m |
2006 € m |
2005 € m |
||||||
| Net segment assets | |||||||||||
| Jewellery Maisons | 1550 | 1389 | (215) | (171) | 1335 | 1218 | |||||
| Specialist Watchmakers | 778 | 731 | (107) | (90) | 671 | 641 | |||||
| Writing Instrument Maisons | 313 | 283 | (70) | (62) | 243 | 221 | |||||
| Leather and Accessories Maisons | 150 | 151 | (54) | (47) | 96 | 104 | |||||
| Other Businesses | 155 | 115 | (57) | (44) | 98 | 71 | |||||
| Central Support Services | 411 | 426 | (229) | (211) | 182 | 215 | |||||
| 3357 | 3095 | (732) | (625) | 2625 | 2470 | ||||||
| Investments in associated undertakings | 3447 | 3218 | - | - | 3347 | 3218 | |||||
| Cash and cash equivalents | 1628 | 1409 | (212) | (226) | 1416 | 1183 | |||||
| Short-term loans and borrowings | - | - | (532) | (566) | (532) | (566) | |||||
| Retirement benefit obligations | - | - | (101) | (97) | (101) | (97) | |||||
| Deferred and current income tax, net | 261 | 227 | (235) | (154) | 26 | 73 | |||||
| Net assets | 8539 | 7949 | 1812 | 1668 | 6781 | 6281 | |||||
| Items related to property, plant, equipment and intangible assets : |
Capital expenditure | Depreciation / amortisation charge |
Impairment charge | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2006 € m |
2005 € m |
2006 € m |
2005 € m |
2006 € m |
2005 € m |
||||||
| Net segment assets | |||||||||||
| Jewellery Maisons | 96 | 50 | 48 | 50 | - | - | |||||
| Specialist Watchmakers | 36 | 38 | 23 | 23 | - | 2 | |||||
| Writing Instrument Maisons | 18 | 15 | 18 | 19 | - | - | |||||
| Leather and Accessories Maisons | 11 | 11 | 10 | 8 | - | - | |||||
| Other Businesses | 17 | 10 | 8 | 7 | - | - | |||||
| Central Support Services | 56 | 44 | 27 | 36 | - | - | |||||
| 234 | 168 | 134 | 143 | - | 2 | ||||||
| Total segment sales | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2006 € m |
2005 € m |
|||||||
| Other non-cash items: | ||||||||
| Jewellery Maisons | 6 | 4 | ||||||
| Specialist Watchmakers | 4 | 3 | ||||||
| Writing Instrument Maisons | 2 | 1 | ||||||
| Leather and Accessories Maisons | 1 | 1 | ||||||
| Other Businesses | 22 | 21 | ||||||
| Central Support Services | 36 | 31 | ||||||
(b) Secondary reporting format – geographical segments Sales, segment assets and capital expenditure in the Group’s three main geographical areas are as follows for the years ended 31 March:
| Sales | Segment assets | Capital expenditure | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2006 € m |
2005 € m |
2006 € m |
2005 € m |
2006 € m |
2005 € m |
||||||
| Europe | 1811 | 1580 | 2363 | 2217 | 167 | 119 | |||||
| France | 409 | 376 | 424 | 403 | 37 | 27 | |||||
| Switzerland | 195 | 160 | 1272 | 1206 | 95 | 52 | |||||
| Germany, Italy and Spain | 607 | 533 | 401 | 386 | 18 | 16 | |||||
| Other Europe | 600 | 511 | 266 | 222 | 17 | 24 | |||||
| Asia | 1622 | 1394 | 578 | 515 | 42 | 27 | |||||
| Hong Kong / China | 492 | 389 | 166 | 123 | 10 | 4 | |||||
| Japan | 723 | 639 | 277 | 282 | 20 | 10 | |||||
| Other Asia | 407 | 366 | 135 | 110 | 12 | 13 | |||||
| Americas | 875 | 697 | 416 | 363 | 25 | 22 | |||||
| USA | 685 | 538 | 352 | 296 | 24 | 20 | |||||
| Other Americas | 190 | 159 | 64 | 67 | 1 | 2 | |||||
| 4308 | 3671 | 3357 | 3095 | 234 | 168 | ||||||
Sales are allocated based on the location of the customer. Segment assets and capital expenditure are allocated based on where the assets are located.
