Richemont, the Swiss luxury goods group, announces its unaudited consolidated results for the six month period

Gross profit
Gross profit rose by 26 %, although the gross margin percentage was 160 basis points lower at 63.2 % of sales. Several factors caused the decrease in the gross margin percentage, including adverse currency movements affecting sales, the strengthening of the Swiss franc and, as expected, the impact of Net-a-Porter.

The challenges posed by adverse currency movements were partially offset by price increases at both the retail and wholesale levels, evidencing the Maisons’ pricing power, as well as the benefits of realising a growing proportion of sales through the Maisons’ own boutiques. Additionally, gains recognised as a result of the hedging programme amounted to € 70 million and added 166 basis points to the gross percentage.

The stronger Swiss franc is of particular importance to the cost of sales as the majority of the Group’s manufacturing facilities are located in Switzerland.

Compared with the Group’s other Maisons, Net-a-Porter’s gross margin percentage is well below the average reflecting its distinct business model as an online retailer of fashion products and accessories. Given its above-average sales growth, Net-a-Porter has a dilutive impact on the Group’s gross margin percentage.

Operating profit
Operating profit increased by 41 %, reflecting the significant increase in gross profit and continuing cost discipline. The year-on-year increase in net operating expenses has been limited to 18 %, well below the growth in sales: they now represent 38 % of sales compared to 42 % in the comparative period.

Selling and distribution expenses were 17 % higher, primarily reflecting better trading and the expansion of the Maisons’ own boutique networks. Communication expenses increased by 29 %, in line with sales, and represented 8 % of sales. Despite the strength of the Swiss franc, administration costs rose by only 9 %.

As a consequence, operating margin increased by 220 basis points to 25.5 % in the period under review.

Profit for the period
Profit for the period increased by 10 % to € 709 million, reflecting the following significant items:

-Within net finance costs, € 153 million relates to non-cash, mark-to-market currency losses on net financial assets as a result of the stronger Swiss franc against the euro. The majority of the Group’s financial assets are euro-denominated cash and liquid bond funds held by a Swiss franc entity. Upon translation, there was no effect on the Group's equity position.

-Also within net finance costs, € 113 million of mark-to-market losses have been recorded in respect of currency hedging activities. The Group ceased applying hedge accounting to new foreign currency hedges from 1 April 2011. Changes in the value of new hedging instruments are therefore recognised immediately in net finance costs. Had hedge accounting continued, € 46 million of this amount would have been deferred in equity.

-The non-recurrence of a € 102 million non-cash accounting gain recorded in the comparative period. The gain related to the revaluation of the Group’s former interest in Net-a-Porter in April 2010 when Richemont acquired control of that business. This gain was reported within the Group’s share of the post-tax results of associated companies.

The effective taxation rate was 16.4 %, reflecting the anticipated full-year rate. The increase in the rate compared to the prior year stems from the impact of non-cash currency translation losses on net financial assets, which are tax neutral.

Earnings per share increased by 11 % to € 1.266 on a diluted basis. To comply with the South African practice of providing headline earnings per share ('HEPS') data, the relevant figure for headline earnings for the period ended 30 September 2011 would be € 713 million (2010: € 540 million). Basic HEPS for the period was € 1.303 (2010: € 0.979). Diluted HEPS for the period was € 1.273 (2010: € 0.956). Further details regarding earnings per share and HEPS, including an itemised reconciliation, may be found in note 8 of the Group’s condensed consolidated interim financial statements.

Cash flow
Cash flow generated from operations was € 606 million, in line with the prior period. The additional cash generated from operating profit was absorbed by working capital increases, in particular inventories and debtor balances.

The net acquisition of tangible fixed assets amounted to € 123 million, reflecting selected investments in the Group’s network of boutiques and manufacturing facilities.

The 2011 dividend, at CHF 0.45 per share, was paid to shareholders net of withholding tax in September. The cash outflow in the period amounted to € 133 million; the withholding tax was remitted to the Swiss authorities in October.

During the period, the Group acquired some 8 million ‘A’ shares to hedge executive stock options. The cost of these purchases was partly offset by proceeds from the exercise of stock options by executives and other activities linked to the hedging programme, leading to a net outflow of € 205 million.

Financial structure and balance sheet
Fixed assets, including tangible and intangible assets, increased by € 99 million during the six-month period. The increase largely reflects the expansion of the Maisons’ boutique networks, particularly in the Asia-Pacific region, and investments in their European manufacturing facilities.

