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“This has been an excellent year for Richemont; we saw strong demand across all of our principal markets. Sales grew by 17 per cent to € 4.3 billion, a record for the Group.” |
| Johann Rupert, Executive Chairman. |
This has been an excellent year for Richemont; we saw strong demand across all of our principal markets. Sales grew by 17 per cent to € 4.3 billion, a record for the Group. In terms of operating profit, Richemont’s luxury goods businesses grew by 32 per cent to € 741 million and, excluding the impact of non-recurring gains from the results of both years, underlying operating profit would have shown growth of 47 per cent. All of our executives and employees are to be commended on the contribution that they have made to achieving these excellent results.
In addition to our luxury businesses, we have seen a strong performance from British American Tobacco (‘BAT’). Before non-recurring items in both the current and prior years, Richemont’s share of BAT’s results increased by 10 per cent to € 544 million in the year under review.
Richemont’s attributable profit for the year fell by 10 per cent to € 1 094 million, the significant improvement in trading results for the year being offset by the nonrecurrence of the significant gains reported in connection with the investment in BAT in the comparative period. Excluding these significant one-off impacts, however, the Group’s bottom-line result would have shown an increase of 36 per cent to € 1 130 million for the year.
Whilst Richemont received € 247 million in dividends from BAT, the luxury goods businesses have also demonstrated excellent cash generating capacity. Reflecting higher profitability and the strict control of working capital, the luxury businesses generated some € 500 million in free cash flow, after capital expenditure and taxes, during the year. As a result, the Group’s net cash reserves at 31 March 2006 rose to € 884 million.
In the light of the good results and the Group’s strong financial position, the Board has decided to recommend an increase in the ordinary dividend of 20 per cent, taking it to € 0.60 per unit, and to pay a further special dividend. The proposed special dividend this year will be € 0.50 per unit, bringing the total payment for the year to € 1.10. The dividends will be paid principally by Richemont SA, Luxembourg – which will pay € 1.05 per unit – with Compagnie Financière Richemont SA paying € 0.05 per unit.
Once again, Cartier has performed strongly. Its new jewellery lines, such as the Caresse d’orchidées and Pasha ranges, capture the spirit of Cartier and have sold well. The highlight of its year was the re-opening of the magnificent 13 rue de la Paix store in Paris, the true spiritual home of Cartier. Van Cleef & Arpels celebrates its 100th anniversary in 2006 and, having seen an excellent performance as the brand gathered momentum last year, we look forward to the current year with confidence.
The watch businesses enjoyed a very good year, with sales increasing by 22 per cent, resulting in strong growth in profitability. All of the watchmakers performed well but special praise must go to Vacheron Constantin in its 250th anniversary year and to A. Lange & Söhne and IWC, which both showed particularly strong growth over the year.
Montblanc continues to benefit from the broadening of its product ranges and the extension of its retail distribution network. Whilst writing instruments are at the heart of the Maison, leather goods and watches have become established product categories. The more recent launch of ladies jewellery has also proved to be most successful.
Over the years, Alfred Dunhill has, to some extent, lost its intrinsic character. Whilst sales are increasing and its products are highly regarded, it has lacked a clear identity and business focus. It has also suffered from significant procurement and supply chain problems.
Steps have now been taken to implement a realignment of the business, recognising the changed dynamics, which will focus on Alfred Dunhill’s core business competencies in leather goods, menswear and accessories. The business is being expanded in important markets. Alfred Dunhill has moved quickly to take direct control over the distribution of its products in mainland China, for example, and has bought 30 stores from its franchise partners in key locations such as Beijing and Shanghai. Complementing the anticipated growth in Asia, the wholesale business in Europe will be expanded with a new shop-in-shop concept and steps are being taken to expand menswear product ranges. This year, Alfred Dunhill will also extend the reach of its e-commerce platform, which was successfully launched in the United Kingdom in 2005.
