Similarly, we are guided by principles of sustainability and long-term impact. Sustainability and concern for the environment are not only matters of importance to our clients and colleagues, but are also embedded in Richemont's own heritage, notably through our long-term relationship with World Wide Fund for Nature and Peace Parks. I am therefore truly pleased that the Science Based Target initiative validated our Science Based Targets to reduce greenhouse gas emissions in line with the 2015 Paris Agreement and also that we committed to eliminate the use of polyvinyl chloride ('PVC') from all our products and packaging by December 2022. We will continue to allocate more resources to sustainability to meet our climate and other sustainability targets, with a particular focus on biodiversity, the environment, education and the preservation of Métiers d'Art. Before concluding, I would like to thank all the teams at Richemont for their unrelenting dedication, agility, creativity and operational excellence that made these strong results possible.

The post-Covid world is yet to emerge. For the second half of the year, volatility is likely to persist, including in terms of inflation and geopolitical tensions. The Group will also face challenging comparatives. We look to the remainder of the year with vigilance and cautious optimism: the appeal and enduring nature of our distinctive and highly qualitative creations resonate well with the values and expectations of our discerning clientele.

Richemont will continue to focus on timelessness, love, beauty and sustainability. Together, we will craft the future.

Johann Rupert Chairman

Compagnie Financière Richemont SA

Geneva, 12 November 2021

Financial review

Any long form references to Hong Kong, Macau and Taiwan within this Company Announcement are Hong Kong SAR, China; Macau SAR, China; Taiwan, China respectively.

Given the magnitude of the impact of the pandemic on our operations in the six-month period ended 30 September 2020, additional comments compared to the six-month period ended 30 September 2019 are provided below for a more comprehensive view of our performance.

Sales

In the first six months of the year, Richemont reported a strong performance with sales increasing by 63% at actual exchange rates and 65% at constant exchange rates. On a two-year comparison basis, sales exceeded pre-Covid-19 levels by 20% and 24%, at actual and constant exchange rates, respectively.

On a year-on-year basis and at actual exchange rates, sales in the Americas grew by triple digits, with the other regions recording high double-digit rates of growth. Compared to the same period of calendar year 2019, most regions delivered robust double-digit sales progressions. Only Europe and Japan posted lower sales due to reduced international tourism, with trading improving sequentially in the second quarter of the year.

During the period under review, all business areas enjoyed high double-digit sales increases compared to the prior-year period, with Jewellery Maisons expanding by 67%. Specialist Watchmakers and the 'Other' business area reported strong recoveries at 74% and 72%, respectively. Compared to the first half ended 30 September 2019, Jewellery Maisons led the growth with a 36% sales increase and Specialist Watchmakers returned to growth, expanding by 7%.

Sales across the Group's directly operated stores and online channels increased by solid double-digits, both year-on-year and on a two-year basis. Wholesale sales, while moderately lower compared to the same period in calendar 2019, grew by 71% compared to the same period in 2020.

Further details on sales by region, distribution channel and business area are given in the Review of Operations.

Gross profit

Year-on-year, gross profit rose by 78% to EUR 5 638 million, with a corresponding gross margin increased to 63.3% of sales.

The 550 basis point increase in gross margin is mainly due to higher manufacturing capacity utilisation, a favourable geographical sales mix as well as a further shift towards retail sales.

Operating profit

Higher sales, a higher gross profit and good cost control have resulted in a six-month operating profit of EUR 1 949 million, up by 331% over the prior-year period, and increasing by 67% on a two-year basis. Operating margin reached 21.9%.