| Land and buildings € m |
Plant and machinery € m |
Fixtures, fittings, tools and equipment € m |
Assets under construction € m |
Total € m |
|||||
|---|---|---|---|---|---|---|---|---|---|
| Cost | |||||||||
| Balance at 1 April 2004 | 350 | 236 | 727 | 35 | 1348 | ||||
| Exchange adjustments | (2) | - | (17) | - | (19) | ||||
| Additions | 21 | 14 | 85 | 41 | 161 | ||||
| Transfers and reclassifications | 21 | 1 | 10 | (31) | 1 | ||||
| Disposals | (26) | (7) | (49) | (2) | (84) | ||||
| Impairment | (2) | - | - | - | (2) | ||||
| Balance at 31 March 2005 | 362 | 244 | 756 | 43 | 1405 | ||||
| Depreciation | |||||||||
| Balance at 1 April 2004 | 71 | 184 | 409 | - | 664 | ||||
| Exchange adjustments | - | - | (9) | - | (9) | ||||
| Charge for the year | 11 | 22 | 95 | - | 128 | ||||
| Transfers and reclassifications | - | - | 1 | - | 1 | ||||
| Disposals | (11) | (6) | (43) | - | (60) | ||||
| Balance at 31 March 2005 | 71 | 200 | 453 | - | 724 | ||||
| Net Book amount | |||||||||
| at 31 March 2005 | 291 | 44 | 303 | 43 | 681 | ||||
| Land and buildings € m |
Plant and machinery € m |
Fixtures, fittings, tools and equipment € m |
Assets under construction € m |
Total € m |
|||||
|---|---|---|---|---|---|---|---|---|---|
| Cost | |||||||||
| Balance at 1 April 2005 | 362 | 244 | 756 | 43 | 1405 | ||||
| Exchange adjustments | (3) | (3) | 14 | - | 8 | ||||
| Acquisition/(disposal) of subsidiary undertakings | (5) | 3 | (15) | - | (17) | ||||
| Additions | 32 | 25 | 124 | 29 | 210 | ||||
| Transfers and reclassifications | 51 | 3 | (20) | (57) | (23) | ||||
| Disposals | (21) | (12) | (76) | (1) | (110) | ||||
| Balance at 31 March 2006 | 416 | 260 | 783 | 14 | 1473 | ||||
| Depreciation | |||||||||
| Balance at 1 April 2005 | 71 | 200 | 453 | - | 724 | ||||
| Exchange adjustments | (1) | (3) | 7 | - | 3 | ||||
| Acquisition/(disposal) of subsidiary undertakings | (5) | 2 | (10) | - | (13) | ||||
| Charge for the year | 14 | 15 | 86 | - | 115 | ||||
| Transfers and reclassifications | 11 | - | (25) | - | (14) | ||||
| Disposals | (2) | (11) | (71) | - | (84) | ||||
| Balance at 31 March 2006 | 88 | 203 | 440 | - | 731 | ||||
| Net Book amount | |||||||||
| at 31 March 2006 | 328 | 57 | 343 | 14 | 742 | ||||
Depreciation expense of € 32 million has been charged to cost of sales in the year (2005: € 25 million).
Included above is property, plant and equipment held under finance leases with a net book amount of € 24 million (2005: € 21 million).
The impairment charges in 2005 relate to the reorganisation of certain retail and manufacturing operations and were included in net operating expenses.
Borrowing costs capitalised during the current and prior years at a rate of 2.0 per cent (2005: 1.5 per cent) were insignificant.
