Richemont results crush estimates

Richemont, the luxury goods producer and retailer, have released results for the full year to end March 31 this morning. And they look ahead of expectations, I can tell because the share price is comfortably ahead of the rest of the market. You can check out their Annual Results FY 12, from which I will be pulling a whole lot of data. Sales grew a whopping 29 percent to 8.867 billion Euros. With record operating margins (23 percent) the company has seen a 51 percent gain in operating profits which top 2 billion Euros (2.04 billion) for the first time. Net profits clocked 1.54 billion Euros, an increase of 43 percent. Operating expenses increased quite sharply by 19 percent, but obviously this is blurred when you see such good results. And you also see sharp increase in capex, to 6 percent of sales (from 4.7 percent), which is all aimed at increasing their retail presence, nearly half of all capex, and more importantly manufacturing, around 27 percent. Total capex for 2012 was 535 million Euros.

Earnings per share clocked 2.756 Euros per share, divide by ten (the Global depositary receipt here is one tenth of the Zurich stock) and multiply by the current exchange rate (10.60 to the Euro) you get to just over 292 ZA cents worth of earnings per share. The dividend in Euros declared was 55 Euro cents, on the same ratios is 58 ZA cents. But of course the Swiss government keeps 35 percent of that.

Richemont make some interesting observations about sales in Europe being driven by tourism, austerity is impacting on their southern European sales, but other clientele in Europe is fairly resilient. Russia is performing strongly, I guess largely fuelled (excuse the pun) by high oil prices, if not natural gas prices. A Russian GDP number yesterday saw a comfortable beat. But the real excitement is that now Asia Pacific is their largest area by far and away the biggest revenue contributor, 42 percent of the total. Europe represents around 27 percent of total sales. Would you believe that the presentation says that both Nigeria and South Africa are becoming good markets for their products. Upwardly mobile middle and upper middle classes, the theme that we follow and invest in, aspirational consumerism is exactly what it is. Everybody, most people like nice things, and if flashing it around means that you have arrived and your friends and colleagues think that is the case, then so be it.

More than half of the sales are through their jewellery maisons (51 percent), nearly three quarters (74 percent) of operating profits are from that division. Specialist watchmakers contribute roughly one quarter of both revenue and profits, the fashion and accessories (which includes Net-a-porter) segment is fast growing, but still not quite profitable yet. Time and patience is required with that business, there are many a person who enjoys shopping, but folks enjoy the end product more.

I managed to catch a little of the presentation, the bandwidth was poor, so it was just in dribs and drabs. I heard another priceless Johan Rupert classic line, that went something like this: "If you want to be successful you have to have a high dose of paranoia. You have to be worried that someone is going to eat your breakfast. Healthy paranoia is not bad". I guess he is right, and has always been very cautious about the future. When trying to explain quality and manufacturing of their products, he had this to say, holding up a bottle of Coca-Cola, "When I buy this, I am not expecting Chateau Lafite, I am expecting Coca-Cola". He basically said that you cannot confuse your well to do clients, they recognize quality. i.e. No knock offs. Their products might not be for the people that sit in this room with me, but monster sales growth means that many people are "dying to have it". Yip, they be "having" the jewellery, we be "having" the stock.

It is a great business. Really profitable. The single biggest risk that I can see is that Johan Rupert plays a really dominant role in the business. That is both a very good thing, and a very bad thing. He is clever and right there, fully involved with the business. Perhaps not really focused on the old assets over here in South Africa, he is giving his full attention to Richemont. But he almost overpowers his fellow execs. And he is the alpha of all alpha. In fact I commented to Paul that I thought that he made Patrice Motsepe's ramblings at results presentations look average, and anyone who has ever seen Mr. Motsepe's ramblings after results will know what I am talking about. So whilst he is fun to listen to and a laugh a minute, he is a risk to fellow shareholders. He might get hit on the head by a flying golf ball at these wonderful tournaments that he takes part in. He even uses that Buffett line saying that he wants to own businesses that are idiot proof, because one day they will be run by an idiot. I wonder what his fellow execs think about that? Well, they had better tow the line, because he has voting control for the moment.

A quality company with lots of cash (net cash position of nearly 3.2 billion Euros or nearly 34 billion Rand) which holds some of the best quality brands on the planet, that is Richemont. We continue to add, today there has been a big pop in the price, the stock is up as much as 8 percent this morning in Johannesburg. Having reached an all time high of 5123 too! Part of the reason is the announcement of a share buy back, I am not the biggest fan of buy backs unless the shares are retired. Richemont is the only bright spot on an otherwise sad looking market for the bulls here today.