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Hedging Helps Boost Richemont Net 3.1%

Company upbeat about future despite trouble spots.

LONDON — Canny management at Compagnie Financière Richemont, parent of brands including Cartier, Dunhill and Van Cleef & Arpels, counteracted currency headwinds last year, and analysts say the future is looking rosy.

Full-year profits edged up 3.1 percent to 2.07 billion euros, or $2.77 billion, boosted by hedging gains in what remains a challenging environment for brands doing business in powerful currencies.

The Switzerland-based company revealed a dividend of 1.40 Swiss francs a share, or $1.57, up from 1 Swiss franc, or $1.12, last year, and said its net cash position has risen to 4.66 billion euros, or $6.39 billion, up 45 percent on the previous year.

On Thursday, shares in Richemont closed up 4.2 percent to 90.95 Swiss francs, or $102.23. Figures have been converted from euros and Swiss francs at average exchange rates for the periods to which they refer.

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Richemont reported that in the 12 months ended March 31 revenue rose 4.9 percent to 10.65 billion euros, or $14.27 billion, due to a strong performance from the jewelry and specialist watch segments.

Growth in those categories offset soft results at Dunhill, Chloé and Lancel, as well as 25 million euros, or $33.5 million, of restructuring at Montblanc, where the retail network has been slimmed down and the product offer fine-tuned.

At constant exchange rates, sales grew 10 percent in the 12-month period. Overall, results were in line with analysts’ expectations.

Retail sales from the company’s own boutiques, which now account for 55 percent of business, boosted much of the growth in the period. Retail sales were up 8 percent, compared with wholesale, which grew 2 percent.

During the year, Richemont added 42 boutiques — mostly in high-growth markets and tourist destinations — for a total of 1,056 stores. The company said that e-commerce at Net-a-porter also contributed to the retail gains.

The current year is off to a positive start: Richemont said sales increased by 1 percent at actual rates, and by 6 percent at constant ones, with its own retail network continuing to outperform wholesale in all regions except for Japan, which saw sales tax increase on April 1.

Excluding Japan, sales in April would have been up by 4 percent at actual exchange rates and 8 percent at constant ones.

Asia-Pacific, the Americas and Japan all showed an improved performance, with all regions notching single-digit growth except Japan, which was down 1 percent due to the weak yen.

At constant exchange rates, growth in Japan was 23 percent last year, driven by strong domestic consumption and a weak yen that drew “significant” inbound tourism, Richemont said.

Sales in Mainland China were below last year’s levels, reflecting weak demand in the wholesale channel, although Hong Kong and Macau showed an improved growth rate, and Korea rose in the double digits. The company said it recently bought out its local partner in Korea so as to have direct control over retail operations.

Richemont’s principals remain upbeat about China’s future, however. “Last year, Mainland China was hit by the gifting issue, and that was a significant part of business,” said Richard Lepeu, Richemont’s co-chief executive officer, during a conference call on Thursday.

“We have started to see better figures and growth in China over the last few months, and I am rather optimistic — as long as the economy continues to grow. The Chinese business is very sound — both at home and abroad,” he added.

The operating margin declined to 22.7 percent from 23.9 percent due to adverse currency effects, while operating profit edged down by about 7 million euros, or $9.38 million, to 2.42 billion euros, or $3.24 billion.

Richemont joins legions of other luxury brands in suffering the impact of the strong euro, pound and Swiss franc, especially in countries with weaker currencies such as Japan, Brazil, India, China and the U.S.

Gary Saage, Richemont’s chief financial officer, said during the call that the company raised its prices “multiple times” last year to adjust for the costs of doing business, and for adverse currency effects. He said prices would rise around 3 percent this year, with some regions seeing hikes of more than that, and others less.

Richemont said the soft luxury division, including Dunhill, Chloé and Lancel, contributed to the decrease in operating profit. Lepeu said that Dunhill and Chloé in particular would be “focusing mainly on the product offer,” to grow their businesses. He said the plan is to improve the leather offer at Chloé, with a new bag to be launched in the coming months.

Lepeu said that, in terms of geographies, Africa was showing particular promise, with strong double-digit growth in the year.

“Africa is a key project for us in terms of development, and we want to take advantage of business in Nigeria and Angola in particular. We need to open stores in the region so that we can sell to those clients when they travel. We are very attentive to what is going on, and we expect quite a good business there in the future,” he said.

Analysts were upbeat about the past year and the outlook for the current one.

Luca Solca, managing director and sector head of global luxury goods at Exane BNP Paribas, said 2014-15 won’t be a “limbo year” for the company, pointing to Richemont’s bulked-up retail network. Expectations are for gross margin to grow to 64.5 percent from the current 63.4 percent.

The company also confirmed that Richemont’s founder and shareholder of reference, Johann Rupert, would conclude his sabbatical in September, and stand for election as chairman of the board at Richemont’s annual general meeting on Sept. 17.