Committed capital expenditure not reflected in these financial statements amounted to € 4 million at 31 March 2006 (2005: € 17 million).
| Leasehold and distribution rigths € m |
Computer software and related licenses € m |
Development costs and other licenses € m |
Total € m |
||||
|---|---|---|---|---|---|---|---|
| Cost | |||||||
| Balance at 1 April 2004 | 127 | 23 | - | 150 | |||
| Additions | 4 | 4 | - | 8 | |||
| Disposals | (1) | - | - | (1) | |||
| Balance at 31 March 2005 | 130 | 27 | - | 157 | |||
| Amortisation | |||||||
| Balance at 1 April 2004 | 75 | 16 | - | 91 | |||
| Charge for the year | 9 | 6 | - | 15 | |||
| Disposals | (1) | - | - | (1) | |||
| Balance at 31 March 2005 | 83 | 22 | - | 105 | |||
| Net Book amount | |||||||
| at 31 March 2005 | 47 | 5 | - | 52 | |||
| Leasehold and distribution rigths € m |
Computer software and related licenses € m |
Development costs and other licenses € m |
Total € m |
||||
|---|---|---|---|---|---|---|---|
| Cost | |||||||
| Balance at 1 April 2005 | 130 | 27 | - | 157 | |||
| Acquisition/(disposal) of subsidiary undertakings | 2 | (1) | 6 | 7 | |||
| Additions | 3 | 6 | 15 | 24 | |||
| Transfers and reclassifications | (4) | - | 17 | 13 | |||
| Disposals | (4) | - | (3) | (7) | |||
| Balance at 31 March 2006 | 127 | 32 | 35 | 194 | |||
| Amortisation | |||||||
| Balance at 1 April 2005 | 83 | 22 | - | 105 | |||
| Charge for the year | 10 | 3 | 6 | 19 | |||
| Transfers and reclassifications | - | - | 7 | 7 | |||
| Disposals | (3) | - | (1) | (4) | |||
| Balance at 31 March 2006 | 90 | 25 | 12 | 127 | |||
| Net Book amount | |||||||
| at 31 March 2006 | 37 | 7 | 23 | 67 | |||
Amortisation expense of € 1 million (2005: € 1 million) relating to intangibles has been charged to cost of sales.
The remaining amortisation periods for intangible assets range between 1 and 20 years.
| BAT € m |
Other € m |
Total € m |
|||
|---|---|---|---|---|---|
| At 1 April 2004 | 2666 | - | 2666 | ||
| Exchange adjustments | (66) | - | (66) | ||
| Share of post-tax profit | 798 | - | 798 | ||
| Dividends received | (235) | - | (235) | ||
| Partial disposal of effective interest | (99) | - | (99) | ||
| Dilution in percentage holding on conversion | |||||
| of preference shares | 228 | - | 228 | ||
| Other equity movements | (74) | - | (74) | ||
| At 31 March 2005 | 3218 | - | 3218 | ||
| Exchange adjustments | 41 | - | 41 | ||
| Share of post-tax profit | 486 | - | 486 | ||
| Dividends received | (247) | - | (247) | ||
| Transfer from unlisted undertakings | - | 4 | 4 | ||
| Other equity movements | (155) | - | (155) | ||
| At 31 March 2006 | 3343 | 4 | 3347 | ||
Investments in associated undertakings at 31 March 2006 include goodwill of € 2 510 million (2005: € 2 547 million).
British American Tobacco (‘BAT’) The summarised financial information in respect of the Group’s share of results, assets and liabilities of its principal associated undertaking, BAT, is as follows:
| 2006 € m |
2005 € m |
||
|---|---|---|---|
| Operating profit | 731 | 710 | |
| Share of post-tax profit of | |||
| BAT's associated undertakings | 110 | 69 | |
| Share of other (expense)/income | (58) | 305 | |
| Finance costs | (69) | (73) | |
| Profit before taxation | 714 | 1011 | |
| Taxation | (191) | (178) | |
| Net profit | 523 | 833 | |
| Minority interest | (37) | (35) | |
| Share of post-tax profit | 486 | 798 |
Richemont’s share of the prior year other (expense)/income of its associated undertaking arose primarily from the gain on sale of certain of BAT’s subsidiaries and investments partially offset by restructuring costs incurred by BAT.
