From April 1, 2015 to March 31, 2016, Richemont Group’s sales achieved double-digit growth in the first half of the fiscal year, and declined in the second half of the fiscal year.
· Sales increased by 6% year-on-year to 11.076 billion euros; at constant exchange rates, sales decreased by 1% year-on-year.
· Weakness in Asia Pacific offsets sales growth in Europe, the Middle East and the Americas.
Operating profit decreased by 23% year-on-year, mainly due to non-recurring earnings last year (234 million euros) and restructuring and write-down expenses this year (97 million euros).
Net profit rose by 67% year-on-year to 2.227 billion euros, mainly due to the merger of Net-a-Porter and Yoox Group (non-cash after-tax income of 639 million euros). In addition, the Group avoided exchange rate losses due to the appreciation of the Swiss franc last year .
Operating cash flow of 2.419 billion euros and net cash position of 5.339 billion euros, roughly the same as last year.
Proposed dividend of 1.70 Swiss francs per share, a year-on-year increase of 6%.
Financial report overview
Group sales achieved double-digit growth in the first half of the fiscal year and declined in the second half of the fiscal year. Concerns about geopolitical risks and their impact on consumer spending behavior are justified. The European region turned negative in the middle of the year, and the trade situation in Hong Kong and Macao remained difficult. Only mainland China had good sales. Overall, thanks to favorable exchange rate changes, the Group’s sales for the year increased by 6%.
Facing the difficult trading environment, the Group has been working hard to respond to changing market demands. Popular product series, favorable currency situation, jewellery department sales increase, profit margins are also more flexible. However, for professional watchmaking brands and Cartier watches, the stronger Swiss franc has raised the cost of watchmaking, coupled with lower capacity utilization, which has depressed the gross profit margin. Montblanc, Chloé and Peter Millar sales have maintained good growth, while other fashion brands face sluggish retail environments throughout the year.
In this environment, the group division adjusts its fixed cost base. Accordingly, the corresponding € 97 million restructuring and one-time expenses were recorded in the operating profit account for the current fiscal year. Excluding these expenses and comparing annual profits from investment real estate sales, operating profit fell by 11% year-on-year.
On October 5, 2015, Richemont announced the completion of the merger of Net-a-Porter and Yoox Group (a one-time non-cash after-tax income of 639 million euros). The combined company will be called Yoox Net-a-Porter, and Richemont will own 50% of the shares and 25% of the voting rights. Richemont Group now holds 49% of its shares and 25% of its voting rights after completing a rights issue of 100 million euros.
In the comparative year, Richemont Group made profits from the sale of investment real estate, but also suffered non-cash losses due to the appreciation of the Swiss franc. Including the profit and loss of the two one-off items, Richemont’s net profit increased by 67% compared with the previous fiscal year.
For the board of directors and shareholders, what is important are operating cash flow and net cash position, both of which remained solid and stable during the 2015/16 fiscal year. At the end of March 2016, the group’s net cash position was 5.339 billion euros, and shareholders’ equity accounted for 75% of total liabilities and equity, showing a good financial position.
Based on the results of this fiscal year and the long-term goal of steadily increasing dividends, the board of directors intends to increase the dividend from 1.60 Swiss francs per share to 1.70 Swiss francs per share in the previous fiscal year.
The Group’s sales in April fell by 18% and 15% at real and constant exchange rates, respectively. All market regions were not spared. At constant exchange rates, only the Middle East and Africa achieved growth. This performance was largely expected. The retail situation in Hong Kong and Macau has not improved. Only in Mainland China, sales are good (26% growth at constant exchange rate), so the Asia-Pacific region as a whole remains weak. The Group’s retail business performed well and was significantly better than the wholesale business. This challenging situation will continue until September this year.
The Group expects that there will not be any meaningful improvement in the trading environment in the short term. It is mainly to meet the challenges faced by the watchmaking industry, and cash flow is the top priority. The Group will continue to strictly control costs, demand for operating capital, and allocate resources to higher standards; continue to maintain investment to ensure long-term value creation; consolidate and improve the global retail network, especially in mainland China; and further invest in the jewelry business.
In the long run, the global demand for high-quality products remains strong, and the Group is confident of this. The Group will continue to support its brands in designing, developing, manufacturing and selling beautiful and unique high-quality products. Richemont Group will uphold these enduring value concepts, make accurate strategic positioning, and benefit from a market that will resume prosperity in the future.