Richemont results for the first half were satisfactory …

Today Richemont announced its unaudited consolidated results for the six month period ended 30 September 2015. If you are interested you may see and read all details by clicking on “read more” …

 

Richemont announces its unaudited consolidated results for the six month period ended 30 September 2015

Financial highlights 

 

  • Sales increased by 15 % to € 5 821 million; a 3 % increase at constant exchange rates
  • Strong sales through Maisons’ own boutiques offset mixed wholesale sales, which were particularly weak in the Asia Pacific region
  • Operating profit increased by 6 % to € 1 390 million
  • Operating margin was resilient at 24 %
  • Profit for the period increased by 22 % to € 1 103 million
  • Solid cash flow from operations of € 1 055 million
Key financial data (unaudited)

Six months ended
30 September 2015

Six months ended
30 September 2014
re-presented1

Change

Sales

€ 5 821 m

€ 5 073 m

+15%

Gross profit

€ 3 786 m

€ 3 349 m

+13%

Gross margin

65%

66%

– 100 bps

Operating profit

€ 1 390 m

€ 1 315 m

+6%

Operating margin

24%

26%

– 200 bps

Loss for the period from discontinued operations

€ (88) m

€ (10) m

Profit for the period

€ 1 103 m

€  907 m

+22%

Earnings per share, diluted basis

€ 1.949

€ 1.603

+22%

Cash flow generated from operations

€ 1 055 m

€ 1 008 m

+5%

Net cash position

€ 4 763 m

€ 4 276 m

€  487 m

Note (1): the income statement has been re-presented to reflect discontinued operations (The NET-A-PORTER GROUP) as a separately identifiable item

 

 

Chairman’s commentary

 

Richemont results for the first half were satisfactory. Strong growth in our Maisons’ retail sales compensated for the decline in wholesale demand, which was principally driven by the Asia Pacific region. Jewellery sales grew strongly; this product area now accounts for one third of the Group’s sales.

 

Tourist traffic represents an important part of the Group’s sales. Our Maisons must be responsive to changing trends and continuously adapt to meet demand in various markets. The positive results seen during the period evidence the Maisons’ capabilities in this respect.

 

The impact of exchange rate volatility, in particular the strengthening of the Swiss franc, was largely absorbed through price adjustments and administrative cost controls. Operating profit in the period increased by 6 %. This growth and the movements in currency gains and losses contributed to a net profit increase of 22 %.

 

Cash flow from operations remained solid, reflecting strict working capital management. Net cash at 30 September 2015 amounted to € 4.8 billion.

 

On 5 October, the merger of The NET-A-PORTER GROUP with YOOX Group announced in March of this year was completed. The all-share transaction has generated a one-time accounting gain of some € 620 million to be recognised during the second half of the current financial year. Following the merger, Richemont holds a non-controlling interest in the enlarged group.

 

In the month of October, sales decreased by 1 % at actual exchange rates. In constant currency terms, sales decreased by 6 %. The patterns seen in the first six months in terms of geography, product and channel mix were accentuated during the month, with growth in Europe and Japan, albeit at a lower rate, offsetting continuing weakness in Asia Pacific and the Americas. Jewellery continues to outperform the watch category, whilst retail sales remained stronger than the wholesale channel.

 

For the second half of the year, we expect the situation, particularly in wholesale, to continue to be challenging. Our Maisons will continue to pursue their differentiated marketing strategies with their planned investments, increasing the ability for each to react to a volatile environment. We remain optimistic for the long term as the demand in the retail environment remains healthy, demonstrating the continued desirability for the craftsmanship and quality of our Maisons.

 

Johann Rupert

Chairman

 

Compagnie Financière Richemont SA

Geneva, 6 November 2015

 

 

Financial review

 

Sales

 

In the six-month period, sales increased by 15 % at actual exchange rates or by 3 % at constant exchange rates. The increase reflected the continued demand for jewellery and to a lesser degree for leather goods and clothing, as well as the strong performance of the Maisons’ own boutiques. Overall demand for watches was weak. In regional terms, Europe and Japan continued to report very strong growth, whereas Asia Pacific posted a significant decline, primarily due to weakness in Hong Kong and Macau. Further details of sales by region, distribution channel and business area are given in the Review of operations on pages 4 to 6.

 

Gross profit

 

Gross profit increased by 13 % and accounted for 65 % of sales. The 100 basis points margin decrease versus the prior period largely reflected the impact of the Swiss franc’s appreciation and lower capacity utilisation, partly offset by the positive effects of other exchange rates and the growing proportion of retail sales.