Accounts are drawn up at 31 March of each year in respect of BAT, and the Group’s share of results and retained reserves is derived therefrom. Summarised financial information regarding the BAT group appearing in such accounts is as follows:
| 2006 £ m |
2005 £ m |
||
|---|---|---|---|
| Shareholders’ equity | 6996 | 6245 | |
| Revenue | 9515 | 10240 | |
| Profit from operations | 2689 | 2562 | |
| Attributable profit for the year | 1795 | 2905 |
Total assets and liabilities are taken from BAT’s latest published financial statements, which are drawn up to 31 December. No significant transactions or events have occurred since that date, which would materially change the amounts disclosed.
| 31 December 2005 £ m |
31 December 2005 £ m |
||
|---|---|---|---|
| Total assets | 19047 | 17775 | |
| Total liabilities | (12170) | (11658) |
Richemont accounts for its effective interest in BAT under the equity method. As at 31 March 2006, the Group holds an effective interest of 18.6 per cent in BAT. The Group has joint control of an entity holding 28.9 per cent of BAT and this joint venture has the ability to exert significant influence over BAT, including representation on the Board of Directors. Thus, Richemont considers BAT to be an associated undertaking.
Changes in the Group’s percentage holding of BAT during the year ended 31 March 2006 relate to the share buy-back programme carried out by BAT during the year. The changes in the year ended 31 March 2005 reflect the conversion of the BAT preference shares into ordinary shares on 28 May 2004, the partial sale by the Group of BAT shares to its joint venture partner Remgro Limited in February 2005 and the share buy-back programme carried out by BAT during the year. The following table indicates the percentages applied to BAT’s profits:
| Percentage | |
|---|---|
| 1 April 2005 to 30 June 2005 | 18.4 |
| 1 July 2005 to 30 September 2005 | 18.5 |
| 1 October 2005 to 31 March 2006 | 18.6 |
| Percentage | |
|---|---|
| 1 April 2004 to 31 May 2004 | 19.7 |
| 1 June 2004 to 30 September 2004 | 18.7 |
| 1 October 2004 to 28 February 2005 | 18.8 |
| 1 March 2005 to 31 March 2005 | 18.3 |
The market capitalisation of BAT ordinary shares at 31 March 2006 was £ 29 161 million (2005: £ 19 935 million). The fair value of the Group’s effective interest of 18.6 per cent in BAT ordinary shares at that date was € 7 960 million (2005: effective interest 18.3 per cent, fair value € 5 292 million).
BAT has contingent liabilities in respect of litigation regarding product liability, overseas taxation and guarantees in various countries. Despite the quality of defences judged by BAT to be available, there is a possibility that its operating results or cash flows could be materially affected by the outcomes of such matters, which could give rise to a consequent effect on the Group’s share of results and attributable net assets.
Since 31 January 2006, the Group has held a 32.8 per cent share of equity in Net-à-Porter Ltd, a company incorporated in the United Kingdom. The Group’s investment in this company was previously classified in ‘Investments in unlisted undertakings’. The Group’s share of this associated undertaking was recorded for the first time under the equity method at 31 March 2006 and was determined with reference to its audited accounts for the year ended 31 January 2006. Therefore, the Group has not recognised any amount in the consolidated income statement to 31 March 2006 in respect of its share of results from Net-à-Porter. The principal activity of Net-à-Porter is the online retailing of women’s designer branded, ready-to-wear fashion, shoes and accessories.
| 2006 €m |
|
|---|---|
| Share of associate’s assets | 6 |
| Share of associate’s liabilities | (2) |
| 4 |
Deferred income tax assets
| 1 April 2005 € m |
Exchange adjustments € m |
(Charge)/ credit for year € m |
31 March 2006 € m |
||||
|---|---|---|---|---|---|---|---|
| Depreciation | 21 | 1 | 3 | 25 | |||
| Provision on inventories | 25 | 1 | (6) | 20 | |||
| Bad debt reserves | 2 | - | - | 2 | |||
| Retirement benefits | 12 | - | 1 | 13 | |||
| Unrealised gross margin elimination | 97 | - | 31 | 128 | |||
| Tax losses carried forward | 51 | 1 | (7) | 45 | |||
| Other | 19 | 1 | 8 | 28 | |||
| 227 | 4 | 30 | 261 |
At 31 March 2006 the Company and its subsidiary undertakings had taxation losses carried forward of € 288 million (2005: € 279 million) in respect of which deferred tax assets had not been recognised as the future utilisation of these losses is uncertain. The majority of these losses can be carried forward more than five years. Based on current rates of taxation, future utilisation of these losses would result in the recognition of deferred tax assets at 31 March 2006 of € 92 million (2005: € 88 million).
