Cash is king. Everyone knows that. Then, there’s Richemont ... sitting at another level, with a right royal heap of cash on its balance sheet. The luxury brands conglomerate controlled by the Rupert family finished its financial year to end-March with more than €8bn of net cash. That’s a whopping R167bn — enough to acquire all of Harmony Gold (at the current market price) if Richemont ever wanted to move “upstream” in the luxury
business.
Certainly it’s more than enough cash to buy diamond business De Beers from Anglo American — which would be a most unlikely event, unfortunately for the restructuring plans of the mining behemoth. Naturally, there are questions around whether Richemont intends mobilising any significant portion of the cash heap for dealmaking. One analyst at last week’s investor presentation asked: “Are we waiting for something bigger down the line in terms of potential M&A? Or is this just keeping your powder dry?”
Older investors will know that companies controlled by the Ruperts are not afraid to store up cash. The late, great Thys Visser, during his tenure as Rembrandt/Remgro CEO, persistently reminded all and sundry of the “insurance policy” in cash — ensuring that dividends would continue to flow, through thick and thin.
The Rupert family’s other charges — Remgro and Reinet Investments — are also sitting on significant cash positions. At Remgro it might be understandable, because the huge fibreoptic deal between CIVH and Vodacom is still being frustrated by the competition authorities. That said, Remgro, at its recent capital markets day presentation, made some intriguing references in terms of possible moving and shaking. It noted that private equity players were focused on smaller deals, with no deals above R5bn having taken place in the past 15 years. There were also low liquidity levels for mid-cap companies on the JSE, at least for major investors. The group believed there was no natural home for mid-cap South African companies.
Reinet, on the other hand, probably won’t feel that the proceeds from the recent sale of its stake in British American Tobacco will burn a hole in its pocket. But there are plenty of opportunities to top up its many portfolio holdings, look at share buybacks and (hopefully) hike dividends.
On Richemont’s cash position, chair Johann Rupert flippantly noted: “We could buy half of private equity right now, but it’s not our goal.” He then went off on a bit of a tangent regarding China, a key Richemont market currently facing challenges.
Included in Rupert’s broad observations was this gem: “When you leave Shanghai today and you fly to New York, you think you’re getting into a Third World country. It’s unbelievable, you go down the FDR [FDR Drive in Manhattan], you need a 4x4. It’s astonishing.”
Ultimately, Rupert felt Richemont would have to invest more in China. “We’ll have to, but we’ll do so when things pick up.” Finally, he made direct reference to Richemont’s cash pile. “You know what? Three or four years ago, everybody complained about lazy balance sheets. Today, it gives you a feeling of warmth and comfort.”
What might still leave Richemont shareholders a little cold is the so-called “other” business area — which houses mainly the soft luxury goods including footwear, fashion, leather, pens, sportswear and, of course, online business Watchfinder. For me, the sprawling “other” segment — made up of brands including Alaïa, AZ Factory, Chloé, Delvaux, Dunhill, Gianvito Rossi, Montblanc, Peter Millar, Purdey and Serapian — detracts from Richemont’s core, its stunningly profitable jewellery maisons. Other sales topped €2.8bn for the year — 7% higher than last year. Encouragingly, there was double digit sales growth in the Americas, Europe, the Middle East and Africa. Online retailing picked up too.
But the segment finished with an operating loss for the year of €102m — more than double last year’s loss of €43m with the operating margin deteriorating from -1.6% in 2024 to -3.7%. Richemont pointed out that the fashion & accessories maisons continued to invest in their desirability and visibility as well as in an e-commerce solution. Hopefully this means the margin can improve in the next two financial years to at least bring this segment closer to breakeven.
Look, there are bright spots. Fashion retailer Alaïa had another strong year, while sportswear specialist Peter Millar and Watchfinder were solid. Richemont indicated that ready-to-wear sales rose by double digits across the maisons, with Chloé getting a mention.
Still, one can’t look past the jewellery segment’s incredible resilience without wondering if the thrusts into skinny-margined luxury lines are worth it. Richemont’s jewellery segment — Cartier, Buccellati, Van Cleef & Arpels and now Vhernier — churned sales of €11.5bn for an operating profit of €4.9bn. That’s an enviable margin of 31.9%, only slightly adrift of 2024’s 33.1% in spite of the marked increase in the gold price. Overall group margin was 20.9% vs 23.3% last year — matters not helped by the specialist watchmaker margin plunging to 5.3% from 15.2%, with Chinese demand waning rather alarmingly.
The luxury market is facing challenges at the moment. Things may well shake out in Richemont’s favour and possibly reinforce the decision to build out the “other” luxury lines. Critical mass could make all the difference ... and Richemont certainly has the balance sheet bulk to muscle in on M&A.
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