By  on November 18, 2005

LONDON — Compagnie Financière Richemont SA has begun the fiscal year with a bang, and the future is just as bright.

Although net profits for the first half slid 27 percent to 529 million euros, or $656.5 million, from 727 million euros, or $882.8 million, sales and operating profit both saw double-digit growth.

The slide in net profit was due solely to extraordinary items related to Richemont's 18.5 percent stake in British American Tobacco. All figures have been calculated at average exchange rates for the period to which they refer.

Sales for the period ended Sept. 30 rose 15.8 percent to 1.99 billion euros, or $2.47 billion, from 1.72 billion euros, or $2.09 billion, due to double-digit growth in every product category, except for the leather and accessories houses.

Operating profit rose 68 percent to 334 million euros, or $414.5 million, from 199 million euros, or $241.6 million, thanks to rising gross margins and continuing cost control, the statement said.

The sale earlier this year of the London-based men's wear company Hackett Ltd. to Torreal S.C.R. SA, a Spanish investment company, injected 11 million euros, or $13.6 million, into the company's operating profit. Stripping out that extraordinary gain, Richemont's operating profit would have risen 62 percent to 323 million euros, or $400.8 million.

Richemont's net profit suffered in the half due entirely to comparisons with the corresponding period last year, when it reaped extraordinary gains from BAT.

The decrease this year stems from a major, one-off gain reported by BAT last year, when its North American operations merged with those of R.J. Reynolds to form Reynolds American.

The decrease in Richemont's net profit also reflects one-off expenses incurred by BAT this year. Excluding its stake in BAT, profits at Richemont would have risen 133 percent to 270 million euros, or $335.1 million, from 116 million euros, or $114.5 million.

"The performance of the first six months points to a strong year for Richemont," said Richemont chairman Johann Rupert in a statement Thursday. "I am confident that, in the absence of any external events outside our control, Richemont's luxury businesses will report good growth in terms of sales and operating profit for the year as a whole."Rupert pointed to strong growth in the Americas and China, and vigorous demand for watches and jewelry worldwide as motors behind growth in the period.

In addition, Lancel, the French leather goods house that has been struggling, showed strong signs of recovery: Sales grew 11 percent due to demand in France. Richemont still considers its other major problem brand — Alfred Dunhill — "a work in progress," however.

Alan Grieve, director of corporate communications at Richemont, said the first-half results slightly exceeded the company's expectations. "We benefited from good exchange rates — the dollar is strengthening, and the yen remained stable — a good product mix and growth across all product categories."

Regarding the second half, Grieve said there was no sign of a slowdown in any of Richemont's markets, and that the Japanese market is bouncing back. "We will be facing tough comparatives with last year, and sales growth probably won't continue to grow at a rate of 16 percent, but overall, it should be a good year."

Sales at Richemont's jewelry houses, which include Cartier, its largest overall business, rose 14 percent, with double-digit growth in every geographic region. During the period, Cartier launched the Panther jewelry collection, as well as the Pasha 42 and Tankissime watch lines.

Richemont's specialist watchmakers, which include Piaget, Jaeger LeCoultre and IWC, saw sales rocket 23 percent, thanks to strong demand from the Americas and the success of new products such as Piaget's Possession watch, Jaeger LeCoultre's AMVOX and Compressor Extreme and A. Lange & Sohne's Lang 1 Time Zone.

Writing instrument manufacturers, including Montblanc and Montegrappa, posted sales growth of 13 percent, due partly to Montblanc's retail expansion. Leather accessories houses Dunhill and Lancel posted a combined 7 percent growth.

The 4 percent increase at Dunhill was due mainly to strong growth in the Asia-Pacific region, which offset flat sales in Europe and Japan. Sales of Dunhill's leather goods alone rose 14 percent in the period. But there is still a ways to go.

"Dunhill was a bit of a disappointment," said Grieve. "We've been apologizing for Dunhill for a while now. It just does not have the right mix of product, distribution and price points across the board. But I think the new management team there has determined what the underlying problems are, and what needs to be done. It is still a work in progress."He stressed, however, that Richemont had no plans to sell Dunhill. "Dunhill is very much a part of the firmament here at Richemont, and dear to Johann Rupert's heart. We are going to continue to plug ahead."

Sales in Richemont's other businesses category rose by 50 percent, and Rupert pointed to Chloé, once again, as a star performer.

"This business has outperformed its peers, more than doubling its sales in the six months under review," he said, adding that it boasted unique design positioning and strong management. "Chloé is developing its wholesale business and rolling out its international retail expansion program."

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