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Send  Print  Share  RSS  Twitter  12 Nov 2010

Headwinds Ahead for Richemont

Johannesburg, Nov 12 (I-Net Bridge) - Swiss-based luxury goods group Compagnie Financiere Richemont (CFR) has had a strong start to its 2011 financial year, but it is cautious about the second half.

Richemont owns several of the world's leading companies in the field of luxury goods, with particular strengths in jewellery, luxury watches and writing instruments. Its interests include several of the most prestigious names in the luxury industry including Cartier, Van Cleef and Arpels, Piaget, Vacheron Constantin, Jaeger-LeCoultre, IWC, Panerai and Montblanc.

Chief Financial Officer Gary Saage told a presentation of the group's first half results on Friday that the environment in the first six months had helped the company when "positive currency tradewinds" had impacted on the sales lines.

"The financial crisis for the moment is contained. However, the economic situation remains uncertain," he said.

Saage expects that in the second half currencies will become headwinds for the sales and margin lines. In addition the expense base is expected to be higher in the second half, when traditionally communications spend is higher going into the holiday season.

He cautioned against extrapolating the first half results onto the second half. However, he added, there is no reason for Richemont to say things are going to get worse. "However, we need to be vigilant because we don't know how the world is going to go. There is a feel-good factor at the moment, but that could disappear at any time," he said.

During H1 there was growth in all regions and segments, particularly in the US and Asia Pacific. Johann Rupert, Executive Chairman and CEO, said the good performance in the first half was driven by a marked improvement in all business areas and across all geographies compared to the depressed levels seen last year.

Sales were up 37% to Euro 3.259 billion, or by 27% at constant exchange rates, for the six months ended September 2010. Excluding the impact of NET-A-PORTER.COM - its recent acquisition - sales increased by 22% at constant exchange rates. The strong growth in sales reflected, in part, the low comparative figures reported in the prior period, when sales decreased by 15%, the group noted.

Operating profit increased by 95% to Euro 760 million, while cash flow generated from operations rose to Euro 598 million from Euro 321 million in 2009. The jump in operating profit reflected the significant increase in gross profit and continuing cost control. As a consequence, the operating margin increased by 695 basis points to 23.3% in the period.

Earnings per share rose 84% to Euro 1.144 from Euro 0.621 a year ago. To comply with the South African practice of providing headline earnings per share (HEPS) data, the relevant figure would be Euro 540 million from 2009's Euro 347 million, with diluted HEPS for the period Euro 0.956 from Euro 0.627.

Europe remains the most important region for the group, accounting for 38% of overall sales. The strong momentum benefited from purchases made by locals as well as by customers from growth markets.

Growth also resumed in Russia and the Middle East, albeit at a lower rate. The 27% sales growth in the region also included the impact of exchange rate effects from non-euro denominated countries and the integration of NET-A-PORTER.COM. Nevertheless, at constant exchange rates and excluding the impact of NET-A-PORTER.COM, sales would have increased by 16%, the group said.

The Asia-Pacific region now represents 36% of group sales. Bearing in mind the relatively robust comparative figures, the strong growth of 50% was broad-based, reflecting the Maisons' continued expansion of their distribution networks and their leading positions in that region.

The Americas region reported strong growth, albeit compared to very weak comparative figures. The strengthening of the dollar relative to the euro further contributed to the reported sales growth. The Americas region represented 15% of group sales. This growth has occurred despite the planned reduction in wholesale accounts.

In Japan, in euro terms, sales increased by 23%, largely due to the significant appreciation of the yen. Yen-denominated sales increased by 4%. The weak performance in the Japanese market reflects the challenging conditions for luxury businesses there in general, although the return to growth was welcome.

Saage said the NET-A-PORTER, which Richemont acquired in April this year, has a different model to the existing Maisons, but he expects the business to add "much value" to Richemont. NET-A-PORTER owns NET-A-PORTER.COM, the premier online luxury fashion retailer. Established in 2000, it features collections from over 300 of the world's leading designers and it ships to over 170 countries worldwide.

Rupert said in a statement that the robust sales momentum that the group has seen for several months has continued through to the end of October, when sales for the month were 36% above those of October 2009 at actual exchange rates. At constant exchange rates and excluding the positive impact of the NET-A-PORTER.COM acquisition, they were 25% higher.

"For the second half of the financial year, we expect the high rate of growth in sales seen in the year to date to slow as a consequence of exchange rate movements and the more challenging prior year comparatives," Rupert said.

"Our Maisons, with their outstanding creativity and exclusivity, are well placed to benefit from the universal appeal of European luxury goods. Their distribution networks and manufacturing resources will be further developed to meet growing customer demand in both growth and established markets," he concluded.

The first half results received a thumbs up from investors, and by noon on the JSE, Richemont's share price was up 1.07 rand, or 2.9%, at 37.62 rand.

I-Net Bridge, Tel: +27-11-280-0644,

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