Richemont is one of the world's leading luxury - Alle jaarverslagen

the business – jewellery, watches, writing instruments and leatherand accessories. A fifth business area includes smaller businessesand component manufacturing activities.The Group’s largest market is Europe, which generated 44 per centof sales during the year under review. Details of sales by geographicregion are given on page 33 of this report. The Group believes thediversity of its geographical operations, with a lack of dependencyon any one market, represents a long-term competitive advantage.Maintaining and enhancing the tradition, heritage and characterof the Maisons is critical to ensuring the future development andsuccess of the Group. Product quality is paramount. Each Maisonalso focuses on increasing awareness and desirability by developingcreative products and marketing programmes and anticipatingfuture market trends. The Maisons’ products are sold througha network of boutiques owned by the Group, through franchiseoperations and through boutiques owned by third parties.Factors affecting resultsThe Group’s products can be considered discretionary purchases.Declining confidence in local or international economies cantherefore impact consumer spending. Global events such asregional conflicts, terrorism, disease and natural disasters mayalso affect the consumer’s willingness to purchase luxury products.The products sold by Group companies rely on the considerableskill and craftsmanship of their employees and on the availabilityof components from suppliers. Suppliers, likewise, are dependenton the availability of skilled labour. The recruitment, training andretention of craftsmen is therefore a long-term investment, bothfor the Group and its suppliers.Attracting and retaining creative, management and craft talentare critical to the Group in meeting its long-term objectives. TheGroup has developed global human resources strategies in concertwith the Maisons and the regional platforms to attract, retainand motivate talented individuals. Performance objectives areestablished between the Group, Maisons and platforms and arereviewed annually.The Maisons manufacture their products in western Europe,primarily in Switzerland, France and Germany. Some 56 per centof Group sales are made outside Europe, exposing the Groupto significant foreign exchange risk. Fluctuations in exchangerates may be compensated by the pricing applied to products.The Group also uses a variety of short-term and long-termhedging strategies to further safeguard its assets and operationalcash flows against such risks. The gross exposure to sales in theseforeign currencies is partly offset by local operating costs and, inthe case of the US dollar, purchases of diamonds, gemstones andprecious metals. Short-term strategies include the twelve-monthforward sale of foreign currencies, particularly the US dollar, theHong Kong dollar and the Japanese yen, against the Swiss francand euro. The rolling twelve-month programme aims to hedgeforward some 70 per cent of the Group’s forecast net exposurein these key currencies. Longer-term hedging strategies includeborrowing in local currency to finance local assets.Labour and other production costs represent the principal elementof the Group’s cost of sales. Raw material costs are an importantelement. Prices of precious stones, gold and other materials vary,dependent on international market prices.Whilst short-term foreign currencies and manufacturing costfluctuations may be absorbed, the Group seeks to maintain itsmargins through price adjustments, wherever possible, to reflectthe impact of more sustained movements in foreign exchange rates.Up to 20 October 2008, the Group equity accounted its interestin BAT, an associated undertaking. In the consolidated financialstatements, that former interest is now presented as a discontinuedoperation.Critical accounting policies and estimatesThe consolidated financial statements have been prepared inaccordance with International Financial Reporting Standards(‘IFRS’). The accounting policies are presented in full on pages60 to 67 of this report. The following are the critical accountingpolicies requiring significant judgements and estimates.Revenue is recognised when significant risks and rewards ofownership of the goods are transferred to the buyer. Wherethere is a practice of agreeing to customer returns, accumulatedexperience is used to estimate and provide for such returns atthe time of sale. Sales returns amount to some 3 per cent ofgross sales. At the time of sale, the Group also records estimatesfor a variety of sales deductions, including target bonuses, earlypayment discounts, commissions related exclusively to wholesalesales and other incentives. Target bonuses and third-partycommissions relate to negotiated programmes with the wholesaletrade and are generally accrued as a percentage of gross sales.Early payment discounts, which vary based on region, are offeredto encourage prompt payment of trade balances. The Grouprecords these deductions based on management’s best estimatesof individual programmes in the individual regions. The differencebetween gross and net sales is historically 1 per cent of gross sales.The Group provides for income tax it expects to pay on its profits.Operating throughout the world, it is subject to differing taxcodes and administrative practices. Amounts provided are basedon management’s interpretation of country-specific tax rules.In accordance with IFRS, goodwill represents the excess of thecost of a business combination over the fair value of the identifiablenet assets of the acquired business at the date of acquisition. Goodwillis subject to an annual impairment review. The recoverable amountof goodwill is determined by discounting the future cash flowsgenerated from the continuing use of the Maison to which thegoodwill is allocated. The intellectual property rights relating totrade names associated with the Group’s principal Maisons arenot reflected in the Group’s consolidated balance sheet, however,as these rights were carried at nil in the Group’s balance sheetprior to the adoption of IFRS in 2005.RICHARD LEPEUGROUP FINANCE DIRECTORCOMPAGNIE FINANCIÈRE RICHEMONT SAGENEVA, 14 MAY 2009Richemont Annual Report and Accounts 2009 37Business review: Financial review