Billionaire Johann Rupert’s Richemont sheds $4bn in a day

South African billionaire Johann Rupert’s Compagnie Financière Richemont SA lost R65.82 billion ($3.97 billion) in market value on Nov. 13, after investors focused on a slowdown in jewelry sales at the Cartier owner rather than on a sharp rise in first-half profit.

Richemont’s share price ended the Friday session down 3.14%, the day the luxury group published results for the six months to September. In Zurich, where the company has its primary listing, the stock fell as much as 9% during the day before paring losses and last traded 3.8% lower at 169.45 Swiss francs.

The sell-off came even though the numbers looked strong on paper. Operating profit rose 33% to €3.13 billion ($3.51 billion), sales climbed 16% to €12.28 billion ($13.75 billion) and net profit increased 39% to €2.53 billion ($2.83 billion).

Why the shares fell

The problem was momentum in jewelry, the business that drives Richemont’s valuation. Sales at the jewelry maisons, led by Cartier and Van Cleef & Arpels, grew 14% at constant exchange rates in the July-to-September quarter, below analysts’ expectations and well short of the pace earlier in the year. Growth for the full half was 19%.

Group sales growth also cooled to 13% in the second quarter from 20% in the first three months of the fiscal year.

Investors also looked through the profit figure. About a third of the increase in operating profit came from a one-off €229 million ($256 million) tariff-related gain. Without it, the gross margin narrowed by 70 basis points as the soaring price of gold raised the cost of making jewelry.

The Middle East and Africa was the only region to shrink, with sales falling 7% in the second quarter as conflict in the region cut spending by tourists, particularly in the United Arab Emirates.

“Whilst we cannot predict what lies ahead, we expect the macroeconomic and geopolitical environment to remain volatile,” Rupert said in his chairman’s commentary.

Rupert’s share of the loss

Rupert controls Richemont through Compagnie Financière Rupert, which owns all of the group’s unlisted B shares. That gives him half of the voting rights but only about 9% of the economic interest.

Richemont is the biggest source of his fortune. He also chairs Remgro Ltd., the Stellenbosch-based investment group his father, Anton Rupert, built, and Reinet Investments SCA, the Luxembourg-based investment company he controls.

Strength elsewhere in the business did little to lift sentiment on the day. The watch division, which includes Vacheron Constantin, Jaeger-LeCoultre and A. Lange & Söhne, grew sales 10% and tripled operating profit to €150 million ($168 million). Richemont ended September with net cash of €7.73 billion ($8.66 billion).

Rupert, 76, founded Richemont in 1988 and has chaired it since 2002. In September, the board named his son Anton Rupert as non-executive co-deputy chairman, a step Rupert has described as part of the group’s long-term succession planning. Forbes ranks him as South Africa’s richest person.

Figures were converted at R16.6 to the dollar and €1 to $1.12.