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18 May, 2018

Richemont Targets More M&A

Richemont Targets More M&A

Luxury goods group Richemont will focus on doing more M&A deals to reshape its business after reporting lower than expected full-year results, which included a 203 million euro buy back of watch inventories.

Richemont, which has luxury brands including Cartier and Montblanc, is just in the process of acquiring full control of luxury retailer Yoox Net-a-Porter for 2.6 billion euros as part of efforts to boost its online presence and attract younger customers.

«Our long-term approach does not preclude us from targeting strategic investments and divestments, as we have demonstrated over the past year," the company said on Friday.

Over the last two years, Richemont has undergone a major management shake-up, replacing almost all of its brand heads, its finance chief and appointing a senior executive committee instead of a CEO.

The luxury watch market has recovered in the past year from a severe downturn, but companies like Richemont remain under pressure to exploit digital sales channels and rekindle demand for traditional watches among younger consumers.

A weak performance at the group’s watch brands, including IWC and Vacheron Constantin, and a disappointing net profit contributed to a fall of nearly 8 percent in Richemont’s shares, making them the worst performer in the European sector index. SXQP. The shares were 5 percent lower at 0920 GMT.

The group’s net profit rose 1 percent to 1.221 billion euros ($1.44 billion), which was well below expectations of 1.719 billion.

Sales for the year increased 3 percent to 10.97 billion euros, driven by double-digit growth in Asia.

Chief Financial Officer Burkhart Grund told on a call the inventory buybacks, mainly focused on watch brands in Europe, and which followed 278 million euro buybacks in the previous year, were necessary to ensure «healthy inventory levels at trade partners», and were now likely finished.

He also said Richemont was still in talks to sell its Lancel business to Italian leather goods company Piquadro, but wanted to grow mainly organically its leather goods businesses that include Chloe handbags, Cartier wallets and Montblanc phone cases.

«Overall a messy result with the watch buyback probably hurting the underlying business in the final part of the year," Kepler Cheuvreux analyst Jon Cox said.

«Long term the company probably did the right thing in terms of the watch clean up. However, timing is unfortunate given the watch market recovery," he said.

Hong Kong recovery

Cyrille Vigneron, head of Richemont’s flagship brand Cartier, said the Hong Kong market had seen a sharp, V-shaped recovery since the summer, driven by both local and mainland Chinese customers.

He told investors on Friday that Cartier was in a healthy situation, with its average pricing rising, and was confident of regaining market share.

Grund said the appreciation of the euro led tourist shoppers to buy more in Asia and less in Europe.

Chief Operating Officer Jerome Lambert said the launch of lower-priced watches under the Baume brand should help Richemont to target younger customers.

The group has appointed Eric Vallat to head its fashion and accessories business and to join its senior executive committee, which lost Chief Technology Officer Jean-Jacques Van Oosten who left earlier this month after just four months in the job.

Grund said that the group would decide on its future technology setup, including management issues, after finalizing the YNAP deal.

Richemont said it would raise its dividend to 1.90 Swiss francs ($1.90) per share, from 1.80 francs a year ago. It said it aimed to grow its dividend each year.


Read about luxury: Luxury Goods Worldwide Market Trends, Top 10 luxury companies, World of Luxury, Key Forces Shaping the Luxury Market

Read about M&A: Mandate F. A. Q., DD Check List

Our suggestions: 20 Must-Read Books

More about raising capital: Mezzanine financing, Equity financing, Debt financing, Investopedia: What is Private Equity?, What is The Difference Between Private Equity and Venture Capital?

Company Valuation Methods: Part1, Part2, Part3, Part4, Part5, Part6, Part7, Part8

Some strategies of raising capital: Bringing Your Company Public, Exploring Alternative Capital-Raising Strategies, Refinancing and Minority Equity as Partial Exit Strategies, 5 Alternatives To IPOs, How to Raise Capital For a Company in Financial Troubles, 7 Private Equity Strategies, Why Successful Business Owners Sell Out, The Six Types of Successful Acquisitions, Race to Become a Global Player, Refinancing and Minority Equity as Partial Exit Strategies, Guide To Equity Release Or «Cash-Out»

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