Comprehensive Interpretation Of Richemont Group Annual Report Of 2015/2016 Financial Year

The second largest in the world

The development of Richemont, the parent company of the group and Cartire, is legendary:

In the late 40s of last century, Anton Rupert, a South African billionaire, set up Rembrandt group to run tobacco business.

In 1972, Rothmans international group was established.

In 1976, Rothmans international group began to set foot in luxury business and gradually increased its luxury.

Acquisition efforts

In 1988, the group's luxury business continued to expand. Anton Rupert's son Johann Rupert decided to carry out a business restructuring of Rembrandt group, which was founded by the group and mainly engaged in luxury goods and cigarette business.

In the 90s of last century, anti tobacco sentiment rose and tobacco business began to decline. The group decided to strip off tobacco business and focus on luxury business.

In 2000, Li Feng Group won a bumper harvest in the clock industry, defeated the old rival LVMH group, and won many classic Swiss watches brands such as Jaeger-LeCoultre, Jaeger Le Coulter (Piaget) and Bo Jue (Piaget).

Through a series of integration and reorganization, the group is now the second largest luxury group in the world, with its headquarters in Switzerland.

At present, Richemont's business line is clear: it focuses on hard and luxury business such as watches and jewellery, and takes into account the soft luxury business such as fashion and accessories. The brand portfolio is as follows:

Jewelry: including the French jewelry brand Cartier (Cartire), Van Cleef & Arpels (Van Cleef & Arpels) and Italy jewelry brand Giampiero Bodino (Botino)

Watches: Italy senior watch manufacturer Officine Panerai (Pei Nahai), German watch brand A. Lange & S HNE HNE (Lang Ge), Switzerland watches brand Baume & Mercier (celebrities), IWC Schaffhausen (Universal), Jaeger-LeCoultre (Jaeger Le Coulter), Jaeger-LeCoultre (count), Vacheron Constantin (Vacheron Constantin), Luo (Luo Jie Du) and Ralph Lauren (Ralph Lauren) and other designer brand watches authorized.

Among them, in January 2016, the peak group acquired the remaining 40% stake in Roger Dubuis and became its wholly owned shareholder.

Fashion: British brand Alfred Dunhill (Dunhill), French brand Ala a, Chlo e (USA), American brand Peter Millar and China brand Shanghai Tang (Shanghai)

Other: the French luggage brand Lancel (Lan Zi), the German writing brand Montblanc (MontBlanc), the British gun brand Purdey (PU De Lai) and the British luxury electric business website The NET-A-PORTER GROUP.

(Note: in the second half of 2015, the company decided to sell a fast growing period in the form of convertible bonds. However, NET-A-PORTER, which was not profitable enough, merged it with Yoox, a rival fashion dealer in Italy. After its merger, the company held 50% of its peak, holding 25% of the voting rights.

According to the annual report of 2015/2016 financial year issued by Richemont group (April 2015 to March 2016), its financial performance is as follows:

Sales grew by 6% over the previous year, reaching 11 billion 80 million euros, and jewelry and watches contributed about 55% and 29% respectively.

Operating profit was 2 billion 60 million euros, down 23% compared to the same period last year.

The main reasons for the decline include the increase in operating costs brought about by exchange rate changes, the cost of opening new stores, and the rise in rents.

Net profit increased by 67% to 2 billion 230 million euros over the same period (the main reason for the substantial increase in net profit was two: the non cash income generated by the merger of NET-A-PORTER group and YOOX group); the subsequent impact of the sharp fall in the Swiss franc.

Sales area performance (at constant exchange rate):

{page_break}

The Asia Pacific market (excluding Japan) accounted for 36%, which was 3 billion 940 million euros, and sales revenue fell 13% year-on-year.

Sales in Macao and Hongkong have dropped sharply, especially in wholesale channels and watches, but the strong performance of other important markets such as China has made up for this decline.

European market sales accounted for 31%, sales of 3 billion 390 million euros, an increase of 10% over the same period last year.

Sales increased by 26% in the first half of fiscal year, but because of exchange rate and terrorist attacks, the number of tourists in Europe declined sharply in the second half of fiscal year, resulting in a 5% decline in the second half of the fiscal year.

North American market sales fell 1%, or 1 billion 745 million, to the domestic demand of watches, but the demand for jewellery increased.

Market sales in Japan increased by 20% over the same period last year, reaching 1 billion 31 million euros.

The main reason is the decline in the yen exchange rate, attracting a large number of overseas tourists.

From the perspective of sales channels (by constant exchange rate):

The retail sales of group direct retail business accounted for 55%, a slight increase from last year's share, and retail sales reached 61.4 billion euros, an increase of 5% over the same period last year. Due to a variety of unfavorable factors such as terrorist attacks, retail sales in the second half of this year showed a sharp decline, up 26% in the first half of the year, and an increase of only 2% in the second half of the year.

In the current fiscal year, 22 new outlets were added, and the total number of stores was 1155.

Wholesale channel sales of 4 billion 930 million euros, down 7%, up 4% in the first half of fiscal year, down 6% in the second half of fiscal year.

The weakness of wholesale channels reflects the overall performance of various market partners. Hongkong, Macao and Europe in the second half of the year are particularly poor.

From sales category:

The sales revenue of jewelry watches was 6 billion 48 million euros, up 7% compared with the same period last year, with a profit margin of 31.3%, slightly lower than that of the previous year.

The overall demand for jewellery products has increased.

In addition to redecorating part of flagship stores, the retail network is growing overall, but sales of wholesale networks have declined year by year.

{page_break}

The sales of advanced watch sales reached 3 billion 235 million euros, an increase of 3% compared with the same period last year, with a profit margin of 16.1%, a decrease of 7.3% over the previous year.

The exchange rate volatility of the Swiss Franc has led to a significant increase in costs, while the performance of Hongkong, Macao and the US market is very weak.

The "other" income, including clothing, was 1 billion 803 million euros, an increase of 11% over the same period last year.

The two brands of Alfred Dunhill and Lancel are performing poorly, but the profitability of Montblanc, Chlo E and Peter Millar has increased.

Group ownership structure:

The company's shares are divided into two kinds, A shares are circulating shares, which have been issued on the Swiss stock exchange; B shares are non tradable shares, the face value is 1/10 of A shares, but they enjoy 10 times the voting rights of A shares.

By March 31, 2016, the only controlling shareholder of the company was Switzerland's Rupert Asset Management Co, enjoying half the voting rights of the group and holding 522 million B shares of the group.

As of March 31, 2016, the market value of the group reached 33 billion 173 million Swiss francs, plus the B shares of non tradable shares, with a total market value of 36 billion 490 million Swiss francs.

The market value has shrunk by 18.8% compared with 44 billion 960 million Swiss francs in the same period last year.

(1 Swiss francs, equivalent to 6.85 yuan).