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Executives

Chris Hollis – Director, Financial Communications

Jean-Jacques Guiony – CFO

Analysts

Luca Solca – Exane BNP

Mario Ortelli – Sanford C. Bernstein & Co.

Thomas Chauvet – Citigroup

Warwick Okines – Deutsche Bank

Catherine Rolland – Kepler Cheuvreux

Antoine Belge – HSBC

Julian Easthope – Barclays

John Guy – Berenberg

Matthias Eifert – MainFirst

LVMH Moet Hennessy Louis Vuitton SA (OTCPK:LVMHF) Q3 2013 Earnings Call October 16, 2013 3:30 AM ET

Operator

Welcome to the LVMH Third Quarter Revenue Conference Call. I hand over to Mr. Chris Hollis. Sir, please go ahead.

Chris Hollis

Thank you. Hello I am Chris Hollis, Director of Financial Communications at LVMH and with me is Jean-Jacques Guiony, our Chief Financial Officer. Thank you for joining us. We have some brief remarks to make about LVMH’s revenue for the first nine months of 2013. As in previous periods these revenue figures are reported in accordance with IFRS. After these remarks Jean-Jacques and I will be happy to take your questions.

Before I begin I must remind you that certain information to be discussed on today’s call is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ materially. For these I refer you to the Safe Harbor Statement included in our press release.

Turning now to our third quarter nine months revenue announcement, hopefully you’ve all had the chance to read our release which was issued yesterday evening in both French and English. As always the release is available on LVMH’s website, www.lvmh.com, as are the slides that we’re using today to guide today’s conversations.

So turning to slide two of the slides. Performance in the third quarter continued the trend we saw in the first half of 2013, delivering 8% organic revenue growth, up from 6% in the year-ago period. The growth initiatives third quarter were significantly offset by a large negative currency impact versus previous quarters.

In the first nine months of the year we generated 8% organic revenue growth. Overall we maintained positive momentum in U.S. and Asia and demonstrated resilience in Europe. Again it’s an ongoing challenging economic backdrop.

At the business level we continue to enhance the high quality of our leather goods and distribution strategy at Louis Vuitton, on investing in the continued development of our other fashion brands.

The [solid] performance of the Wines & Spirits and Selective Retailing businesses, combined with the improving trends we saw in Watches & Jewelry drove the Group’s overall performance in the first nine months of the year.

Turning to the evolution of the Group’s revenue performance year-to-date as I said we generated organic revenue growth of 8% in the nine month period as to compared to 10% organic revenue growth in the prior year period.

As you can see from the chart on page, chart number, slide 3 the currency impact has had an increasingly negative impact on reported earnings every quarter this year. The weakness of the yen and particularly in the dollar compared to last year resulted in a negative 6% impact in the third quarter and a 4% negative impact of currency for the nine months.

Turning to the revenue by region in euros our revenue continues to both, to be diversified and well balanced across geographies. Asia, excluding Japan now [in rest] of the 31% of revenue as measured in euros continued and continues to be represent the largest region, followed by Europe at 28% in which France represents 11%, U.S. including Hawaii at 23% and Japan at 7%. Other markets accounted for 11% of revenue upside from last year.

As you can see on slide five, organic revenue growth for the first nine months was up across all regions compared to the same period last year. Revenue rose 13% in Asia, 10% in Japan, followed by 9% increase in the U.S. excluding Hawaii and revenue from Europe grew 2% demonstrating the Group’s strong execution in the context of persistent economic weakness in the region.

Let’s turn to revenue by business groups. I would say beginning with Wines & Spirits on slide six, which generated a solid performance; organic revenue was up 7% for the nine month period driven by growth in Asia, the U,S and particularly Japan. This comes on top of 12% organic revenue growth in the same period of last year.

Total revenue in this group increased to €2.84 billion from €2.76 billion in the same period last year. On a reported basis this reflects a 3% gain and includes a good organic sales growth that I previously mentioned at 7%, offset by a negative 4% currency impact.

For the third quarter revenue rose to €1.03 billion from €1.01 billion in the third quarter of last year. This reflects a 9% increase in organic revenue and a 7% negative currency impact.

Looking at business groups in more detail for the nine months Champagne and Wines was slightly down at €1.104 billion in the nine month period. This represented 5% organic revenue growth and a 5% negative currency impact. Similarly revenue for the third quarter rose to €455 million. This reflected a 9% organic revenue increase. This is in Champagne and Wines and an 8% negative currency impact in the quarter.