The Company and its subsidiary undertakings also had temporary differences of € 56 million (2005: € 43 million) in respect of which deferred tax assets had not been recognised as the future utilisation of these temporary differences is uncertain. Based on current rates of taxation, future utilisation of these temporary differences would result in the recognition of deferred tax assets at 31 March 2006 of € 19 million (2005: € 13 million).
Taxation charge in the income statement:
| 1 April 2005 € m |
Exchange adjustments € m |
(Charge)/ credit for year € m |
31 March 2006 € m |
||||
|---|---|---|---|---|---|---|---|
| Depreciation | (9) | - | (1) | (10) | |||
| Provision on inventories | (12) | (1) | 2 | (11) | |||
| Retirement benefits | (2) | - | 2 | - | |||
| Other | (11) | - | (1) | (12) | |||
| (34) | (1) | 2 | (33) |
| 2006 € m |
2005 € m |
||
|---|---|---|---|
| Current tax | 168 | 98 | |
| Deferred tax | (32) | (1) | |
| 136 | 97 |
No taxation charge arose on other income and expense recognised directly in equity.
The average effective tax rate is calculated in respect of profit before taxation but excluding the share of post-tax profit of associated undertakings. The rates for the years ended 31 March 2006 and 2005 were 18.2 per cent and 18.9 per cent respectively.
The taxation charge on the Group’s profit before tax differs from the amount that arises using the statutory tax rates applicable to profits of the consolidated companies as follows:
| 2006 € m |
2005 € m |
||
|---|---|---|---|
| Profit before taxation | 1232 | 1311 | |
| less share of post-tax profit of associated undertakings | (486) | (798) | |
| Adjusted profit before taxation | 746 | 513 | |
| Tax on adjusted profit calculated at home statutory tax rates | 157 | 108 | |
| Difference in tax rates | (37) | (21) | |
| Non-taxable income | (2) | (3) | |
| Non-deductible expenses | 7 | 9 | |
| Utilisation and recognition of prior year tax losses | (16) | (11) | |
| Non-recognition of current year tax losses | 5 | 15 | |
| Withholding and other taxes | 16 | 8 | |
| Prior year adjustments | 6 | (8) | |
| Taxation charge | 136 | 97 |
The tax rate applied reflects the rate applicable to the principal trading company in the home country.
| 2006 € m |
2005 € m |
||
|---|---|---|---|
| Investments in unlisted undertakings | 25 | 36 |
At 31 March 2006 the Group had committed to invest a further € 9 million (2005: € 3 million) in unlisted undertakings until 2010.
| 2006 € m |
2005 € m |
||
|---|---|---|---|
| Maisons collections | 83 | 78 | |
| Lease deposits | 60 | 52 | |
| Loans and receivables | 13 | 13 | |
| Other assets | 8 | 10 | |
| 164 | 153 |
12. Inventories
| 2006 € m |
2005 € m |
||
|---|---|---|---|
| Raw materials and work in progress | 508 | 476 | |
| Finished goods | 1115 | 1046 | |
| 1623 | 1522 |
The cost of inventories recognised as an expense and included in cost of sales amounted to € 1 440 million (2005: € 1 278 million).
The Group reversed € 92 million (2005: € 67 million) of a previous inventory write-down during the year as the goods were sold at an amount in excess of the written down value. The amount reversed has been included in cost of sales.
The Group recognised € 99 million (2005: € 90 million) in the write-down of inventory as a charge to cost of sales.
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