Cape Town - In spite of a tough trading outlook, luxury goods giant Richemont has proposed a Swiss franc 0.30/share dividend for the year to end-March 2009 - a reporting period which saw earnings decline markedly.
Richemont boasts a portfolio of well-known luxury brands which include Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, Jaeger-LeCoultre, IWC, Alfred Dunhill and Montblanc.
On Thursday Richemont executive chairperson Johann Rupert said the proposed dividend followed an analysis of the group's cash flow requirements.
It took into consideration the resizing of the group, after the transfer of its holding in British American Tobacco (BAT) to the new Rupert family-controlled investment vehicle, Reinet Investments.
Rupert pointed out that for a former Richemont unitholder - who continued to hold Richemont, BAT and Reinet shares - the dividend payout meant a small increase in dividend income "over this very difficult year".
Richemont's results showed trading margins under pressure as second-half trading conditions worsened. While sales were up 2% to €5.4bn, operating profits slipped 12% to €982m. Bottom line profits from continuing operations dropped a hefty 23% to €751m.
This is not terribly surprising as the global financial crisis smacked the luxury goods market in the US, Europe and Japan - particularly during the key Christmas sales period.
Market watchers pointed out that the second-half downturn in Richemont's performance was "fairly severe" after the group notched up a strong first-half performance to end-September 2008.
While the profit performance was under pressure in the second half, certain Richemont Maisons, including the flagship Cartier brand, did manage record sales and profits.
A breakdown of the Maisons showed operating profit from jewellery up 2%, but trading margins in watch-making (operating profits down 23%) and writing instruments (down 45%) crumbled. Richemont's leather and accessories division - the group's smallest - saw a €10m loss from sales of €294m.
Contingency plans in place
Shareholders would also take heart that Richemont's cash generated by operations was a reassuring €819m.
Rupert remarked that the company has a clean balance sheet and a net cash position at the year-end of €822m.
Rupert said Richemont's management had prepared contingency plans to cope with a challenging trading environment. "We have been working to implement them for quite a while."
He stressed the group had managed to optimise free cash flow through strict control of operating costs and working capital, coupled with focused cutbacks in capital spending.
"Our goal was to enter the foreseen economic downturn with a clean balance sheet and proper liquidity. We are pleased to report that this has largely been achieved."
However, the outlook for the new financial year is not encouraging.
Rupert reported a 19% drop in sales for the first month (April) of the new financial year.
He admitted: "This significant reduction was not unexpected, given the very strong comparative figure and the state of the world economy today compared to a year ago."
Rupert gloomily noted that there were currently very few encouraging signs in the global economic picture.
"The US market is very weak and conditions in Japan have been poor for some time. Most European markets are unsettled and trading remains hesitant."
He said the Asia-Pacific region and the Middle East continued to report some positive sales trends.
Rupert said Richemont could not predict when an overall improvement in trading will come about. "Compared to the record level of sales reported in the first six months of last year, trading conditions through to September 2009 will be very challenging indeed."
In spite of the gloomy outlook, Investec Securities stockbroker David Sylvester warned against the despondent dumping of Richemont shares.
He said investors should not try extrapolating a year's trading from a single month, especially since April 2008 was a particularly strong period for Richemont.
"Long-term holders should be wary of selling out, even though things look sad at the moment.
"The recovery might be as long as 18 months, but when Richemont recovers it has the potential to bounce back strongly."
- Fin24.com