Rupert positive despite Richemont challenges | Fin24
 
  • New Notes

    Long queues have formed in Harare after Zimbabwe released new bank notes and coins.

  • Open Book

    Former President Jacob Zuma says the public protector can access his tax records.

  • SAA Strike Proposal

    The flag carrier's acting CFO says a strike could destroy the struggling airline and all its jobs.

Loading...

Rupert positive despite Richemont challenges

May 22 2015 11:39
Johann Rupert

Richemont chairperson Johann Rupert.

Company Data

COMPAGNIE FINANCIERE RICHEMONT SA [JSE:CFR]

Last traded 109
Change 1
% Change 0
Cumulative volume 181549
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

Related Articles

European shares edge lower, Richemont slips

Richemont combats smartwatch craze with smart straps

Yoox agrees to buy Richemont's Net-a-Porter

Swiss govt resists pressure about franc shock

Bank tries to stop naming of SA rich in scandal

 

Cape Town - The results of Swiss luxury goods group Richemont [JSE:CFR] for the year ended March 2015 were resilient, despite a difficult situation in Hong Kong and Macau, a demanding basis for comparison in Japan, and the generally volatile economic environment experienced by its customers and retail distribution partners, according to its chair Johann Rupert.

"In such an environment, Richemont’s [divisions] responded well. Excluding the gain realised on the sale of an investment property, operating profit was stable. The jewellery [division] and specialist watchmakers delivered sales growth and broadly maintained their operating margins through successful product launches and, in certain markets, price increases," said Rupert on Friday.

Sales grew by 4% to €10 410m and by 1% at constant exchange rates. According to the group, solid growth in Europe, the Middle East and the Americas was offset by weaker trading in the Asia Pacific region.

Operating profit grew by 10%, including an investment property disposal gain. Profit for the year was down by 35% to €1 334m, primarily due to mark-to-market losses on cash.

The group said there was solid cash flow from operations of €2 387m, and the net cash position of €5 419m was not impacted by mark-to-market losses.

A proposed dividend of CHF1.60 per share was announced. This is an increase of 14%.

Lower precious metal prices and cost containment measures helped mitigate single-digit sales growth and the impact of foreign exchange rate movements.

Key bank impact

A key external event during the year was the Swiss National Bank's decision in January 2015 to end the "peg" of the Swiss franc to the euro. As a consequence, the Swiss franc appreciated against the euro to 1.04.

READ: Swiss franc soars after currency cap dropped

"That has 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 Rupert.

In the short term, the revaluation of the franc against the euro resulted in a loss of about €686m for the group, principally attributable to losses on Richemont’s cash and financial investments.

In addition, foreign exchange forward contracts taken out in line with the established hedging policy of the group also lost value because of the euro’s devaluation.

Overall, exchange losses resulted in the 35% drop in reported net profit for the year.

"Exchange losses in the profit and loss account are compensated by gains recorded in equity in the consolidated balance sheet when those same Swiss franc companies are translated back into euros at the year-end rate," said Rupert.

"In the longer term, we face the question of whether the euro will settle at the current level against the Swiss franc, recover somewhat or potentially weaken further."

Given the extent of the group’s activities in Switzerland, with more than 8 700 employees in manufacturing, distribution and head office functions, the strengthening of the Swiss franc inevitably means that its costs, measured in euros, will rise.

"In line with our competitors in the Swiss luxury watchmaking industry, removing these functions from Switzerland is not an alternative open to Richemont," said Rupert.

"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."

Business developments

During the year investments in manufacturing facilities and distribution networks were complemented and are now nearing conclusion. These provide state-of-the-art manufacturing facilities to enhance internal production capacity and greater production flexibility.

In March Richemont also announced the planned merger of The Net-A-Porter Group with the YOOX Group, which is expected to be completed in September this year.

"As established business models are disrupted by the technological giants, we believe that it is important to increase scale to protect the uniqueness of the luxury industry," said Rupert.

READ: Richemont combats smartwatch craze with smart straps

Future prospects

Richemont's retail channel grew and significantly outperformed wholesale, where anticipation of worldwide pricing adjustments in May slowed purchases by its wholesale partners. The first two weeks of May, however, indicated some normalisation of the wholesale market.

"We believe that long-term demand for high-quality products will continue to grow around the world," concluded Rupert.

In his view Richemont is well positioned to benefit from an expanding market in the years to come, and he is positive about the group's future.

Reuters reported the pan-European FTSEurofirst 300 Index edged lower in early trading on Friday, with Cartier owner Richemont leading the index lower after reporting lower profits.

Richemont shares fell 3.4% after reporting an 8% drop in April sales at constant exchange rates as well as a lower net profit. It said trading continued to remain difficult in its big markets Hong Kong and Macau.

ALSO READ: YOOX agrees to buy Richemont's Net-a-Porter

richemont  |  johann rupert  |  switzerland  |  retail
NEXT ON FIN24X

 
 
 

Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
1 comment
Comments have been closed for this article.
 

Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

What do you think about private healthcare in SA?

Previous results · Suggest a vote

Loading...