Annual Results FY11
19 May 2011 / 9am

Annual Results FY11 / 19 May 2011 / 9am

PRESENTATION : Mr Johann Rupert, Executive Chairman........................................................ 3 PRESENTATION : Mr Richard Lepeu, Deputy CEO .................................................................. 3 PRESENTATION : Mr Gary Saage, Group CFO .......................................................................... 6 SUMMARY : Mr Johann Rupert, Executive Chairman................................................................. 8 QUESTIONS AND ANSWERS................................................................................................... 10

Deputy CEO Now let’s come to the analysis of sales for this fiscal year. and acquisitions contributed to 14% each points on the sales growth. I think we’ve seen sales increase by 33% to €892m. Group sales were 19%. everyone. Now Asia-Pacific. respectively +10% and +5%. Sorry. Excluding the impact of NET-A-PORTER. the underlying trend in both markets is stronger. Then we’ll hand over to Richard and Gary. Net cash position improved by €707m to €2. The rest. PRESENTATION : Mr Richard Lepeu. the city of Hong Kong has become number one. up 36% reflecting an excellent performance across the region and successful openings . Sales to local clientele progressing in France. just under €1. On we go to the sales analysis. I wrote three pages. Growth twice that of other regions. Excluding high jewellery sales. Inflation in commodity prices bodes well for the future for these two markets. if we go to sales and profit by segment. Net cash improved.7% of sales. Executive Chairman Good morning. the operating margin would have been just under 21% of sales. Excluding the impact of NETA-PORTER. Operating profit increased by 63% to €1. albeit at a slower rate.355bn. Year on year. sales increased by 19% at constant rates. At constant exchange rates. The increase included a record level of cash flow from operations of €1. they write for me. which also included the destocking impact on wholesale sales. In terms of retail sales. which you’ll see at the end. I’ll do the introduction and highlights. when discounting the positive impact of the NET-A-PORTER acquisition. Where are we now? I thought so. First Europe. I changed some things last night in my section. which we’ll discuss again later on in more detail. Germany and Switzerland thanks to timely initiatives. In my section. that contributes to 38% of sales. Sales in Western Europe +21% at constant rate. They forgot to put the tabs in. Non-locals continue to account for more than 50% of sales in Europe. Sorry.589bn. you will see that trading conditions were more favourable than the comparative period.7bn. Sales were broadly in line with the forecast and additional profits stemmed from the higher reported sales improvements in the gross margin percentage and continued cost control. A positive exchange rate contributed. Middle East and Russia back to growth. (Laughter). 24% at constant exchange rate. maybe you have to do it. Right. ahead of Paris. The operating margins of the jewellery and watchmaker segments were 31% and 21% respectively. At least three percentage points above last year. and then I will summarise at the end. it’s close to being our largest region. The operating margin increased by 370 basis points to 19. With 37% of Group sales.696bn.Annual Results FY11 / 19 May 2011 / 9am PRESENTATION : Mr Johann Rupert. and excluding acquisitions. such as the re-launch of the Trinity and Love collections at Cartier.

Recent dramatic events are making outlook difficult to assess but prospects likely to be brighter than most anticipated. As a result. given the substantial reduction of the network. underlying an improvement in productivity for this network. +51% including NET-A-PORTER. Now our Specialist Watchmakers. We are confident in the US ability to generate new wealth. More when accounting for Japanese tourists. March sales. i. Let’s look at the performance per segment now. Cartier has proven its ability to increase its leadership amid extreme volatility thanks to a very reactive organisation. Despite a smaller distribution network.Annual Results FY11 / 19 May 2011 / 9am of 55 stores. increased purchases from South American visitors should be a further contributor to growth for that region. and from superior growth in Asia-Pacific and with watches. our third largest single market. They grew by 35%. giving a record contribution margin of 31%. The negative impact of the . dropped by 21% in Yen. +18% in Euro benefitting from a strong Yen. In April sales rose by 3% in Yen. Let’s turn to the Americas region. Finally. we expect an increase from AsiaPacific to Group sales and to profits in the coming years. 14% of Group sales. including internalisation of franchised stores in Mainland China. I would like to add that Richemont management and staff are very supportive and full of admiration for our Japanese colleagues and the Japanese people. 11%. Likewise. the United States of America. Contributing 11% of sales. so comparatives are flattering. They all enjoyed very strong growth rates in sales except for Baume & Mercier due to the announced ongoing restructuring. who are travelling again with the strong Yen. Cartier’s growth was again broad based in terms of geography and product line. +30% to be compared to -20% last year. Record sales and profits for both Cartier and Van Cleef & Arpels leading to a record profitability for the segment. Beyond its excellent performance. Sales up by 1% in Yen. Van Cleef & Arpels recorded a double-digit growth in sales in all product lines and regions.062bn. retail sales. reflecting a positive feel good factor among our clients. Strong retail up 25%. which represent 50% of Group sales. up 15%. and the way they are coping with these traumatic events. excluding NET-A-PORTER. or 24% without NET-A-PORTER. Wholesale did very well. sales to our directly operated stores and NET-A-PORTER. showing excellent momentum. however limited by shortages. the efficient distribution strategy will be pursued. The wholesale performance at +15% reflects a continuously strong replenishment from watch retailers. Given the economic momentum and demographic base of the region. which are included in our results. benefitting from impactful store openings. Longer term. after Hong Kong and the USA. Let’s start with the Jewellery Maisons.e. We have gained market share in a ‘shrinking pie’ by launching attractive products such as the Cartier rejuvenated Trinity Bijoux or the VCA Charms Mini watches. The very high end has fared particularly well. Operating contribution for the jewellery segment increased by 43% to €1. The performance was particularly remarkable in retail. Now Japan.

