Net-a-porter, Yoox Merger Boosts Richemont’s Profit In Hard Times

Currency tailwinds and a one-off gain from the merger of Net-a-porter with Yoox drove full-year 2015-16 sales and profits at Compagnie Financière Richemont, although the current year is shaping up to be a difficult one.

Richemont, parent of brands including Cartier, Van Cleef & Arpels, IWC and Dunhill, said today that sales were up 6.4 percent to 11.08 billion euros, or $12.19 billion, on a reported basis. At constant exchange rates, they decreased by 1 percent, due to weak demand for watches, declining footfall in the high-margin markets of Hong Kong and Macau, and uneven tourist patterns worldwide.

Profits rocketed 67 percent to 2.23 billion euros, or $2.45 billion, enhanced by a one-off gain from the merger of Richemont’s Net-a-porter group with Yoox, and also by the nonrecurrence of losses largely due to the revaluation of the Swiss franc in the prior year.

Following the announcement, Richemont’s shares were down 2 percent to 60.35 Swiss francs, or $61.03.

Dollar figures have been converted at average exchange rates for the periods to which they refer.

The current fiscal year, which began in April, has been tough so far, and the challenging conditions will persist through September, according to Richemont’s chairman Johann Rupert.

He said in a statement that April sales declined by 18 percent and 15 percent on a reported and constant rates basis, respectively, with all regions delivering sales declines. He said the performance was largely anticipated.

Rupert added that Asia-Pacific remains weak due to “no recovery” in Hong Kong and Macau, which is only partially offset by continued improvement in mainland China, which was up 26 percent on a constant-rate basis in April.

In the year to March 31, sales in the first six months were in the double-digits, followed by a decline in the second half.

“Our concerns over geopolitical risks and the impact on the behavior of our clients proved justified,” Rupert said. “Europe turned negative in midyear, and trading conditions in Hong Kong and Macau remained difficult. Only mainland China showed good growth.”

The stronger Swiss franc increased watch manufacturing costs, putting pressure on gross margins, while Richemont’s fashion houses — which include Chloé, Dunhill and Lancel — faced “difficult” trading conditions throughout the year.

The company said it would continue to “tightly monitor” costs and working capital requirements and allocate resources in a “highly selective manner.”

The company said the Yoox Net-a-porter merger drove a one-off, noncash pre- and post-tax accounting gain of 639 million pounds, or $703 million, in the current year.

Rupert said that following the completion of the rights issue by the Emaar Properties Group earlier this year, Richemont’s equity interest in the luxury and off-price e-tailer is now 49 percent. It holds 25 percent of the voting rights.

At the end of March, the group’s balance sheet remained strong, with net cash amounting to 5.34 billion euros, or $5.87 billion.

The Richemont board has proposed a dividend of 1.70 Swiss francs, or $1.72, per share, up from 1.60 Swiss francs, or $1.62, per share last year.

“We are confident in the long-term demand for high-quality products,” said Rupert. “The group remains committed to supporting its maisons to conceive, develop, manufacture and market products of beauty, individuality and the highest quality. These values are enduring, and will see Richemont well-positioned to benefit from an improved market in the years to come.”

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