Cognac & Spirits showed a 8% organic revenue increase for the nine month period and a negative 3% currency impact resulting in a rise to €1.65 billion. And for the third quarter Cognac and Spirits generated 9% organic revenue growth with a 5% negative currency impact resulting in €577 million in reported revenues.

Moving to slide seven Champagne volumes rose 2% in the nine months reflecting continued progress in Asia and resilience I discussed in Europe in an uncertain economic environment. There was also a good performance of the [spirits] and wines, the great wines.

For Cognac and Spirits, Hennessy volumes were up 4% and Glenmorangie, Belvedere and Wenjun also showed solid volume growth in the nine months period. The strong momentum in the US continued and the group benefited from the positive impact of price increases. While Asia as a region was up over the period the group has seen pressure on consumer demand in China and (inaudible) tested all as a result of the reduced bank quitting activity.

Now looking at fashion and leather goods. Slide eight business listed this was up 4% on an organic basis offset by a 5% negative currency impact for the first nine months of 2013. As a result, reported revenues were slightly down to €7.14 billion from €7.18 billion in the same period last year.

In the third quarter revenues was €2.4 billion reflecting a 3% increase in organic revenue offset by a 7% negative currency impact. To give you some highlights of the quarter in this business group, Louis Vuitton continued to focus on product quality and distribution excellence. The brands leather products performed particularly well, both the new Capucine and the [W] bag contributed positively to performance and ready-to-wear made good progress during the period.

Louis Vuitton continued the selective expansion of its own network and [Matsui Honda] store in Japan in mid-September. In terms of the other fashion and leather goods brands, Céline delivered robust growth primarily driven by its leather goods and shoe collection. Givenchy, Kenzo and Berluti also showed good momentum in the nine months period and Fendi opened major boutiques in Paris and Milan in the first quarter.

The group also made some exciting new announcements in the quarter, firstly the announced acquisition of Loro Piana in which we expect to receive regulatory approval by the end of the year. And more recently, we’ve announced separate new partnerships with Young creators Nicholas Kirkwood and Jonathan Anderson, the latter is now the new creative director at Louis Vuitton.

Turning to perfumes and cosmetics, slide 10, the revenue increased to €2.68 billion from €2.62 billion in the nine months period of last year; excluding a 3% negative currency affect this represented a 5% increase in organic revenue. For the third quarter revenue in this business group was €879 million with organic revenue up 4% over the year ago period and a 6% negative currency impact.

Starting with the Parfums Christian Dior the iconic J’Adore fragrance with its world of [Tassa] and Dior Homme with Robert Pattinson as its new ambassador where positive performance contributed, additionally the iconic Rouge Dio lipstick experienced strong growth in the quarter.

Guerlain had a mixed quarter with a successful re-launch of its iconic perfume Shalimar offsetting touch comparison one year after the major launch of La Petite Robe Noire, Kenzo saw a promising start for its new Flower in the Air Fragrance.

BeneFit continued it store expansion including the introduction of its new “Glam Up & Away" beauty kiosks in major US airports and fresh skin care products made good progress in Asia particularly among China consumers. Finally during the quarter a new and larger research and development center was opened in Saint Jean de Braye in France for the LVMH Perfumes and cosmetic brands.

Now turning to our Watches & Jewelry business, revenue in this group was €1.99 billion compared to €0.3 billion in the first nine months of the last year, including 3% organic revenue growth but a negative 5% currency impact. For the third quarter revenue was €677 million representing 6% organic revenue growth over the year ago period and a negative 8% currency impact. This business group saw a sustained growth across its retail stores, while there was gradual reduction in wholesale reflecting more selective distribution and some portion from buyers.

At the brand level, Bulgari successfully launched its new high end jewelry diva collection and made progress on its ongoing strategy to enhance quality of its distribution network and TAG Heuer expanded its store network including on [Guerlain] in Paris and began operations at its new movement manufacturing facility in [Chevenex] during the third quarter. (inaudible) made good progress particularly in Japan and (inaudible) the high end jewelry line.

Finally, turning to the Selective Retailing Group on slide 14 which delivered an excellent 19% organic revenue growth slightly offset by a 3% negative currency impact for the nine months period. This comes on top of the 14% increase in organic revenue growth for the same period last year. For the third quarter, revenues surpassed the 2 billion mark reaching to 2.1 billion up from 1.86 billion in the third quarter last year, this reflects organic growth of 19% and a 6% negative currency impact.

Impacting the new Hong Kong International Airport concessions is around 8% as opposed to nine months and the quarter. Selective Retailing, slide 15 DFS with a strong momentum in Asia continued with Hong Kong International Airport concessions as well as the Hong Kong and Macau Gallerias contributing significantly to performance in the region. Globally the stores rolled out – started rolling out the new T Galleria by the DFS brand identity, which reflects an access tools becoming the ultimate luxury shopping destination and paid homage to DFS its core business serving travelers.