Overall, operating expenses were strictly controlled, with the year-on-year increase contained to 36%, well below the 63% sales increase. The increase in selling and distribution expenses, up by 31%, partially reflected the one-off rental concessions and government employment support received in the prior period. Depreciation was broadly in line with the prior-year period, reflecting with our capital allocation discipline. As a result, selling and distribution expenses decreased from 26% to 21% of Group sales. Given the improved trading environment, communication activity and client events resumed, driving communication expenses up by 104% compared to the prior-year period, accounting for 8% of Group sales. Fulfilment expenses increased by 39% to EUR 216 million, broadly in line with the increase in online retail sales across the Group. The increase in Administration costs was limited to 16% due to stringent cost management that more than offset a relatively stronger Swiss franc and continued technology and digital investments. Other operating expenses of EUR 107 million primarily reflected the impact of the amortisation of intangible assets recognised on acquisition, mainly related to Online Distributors, Buccellati and Delvaux.

Profit for the period

Profit for the period amounted to EUR 1 249 million. The EUR 1 090 million year-on-year increase reflected a strong operating profit, partly offset by higher net finance costs. Net finance costs increased from EUR 117 million in the comparative period to EUR 385 million, and largely reflect the non-cash fair value loss on the investment in the Farfetch convertible note of EUR 108 million, as well as the impact of foreign exchange rate fluctuations, which result in a loss of EUR 55 million. A further non-cash fair value loss of EUR 81 million, arising from the option held by the Group over its shares in Farfetch China, was also recorded during the period.

Earnings per share (1 'A' share/10 'B' shares) increased more than six-fold to EUR 2.145 on a diluted basis.

To comply with the South African practice of providing headline earnings per share ('HEPS') data, the relevant figure for headline earnings for the period ended 30 September 2021 was EUR 1 235 million (2020: EUR 154 million). Basic HEPS for the period was EUR 2.181 (2020: EUR 0.273), diluted HEPS for the period was EUR 2.150 (2020: EUR 0.272). Further details regarding earnings per share and HEPS, including an itemised reconciliation, may be found in note 10.3 of the Group's condensed consolidated interim financial statements.

Cash flow

At EUR 1 781 million, cash flow generated from operating activities increased by EUR 855 million compared to the prior-year period. This achievement reflected the substantial increase in operating profit along with prudent working capital management. The significant sales acceleration in the period under review led to a EUR 663 million increase in working capital mostly due to higher receivables and increased inventories to support the sales expansion.

At EUR 215 million, net investment in tangible fixed assets was 79% higher year-on-year. Investments were predominantly directed towards the Maisons' store network, including refurbishments and selective openings, as well as technology investments principally at the Online Distributors.

The 2021 dividend of CHF 2.00 per share (1 'A' share/10 'B' shares) was paid to shareholders and to South African Depository Receipt holders, net of withholding tax, in September. The overall dividend cash outflow in the period amounted to EUR 1 041 million.

In the period under review, the Group did not acquire any treasury shares to hedge executive stock options but instead opted to hedge through the repurchase of warrants. Proceeds from the exercise of stock options by executives and other activities related to the hedging programme amounted to a net cash inflow of EUR 83 million.

Balance sheet

At 30 September 2021, inventories of EUR 6 773 million were EUR 454 million higher than at 31 March 2021. Given the significant increase in sales, rotation improved to 16.0 months of cost of sales (September 2020: 19.2 months).

The Group's gross cash position at 30 September 2021 amounted to EUR 8 265 million while the Group's net cash position stood at EUR 3 153 million, a EUR 240 million decrease compared to the position at 31 March 2021. The Group's net cash position included highly liquid, highly rated money market funds, short-term bank deposits and short-duration bond funds, primarily denominated in Swiss francs, euros and US dollars.

Shareholders' equity represented 50% of total equity and liabilities compared to 51% at 31 March 2021.

Acquisition of Delvaux

On 30 June 2021, Richemont completed the acquisition of 100% of the share capital of DLX Holdings SA ('Delvaux') for a total cash consideration of EUR 178 million. Delvaux's results are consolidated within the Other business area with effect from 1 July 2021. During the three-month period to 30 September 2021, Delvaux contributed EUR 28 million of sales and posted a net loss of EUR 1 million. The acquisition has resulted in the recognition of EUR 60 million in provisional goodwill and EUR 113 million of intangible assets.

Review of operations

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