Inventories at the end of September amounted to € 3 280 million. This figure represents 16 months of gross inventories and compares with 18 months at September 2010. The reduction in the rate of stock turn reflects the favourable trading conditions in particular. In absolute terms, the increase in the value of inventories reflects the strengthening of the Swiss franc, the build-up of inventories and the expansion of the boutique network.

Richemont’s financial structure remains very strong, with shareholders’ equity representing 71 % of total equity and liabilities.

Sales by region

Europe
Europe accounted for 36 % of overall sales

Solid double-digit organic growth was registered across the region, including Russia and the Middle East. Travellers to Europe continue to be an important sales driver.

All Maisons improved their performance in the region versus the comparative period.

Asia-Pacific
While growth in the Asia-Pacific region was broad-based, it was primarily driven by mainland China, which is now Richemont’s third largest market after Hong Kong and the USA. Robust sales across channels and markets there also benefitted from the Group’s selective expansion of its retail network in recent years.



Americas
The Americas region reported double-digit growth and represented 14 % of Group sales.

The performance was specifically driven by significant High Jewellery sales, although business in general has been very encouraging.

Japan
Sales in Japan increased, despite the dramatic events of last March. Van Cleef and Arpels and the Specialist Watchmakers performed particularly well.

Sales by distribution channel

Retail
Overall retail sales, comprising directly operated boutiques and Net-a-Porter, increased by 37 %. This was well above the growth in wholesale sales and Richemont now generates 49 % of its sales through its own retail network.

The growth in retail sales partly reflected the good performance of Net-a-Porter and the expansion of the Maisons’ network of boutiques to 919 stores. Openings during the period were primarily in high-growth markets such as China.

Wholesale
The Group’s wholesale business, including sales to franchise partners, reported strong growth. This performance reflected a good sell-out and the optimisation of the network.

This growth was achieved despite the impact of a continuing programme of planned reductions in the number of points of sale in Western Europe and North America.

Sales and operating results by business area

Jewellery Maisons
The Jewellery Maisons’ sales grew by 34 %. Both Cartier and Van Cleef and Arpels performed exceptionally well.

The Maisons’ boutique networks reported higher growth and further benefitted from new store openings, primarily in the Asia-Pacific region. Demand for High Jewellery pieces and more accessible jewellery ranges was solid. Demand for Cartier’s watch collections was also strong, reflecting the policy of extending its premium and technical watch offerings.

The significant increase in sales and continuing cost discipline generated an operating margin of 34 %.

Specialist Watchmakers
The Specialist Watchmakers’ sales increased by 30 %. All Maisons performed well worldwide, reflecting the strong demand for haute horlogerie.

Despite higher input costs and the strength of the Swiss Franc, the contribution margin was 27 %, reflecting the Maisons’ pricing power and operating leverage.

Montblanc Maison
Montblanc’s sales increased by 10 %, reflecting good demand for its range of watches and accessories in particular in the Asia-Pacific region. During the period under review, Montblanc continued to upgrade both its retail and wholesale distribution networks.

The Maison maintained an operating margin of 16 %.

Sales and operating results by business area, continued
The ‘Other’ segment includes the Group’s Fashion and Accessories businesses, Net-a-Porter and the Group’s watch component manufacturing activities.

Richemont’s Fashion & Accessories Maisons saw double-digit sales growth and generated improved profits of € 23 million (2010: profits of € 7 million). Alfred Dunhill and Chloé performed particularly well.

Sales growth at Net-a-Porter was once again well above the Group’s average. Net-a-Porter incurred losses during the period amounting to € 22 million, resulting from the amortisation of intangibles and the costs associated with the continued expansion of its platforms in the UK and the USA.

Losses at the Group’s watch component manufacturing facilities were contained and were broadly in line with the comparative period.

Corporate costs
Corporate costs represent the costs of central management, marketing support and other central functions, known as central support services, as well as other expenses and income which are not allocated to specific business areas, including foreign exchange hedging gains and losses. Central support service expenses decreased: the negative impact of stronger Swiss franc was more than offset by credits linked to the Group’s stock option plan. Other operating income/(expense) included gains of € 70 million relating to the Group’s exchange rate hedging programme, which are reported within gross profit. In the comparative period, equivalent exchange rate hedging gains amounted to € 13 million.

Contact
Compagnie Financière Richemont SA 50 chemin de la Chênaie CP30, 1293 Bellevue Geneva Tel. 022 721 3500 Fax 022 721 3550