Hermes boosts dividend as luxury industry thrives

A couple walk with Hermes shopping bags as they leave a store in Paris. The luxury goods maker has reported a bumper year, buoyed by demand from China. (REUTERS)
Updated 22 March 2018
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Hermes boosts dividend as luxury industry thrives

PARIS: French luxury goods maker Hermes, known for $10,000-plus leather handbags such as the Birkin, rewarded shareholders on Wednesday with a higher dividend and a one-off payout after a bumper year for sales and profits.
The company, originally a saddle and harness maker founded in 1837, joined luxury rivals such as Louis Vuitton-owner LVMH and Gucci-parent Kering in benefiting from a rebound in demand from Asian shoppers in 2017.
Hermes shares rose 3.2 percent in early trade after the firm proposed a dividend of €4.10 ($5.03) per share, up 9 percent on a year earlier, and said it also planned a special dividend of €5 per share.
It last made a one-off payout in 2015.
Hermes also reported a record operating margin for last year, reaching 34.6 percent of sales and helped by high productivity at its workshops and the positive impact of currency hedges in the first half of 2017.
“We had an exceptional year in 2017,” CEO Axel Dumas told a briefing with analysts.
Dumas said that hedging against foreign exchange swings would have a slightly negative effect on margins this year, adding these would likely “normalize.” European-based luxury goods firms are grappling with the effects of a stronger euro.
Stocks of Hermes products ran very low at the end of 2017 as items sold out, a situation that was also atypical and which boosted margins, the company said, without detailing a forecast for 2018.
Hermes’ operating margin was 32.6 percent in 2016.
Sales trends in early 2018 had continued the positive momentum of last year, Dumas added.
Hermes, which has long waiting lists for some of its most coveted handbags, is expanding production to keep up with demand, and plans two more leather goods workshops by 2020 in France.
Like peers, it is looking to boost online sales, though it declined to detail how much revenue came from the web. Hermes is rolling out a revamped version of its website, due shortly in Europe after launching in the US and Canada.
By the end of the year, it also plans to set up its first e-commerce site in China, the biggest market for luxury players. Italy’s Gucci and France’s Louis Vuitton launched web sales platforms in China last year.
Hermes’ 2017 operating income was €1.92 billion ($2.36 billion), up 13 percent from a year earlier and in line with analyst forecasts, while net profit rose 11 percent to €1.22 billion.


Porsche first German carmaker to abandon diesel engines

Updated 19 min 19 sec ago
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Porsche first German carmaker to abandon diesel engines

  • The company would concentrate on its core strength, ‘powerful petrol, hybrid and, from 2019, purely electric vehicles’
  • But Porsche promised it would keep servicing diesel models on the road now

BERLIN: Sports car maker Porsche said Sunday it would become the first German auto giant to abandon the diesel engine, reacting to parent company Volkswagen’s emissions cheating scandal and resulting urban driving bans.
“There won’t be any Porsche diesels in the future,” CEO Oliver Blume told the newspaper Bild am Sonntag.
Instead, the company would concentrate on what he called its core strength, “powerful petrol, hybrid and, from 2019, purely electric vehicles.”
The Porsche chief conceded the step was a result of the three-year-old “dieselgate” scandal at auto giant Volkswagen, the group to which the luxury sports car brand belongs.
VW in 2015 admitted to US regulators to having installed so-called “defeat devices” in 11 million cars worldwide to dupe emissions tests.
It has so far paid out more than €27 billion in fines, vehicle buybacks, recalls and legal costs and remains mired in legal woes at home and abroad.
Diesel car sales have dropped sharply as several German cities have banned them to bring down air pollution — a trend that Chancellor Angela Merkel was due to discuss with car company chiefs in Berlin later Sunday.
Stuttgart-based Porsche in February stopped taking orders for diesel models, which it had sold for nearly a decade.
Blume said Porsche had “never developed and produced diesel engines,” having used Audi motors, yet the image of the brand had suffered.
“The diesel crisis has caused us a lot of trouble,” he said, months after Germany’s Federal Transport Authority ordered the recall of nearly 60,000 Porsche SUVs in Europe.
Blume promised that the company would keep servicing diesel models on the road now.
According to the paper, Porsche also faces claims of having manipulated engines to produce a more powerful sound with a technique that was deactivated during testing.
Blume acknowledged that German regulators had found irregularities in the 8-cylinder Cayenne EU5, affecting some 13,500 units.
Merkel, Transport Minister Andreas Scheuer and heads of German auto companies were due to meet in Berlin later Sunday to discuss steps to avoid more city driving bans.
The German government hopes to see one million fully electric and hybrid vehicles on the road by 2022, up from fewer than 100,000 at the start of this year.