Luxury is indeed timeless, results decent

OK, as promised: Richemont, the Swiss luxury goods group, announces its audited consolidated results for the year ended 31 March 2014 and proposed cash dividend. That is the download for you to read. At face value the results are not what you would expect, but there were definitely currency headwinds. The cash position is at an all time high.


OK, but the company talks about fewer stores opened but they were very pleased about sales in their domestic markets. In other words locals buying their goods. Asia Pacific is now the largest region (40 percent), that trend has been ongoing whilst the Chinese continue to indulge themselves with quality. I think that simple word quality is at the heart of this investment. Vacheron Constantin is 259 years old. Not the person, that is impossible, but rather the brand. Vacheron Constantin is a high end watchmaker. I guess if you are asking about what the price of their collections are, that may or may not be the right starting point.


That is however, one of the reasons that people acquire luxurious brands and products, either it is to show that you have arrived, or it is to know that you own that unique piece. Holy smokes, a Vacheron Constantin Tonneau Tourbillon costs 184 thousand Euros, or that was the quote that I saw. 32 stores globally. That is it, no more for now. There is not only the price of the pieces that are beyond reach of most, but they are difficult to reach. Exclusivity is however in the luxury goods business part of the allure. A rich and discerning customer wants to know that they are part of an exclusive and select group. And that is at the heart of it all, much like natural beauty (Table Mountain to the Kruger Park), you cannot replicate quality Maisons with hundreds of years of history. In fact, the bulk of the Richemont brands are over a century old. From the Richemont website, here are the years of founding of the respective businesses: Purdey (1814), Baume & Mercier (1830), Jaeger-LeCoultre (1833), Lange & Sohne (1845), Cartier (1847), Officine Panerai (1860), IWC (1868), Piaget (1874), Lancel (1876), Alfred Dunhill (1893), Van Cleef & Arpels (1906) and Montblanc (1906).

Not being able to replicate brands makes these businesses even more valuable than they were acquired for in the first place. The margins after the expensive store footprint and the heavy advertising (and possibly expensive watch and jewellery specialists, both back and front end) are 35 percent for jewellery and 26 percent for the watchmakers segment. Group operating margins for the year were lower at 22.7 percent. But still astonishingly high. Total sales for the group for the year clocked 10.649 billion Euros, profits were 2.067 billion, an increase of only thee percent. EPS was 3.676 Euros per share, remember that the shares here are one tenth GDR's (global depositary receipts). So our earnings here in Rand term in the exchange rate would be 5.25 ZAR per share. And the dividend, after the pesky 35 percent tax rate for Switzerland is 91 Swiss Franc cents. Which after the ten for one equals 1.06 ZAR per share. Remembering that if you get your paperwork in order you can claim back 20 more (2 for the GDR) Swiss Franc cents. That is then 1.30 ZAR per share. Not very generous on the dividend.


Even worse unfortunately is having to get the dividend difference (15 percent dividend tax here, 35 percent in Switzerland) back, which is not complicated, but a tedious process which requires leg work on the part of each and every individual. It is one of those unavoidable things in life.


Other than that, is Richemont a good investment? Yes. Very definitely yes. There are more rich people around the world than ever before in humanities existence. There are more people full stop. Aspirational consumerism is a huge trend that we like a lot. The currency headwinds are unavoidable, for now, the Euro levels will wax and wane relative to their prospects, but we should get a clearer picture during this current financial year around stability. This is one of the single best investments that JSE investors have access to. We continue to buy.