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Chinese Taste for Luxury Boosts Richemont Profit

Reuters
Thursday, 24 May 2007 | 12:23 PM ET

Richemont, the maker of Cartier watches and Montblanc pens, posted a 21% rise in annual net profit to 1.33 billion euros ($1.79 billion) on Thursday as China's economic boom fuelled demand for its luxury goods.

Richemont, whose brands also include Van Cleef & Arpels jewelry and Dunhill leather goods, enjoyed buoyant demand in China, the Middle East and Russia, where the allure of accessories as status symbols for millionaires is growing.

"Brand is more important than ever in China, in Russia, in the Middle East," said Richemont Chief Executive Norbert Platt.

"We are very well positioned with our brands and very confident that the trend will go on," he said.

Richemont's top brands' most expensive watches can cost more than $1 million.

The company, based in Switzerland, said demand for luxury watches and jewelry in fast-growing markets fuelled a 12% sales rise in the year to March 31 to 4.9 billion euros.

Sales in mainland China accelerated 47% in 2006/2007, driving a 19% gain in the Asia-Pacific region.

China's economy grew almost 11% in 2006, the fastest rate in more than a decade. The world's fourth-largest economy has grown at double-digit rates for four years in a row and will showcase its meteoric rise by hosting the 2008 Olympic Games.

Share Dip

Richemont shares dipped nearly 3% despite an upbeat outlook from the company, which said sales continued at a strong clip with a 10% rise in actual exchange rates last month.

Analysts cited questions over whether Richemont could keep up the blistering sales growth that has buoyed the luxury goods sector in past years alongside global economic gains.

Chinese shares fell moderately in hectic trading on Thursday after former U.S. Federal Reserve Chairman Alan Greenspan warned that the market was headed for a "dramatic contraction", also darkening the outlook for Asia.

"We still consider Richemont's brand portfolio to be the strongest in the industry, and its valuation .... not to be overly demanding. But we believe it will be more difficult for the company to spring the kind of positive surprise we saw in the 2004-2006 period," HSBC said in a research note.

The Swiss bank Vontobel said the market may be disappointed by a slightly lower margin in Richemont's jewellery division, but said its watchmaking, writing instruments and leather and accessories sectors performed better than expected and the overall group results matched expectations.

Shares in Richemont rose about 7% in 2007, just behind a 9% gain in shares in France's LVMH, the world's largest luxury goods group.

Citing its "excellent performance" in the latest year, Richemont proposed a total dividend payment of 1.25 euros per share, comprising an ordinary dividend of 0.65 euros and special dividend of 0.60 euros.

Richemont logs most of its sales outside Europe but reports in euros, making it sensitive to exchange rate swings such as the recent surge of the euro against the dollar and Japanese yen.

Chairman Johann Rupert said such shifts were "a continuing issue" for Richemont but did not estimate their impact. He said the company expects good underlying sales growth in most markets over the coming year.

"Our expectations are supported by the positive trends seen during the latter part of the past year and the continued good performance in April 2007," he said.

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