 

Operating profit

 

The increase in operating expenses reflected good cost control amid adverse exchange rate effects. Operating profit increased to € 1 390 million in the six-month period; at 24 %, the operating margin was resilient.

 

Compared to the 26 % increase in sales through the Maisons’ own boutique networks, the 22 % growth in selling and distribution costs primarily reflected unfavourable exchange rate effects as well as depreciation charges linked to the opening of new boutiques in the prior year, and higher fixed rental costs. In the comparative period, communication expenses included the cost of participation in the Biennale des Antiquaires et de la Haute-Joaillerie in Paris. The current period did not include such costs; communication expenses increased by 7 %. The increase in administration costs was largely driven by the stronger Swiss franc.

 

Profit for the Period

 

Profit for the period increased by 22 % or € 196 million to € 1 103 million.

 

Compared with the increase in operating profit, the higher increase in net profit for the period largely reflected € 8 million of mark-to-market net losses in respect of currency hedging activities (2014: net losses of € 239 million) included in net finance income/(costs).

 

The loss from discontinued operations primarily relates to the settlement of incentive plans which occurred  during the period under review. For the full year to 31 March 2016, the net income from discontinued operations is estimated at € 530 million.

 

Earnings per share increased by 22 % to € 1.949 Infinity % on a diluted basis.

 

To comply with the South African practice of providing headline earnings per share (‘HEPS’) data, the relevant figure for headline earnings for the period ended 30 September 2015 would be € 1 112 million (2014: € 910 million). Basic HEPS for the period was € 1.972 (2014: € 1.616). Diluted HEPS for the period was € 1.968 (2014: € 1.607). Further details regarding earnings per share and HEPS, including an itemised reconciliation, may be found in note 10 of the Group’s condensed consolidated interim financial statements.

 

Cash flow

 

Cash flow generated from operations remained solid at  € 1 055 million. The absorption of cash for working capital in the current period was € 558 million (2014: € 553 million), including no net absorption in inventories. The realised net impact of foreign exchange hedging activities on the cash flow for the period was an outflow of € 40 million (2014: inflow of € 13 million).

 

The net investment in tangible fixed assets during the period amounted to € 242 million, reflecting further selective investments in the Group’s network of boutiques and in manufacturing facilities.

 

The 2015 dividend of CHF 1.60 per share was paid to ‘A’ and ‘B’ shareholders, net of withholding tax, in September. Due to timing differences, the equivalent dividend was paid to South African Depository Receipt holders in early October. The 35 % withholding tax on all dividends was remitted to the Swiss tax authorities in September. The cash outflow in the period amounted to € 759 million. The full-year outflow, including the October payments, is € 854 million (2014: € 650 million).

 

The Group acquired some 1.8 million ‘A’ shares during the six-month period to hedge executive stock options. The cost of these purchases was partly offset by proceeds from the exercise of stock options by executives and other activities related to the hedging programme, leading to a net outflow of € 97 million.

 

Financial structure and balance sheet

 

At the end of September, inventories amounted to € 5 206 million, representing 21 months of cost of sales. In value terms, the change during the six-month period reflected foreign exchange effects only.

 

At 30 September 2015, the Group’s net cash position amounted to € 4 763 million. Compared with 31 March 2015, the position represents a decrease of € 656 million, reflecting the annual dividend payment. The Group’s net cash position includes highly liquid, highly rated Money Market Funds, short-term bank deposits and medium-duration bond funds, primarily denominated in Swiss francs, euros and US dollars. Bank loans to finance local operating entities are denominated in their local currency.

 

Richemont’s balance sheet remains strong, with shareholders’ equity representing 74 % of total equity and liabilities.

 

 

Review of operations

 

Sales by region

 

 Movement at
in € millions

                   30 September 2015

30 September 2014
re-presented

Constant
exchange
rates*

Actual
exchange
rates

Europe

1 943

                            1 547

+24%

+26%

Asia Pacific

1 972

                            2 030

– 17%

– 3%

Americas

883

                               744

+1%

+19%

Japan

534

                               358

+44%

+49%

Middle East and Africa

489

                               394

+4%

+24%

5 821

                            5 073

+3%

+15%

 

* Movements at constant exchange rates are calculated by translating underlying sales in local currencies into euros in both the current period and the comparative period at the average exchange rates applicable for the financial year ended 31 March 2015.