Sephora once again grew market share in all key regions, driven by positive demands in an existing stores particularly in North America, Asia and the Middle East. There was strong progress of its’ online sales and the successful introduction of new products including the launch of Marc Jacobs cosmetics in the US all contributed to its great performance.

The business continued to expand its store network around 30 new stores in the period.

So in summary our business groups performed well throughout the first nine months of the year all contributed to organic growth in the third quarter, demonstrating strength in the face of a difficult economic climate.

Looking ahead, LVMH will continue to execute its strategy and providing the highest quality products and innovation combined with the selective expansion of its store network to perceive the objective of increasing our leadership position in the global luxury goods market. Thank you, and with that we will now take any questions you may have. Charlotte, can you please attend the line.

Question-and-Answer Session

Operator

(Operator Instructions) We have a question from Mr. Luca Solca from Exane BNP Paribas. Sir, please go ahead.

Luca Solca – Exane BNP

Thank you very much good morning. I have a couple of questions if I may. First, you were referring to a very good reception of the new product lines by Vuitton. I wonder how you see the progress towards moving the brand to its new target, and whether you see any geographic difference from how the new lines are being received in the different markets.

More generally, I was wondering how you see demand trends for luxury goods, in China in particular. We’ve had mixed reviews as far as the Mainland China market is concerned. And whether you see any impact to be anticipated from the new package to a price regulations in China that were implemented on the 1st of October. Lastly, you were referring to the European environment continuing to be tough. I wonder if you are seeing any change sequentially on domestic demand in Europe for your different products, and then if you could tell us about prospects for the appointment of a new creative director at Vuitton and the plant, Marc Jacobs. Thank you very much.

Jean-Jacques Guiony

Good morning and thank you Luca for these questions. Let’s start with the first one on the new products. As Chris said, I mean we registered fairly strong growth on these new products. It is being said, as we said many times, the recent introduction are of products of a certain level of price which is probably the top end of what we introduced and although the reception by the client base it’s very good in terms of impact on global sales it is not a major thing as we are talking about top end products.

With regard to the introduction and the shift toward more soft leather products it is on the way. I said many times that it is going to take, it is not a three-week process, I mean it is going to take quite some time, so it is underway. There are some product initiatives that are just being released and more to come. It is very difficult to comment on a sort of quarterly basis on that type of development.

So I will not make further comments. As far as the differences by geographies are concerned you alluded to, I wouldn’t say that there are any significant differences when it comes to the reception of new initiatives, new product initiatives. We’ve seen more or less all the geographies reacting the same way.

The second question is about Mainland China. The situation there has not changed dramatically since the beginning of the year. We are experiencing the same type of growth. I don’t know whether your question was limited to fashion and leather, or more globally for the group, but growth in mainland China for the group in Q3 was about 5% in local currency which is better than what we had in Q2 but which is in line more or less in line with what we had in the first half of the year.

We saw some improvement, particularly in the segment of Watches and Fashion and Leather is more or less what it has been since the beginning of the year. The regulation on travel you mentioned is likely to have some impact, but it is very difficult to know what kind of impact we are going to have. Obviously not on Mainland China, because it is likely to have some impact on budget travels, i.e., mostly to Macao and to a larger extent probably to Hong Kong. But it could have an impact on Hong Kong.

What we see at DFS is quite complex to analyze. We have very little very few numbers to analyze, it is quite complex to analyze. We see a drop in profit but a big increase in shopping per head which means probably this regulation eliminates people that would come in to the stores but wouldn’t shop. So it is a bit too early to say, and we shall comment on that further later on.

Your next question was on Europe. I don’t have much to say on Europe. I mean you’ve seen that growth in Q3 was about 2% which is exactly the growth we had in H1, no major changes, a bit of improvement in Wine and Spirits, particularly in the Champagne front where the figures are not yet satisfactory, but nevertheless they are a bit better than what we had.

Same thing on watches, the numbers are significantly better. The Perfume and Cosmetic business in Europe is a bit under pressure but still positive. No major changes in Europe in the course of the quarter. And finally, I won’t make any comment on the creative director of Louis Vuitton. It is too early to say.

Luca Solca – Exane BNP

And if I may ask the prospect for the Marc Jacobs brand.