In manufacturing. Chloé. Watches. this segment also includes intra group subsidies. of €281m in March 2011. Optimisation of supply chain will increase our competitive advantage. Ongoing deployment of SAP within the distribution platforms for the Jewellery Maisons and Specialist Watchmakers. compared to our other businesses. against 1. The Fashion & Accessories business generated a €29m profit against an €8m profit last year. it had lower A&P ratio in mid to high-single digit. As a reminder. I’ll deal with NET-A-PORTER in the next slide. which has been growing the fastest. In Asia-Pacific.COM. Organisational highlights. distributing third parties’ products over the Internet.500 employees by the end of March 2012. The contribution margin further progressed to reach 16% of sales. This segment comprises the Fashion & Accessories Maisons. Remember that NET-A-PORTER. Alfred Dunhill. and with little cannibalisation among Maisons.700 now in China. to be completed in Europe end of 2013. As a consequence and thanks to a better utilisation of manufacturing capacity and a more efficient retail network. and the facilities involved in the manufacturing of watch components to third parties and to our Maisons. with further geographic expansion at NET-A-PORTER. We will have close to 2. higher precious materials prices and product returns on the cost of sales were partially absorbed by price increases and higher production levels. . We believe there is significant potential ahead. and the contribution margin to 21%. and improved productivity gains. has a specific business model. New ERP system at the Fashion & Accessories Maisons Headquarters is now operational and regional rollouts underway. First. where the re-launch sounds promising. NET-A-PORTER. maximum 50%. We are benefitting from a coherent portfolio. The business is running ahead of plan. systems and processes to adapt to a bigger and more volatile world. and excellent management of transition year at Baume & Mercier. We are constantly working on improving the efficiency of our business model. the operating contribution rose by 38%. we are upgrading our backbone. Finally. Lancel. It enjoys retailer gross margin. As a result. Montblanc Maison: all regions and channels enjoyed a double-digit growth rate in sales. leather goods and writing instruments showed very good growth in sales. the Other business area. and the launch of Mr Porter. On the other hand. we will be investing in people and infrastructure to meet the challenges ahead of us. Cartier is fully integrated and we are continuing the rollout with the Specialist Watchmakers starting with IWC this year. In production. and already significantly cash positive.COM and OUTNET. operating contribution rose to €379m.Annual Results FY11 / 19 May 2011 / 9am stronger Swiss Franc. which compensate for the incremental costs of components linked to integration. Azzédine Alaïa and Shanghai Tang were all profitable. with a positive EBITDA generation. with a special mention for the exceptional performance of Piaget. albeit still down. NET-A-PORTER enjoyed a superior growth in sales of +108%. in particular in China. focused on the premium segments of the watch industry. losses were reduced from €44m to €35m thanks to improving order flows. All Specialist Watchmakers saw an improvement in their results to reach an all-time high.

excluding NET-A-PORTER. or 13% at constant currency. Opening more mono-brand stores. If I can draw your attention to the bridge in the . However. It plans to maintain this number constant while opening new relationships in growth markets. and also watching on the web. Let’s turn to the operating expenses. higher production levels and capacity utilisation. IWC in Paris. we did restructure Baume & Mercier in the second half. Dubai and Qatar. a 210 basis point improvement on the previous year. This improvement reflects pricing power of our Maisons. we are continuing our integration plan and still subsidising the incremental cost of integration. Piaget in London and.4bn. Nearly all of the Maisons increased their gross margins. Let’s not forget as well. Fourth. For instance Baume & Mercier has halved the number of doors it services. Excluding NET-A-PORTER. to come. particularly in the second half of the year. Particular increases were noted in Jaeger-LeCoultre. which as Richard said. Good morning to everyone in the hall. where we opened 55 internal stores. Third. enjoys only a retail margin. In AsiaPacific. This performance is in spite of a strengthening Swiss Franc. either fully owned or franchised. We will nevertheless continue with our strategy of having ‘fewer partners. PRESENTATION : Mr Gary Saage. Gross profit rose by 38% to €4. we exercise greater control over distribution to enhance the shopping experience and grow productivity. First. we are enabling our Maisons to adapt. we opened a few flagship stores discriminately in main locations of established markets for our Specialist Watchmakers. overall margins increased to 64. we maintain a regional focus on growth markets where we see superior growth. we’ll start with gross profit. By so doing. This represents 63. which was well below the sales growth. and more partnership’. Group CFO Thank you. Our overall ratio has been reduced to 44% of sales from 46%. This had impacts both on the sales and margin line. where there is no historical watch wholesale network and where costs of stores are lower.7% of sales. Richard. we shall continue to work with franchised partners and multi-brand retailers. support such growth with further investments in production in terms of increased integration levels. the outperformance of retail versus wholesale channel. like.3% of sales. Gary. In new markets. linked to volume. These stores also act as an effective communication tool. Operating expenses grew by 29%. for the figures. it makes sense to favour the opening of internal stores. to improve our productivity and develop more upscale in-house movements. increased efficiency and increased capacity. Over to you. For the next three years. In the Middle East we also opened stores notably in Abu Dhabi. for example.Annual Results FY11 / 19 May 2011 / 9am Second. Finally. and provisioning of inventories. Alfred Dunhill and Lange & Söhne. even in new markets.

Our finished goods rose by 13%. We recorded a one-time accounting gain of €101m after our acquisition of NET-A-PORTER.7%. but on an underlying basis. We had some timing issues over year-end in terms of trade payments . This.079bn. 63. Let’s now focus on the cash flow. snapshot of the P&L. sales rose by 33%. As Richard and Johann said. We have contained underlying growth in expenses. The main elements of the working capital movements were increases in inventory. I think. and the leverage there is almost two to one.3% without NET-A-PORTER. because we had to re-value our initial 33% stake that happened in the first half. this has no effect on the equity position of the Group after consolidation.9%. which came true.7 a year ago. the normalised rate is about the same.7%. This represented 15. mostly in the Asia-Pacific region. related to our stock option plan. All other costs are the S&D and Admin. which rose by 7%.7% of sales. they rose by 3%. we did enjoy significant benefits on deferred tax assets that we had to record.Annual Results FY11 / 19 May 2011 / 9am upper right-hand corner of the slide. Communication costs. We enjoyed €232m improvement for the year. those costs rose by 8% on the expense base. We’re back to a more normalised level of 10% of sales. These increases obviously relate to new stores. Let’s move now to the operating profit overview. 16.7% or 64. As a result. despite the rebound in sales. It was 7% in the first half. We opened up 59 new stores for the year. if you exclude the impact of NET-A-PORTER. or 19% at constant currencies and excluding NET-A-PORTER. That impacted 9% on the expenses. our raw materials and work in process year on year rose by 44%. versus 7.355bn. We increased our communication spend. it was 8%. S&D costs. I will remind you at the half year.9% in the previous year. were up 38%. it was 3%. Our tax rate came in at 16. obviously a result of the higher operating profit. The integration of NETA-PORTER added 7% to the expense base. our operating margin arrived at 20. €150m of this relates to the mark-to-market losses on our cash balances. Let’s look at the items below the operating line. net profit for the year rose 80% to €1. 54% of the total Opex rose by 30%. This all leads to an operating profit rising by 63% to €1. Net finance costs amounted to €181m. Account receivables continue to be managed well and collected timely. In the first half of the year. At the half-year.5 months versus 18. We had much improved gross margin. what’s the bridge from year on year? We had a weaker Euro. We communicated a significant increase in the second half. We have enjoyed a faster inventory rotation this year. and a quite limited swing in the working capital usage. which equalled our record margins that we achieved in 2008. and the turn that they enjoy. excluding NET-A-PORTER and excluding constant currencies. passing the €1bn mark for the first time. as I mentioned. That added 6% on the total expense base. That was about 220 basis points. Our underlying growth of Selling & Distribution costs was 14% for the year. If you exclude that. We do continue to expect the tax rate to be around 18% in the medium-term. Administration costs were up 20%. As a reminder. Our overall operating margin was 19. is more a function of the desirability of our products in the wholesale channel. However. which we discussed at the halfyear. If you remember last year.

