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Richemont's profit plummets on low sales

May 12 2017 20:51
Lameez Omarjee, Fin24

Johannesburg - Swiss luxury goods group, Richemont’s profit plummeted by 46% according to the 2017 financial report released on Friday.

Bottomline for 2017 was reported to be €1.21bn (R17.6bn), down from €2.22bn (R32.35bn) in 2016. The decline was mainly due to the merger of its subsidiary NET-A-PORTER with YOOX to form an online retailer company, the group explained in its announcement to shareholders.  

Analysts expected the group to report "lacklustre" performance. 

Richemont declared a dividend in Swiss Francs of ?1.8 (R23.98). This is up 6% from the ?1.7 (R22.64) declared in 2016.

Operating profit was down 14% to €1.76bn (R25.7bn) from €2.06bn (R30bn). Sales were down 4% to €10.64bn (R155.18bn). This reflects changing demand and consumption, especially in the group’s watch business.

Sales of jewellery, leather goods and writing instruments grew over the period, counteracting the decline in watch sales.

“The group has addressed those challenges by taking significant measures,” said chairman Johann Rupert. He added that these measures have weighed down on the group’s short-term performance, but will help to better position the group for the future.

READ: Johann Rupert's job cuts at Richemont shock Swiss watchmakers

Last year the group took on a buy-back initiative of its watches. At actual exchange rates, sales in the Americas had grown 2%, however declined in Europe (-9%), Middle East and Africa (-9%), Japan (-2%) and Asia Pacific (-1%).

Europe accounted for 29% of total sales. The decline was driven by France and Switzerland, while double-digit growth was seen in the UK, following the EU referendum, Richemont explained in its SENS.

The growth in sales in the Americas was also partly attributed to the reopening of the Cartier flagship in November 2016. Sales contributed 17% to total group sales. 

The decline in Middle East and Africa was influenced by currency movements that impacted tourist and local spending, the group explained.

“The decline in sales would have been contained to 2% at constant exchange rates,” said Rupert.

The group reported a net cash inflow of €2.76bn (R40.31bn), up from €2.54bn (R37.10bn). Particularly, the cash inflow generated from operating activities took a dip €1.89bn (R27.69bn) from €2.41bn (R35.33bn) previously.

“The reduction reflects a lower operating profit,” explained Rupert. This was due to a €268m (R3.91bn) contribution to a pension plan for UK-based employees. This one-time contribution was made as part of the entering an annuity agreement with third party insurance companies.

“Good working capital management limited the decline in cash flow from operations,” added Rupert.

Given the volatile and uncertain environment, Rupert said the group would focus on adapting product offerings, and adjusting to new consumption patterns, and allocate its resources to research and innovation as well as marketing and online sales.

READ: JSE slips as rand firms and Richemont shows 5% loss

The share dropped by more than 5% early on Friday, Fin24 reported. 

The share was trading at R108 at 5pm. 

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richemont  |  johann rupert  |  results  |  retail



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