Jean-Jacques Guiony

Well, we said that Marc Jacobs is concentrating now on his eponymous brand. We think it is a major opportunity to develop the brand further because. It has already reached what we think is a critical size but we intend to grow it much further. We think the opportunity on the contemporary market is extremely strong and we intend to benefit from it. That is the logic of Marc Jacobs really concentrating on his own brand. So that is the logic of it. I don’t have further comments to make. And we will unfold the strategy in the months and years to come and we are very hopeful about the outcome.

Luca Solca – Exane BNP

Thank you very much, Jean-Jacques.

Operator

We have a question from Mario Ortelli from Bernstein. Please go ahead.

Mario Ortelli – Sanford C. Bernstein & Co.

Morning Jean-Jacques, morning Chris. Thank you very much for the update (ph) the first question is about FX, what do you expect would the impact of the FX margins for this year.

The second question is, if you can hear that...

Jean-Jacques Guiony

I missed that. Did you talk of Louis Vuitton?

Mario Ortelli – Sanford C. Bernstein & Co.

On margins for this year. The second question is about the performance of the Fashion and Leather division. Especially if you can give us some color on which the impact of mix value volume for this quarter and especially for Vuitton.

And the last question is about America, if you can give us some color about the American consumer and the performance of this quarter, what do you expect for the end of the year?

Jean-Jacques Guiony

Okay. Thank you Mario. As you know, we normally do not comment on margins, but on your question on FX margins, the impact on margins in percentage terms is likely to be neutral to slightly positive for the year. But nevertheless in absolute terms it will be negative.

I mean I know it is a bit complex, we discussed that many times with you all. That is the situation in 2013. so the hedging gains which are likely to be pretty high this year will not offset entirely the negative impact of currencies. Nevertheless as the hedging gains offset the cost of goods it has positive impact on margins in percentage terms. So that is the main explanation which I made many times. Sorry to be technical, so that is the answer to your question.

On the Fashion and Leather, I will not comment in detail on value and volume. What I can tell you is that we have our growth in Q3 is a bit lower than what we had in the first half of the year. The reason stems from two main things: The first one like in Vuitton remember we had a significant price increase in Japan very early in July, I think it was 30th of June or first of July. As always as we announced the price increases two weeks, before you have a boost in sales two weeks before the price increase, and consequently and conversely a negative impact on sales afterwards.

So this was pretty significant due to the magnitude of the price increase that we implemented in early July. So it had a positive impact on sales for Vuitton. You remember that the Japanese figures in the first half were pretty good. So it did have a positive impact on sales for Vuitton in the first half and a negative impact for the third quarter. So that more or less half of the explanation in the difference in growth in the Fashion and Leather division in Q3 and the rest lies in the other – in the non-Vuitton brands which was in some brands a little bit softer than what we had in the first half some comes from markets being softer, some comes from wholesale being voluntarily reduced but we also had a slight negative impact here.

So that’s what I can comment on the difference in the Fashion and Leather growth in between H1 and Q3. So the question on the U.S. as you have seen the numbers in the U.S., growth numbers in the U.S. were pretty strong. We have 9% in H1 and 10% in Q3, more or less all the business groups are doing well. The Fashion is doing okay, doing better than in H1, Wines and Spirit as well. We are very pleased with the performance of Wines and Spirits altogether but particularly with regards to the U.S. and the Cognac performance.

Perfume and Cosmetic and Sephora are still doing very well. Only Watches and Jewelry are little bit under pressure but it’s doing better than it did in the first half of the year. And so in all I mean in the US markets is an area of robust growths for the group and throughout the year and particularly in Q3.

Mario Ortelli – Sanford C. Bernstein & Co.

Thank you very much indeed.

Operator

We have a question from Thomas Chauvet from Citigroup. Please go ahead.

Thomas Chauvet – Citigroup

Good morning Jean-Jacques. Three questions please. The first one on Wines and Spirit. You had highlighted in July the stocking effect would continue in Cognac in the third quarter. Can you comment on the drivers behind this improved selling.

Secondly, just wondering what’s happened in Perfumes and Cosmetics in the third quarter, what region especially drove that slowdown. And on the flipside it seems from your commentary that Sephora’s not [lagging] in China and the U.S. remains pretty strong, could we have the regional LFL for Sephora. And finally on the smaller fashion brands I remember there was a lot of margin compression in the first half due to increased investments at Fendi, Céline, [Loewe] et cetera. Are these investments in the brand, in the distribution largely over now and when would you expect these brands to contribute more to the fashion division’s profits? Thank you.