in a sustainable way. the Prince’s Building. The remaining 23% includes the new distribution platforms. For the next year. We increased investments in our retail network. Let’s go to the final operational element. ours. Yours. nearly half of our investments relate to our retail and point of sale networks. and higher tax payments. because . we believe. now that I have the right document. are lower than we would like.6bn at the end of the year. eight brands. as we suggested. the Singapore Marina Bay Sand project. so it must have been reformatted. and Panerai in Paris. free cash flow. The results that we’ve seen up till now have been as a result of concentrating on a few basic principles. We do expect an increase in the coming year in terms of finished goods inventories. Right. The most notable projects of the year. Let’s go through some details of the fixed asset spend. Most of this spend relates to tools. Let’s now take a look at our fixed asset investments. we’d like to grow the value of our company.9bn to €2. and we expanded our distribution platforms for NET-A-PORTER.2bn if you exclude the acquisition of NET-A-PORTER. and also opened up locations in Shanghai Hong Kong Plaza. Executive Chairman Let’s see. We continue to enjoy a solid balance sheet. Free cash flow for the year amounted to €915m. SUMMARY : Mr Johann Rupert. because the current levels. That had a positive impact. We didn’t really have any spend on space this year. and Macau the Wynn project. and we expect 7% to 8% of sales in FY13. this is still above our depreciation level of €213m for the year. our net cash and investments position rose from €1.1% of sales. on rue de la Paix. Obviously. reasonable retention of working capital. we anticipate fixed asset investments to approximate 6% to 7% of sales. That will be valued by the markets. Equity rose to 72% of the total from 70% last year. Piaget Bond Street in London. approximately €1.Annual Results FY11 / 19 May 2011 / 9am and accruals as well. Thank you. By category. Close to 30% of our spend were in our manufacturing capabilities. our manufacturing facilities. Cartier renovated its flagship in Hong Kong. After a dividend payment this year of €141m and our investment in NET-A-PORTER. What you’ve seen up till now is really the last year but I’d like to just step back to what the underlying goals and strategy will entail for the future. We did manage to grow and we did manage our inventories around the constraints that we had. where we have eight boutiques. Gross fixed assets were up 89% to 4. Let’s take a quick look at the balance sheet. associated with NETA-PORTER and ERP systems. A €285m gross spend. I actually wanted this to slide up. but I redid it and I sent them the slide. I’d like to now turn it over to Mr Johann Rupert for our summary. the shareholders. This obviously reflects the higher operating results.

If it’s not relevant to the consumer. The call that we’ve got to make. Why did I tell you all of that. Gary has referred to it. of which billions of Euros is represented in goodwill. obviously we’re not going to have any sales if our products don’t appeal to clients on a worldwide basis. In fact. Unless you’ve got pricing power. folks. It’s a matrix. We do not tie ourselves to payout ratios. super premium level. Next. and why we accentuated verticalisation and. Next. . You know what’s happened to the Swiss Franc and to the Euro. we’ll tend to spend more as a percentage of sales. We’ve also been offered a lot of the companies that have been sold. and that’s across the board. you’re also not going to be able to sell. obviously expenditure on boutiques. please. before a great number of our competitors. you need awareness as well. as in the past. I’ve already discussed the boutiques. We are again in the fortunate position that we cannot supply the demand. They don’t want to buy a Ferrari made in a Fiat factory. is to build goodwill and brand equity. in Dollar-related currencies. The key to desirability really lies in integrity of the brand. It’s no good if you have a hidden gem and nobody knows about it. We think we understand the matrix. And the brands need vitality. Obviously this depends upon the growth in free cash flow. Our overall preference. employing nearly 7. please. This goes right through to the HR policies throughout the different Maisons. and to consistently and continuously keep the quality of our boutiques at the premium. We’ll probably. We will make sure that we will have the necessary people or the necessary skills in the necessary manufacturing sites. We’ve said in the past that we’d like to keep it growing at about 15% over a medium to long term. because Gary has already referred to Capex. versus the Dollar. we have some 21 factories. We’ve been fortunate in going to what we call growth markets today at an early stage. Then our products must also be relevant. prior to other people having bought them. because we intend to keep our share of voice. Obviously. You’ll see that in bad times. I would say. and a lower payout ratio in good times. and that’s the Holy Grail. desirability. have a higher payout ratio in bad times. Now. That was our leitmotiv. Therefore we started verticalising our watch production. where a great number of our clients live. Don’t hold me to that. they won’t buy it. is do we pay somebody else billions of Euros.000 people in Switzerland. I would say in the late ‘90s and it accelerated with the acquisition of LMH. we need younger people. of the Maisons and the esteem. So today. which leads to pricing power. or do we take €1bn for instance and expand the boutiques of Cartier. please. We will not be tempted to pick low hanging fruit. You can have the best automobile in the world. We intend to further expand networks in growth areas. Next one.Annual Results FY11 / 19 May 2011 / 9am of the sustainable flow of dividends. So we need creativity. Clients are too intelligent. in order not to produce products that we’re not proud of. So we have to spend on communication. We try to build brand equity. rather than to buy it. for instance. Van Cleef and Piaget? We made the call that we will serve our shareholders better by doing the latter. We will further spend on our industrial capacity and on our research and development.

’ We’re very fortunate that the work that’s been done by our predecessors. with Kepler Capital Markets. . We have a strong balance sheet. wholesale 27%. I don’t think you would say ‘making jewellery’. ‘A plane with five engines. Thank you. then luckily we have Asian engines. the conclusion. this is April. Not in my wildest dreams did I ever think that we’d be making watches. Gary SAAGE: The hands are up and ready. Now. I’m just wondering if you’ve thought about maybe a buyback to return cash to shareholders. Even that won’t get rid of that huge cash pile you have. I wondered if you could just give us some more detail on that. Our cash. because most of our Maisons have universal appeal. A couple of questions for you. I would say by the people in the room. Jon Cox. let’s say the United States or Europe. it’s 35% up.’ ‘What are you talking about? Emerging market player?’ ‘Don’t you actually understand what I mean?’ We are. You're clearly ruling out any big M&A. or a special dividend? Thank you. firstly you can discount us ever using equity for acquisition. the heads of the Maisons. when we started here in 1988. I would say ‘creating jewellery’. parts of Europe. as I think it was Coco Chanel that said. And that an American fund manager would tell me: ‘You are our key emerging market player. Just wondering. We’ve got leadership in prestige jewellery and watches. ‘Money is money is money. Japan was single-digit. it’s led to. The dividends seemed relatively light. and Asia-Pacific and Europe up double-digits. and the clientele from the growth markets. we’ve done well. as Bernard Fornas says. is better deployed in supporting Maisons that we know. And they came to balance themselves. good morning. Second question for you. it’s only the pockets that change. Which is this broad exposure to local clientele. The first question. and that we see growing faster in target areas than the companies that are available for sale. or you know. in effect. appeared to halve. by our current colleagues. Thank you very much. At constant currencies. given the big net cash pile you had.’ If the one engine starts stuttering because of economic problems. QUESTIONS AND ANSWERS Jon Cox – Kepler Capital Markets Yes. Equity is always the most expensive way to pay. obviously you’ve talked about an expansion of Capex. just on the net cash pile you have. just on the profitability of the watch division in the second half of the year. We’ve got a unique portfolio of high quality Maisons. we feel. that we would be called an “emerging market player”. As said. We are ready to take some questions now. Retail was up 45%. I never thought. from traditional established markets. it still looks pretty disappointing compared to what you had in the first half of the year. even adding back the one-off restructuring. you’ve seen that by network.Annual Results FY11 / 19 May 2011 / 9am Now.

