May 22, 2008 / 6:42 AM / 10 years ago

UPDATE 2-Richemont profit rises, still considering split

(Adds further detail, comment, shares)

By Laura MacInnis

GENEVA, May 22 (Reuters) - Swiss luxury goods maker Richemont CFR.VX met expectations with its full-year net profit and said it may set up an investment vehicle for its tobacco holdings.

The maker of Cartier watches, Piaget jewellery and Montblanc pens said on Thursday its profit for the year ending March 31 rose 18 percent to 1.57 billion euros ($2.5 billion), in line with analysts’ forecasts, but said the current economic crisis was a cause for concern.

Investors have been looking at Richemont and other luxury goods makers like France’s LVMH (LVMH.PA) -- which have been boosted by several years of heady growth powered by Asia -- for any signs of cooling in demand for luxury items like watches and jewellery, but sales seem to be holding up so far.

“Strong set of figures while April data is obviously a cause for optimism,” said Landsbanki Kepler analyst Jon Cox.

Richemont said it was mulling a plan to split into a luxury business in Switzerland and an investment vehicle which could be based in Luxembourg, holding a 30-percent stake in British American Tobacco (BATS.L), in an effort to boost its shares.

“We would have preferred a cleaner announcement on the BAT unbundling but the writing is on the wall and it looks certain that the businesses will be split into two, itself an end to major uncertainty,” Cox said.

Richemont has been trading at a discount to sector peers because of the combination of the two businesses and also because some investors will not buy into firms earning their money from tobacco or alcohol.

It had already said last year that it was studying plans which could lead to a splitting of the two interests but Thursday’s announcement provided more details. Richemont and its joint venture partner Remgro Ltd (REMJ.J) hold a 30 percent stake in BAT.

Richemont shares were flat at 64.85 Swiss francs by 1100 GMT, outperforming a 0.9 percent drop in the Swiss blue chip index .SSMI.


Richemont expects the market for luxury goods to expand further, Executive Chairman Johann Rupert said, but expects some softness in the United States as a result of the decline of the U.S. dollar that has slashed the purchasing power of American consumers.

Rupert stressed that the high-end of the U.S. luxury goods retail market would be more resilient than the lower-end, and that demand in China was by contrast “exuberant.”

Richemont trades at 13 times forecast earnings for its 2009/10 fiscal year, at a slight discount to its main rival LVMH, which trades on a 2009 multiple of 15.

LVMH said last week that it still expected a “sharp” rise in 2008 earnings despite a difficult economic climate. (Additional reporting by Douwe Miedema in Zurich; Writing by Sam Cage; Editing by Elaine Hardcastle)

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