We will establish a sound foundation for Alfred Dunhill, which can serve as a base on which to build the business in the years to come.
Fully justifying the confidence placed in it, Chloé has had another highly successful year. Sales more than doubled as the popularity of the brand’s ready-to-wear clothing, leather and accessory lines is recognised in the market.
In January 2006, the Group’s head office functions relocated from central Geneva to new purpose-built premises in the nearby village of Bellevue. The new offices were designed by the renowned French architect Jean Nouvel to reflect the natural environment of the site on the shores of Lake Geneva.
The new offices unite Richemont’s Geneva-based staff for the first time in one location, improving internal communication and collaboration, whilst saving on rental costs.
In September last year, shareholders elected Mr Norbert Platt, Group Chief Executive Officer, to the Board of Compagnie Financière Richemont SA. Ms Martha Wikstrom was also appointed to the Board at that meeting.
This year, the Board have proposed two further appointments, which fall to be approved by shareholders at the Annual General Meeting. Mr Ruggero Magnoni, Vice Chairman of Lehman Brothers Inc., Chairman of Lehman Brothers International Italy and a long-time colleague, will bring further financial and commercial expertise to the Board. He has been an advisor to many of Italy’s most successful companies and has built Lehman Brothers’ business in that country. He is also engaged in many philanthropic activities, including Laureus Sport For Good Italy. The other nominee is Mr Jan Rupert, who has served as an executive director of Richemont SA since 2000. An engineer by training, he was in charge of manufacturing at Rothmans International prior to taking up his post as Manufacturing Director at Richemont. His biography is given on page 62 of this report.
In June 2006, Mr Ernst Verloop announced that he will not be seeking re-election to the Board of Compagnie Financière Richemont SA at this year’s Annual General Meeting. Mr Verloop has served as a non-executive director since 1998 and before that he was my colleague on the Rothmans International Board. I would like to offer my personal thanks to Ernst for his trust, friendship and loyalty and for his valued contribution to the Board as well as to the Nominations and Compensation Committees.
Regrettably, Mr Leo Deschuyteneer will also not be seeking re-election to the Board of Compagnie Financière Richemont SA. Before joining our Board, Leo served as a director of Cartier Monde and the Vendôme Luxury Group.
I would like to thank him for all the wisdom and guidance, his loyalty and support over the past decades of friendship. His valued contributions as a member of the Audit Committee and the Nominations Committee will be sorely missed.
Following the move of the Richemont head office from Geneva city centre to the nearby village of Bellevue, shareholders will be asked at the Annual General Meeting to approve the formal transfer of the Company’s registered office from the city itself to Bellevue.
We have enjoyed an excellent year and I am pleased to be able to report that the first two months of the current financial year have also seen strong demand for our Maisons’ products. Sales over the two months increased by 18 per cent, with strong demand seen in all regions.
We all know that the equity and commodity markets were very strong during the last financial year. However, we also realise that we always have to remain cautious about potential downturns and will try to manage your company accordingly. At this stage, it is impossible to say how the global economy may develop during the remainder of the current year and what the impact may be on demand for luxury products. Equally, having enjoyed a year of relative stability in currencies, we are monitoring closely the recent strengthening of the euro against the dollar.
We continue to see increasing demand for the Group’s products in established markets as well as the growth of consumer awareness and demand for luxury products in new markets. Considerable value is placed on the traditional skills of our craftsmen whether it be in the art of fine jewellery, in watchmaking or in writing instruments. Linked to these skills, there is no substitute for the heritage and recognition that the Maisons enjoy.
Key to Richemont’s values is the commitment to creativity, design and innovation. Complementing that commitment, the Group offers the infrastructure and resources to allow our managers to grow their businesses for the long-term. They, in turn, recognise that it is their duty to build the Maisons not only for tomorrow or the next year but for generations to come.
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| JOHANN RUPERT Executive Chairman |
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