they gave the cash. So the companies gave back. I’ve known you for so many years. you’re English speaking. we will try to grow by 15% per year. in the best of days. Jon COX: Light. we all know that’s a total fallacy. Guess what happened? Various accounting standards changed. all hell breaks loose! We’ve had this policy since we went public. I’m afraid to some extent. So did the automobile companies. nearly 30% increase in dividends as. the margin usually. do they regret it when two years later. I’m afraid the saver will suffer. they put away billions of. I’m talking about the world economy. that we’re in excess today. I thought I’d explained it again and again and again and again that a payout ratio is different in good years to bad years. it’s as if we’re dancing on clouds. the shadow banks. it used to be Deutschmarks. If you look at share buybacks. it’s just morphed into a social obligation. To describe the 29%. I would say in the watch division generally. Boy. That’s one factor. let’s say. bailed them out. I’m not sure we’re out of the woods yet. they had to bring it onto the balance sheet. Been involved. because that’s when they had a lot of cash. I missed your word. The famous line: ‘I’ll give it back to you when you need it. profits got privatised and losses got socialised. You're clearly not as big a shareholder as I am. You see the VIX is universal optimism. We had a slight reduction relating to foreign exchange. I think it stood our shareholders in good stead. I’ve said it to the shareholders years ago. We said we were going to spend more in communication. Gary SAAGE: Hi Jon. not talking about Richemont. I was on an advisory board of automobile companies. just explain to them the watch division. how did you put it? Poor? Sorry. in the lean years. I thought I’d explained. On the Group. very glad when the board voted to increase it by 30%.’ Management folded. . When I started. Guess what happened? The tax payers. As for the first one. Give us the cash. and we’ll carry on doing that. That bill will have to be paid sometime. they can explain it to you. The debt has not disappeared. and there was some opiate in the air about leverage. and at the prices where the companies bought their shares back. normally. Same fact here guess what happened? The banks created hidden reserves. Everybody assumed leverage: the banks. Activists. and because of activist shareholders prodded on by market commentators. we were positive in the first half. they inevitably bought their shares back very close to the top of the market. Please. Johann RUPERT: Light. how are you doing? Factors that we tried to highlight in the first half. we. whether it be through inflation or default. In fact.Annual Results FY11 / 19 May 2011 / 9am Johann RUPERT: I’ll answer the second. it’s really because of lack of regulatory supervision. because I was very. and you look at the debt ceilings in the United States. but Jon. ‘You’ve got lazy balance sheets. basically I think came true. In fact. Ridiculously low interest rates prevailed. banks and automobile companies were allowed to have hidden reserves.’ Of course. Part of the problem. In the end. So. That payback has to come sometime. and we were negative in the second half. If you look at the debt restructuring in Europe. shareholders said. is lower in the second half.

Jon. remember that comparison basis is flattering. The second question is just regarding Montblanc. Remember that during the crisis. and we spent 12% in the second half. Gary SAAGE: If I would say. because unless you understand that we deliberately decided to clean it up. We cleaned our distribution. given that the American economy is not out of the woods yet. we took the stock back. Johann RUPERT: I think it’s a good question. Rey Wium – Renaissance Capital Just two questions. that business is back and the clients are already buying. What did I say at the half-year? B&M was profitable in the first half. and especially by the response of the dealers and the people who came to SIHH. for Baume & Mercier.Annual Results FY11 / 19 May 2011 / 9am We spent about 8% Group-wide in the first half. is it possible for the margins to get closer to the likes of your Jewellery and Watch Maisons over the longer term? Richard LEPEU: First. I just want to know. I think the Baume & Mercier management team. we didn’t try to push the sell-in. led by Alain Zimmermann. and we destroyed it. I guess you saw the interview with Mr Hayek. It was a conscious decision to reposition Baume & Mercier. to really be well treated. I’m just curious to hear your views about the sustainability of that. The feel good factor is completely back. and if I look at the product profile. What we are seeing for the time being. We reduced the doors by over 50%. We tried to communicate the Baume & Mercier situation. and we said we were going to invest. Gary and them had to record the effect charge. You drew up last year in America. We continue to reduce the network to have really first seeking to the shopping experience for the client. but that’s very true that especially for the higher end range. Jon. concerning April. Johann RUPERT: We. This was by design. not by accident. the recovery has been quite strong. So. I’m personally very excited about what I see. regarding the American . watches. My gut feeling is that. it’s an extremely clean situation. Your margins are about 16% now. you have leather in there. they did a great job of this. so we have a very clean situation. They got the products ready. I think that one’s going to be a quick turnaround. it was really a turnaround situation. but for the other brands as well. Of course. The first one just revolves around the Americas. Obviously we’ve seen some quite strong growth out of that market. I’m not an expert in predicting how the economy is going. we repositioned the whole of both. We’re pretty positive about it. up 30%. We took back all the product from the doors that we were going forward with. Unfortunately. not they. It would look funny if you didn’t understand. We are experiencing very good sales. starting April 1st. so that the losses of Roger Dubuis and B&M together would be equal last year. That implies a significant profit reduction in the second half.