 

 

Europe

 

Europe accounted for 33 % of overall sales. Sales growth in the region benefited from good levels of tourism, helped by the weakness of the euro versus the US dollar and other currencies. Retail sales to Europeans during the period showed good growth.

 

Asia Pacific

 

Sales in the Asia Pacific region accounted for 34 % of the Group total, with Hong Kong and mainland China the two largest markets. The significant sales decline in Hong Kong and Macau during the period was partly offset by positive developments elsewhere. In particular, mainland China resumed growth with strong retail sales, largely offsetting challenging wholesale sales.

 

Americas

 

The Americas region reported subdued demand overall, with lower watch sales offset by growing sales in jewellery, clothing and leather goods categories.

 

Japan

 

Japan reported strong momentum, both from local and tourist demand, helped by the favourable exchange rate movements.

 

Middle East and Africa

 

In spite of challenging comparative figures and unfavourable exchange rate movements, markets in the Middle East and Africa continued to report growth.

Sales by distribution channel

Movement at
in € millions

30 September 2015

30 September 2014
re-presented

Constant
exchange
rates*

Actual
exchange
rates

Retail

3 149

2 494

+13%

+26%

Wholesale

2 672

2 579

– 6%

+4%

5 821

5 073

+3%

+15%

 

* Movements at constant exchange rates are calculated by translating underlying sales in local currencies into euros in both the current period and the comparative period at the average exchange rates applicable for the financial year ended 31 March 2015.

 

Retail

 

Retail sales, comprising directly operated boutiques and e-commerce, increased by 26 %. With 54 % of Group sales, retail sales growth continues to exceed the growth in wholesale sales. The rates of sales growth in Europe and Japan were notable, reflecting strong demand across jewellery and leather goods. The growth in retail sales partly reflected the positive impact of renovations and the addition of 26 internal boutiques to the Maisons’ network, which reached 1 159 stores. The boutique openings during the period were primarily in tourist destinations.

 

Wholesale

 

The Group’s wholesale business, including sales to franchise partners, reported slower growth. The period’s performance reflected the caution of our Maisons’ business partners, particularly in Asia Pacific where the environment continues to be challenging.

 

Sales and operating results by business area

 

Jewellery Maisons

 

in € millions

30 September 2015

30 September 2014

Change

Sales

3 177

2 683

+18%

Operating results

1 101

973

+13%

Operating margin

34.7%

36.3%

-160 bps

 

Sales at the Jewellery Maisons – Cartier, Van Cleef & Arpels and Giampiero Bodino – grew by 18 % overall. Within their own boutique networks, the Maisons reported growth, including watch sales. Sales of their watch collections through the wholesale channel were lower in the period, primarily due to the challenging environment in certain Asia Pacific markets. The operating results were well above the prior period and operating margin was resilient at 35 %. The decrease in operating margin primarily relates to anticipated manufacturing subactivity and cost increases relating to the Swiss franc.

 

Specialist Watchmakers

 

in € millions

30 September 2015

30 September 2014

 Change

Sales

1 749

1 625

+8%

Operating results

402

461

– 13%

Operating margin

23.0%

28.4%

-540 bps

 

The Specialist Watchmakers’ sales increased by 8 % overall, with favourable exchange rate effects offsetting lower sales in local currencies. The decrease largely reflected cautious sentiment among business partners in the Asia Pacific region. The lower demand for fine watches, together with the adverse impact on manufacturing costs as a consequence of the Swiss franc’s appreciation, combined to reduce operating results. Under such challenging conditions, the operating margin for the period declined to 23 %.

 

Other

 

in € millions

30 September 2015

30 September 2014 re—presented

Change

Sales

                       895

765

                            +17%

Operating results

                       (11 )

(17)

                             – 35%

Operating margin

                   (1.2)%

(2.2)%

                       +100 bps

 

‘Other’ includes Montblanc, the Group’s Fashion and Accessories businesses and the Group’s watch component manufacturing activities. The prior period comparatives have been re-presented to reflect the reclassification of Net-a-Porter to discontinued operations. The reported operating losses were reduced to € 11 million, primarily due to positive performances at Montblanc, Chloé and Peter Millar.

 

Corporate costs

 

in € millions

30 September 2015

30 September 2014

Change

Corporate costs

(102 )

(102 )

Central support services

(95 )

(97 )

– 2%

Other operating income/(expense), net

(7 )

(5 )

 

Corporate costs represent the costs of central management, marketing support and other central functions (collectively central support services), as well as other expenses and income which are not allocated to specific business areas.

 

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