Richemont full year number sparkle

Richemont results this morning have hit the screens. As if there was not enough going on around here, that company released their full year results to the end of March 2013. My expectations were high, and they have been met. The markets expectations have been exceeded. Sales topped 10 billion Euros, 10.150 billion to be exact, up 14 percent on last year. The company managed to grow margins against the backdrop of a sales growth trajectory that is definitely slowing, sales in their Asia business only increased at constant currency rates of five percent in the last year, after a 46 percent sales growth in the prior year, 2012. Operating profits of 2.426 billion Euros with operating margins at 23.9 percent are both records. Profits for the year clocked just over 2 billion Euros for the first time, an annual change of 30 percent versus the prior financial year.


The retail division continued to grow strongly, 66 net store openings were recorded during the year, that is basically one every five and a half days. Yowsers. In case you needed reminding, their major brands are Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, A. Lange & Sohne, Roger Dubuis, Jaeger-LeCoultre, IWC Schaffhausen, Officine Panerai, Baume & Mercier, Mont Blanc, Alfred Dunhill, Lancel, Chloe and more recently, the Net-a-Porter group. Some of these operate in what is known as "high luxury", where I suspect that only a few of their items are within reach of a select population segment. But the market for such goods are small. In different societies a specific item will say something about the wearer, but the universal interpretation is always almost: "that person has arrived". I saw a luxury goods item definition suggest that they are "positional goods".


I remember a rather crude quote from Johann Rupert who said something along the lines that as long as men want to get lucky on a Saturday night and woman want to feel beautiful, then their business was always going to be a good one. He has some super lines, but is going to be missed. Yes, that is right, he is going on a 12 month sabbatical. And the deputy chairman, Yves-Andre Istel will chair the meetings. But what is he going to do, for that 12 month period? This only starts in September, so I presume that he will have an endless summer, in the Northern hemisphere and then in the Southern Hemisphere during the months ending in a –er. And most likely in the months ending in an –ry too. Will he travel the world and try and determine luxury goods brands trends? Will he look for buyers of his South African assets in order to spend more time with his money with his European assets? Not sure, but I am sure that we will get clarity shortly.

He kind of suggested in the presentation that he wants to "live a little", reading books, perhaps fishing, he had been invited to many places. He said that he was embarrassed to say that he did not know how to fly fish, he had never had the time to go on a four day course. He said that he had given up smoking, his family had asked him to do that for them. That was pretty amazing. Nothing sinister. So there goes.


The company is still principally a watch (49% of total sales) and jewellery (27% of group sales) company, with smaller businesses in leather goods (7%), writing instruments (4%) and clothing/other (13%). Their jewellery division grew at a constant currency rate of 16 percent, an actual (weaker Euro) of 21 percent and was their fastest growing division, eclipsing the monster growth we have seen in watches in recent years. It is a record percentage contribution. What I found that struck me was that the total jewellery market annually is "only" 55 billion Euros, right, as per their FY 13 Annual Results presentation.


Most useful reading in there I tell you. But the 80 percent of those unbranded jewellery sales, of the total of 55 billion, are for items UNDER 1500 Euros. There is plenty of affordable luxury (if such a thing exists) for emerging middle class people to choose from, but most of it is unbranded goods. I do not know if this means that Richemont will offer more affordable luxury, but I suspect NOT, that has always been the line from Johann Rupert. Quality above all else. Because if you compromise that key quality, you compromise your product line and that would really peeve your core clientele.

The stock does not look like a steal, up 6 percent in Rand terms this morning to around 84 ZAR a share, an all time high. But at 18 odd percent growth rates and a 19.6 multiple in Rand terms, that really squares for me. The stock offers today, at this point, the correct valuation by the collective. And why should that ever differ, it does sound arrogant to suggest that a stock is either more or less expensive than what YOU think. And by you, I mean us here. Why argue with the collective? The growth plans do look rather impressive, and they have been opening stores in developed locations in anticipation of an upswing. They are looking to open new stores in the Middle East, Brazil, the Ukraine, India and of course China. That is where the new wealth is coming from. The trend still looks like Asians tourists visiting Europe and buying their cheaper goods there. By cheaper I mean fewer taxes.


We listened in to the Richemont results this morning, Johann Rupert delivered a few more pearls of wisdoms, the analysts, he rubbished them. He asked them how long had they worked in the same job, for the same company? Very few you see, we here (pointing to the board next to him) have been doing this for 25 years. And he pointed out that family businesses outperformed non family owned businesses. And then rambled on for ages. And told people about the brilliant management there. And told the analyst community to do a bit of work. We continue to buy the stock.