since time immemorial. As we’ve said. in the process of building brand equity. I nearly had a heart attack when Jan Duplessis. Mainly Anglo-Saxon exuberance. It has already become a luxury Maison. but you’ve got to remember they’re in Hamburg. when we had a perfect storm. the dealers that-. I said. You look on television. less cost. In the year 2000. It will depend on the product mix. They’ve built a very good watch business. That leads to another side benefit. you pay high taxes and you work your backside off. That’s for Europe and for United States particularly. that we tried to do our best to sell our products in good conditions. but stagflation is a horrible thing. it affects your business. you see this wonderful lifestyle next to the Mediterranean. I think Gary and Richard can expand on that. I wouldn’t short the United States. You know. and much nicer distribution. I have absolutely no idea. a weak Euro. ‘You’re out of your mind. Johann RUPERT: The other thing is. As he sat down. and it will depend upon the geographic footprint. operate-. it’s Montblanc Maison. So all in all. not only selling pens. A strong Yen. ‘Jan. I guess my big fear is stagflation. we no longer call it the segment “Writing Instruments”. We will try and help them from the head office. It’s a transformation process. 2001. As for America or Europe. I said. but watches. That’s very clear. please. How are we going to keep on having. that’s been the case. I’m not sure. you live in Hamburg. Then of course.’ you remember the conversation? So I don’t know. There’s a remarkable correlation between some of our Maisons and various stock exchanges. you can understand that the sales mix is totally different. the fear factor is down. Have you got.’ You guys all took notes. I might add. Then they spend. to a very large extent. the savers in Northern Europe having to pay for the people with a higher quality of life in Southern Europe. Richard LEPEU: Montblanc. the doors that remain open obviously do better. obviously if you’re more wholesale than retail. They’re run autonomously. leather goods and jewellery. I am more pessimistic than I should be. for the first time. Less doors. the millennium fervour. and I would certainly not short their ingenuity and capacity to work themselves out of situations. He made a statement. Gary. it is actually what is expressed by …-. So it’s all in all a sane thing to do. So when. which is increase of productivity of the network. he thinks we can maintain 20%. which leads to cleaner inventory in their possession. So I couldn’t give you a view on the States. I am not sure. we’re very fortunate in that the sales are now more balanced. ‘We won’t. and they’re doing very well. People feel good. As for Montblanc. They’ve invested heavily into watches. anything? .’ I said. You guys are too young to remember the ‘70s. Johann RUPERT: Also Richard. and a negative correlation to the VIX. how long that is containable.Annual Results FY11 / 19 May 2011 / 9am distribution. considering the results.

I can’t talk and extrapolate April for too far. They are doing well. we did not have a huge high jewellery sale somewhere. Johann RUPERT: Look at the footprint. I was wondering what’s changed fundamentally at those businesses.Annual Results FY11 / 19 May 2011 / 9am Gary SAAGE: The bean counter from this end of the table will always say. a big swing in profits. Guys make money. or you're pretty happy with the current brand portfolio? Thirdly on vertical integration. Where do you think you get margins? They’ve done a very good job. one boutique in the one casino in Macau. but you can’t go. big ticket items. Each question was. how quickly could you get more independent in terms of movement production? Thank you. do you think Swatch Group’s intention to stop delivering movements to third parties are realistic threats. but no. but can we give you a target? Not really. it was against strong comparables already. on Fashion & Leather. I was wondering the reason behind it. Is that fair? . you’ve had a strong sales acceleration. It depends upon what the markets do. Thomas Chauvet – Citigroup Good morning. The first one on your April current trading. No. In the release. we can’t extrapolate it because we can’t predict what the general market conditions will be. It’s across the board. but we have no reason to think it’s not going to continue. for instance. And you're correct. On the other hand. we’re only three weeks into May. especially against a high comparative. you’ve achieved a big turnaround there. Sorry? No. Three questions. America. Piaget.’ right. ‘We want to increase our margins. they asked about 50 questions. I know. ‘How much are you going to sell next year?’ Do you remember the original questions? I think the first question. that’s a stated goal that we have. Gary SAAGE: Sure. would you be tempted to use some of your high cash pile to maybe strengthen your presence in Fashion & Leather. if there was any one-off in the high jewellery sales. ‘I want to increase margins. Johann RUPERT: They also want to increase their margins. (inaudible). When we started here with Sophie about ten years ago. Their watches today are superb. I’m talking the feel good markets. and they’re beginning to do well. Johann RUPERT: You guys really are starting to ask very good questions. They’re happy. and if so. there were no one-off sales. but we’re only three weeks into May. From a strategic point of view. So we don’t know whether the trend is going to continue. Secondly. We have no reason not to extrapolate it. they walk out. I was wondering if you could talk a bit about the outlook in coming months. you seemed to suggest that you expect this trend to continue in coming months.’ It takes a while. because of the factors that the chairman discussed.

Richard LEPEU: All divisions did well. have no capital investment. we need them. He has to sell movements to them. and this is the real problem. movements. When we do things and we think about things. and I’m glad you asked it. organic growth. and then they appear as ‘Swiss Made’. I’m not going to bore you with the stages of acquisition. as a strategic move. So here we have a situation where yes. because wholesale tends to lag. Johann RUPERT: Yes. with the right people in place and with the right strategy. oligopolistic. 100% Swiss casing. That’s because they bailed out the Swiss watch industry. It’s the law of unintended consequences. You know. and we’re all like that. Let me put it to you like that. Thomas CHAUVET: Organic growth or acquisitions? Johann RUPERT: No. but I have to give credit to people like Chris Colfer at Dunhill and others that have done. and I dare say at Lancel.the companies you want to buy. Excluding Japan. I’m not sure whether . you can’t buy. I don’t think the Swiss mechanical watch making industry would have been in the position that it is today. They have done very good jobs over the last few years. close to 7. quite often. . apart from obviously the gold and steel. The last question is actually a very good question. just slightly positive. which is euphoria. we’ve got 21 factories. there are sometimes. the Swatch Group did end up in. It’s not that easy when. go to Mr Hayek.000 people. I would say yes. with very little Swiss components in it. The next thing is looking for somebody to blame for buying the place. Johann RUPERT: Fashion & Accessories. our watches are 100% Swiss. My real problem. I wouldn’t say it’s a threat by the Swatch Group. I absolutely agree with the late Mr Hayek and with Nick’s irritation at being used as a supermarket. it’s difficult. Will we be tempted? I wouldn’t call it ‘tempted’. the retail sales. Johann RUPERT: Yes. we will deploy more capital. Lange & Söhne being the exception. brilliant young watchmakers who set up on their own. I would have been highly irritated if I’d been him. unintended consequences. maybe even monopolistic positions. The second question? Richard LEPEU: Fashion & Accessories. Which is always good. and here I’m not talking about the great creativity of some of the truly small entrepreneurial people. If it hadn’t been for Mr Hayek senior. Now you get people. I have said earlier on. They’ve been put in an invidious position. Our watches.Annual Results FY11 / 19 May 2011 / 9am Richard LEPEU: Mainly driven by retail. then disillusionment. I’m talking about people who come. well I’d like to say we brought a lady into run Marty Wikstrom. let’s say. The problem with lawmakers is that they-.

