CFRHF - Compagnie Financiere Richemont SA (CFRHF) Q4 2024 Earnings Call Transcript

2024-05-20 12:43:08 ET

Compagnie Financiere Richemont SA (CFRHF)

Q4 2024 Results Conference Call

May 17, 2024 03:30 AM ET

Company Participants

Sophie Cagnard - Corporate Communications and IR Director

Johann Rupert - Chairman

Jérôme Lambert - CEO

Burkhart Grund - CFO

Cyrille Vigneron - Cartier CEO

Nicolas Bos - Van Cleef & Arpels CEO

Conference Call Participants

Zuzanna Pusz - UBS

Thomas Chauvet - Citi

Louise Singlehurst - Goldman Sachs

Melania Grippo - BNP Paribas

Luca Solca - Bernstein

Patrik Schwendimann - ZKB

Piral Dadhania - RBC

Carole Madjo - Barclays

Rogerio Fujimori - Stifel

Presentation

Sophie Cagnard

To be better with mic on. So sorry about that. So I'm just repeating, but surely, you must have noticed that I'm not on my own. And today, are Johann Rupert, Chairman; Jérôme Lambert, CEO; Burkhart Grund, CFO; Cyrille Vigneron, Cartier CEO; and Nicolas Bos, Van Cleef & Arpels, CEO. As usual, the company announcement and financial presentation can be downloaded from richemont.com, and the replay of the webcast will be available today from 3 PM Geneva time.

Before we begin, please take note forward-looking statements in our ad hoc announcement and on Slide 2 of our presentation.

So while you do, just a few personal words. As many of you know, I'll be retiring later this year. And so this will be my last results presentation. Thank you. Thank you very much.

So over the last 22 years, it has been incredibly rewarding to build and lead the Investor Relations function and interact with world-class sell-side analysts and highly knowledgeable investors. I would like to express my gratitude for your insightful questions and constructive feedback. I would also like to thank the Chairman for his trust and support and all my many inspirational colleagues in the Richemont family. I'm pleased to say that you'll be in good hands moving forward with Alessandra Girolami, who will lead the department from September.

So turning now to the slides. Jerome will take you through the year's financial highlights and sales, and then Burkhart will review our business areas, group financials and key ESG initiatives. He will then hand back to Jerome for the conclusion, which will be followed by a Q&A session open to participants present in the room. I will now hand over to Jerome.

Jérôme Lambert

Thank you, Sophie. Good morning, ladies and gentlemen. Thank you for joining us today. Throughout the year, we faced continued macroeconomics and geopolitical uncertainty, unfavorable foreign exchange movement and demanding comparative.

Amid these challenges, we nevertheless achieved all-time high sales of €20.6 billion, an increase of 3%, at actual exchange rate and 8% at constant exchange rates. Operating profit came in at €4.8 billion. On a reported basis, operating profit was 5% lower than the previous year, resulting in an operating margin of 23.3%. The currency impact was quite significant. At constant exchange rates, operating profit increased by 13%, and the resulting margin rose as well, as we shall see on the next slide.

Excluding nonrecurring charges of €58 million net, reported operating profit was close to €4.9 billion. Profit from the year for continuing operation was solid at €3.8 billion, down 2% on the prior year. Cash flow from operating activities was strong reaching €4.7 billion, while the group net cash position continued to be robust with a €0.9 billion increase from the previous year to €7.4 billion. Richemont delivered a solid underlying performance in a challenging context. Sales growth was fueled by all regions led by Asia Pacific in value term and by Japan in percentage terms as well as double-digit growth at Jewellery Maisons and in the retail channel.

We saw a strong performance in Q1 and Q3 and a 2% increase at constant rate in the fourth quarter against a particularly challenging comparative of last year, 21% on the prior year period. The full year operating profit from continuing operation of €4.8 billion was affected by significant foreign exchange movement. At 68.1%, our gross margin included a 200 basis point of negative foreign exchange impact. At constant exchange rate, gross margin was up 130 basis points, while operating margin increased by 100 basis points. At the business area level, the Jewellery Maisons maintained the highest operating margin at 33.1% reported.

Over the year, Richemont strengthened its approach to ESG with several milestones reached. The group was proud to have obtained global gender EQUAL-SALARY certification from the EQUAL-SALARY foundation, recognizing Richemont's commitment to ensuring a fair and equal wage policy between women and men for more than 38,000 colleagues across 39 markets. Let me now walk you through the group sales performance, first by region and then by distribution channel. Unless otherwise stated, all comments refer to year-on-year changes at constant exchange rate. It is worth noting that sales grew across all regions for the third year in a row, also in terms of individual market.

The U.S., benefiting from its strong growth rate over this past year, has now become the group's largest contributor, just ahead of Mainland China. Europe delivered 3% growth on top of 27% in the prior year, mainly supported by local spending. This including increase in France, Switzerland, Italy and Spain, more than offsetting softness in some other locations. The fourth quarter was strong with a 7% sales increase on a demanding comparative. Turning now to Asia Pacific.

The region grew double digit for the year and contributed the most to the absolute increase in group sales. Growth reflected the strength of Hong Kong and Macau, which benefited from an increased travel from the mainland Chinese. Most other location in the region showed growth for the year. Fourth quarter sales were down by 12%, primarily reflecting the particularly strong comparative of plus 26% in the prior year period. The Americas.

We see a very solid performance with a 5% growth rate, benefiting from strong domestic demand sustained by a favorable macroeconomic environment and repatriation of spend. Fourth quarter sales growth accelerated to double digit. The America was the second largest region after Asia Pacific, with sales of €4.5 billion. Japan was still the strongest sales increase for the year at plus 20%. This was primarily driven by tourist spending, notably from Chinese clients.

Of note, other sales in Japan saw extremely strong growth, exceeding 40%. And this again -- this against a challenging comparative. Middle East and Africa had a robust performance with sales up by double digits, benefiting from higher spending by both locals and tourist. This was particularly the case in the United Arab Emirates and Saudi Arabia. Fourth quarter sales also rose by double digit, continuing the strong growth momentum recording during the year. Let's now turn to the sales by distribution channel, starting with retail, where directly operated store contributed 69% of group sales, up from 68% in the prior year....

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