HONG KONG — London-based jeweler Graff’s executives shrugged off concerns about choppy market conditions and touted the company’s upcoming $1 billion listing on the stock exchange here.
This story first appeared in the May 29, 2012 issue of WWD. Subscribe Today.
Speaking to members of the Hong Kong media via video conference Sunday, the company’s founder, Laurence Graff, acknowledged that “the stock market is not in a very healthy condition” at the moment but said he was not concerned. He characterized the initial public offering as an opportunity to get Graff shares “at a bargain.”
As reported, the company, known for its collection of large, rare diamonds, has set its preliminary price range between 25 Hong Kong dollars, or $3.22, and 37 Hong Kong dollars, or $4.76, per share. The midpoint of the price range would value the company at $3.48 billion. That range comes out to 18 to 24 times the estimate for 2012 earnings, multiples some observers have said seem high.
Executives said demand for shares was going well but declined to give specifics. Graff plans to list June 7, a day earlier than originally anticipated.
Graff chief executive officer François Graff said Hong Kong is a “very natural option” for the company’s IPO and he is optimistic about growth in Asia.
“The opportunity that we perceive in China is an epic opportunity. In the history of our company, we’ve seen many opportunities and pockets of wealth grow in various parts of the world but the opportunity with the growth and wealth in China, and Asia in particular is of such epic proportions that we thought we have to be on the doorstep of that growth with regards to our IPO,” François Graff said.
Graff’s net profit for 2011 rose 10 percent on the year to $115.6 million. Revenue came to $755.6 million in revenue for the year 2011, an increase of 22 percent from 2010.
Within the retail division, sales from Asia increased by 135.6 percent to $120.4 million in 2011, representing 19.3 percent of the company’s overall sales. Gross profit margin for the group was 38.1 percent in 2011.
Graff said first-quarter 2012 results were strong, with all regions recording growth. Overall group revenue increased 24.9 percent to $204.5 million. Sales from Asia increased 114.9 percent to $36.1 million during the quarter.
Graff said it plans to use the IPO proceeds to repay debts, buy inventory from Laurence Graff’s indirectly controlled firm DiamondWorks and purchase outstanding shares of its Monaco retail operations and Safdico, Graff’s procurement and polishing division, as part of a restructuring program aimed at lifting the company’s profit margins.
Executives also said they also expect to improve gross margins by further penetrating the high net worth market with new lines of jewelry priced at less than $1 million and by selling more watches. Watches now account for 3 percent of sales and have a profit margin of about 70 percent. Graff executives said they expect watch sales to increase to 15 percent of sales, which would be more in line with other luxury brands.
The jeweler said it plans to open five stores in the third-quarter of this year, in Hong Kong, Tokyo, Shanghai, Macau and Hangzhou, China.
Graff was listed once before in London during the Seventies but “the world is a very different place now and our business today is orders of magnitude more substantial, more diverse and more solid,” François Graff said.
Some market players voiced tepid reactions to the offer.
Castor Pang, head of research at Core Pacific-Yamaichi, said he isn’t recommending Graff as a buy because the pricing is not attractive, plus the current market situation makes such an investment dicey. Pang said what gives him pause, in particular, is that the IPO involves selling old shares and using proceeds to buy their assets, which he interprets as “trying to help shareholders to liquidate their assets. It doesn’t leave a good impression for the investor.”
Pang also has concerns about Graff’s high sales concentration in Europe. “It seems that the uncertainty of the economic situation [in Europe] will have negative impact on their business,” he said.
Alvin Cheung, associate director at Prudential Brokerage, said, “Investors are not interested in investing in any IPO recently [and won’t be] in the coming few weeks.” He said he’s seeing more investor interest in the upcoming iBonds, or inflation-indexed bonds, that the Hong Kong government plans to issue this summer.