The watch industry is also an assembly business. Secondly. Are they going to have to put up their dials? Everybody’s going to have to make watches. I’m sorry I went on for longer than. If you look at we. they get higher J. If you go to BMW or Porsche or Volkswagen or Mercedes-Benz. if they all had to make their own spark plugs. they’re buying BMW. at a position where some people are going to say. We are all going to have to make our own hairsprings. because they have the best intentions. it’s going to put Swiss watchmaking. and I’m not going to mention names. you're going to have some people moving. the Volkswagen Porsche Group. Can you imagine if BMW. ‘Hang on. but we do dials for some of the most prominent independent opponents. We can do it. Power. the wider Fiat Group. that the pressure that’s being brought to bear on Mr Hayek to supply everyone. with a strong Swiss Franc already. It’ll cost us more. and you go to their factory. I’m not blaming the lawmakers. only about 40% of what you see is actually the company. Firstly I think is unfair that people come here with little capital investment. which I always try to put myself. intricate. We are all going to have to make certain components. We’ve got to watch. we can’t sell in Dollar zones with these prices. if we wish to keep jobs in Switzerland and keep the Swiss watchmaking industry competitive. and I think we will have to revisit this some time. You may not even know it. but all C-Class Mercedes-Benzes are made in South Africa. you know.Annual Results FY11 / 19 May 2011 / 9am people have worked out what’s going to happen to the costs if we all have to duplicate everything.’ Like what happened in the States. or their own tyres? The whole motorcar manufacturing business is an assembly business. We’re fortunate. Jaguar. They’re not necessarily buying ‘made in Germany’. Peugeot. The problem is. The BMW 3 Series. We’ve got to watch. ten years forward. Power in the United States. The problem is the law of unintended consequences. ratings. Is that satisfactory? . The consumers are buying Mercedes-Benz. you don’t go and buy Michelin or Continental or Pirelli. that all the capital we’ve invested and the jobs we’ve created here will not be at risk because of people actually moving and creating enough brand equity at the lower cost base geographic zone. but we can do it.D. if we’re all forced to do it. and the rest. If I’d been in his position. it could have cost implications for the Swiss watch industry. you know J. but I really think it is a danger that we should look at now. We’ve invested over very many years. Are they all going to be replicated? It’s the law of unintended consequences. The other 60% are OEMs that have actually moved there. because I’ve got to look five.D. and please here I am 100% Swiss. So you make a core part yourself. and he’s got to supply them. and you know what? It’s going to price some people out. These are small manufactures. Mercedes. I would have been upset.

‘Do you think I don’t know what you're doing? Holding back and pushing it across the line. they kind of-. regarding your selling and distribution costs. Would you say we should also assume this for the future that Cartier is below the Group average. you're mentioning the operating leverage. Johann RUPERT: If you could persuade the auditors. You know also. which was for the whole Group almost 2% coming from sales to EBIT growth. ‘I’ve reintroduced a KPI. At the last minute I said. or would you say that you have really increased even more your market shares? That’s my first question. Of course. at least by the analyst. Richard LEPEU: Trees don’t go up to the sky. okay? Gary SAAGE: Mr Chairman? Our auditor is sitting back. bearing in mind your shop opening plans for the current year? Thirdly. You see April sales driven by retail. it’s one of the explanations. what would you say would be a good guess estimate for the current financial year. and continuing strong momentum in Asia-Pacific. and always same factor. it emphasises improved by for example the Baume & Mercier situation. but okay. Johann RUPERT: Once they’ve reached the KPIs. and of course a very good start that the underlying trend is good. because the situation where Baume & Mercier has launched its new products. which were up 30% last year. recovery in Europe and in the US as far as the business is concerned.’ Richard LEPEU: That’s a story. which is March sales. We tried to contain our guys to not to limit the sales in March. three or four years ago. Okay.’ I sent it through the Group.’ I said. there was one particular culprit that I’d watched for a while. so we have a positive impact of Baume & Mercier. but it’s unfair. the audit profession to allow us to create hidden reserves. But they play some KPIs sometimes. it’s obvious that the operating leverage is less. Secondly. what do you think was really behind it? Was it really a correction of the market. . and they keep some goods for every account. or was there anything special behind it? Thank you. Please don’t deliver. When you are cruising at more than 30%. then I can put Sophie on a holiday. once again it was a very good start to the year. ‘Why do you mind so much?’ ‘No. It’s not enough to explain that. To come back to April. probably a little bit higher than expected.5%.Annual Results FY11 / 19 May 2011 / 9am Patrik Schwendimann – Zürcher Kantonalbank Again on your outstanding April sales. three years ago. but for Cartier it was roughly 1. it means that’s very good. The squealing we heard from two of these characters. so that we are closing our year end at the end of March. her whole department away and I’ll give you the figures for the next three years.

I would project the same type of sales growth on the S&D. by making the right decisions in time. but I wouldn’t bet on it all the time. If you go to Hong Kong. here it’s not only that. Gary SAAGE: On the expense side. but in the end-. I promise if I had an idea. It’s still big where you didn’t have-. I would be in the market. which is we have no reason to believe that it cannot continue. ever. it’s pricey. what do you want to grow by? 20% is fine. we mean it. platinum. I’ll give you an idea. I cannot say to you it will either. we discussed with our colleagues not to go for bling-bling. Internally. As always. the rest. probably about 7%. we look at the high point. ten-year trends. we were ready and you could see a move towards more discretion. Some things come quicker than you would expect. we said we would increase by about 5%. So I wouldn’t focus too much. I saw him. but to go for more discreet watches. you go to prime real estate. a good ratio to use is whatever you think your sales growth is going to be. We can outperform. So when the crisis hit. We will open up. the rest hidden reserves. I’m trying to say what I said to Jon. and when we say it.’ Half the conversation is going to try to be to get us to say what does 35% mean? We have no idea. Square footage-wise. Even though we opened up 59 stores. and I actually told my son. We are investing in stores next year. do better than the general economy. Johann RUPERT: Plus. It’s as if there’s never been a recession. but that’s one. and that’s what we look at. 20% is fine. I know you’ve got to try and predict our profits. we actually compare ourselves to 2008. You should tell your clients and the market that you can’t. I know you’ve got tough jobs. Some things go a little slower than you would expect. Last year. I think that’s a fairer assessment internally than to compare. because we’ve got to look at three. Then I’ll say. To go for more discreet. On sales growth of 19%. It’s now getting-. hidden reserves. you go to New York. five-year trends. ‘Okay. As I said at half-year.Annual Results FY11 / 19 May 2011 / 9am Johann RUPERT: I know. probably the store count will be higher next year. The lady there. On the other hand. the prices are going crazy. yes. ‘You watch today. because we have no idea. We ended up at 7%. there’s timing. That’s your job. in prime retail locations. Two or three years ago when we saw that things were going to get bad. (Laughter). I would be playing the VIX and I’d be playing the various indices. we opened up 59 stores. flat watches. . So it’s very. From a feel good factor to a feel guilty factor. yes.’ I have no idea. that would be white gold. our underlying sales growth was 14% for the year. that’s what you get paid for. constant currency. Because it’s all dependent upon the general economy. very hard to extrapolate. The comparable is now in April. So you can actually.

