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Richemont goes all out for luxury

Richemont goes all out for luxury

Friday, 20 June 2008
By Florence Noël
Florence Noël

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3 min read

The world’s second-largest luxury group moves ahead with its project to separate its tobacco interests from its luxury business, which will have its head office in Switzerland.

Analysts had predicted less. With net profit of €1.57 billion (CHF 2.54 billion), the group itself expressed surprise at Richemont’s strong performance for the 2007-08 financial year. Johann Rupert, chairman of the holding entity, described results as “slightly higher than forecast,” although he is also expecting this currently buoyant sector to cool off in the wake of the subprime crisis.

Source: rapport annuel 2008 Groupe Richemont
Source: rapport annuel 2008 Groupe Richemont

Hardly surprising then that Richemont should decide to strengthen its core business of watches and jewellery, which performed extremely well over the year ended March 31st 2008. While business has been slowing down in America, emerging countries, led by China, are increasingly in the market for luxury goods, as the breakdown of the group’s annual results shows: although net profits include dividends from the group’s almost 20% stake in British American Tobacco (BAT) for a total of almost €610 million (+13%), the vast majority of Richemont’s operating profit, which grew 21% to €1.11 billion, came from its luxury companies.

Pride of place to watches

Richemont’s sales were boosted by its watch brands, Piaget, Vacheron Constantin, Jaeger-LeCoultre, Baume & Mercier, IWC, A. Lange & Söhne and Panerai. Together, these subsidiaries contributed close to €1.4 billion in sales, up 15% on the previous year. The jewellery segment (Cartier and Van Cleef & Arpels) turned in an equally strong performance, with sales growing 9% to reach €2.6 billion.

Source: rapport annuel 2008 Groupe Richemont
Source: rapport annuel 2008 Groupe Richemont

Focusing on the luxury sector will allow Richemont to meet ever-increasing demand from certain markets and, in doing so, offset the crisis that is spreading from the United States. The South-African-held group began its new financial year on a high note, with sales gaining 16% in April. However, it is now feeling the effects of a definite slowdown in consumption on the American market. “This is why we cannot expect to sustain this level of growth throughout the year,” Johann Rupert acknowledged.

Their separate ways

Building on its watch and jewellery subsidiaries’ excellent performance, the world’s number-two luxury group after France’s LVMH has confirmed its decision, first broached last November, to split its activities in two, with tobacco (BAT) on one side and luxury on the other. The latter will be led by watches and jewellery but will also include writing instruments (Montblanc and Montegrappa) and leathergoods with Alfred Dunhill and Lancel, which since 2006 has been repositioning at the high end of the market. Ultimately, the company that will encompass Richemont’s luxury business will have its head office in Switzerland while the group’s stake in BAT will be handled by an investment fund based in Luxembourg and partly in the hands of Richemont’s shareholders. This should lead to a takeover of shares in BAT by an investment fund spanning Switzerland, Luxembourg and South Africa, and involving a complex secondary listing on the Johannesburg Stock Exchange.

Source: rapport annuel 2008 Groupe Richemont
Source: rapport annuel 2008 Groupe Richemont

A financial operation such as this will inevitably produce liquid assets that could give Richemont investment ideas. While pointing out that the group had no acquisition plans at the present time, Johann Rupert acknowledged that this separation of its stake in BAT will spark certain “impulses,” adding that “any acquisitions will focus on the luxury sector.” No doubt about it, Richemont is set for a life of luxury.

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