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One wonders whether Johann Rupert will go backpacking around Southeast Asia, attend a full moon party and get a tattoo on the gap year he is planning to take away from the Swiss luxury goods group that he chairs. At 62 years old, it is unlikely. But he has surely earned his break for helping to grow Richemont's shares by 1,800 per cent since the company he founded listed in Switzerland in 1990 (five times more than the Swiss market index). Shares in the luxury group rose another 8 per cent on Thursday when it announced it had met its 30 per cent profit growth target for its full year which ended in March.
Still, Mr. Rupert will step away from Richemont at a time when its biggest market is slowing. Sales in Asia now make up two-fifths of the Swiss group's total, down from 46 per cent the previous year. China is the culprit; the new government's crackdown on flamboyance has led Richemont's sales in the country to start falling year on year. As the renminbi strengthens against the euro and the swiss franc, Chinese visitors to Europe are helping to support sales there. But this is still not enough to pick up the slack – Europe makes up just 28 per cent of group sales. As a result, the 14 per cent growth in total revenues over the past year, was half the rate seen in the previous 12 months.
On the bright side, Richemont did well to boost operating margins. Foreign exchange helped. But margins in its two main divisions – watches and jewellery, which make up three quarters of sales – both picked up sharply in the second half from a year earlier. An 80 per cent fall in net finance costs also helped net earnings.
Richemont shares now trade on 18 times forecast earnings. That is edging back to two year highs. Given the slowdown in underlying earnings momentum, investors, like Mr. Rupert, should not get carried away.