yes we will have to take a price increase. It may be sooner than they broadcast it to the market. Which basically means you're giving the profit away. manufacturing of cases.’ The retailer tells the client.’ Now of course. so there’s a development cost that you have to capitalise. machinery to improve as fast as possible the productivity and the capacity. Could you help us understand what level of capacity increase you expect from these investments in terms of volume? Thirdly. if you could run us through your store opening plans for the next financial year in terms of geographies. Thank you. I’m surprised that in the luxury goods industry. We don’t know. While increased space will take some more time. The moment people know there’s a price increase. Donzé Baume. because we are still facing and coping with high demand in jewellery. Johann RUPERT: Yes. we’ll be more or less doubling the capacity of space for our Group. it may be a bit later. trade loading takes place.’ So I basically put people talking about price increases into the freezer. We’ve got toolings. we do a price increase. Rothmans. The biggest part will happen next year. because all you're doing is you're giving your profits away. They buy in like crazy.Annual Results FY11 / 19 May 2011 / 9am Szilvia Bor – Goldman Sachs Good morning. the person who’s in charge of that sales region whispers to somebody else. We do have pricing power. In Capex. Firstly. for example. ‘You’d better buy now because we have a price increase next month. could you give us some colour on what level of price increases did you manage to put through in the second half of the year. and whether these price increases were implemented across the whole price architecture? Secondly. ‘You’d better buy now because we’re going to have a price increase next month. Johann RUPERT: First one was pricing. I would say this fiscal it will be more focused on R&D. of course. please. price increases are widely discussed at various levels: ‘On such and such a date. Three questions for me. Especially Bijoux jewellery and medium jewellery. I hit the roof twice in the last week when they discussed pricing. . When? I can’t tell you. you’ve got R&D. gentlemen. The second question was? Richard LEPEU: The breakdown of Capex for the industry. and if the currencies stay as they are. because I come from an environment where three people decided when there’d be a price increase. that would be great. machines and we’ve got also. We do have the pricing power. We have other plans for the next year to increase the space as well. Richard LEPEU: So they mainly focus on watches and jewellery. an increase of space. you mentioned that you are going to spend a significant proportion of Capex on manufacturing capacity. I’ve said to them they’ve got to stop that. even though this year.

‘Or South Americans. more or less a similar strategy next year than the past year. ethnic Chinese have increased dramatically as total clients. Taiwan. another question? Matthias Eifert – MainFirst I would like to know how much sales do you know are generated in Greater China. Provided that all the money laundering rules are observed. in a sense. East coast. Whether they buy in China. very. how can I put it? I can. it’s not for Richard.Annual Results FY11 / 19 May 2011 / 9am Gary SAAGE: On the boutique question. Richard LEPEU: First city. for his wife. where there are high traffic locations. Johann RUPERT: You know. Not his uncle.’ So. It falls in that year. (laughter).’ His words. or are we in the middle stage. Quite frankly. for his daughter. for his uncle. but it’s a little bit like an old style Swiss bank.’ That’s clear. very important. how much of total sales is now dependent on the Chinese consumer? Then I would like to know from Mr Rupert’s opinion about where do we stand now with the Chinese clientele? Have we just started to scratch the surface. ‘What is the American market? Watches sold in America to Americans? If that’s the case. where he spoke about the American market. Yes. the whole thing can be skewed by the negotiation or renegotiation of one very large temple. It was interesting seeing Nick Hayek’s interview in WatchTime. we don’t know whether the guy buys for himself. price to pay. As such. It’s overtaken Paris. which we’re very tight on. it’s not that big. including also Macau? Then to the best of your knowledge. the Chinese have become very important to us and to the whole of the luxury world. or is it already very developed in your view? Johann RUPERT: We prefer not to-. Richard LEPEU: May I add that you often used to say. if I want to. but you know. find out exactly who’s bought what and where. He said. you’ll notice that the majority of jewellery companies and others send invoices to offices. ‘We can do everything but fight demographics. which to me I would include obviously Hong Kong. or travellers from Asia onto the West coast. first retail city. but we continue to see opportunities in the West. Mostly the growth markets. We don’t know who buys. not to homes. ethnic Chinese. for his mistress. we can observe that in total. yes. Macau. Sorry. Johann RUPERT: First retail city. Gary or me to know who buys. I think Hong Kong is today our second largest city. Singapore. . we have a general observation that Chinese.

’ Firstly. the increases in productivity from the ‘former Soviet Union’. where we and all of our opponents have not yet touched the surface. they could have an ageing problem. with the help of . that’s where we’re talking about the brand equity and the previous question from the lady there about pricing power. You start selling things that are easy to sell. I would say that we can comfortably rely on more clients in-. I met with two people. They said. They wouldn’t look at you if you drove a BMW. if you extrapolate twenty years forward. One is probably the leader in media worldwide. that are getting wealthier. an Alfa Romeo in the late ‘60s was the dream. It’s a very bold person. China. dare I say. Secondly. I’m going to step on toes now. I’m 81. Maurizio Gucci was never given enough credit for cleaning Gucci up. They use the same steel. People that have been liberated in the last fifteen. Yet in 40 years’ time. I hear of second and third tier cities that have got the demographics and spending power to open a boutique that I’d never heard of in my life. to use the word ‘emerging’ market is pejorative. then they work hard. Really. We forget that it’s already twenty years ago from the fall of the wall. Unfortunately. in a number of the countries still. but we’ve got to start thinking now. You would have retired. leather. People that have studied and that are working. a Giulia Super. It felt like yesterday when I saw the wall. then they study. they generally tend to take a bigger share of the economic pile than people who do science-. we’re going to have to look at India. then you start picking low hanging fruit.’ When I grew up. This was when I was involved in Mercedes-Benz and Chrysler. that’s going to carry on to produce high productivity. There are parts of Southeast Asia where we’re not represented. The task is to stay there. there are improvements in productivity plus. To me. ‘My task really is to make sure. but we’ve got to think about it now. a political science and sit and debate about the meaning of life for 30 years. we are in their aspirational world. a growth in the population. find it. Has China come to its end? I would not say so. they use the same glass. A few years ago. what are you willing to pay more for? If you use the same steel and leather. we can fight everything. If you look at the demographics of India. and the other one the founder of the modern Singapore. He did. it is better than.Annual Results FY11 / 19 May 2011 / 9am Johann RUPERT: Yes. we’ve barely scratched the surface of. If you take the rule of. twenty years’ time. Talking after we’ve retired. but I said it to my son. I’m not talking about ethics. In countries that are beginning to get the fruits of their studies and labours. In the end. ‘You’ve got to remember two things. plastic. When people work hard. composites. Have we plateaued? Every day. Fortunately. sorry. when I was rather despondent. and the Alfa has gone a long way back. That’s why we will see Chinese being more important than the Japanese. I said. on separate occasions. I couldn’t afford a Ferrari or a car. because in fifteen. whether you call it Chindia or whether you call it the BRIC countries. it’s pretty sad. A BMW you couldn’t pick a girl up in. If you want to get fired in this Group. because of the demography. the ageing societies will find that places like Vietnam. first (inaudible). BMW is aspirational. It’s wrong. which in ten years’ time will wreck the brand. Then I’ve got to Google the place. twenty years. If you look at the vast economic changes.

