Cape Town - Richemont [JSE:RCH], the luxury brands business controlled by the Rupert family, was able to shrug off tough trading conditions by calling on its strong balance sheet and markedly improved operational cash flows to hike its annual dividend.
On Thursday, Richemont - despite a 14% fall in operating profits to €830m - proposed a dividend for the year to end-March 2010 of CHF0.35 per share - an increase of 17% over last year's payout.
Richemont CEO Johann Rupert
reckoned the Swiss-based company had weathered the economic crisis to date and was in a strong financial position.
"Our businesses reacted quickly and positively to the downturn in demand and have grown market share."
He said Richemont was ready to capitalise on growth opportunities in new markets, and to meet demand in established markets once the economic situation improved.
While top and bottom line came under pressure in the dour global business environment, Richemont impressed with its much improved cash flow. Cash generated from operations was €1.46bn, which left Richemont with €1.9bn of net cash (last year: €822m).
The cash flow statement showed a €684m decrease in working capital. Rupert said this was largely due to lower inventory levels resulting from measures taken to reduce manufacturing output, and to movements in liabilities in respect of foreign exchange hedging activities.
Rupert also pointed out that Richemont's balance sheet remained "very strong". Shareholders' equity represented 73% of the balance sheet compared to 65% in the previous financial year.
With the balance sheet in good nick it was not surprising that Richemont on Thursday also offered details of a share buy-back plan that could involve as many as 10 million shares.
Rupert said Richemont's retail sales were lower and the wholesale business in the Americas and Europe contracted substantially as partners in the watch retail sector de-stocked. "We have seen a recovery in demand in the second half of the year, albeit measured against easier comparative figures."
A divisional review showed the mainstay jewellery Maisons recording a 5% dip in operating profits to €742m and the specialist watchmakers segment seeing a 23% fall in operating profits to €231m. The writing instruments Maisons – which includes the well-known Montblanc brand – bucked the trend with a 14% spurt in operating profits to €79m.
Rupert believed Richemont came through the recession in good shape. "The measures that we introduced in 2008 to limit capital expenditure, to focus boutique openings in high-growth markets, to limit production and inventory build-up and to keep costs under strict control were timely and effective."
Looking ahead, Rupert said sales in the first quarter of 2010 continued to follow the trend seen in the pre-Christmas period. He said sales in the month of April were 24% above the previous year’s "depressed levels" – driven mainly by wholesale sales.
* The writer holds shares in Richemont