Come on now. because you're going to make a hell of a lot of money two years before your retirement. or should I say in the new successes of the world. can say. I’d like to be more precise in my answer. us. You're talking about increasing your selling and distribution expenses in line with sales.Annual Results FY11 / 19 May 2011 / 9am Dawn Mello. I know there’s communication et cetera. That’s where we try to create the products with the integrity that we can sell in the emerging. So when I listen to poor Gary and poor Richard who have the difficult task-. Are there any more questions? Yes. all the communication. Then just come back to the jewellery. but who have the difficult task of trying to explain margins to you. ‘Look. It’s where all the products. There’s no co-mingling. That’s my first question. I’ve had a long week. Jon.’ Then I’m stuck with a thing that I can’t sell. they don’t buy different things all over the world. we should expect the margins to come back to where they were in H1 last year. unbelievable jobs. ‘Aspetta. I know you mentioned the leverage. but again H2. or Paris or London. You can see maybe a little bit of gross margin improvement this year.’ The youngsters can say to the current management. If you have a highly successful 28-year-old lady. I’m just trying to sort of build a picture of where we should be thinking about the margin for this year. this is psychographic. Their call starts at the product committee. the jewellery margin was off five points. I’m starting to put everything together. and it’s Maison by Maison. okay? Jon Cox – Kepler Capital Markets I just have a couple of questions. by the way. they’ve done great. who ask these bloody probing questions. If you look at NET-A-PORTER. Go and have a look in that file. The fascinating thing is that this is no longer geographic. it was tried in 1993. it’s transversal. I hate to admit this. before Tom Ford and others got there. Johann RUPERT: Anton. but that’s really where the future growth is determined. Today. it’s nottheir call. ‘There are three or four guys. when some youngster comes up with an idea. you’ll see what happened. you should be able to withstand regional mishaps in terms of the economy. The previous people there. where we have executives that have retired. they cleaned it up. whether she is in Shanghai or San Francisco or New York. the current executives and the future executives. did I win my bet or not? I said to my son. If you're in the sweet spot where you’ve managed to remain true to your DNA. They tightened it up. they made it aspirational. It’s not geographically confined. So the watch Baume & Mercier was a H2 event. So there’s a break on the one hand for picking low hanging fruit. but I’m afraid that’s the reality. it’s psychographic. Then . and where you are aspirational. You're not going to do that. Jon. who are very smart. and as we move forward into April. Give me a break. I’m wondering what you think will happen as we go forward. Gucci had lost it by picking low hanging fruit. you take top of the mind awareness. but that also seems a bit of a decline in the H2.

okay. I’m happy that it’s hit the sweet spot.Annual Results FY11 / 19 May 2011 / 9am we’ve got to shadow box and fence. but believe me. I said to Gary. because we produced the wrong stuff. or not. I said. The only input I had was there was a friend of mine at home that-. Johann RUPERT: Sorry. Life is about moments. third and fourth wives are not buying high jewellery this month-. We’re confident that’s on the right track. The products we saw last Friday are going to hit the sweet spot. three years. and duck and dive. we’re in-. so I think we’re hopefully finished with all of that. (Laughter). Again. South Africans and the big Schalk Burger. I was with somebody recently who proudly told me that he buys $50m worth of Cartier every year. Gary SAAGE: Obviously the huge charge for B&M will not reoccur in the first half. it’s not for me to know. We did clean it up. I . I don’t know. So it’s a disaster when you walk in and you see this launch. You can pick it up. it’s not the retailer’s fault or the consumer’s fault. Don’t say this year the points are going to move by two basis points. We produce the wrong stuff. because otherwise it’s part of brand equity. So you have high ticket items that jump across lines that can tend on a short-term basis to distort numbers. yes. we cleaned the market up. I don’t know. and then when it didn’t sell. that’s-. So we took a bunch of this old stock. They have to understand why. this product is faked. Please don’t think we’re incompetent by saying that.’ That had an impact. life is about moments. I’m not going to go into the details. he says. just. ‘Let’s be blunt. I’m responsible for B&M. but you should not look at a quarter. Gary SAAGE: Then Jon. because we’ve got a number of search tools.’ We don’t know. I made the call. it’s going to land up in the grey market. I’m serious. I genuinely don’t know. If you go and you find watches that retailers can’t sell on the grey market. Always when we sit and we’ve taken some crayfish out and we drink a glass of wine. ‘What would you do if you had to make the calls?’ So he came up with three ideas. we actually are in the backend of servers of some of the biggest search engine companies in the world. so there’s a technical-. That means there’s no market for it. it’s hit the sweet spot. I don’t know. So we actually find the grey marketeers and the contrabbandieri and the fakes. So we can see whether there’s proper sell through or not. If three or four big players decide that their wives. We now have far greater visibility. How long it’s going to take.’ I asked George Kern. As much as it hurts me. we did deals to get it into the trade. you know. I asked George Kern. ‘We could have sold it on a website somewhere. Johann RUPERT: Let me. It’s when nobody wants to fake it because it’s so bad. the buy-back. ‘Folks. there’s something worse than being copied and being faked. and second. If we don’t buy it back. So I said. but there’s something worse. ‘Take the stuff back and destroy it. Dr Mostert and his team-.’ That’s the only contribution I made to the campaign. It’s not being copied and not being faked. Now if he decides to buy. It’s the honest truth.

’ In the end you're basically not doing your consumers a service that actually are buying the product. I think you have to take a view. I think. thank you everyone for coming. you’ve heard us talk about sales. Is that-.5 for this year. Gary SAAGE: Okay. So I guess the good news that Gary can say. *** End of presentation and Q&A session *** . we cleaned the market. Currencies are an issue at the moment. Gary SAAGE: That’s accurate. Johann RUPERT: You folks are very influential. If you have a view on that. On the communication side. We think 10. we took a charge.Annual Results FY11 / 19 May 2011 / 9am suppose. Gary SAAGE: Appreciate it. Can’t you get a bit of quantitative easing here in Switzerland? Can’t you get the Swiss Franc a little bit exposed to this concept of quantitative easing? If you work out just the Swiss (inaudible) and the effects. Then Jon. we tend to look at that on an annual basis. Johann RUPERT: Thanks a lot. sales.