Jean-Jacques Guiony

Okay. Thank you so much. On the first question on Wine and Spirit and Cognac basically in China basically at the end of the quarter, at end of September we are more or less in same situation as we were at the end of June, i.e. volume wise depreciations are down about 10% and our selling numbers are flattish. Obviously we have some price increases so all-in-all we registered some increase in our sales but in terms of volumes. So we are basically the same difference in between the two which means that inventories are little bit high in China these days not to un-tolerable levels but nevertheless little bit on the high side.

I was expecting some de-stocking and therefore some reduction in selling in the third quarter which did not really materialize. Will it materialize in Q4? It is likely, nevertheless bear in mind that Chinese New Year which has some impact in Q4 in wholesale businesses is two week before what it was last year. So it could have an offsetting impact. So it’s as always is very difficult to make any forecast on the selling, sellouts relationship particularly in a market like China.

As far as Perfume and Cosmetic is concerned and your question about geographies I would say that mainly there are two areas where the market has proven to be softer in Q3, one is Europe and the second one is China. We are obviously not talking about the same type of rules as far as China is concerned. We are still very close to double-digit growths. That’s why as far Europe is concerned it’s quite flat. I mean only slightly growing, the market there are particularly in Europe are pretty difficult and so the situation for the time being is not ideal, but we expect I mean we are placing high hopes to product in production and we expect to the better in the last part of the year which is hopefully important for this events as you obviously now.

Like for like for Sephora, nine months like-for-like is 10% altogether in the U.S. About 2% I mean no major change compared to the number I mentioned at the end of June to 2% for Europe and we are talking about Middle East is 25% and Asia is also between 20% and 25%. So very strong numbers in the Eastern part of the world and in the U.S. and obviously Europe is suffering from the softness in the main market.

Finally your question on margins in fashion I mean I would rather not comment margins at this point in the year and will leave my answer to when we release our numbers for full year.

Thomas Chauvet – Citigroup

Thank you.

Operator

We have a question from Warwick Okines from the Deutsche Bank. Please go ahead.

Warwick Okines – Deutsche Bank

Hi, good morning, Jean-Jacques, good morning, Chris and few questions from me please. Firstly, could you talk about the growth rate of Vuitton and the Chinese consumers in the quarter, I think in the first half you said that growth was running mid-single digit just wondering if that changed.

And secondly could you talk about any other price rises you may have made and other than the increase in Japan at the end of June have you changed the prices in any other territory. And just thirdly I think from the numbers you have given us the growth rates in Japan slided quite sharply in Q2 compared with the first half. You talked about the impact of Vuitton from timing but was there anything else that drove that slowdown? Thank you.

Jean-Jacques Guiony

Okay. Thank you, Warwick. So the growth rate was the Chinese customer is not really different from what it was at the end of June, it should be better. We’ve seen the tourist activities with Chinese customer being a bit better than it was in the first half of the year but nothing really significant and the domestic business is flattish as it’s been since the beginning of the year. So all-in-all we are still meeting single digit plus with the Chinese customer base.

Price increase at Vuitton apart from the one we discussed before there were no significant price increase that we took in the course of the quarter and as far as Japan is concerned it’s difficult to isolate the various impacts but definitely the bulk of the drop in the growth with the domestic Japanese fund base comes from the boosting the pricing factor of price increase at the end of June or July that I mentioned before. I am not saying that the activity is otherwise very, very strong. I mean the activities is soft with Japanese customers in Japan but nevertheless the bulk of the drop comes from this impact.

Warwick Okines – Deutsche Bank

Thank you. And so just on price increase at Vuitton other than the three price increases you have made in Japan in the first nine months. So there have been any other major territories where you have moved prices?

Jean-Jacques Guiony

No. We did I would say regular price increase in the US, in Europe, et cetera. Earlier on, in the year that we commented before on this course in February if I am not mistaken in Europe and more recently in the U.S. but we are talking about 3% to 4%, 4.5% in these various geographies.

Warwick Okines – Deutsche Bank

Thanks very much.

Operator

We have a question from Catherine Rolland from Kepler Cheuvreux. Please go ahead.

Catherine Rolland – Kepler Cheuvreux

Good morning Jean-Jacques I had several questions regarding Vuitton. First of all could you tell us if Vuitton outperformed or underperformed the Fashion and Leather Goods division. The second point is about Vuitton’s performance by region, could you give us some color by Vuitton’s performance by region with a special focus regarding Japan. Could you tell us what was sales trend in Japan in Q3 taking into account the negative impact coming from this shift in sales between Q2 and Q3?

And also could you tell us what was the overall sales trend in Japanese customers including (inaudible) in Q3. And the last question was about the impact of regulation on travel in China. I just wanted to make clear that when you said that you could have rental income impact, were you talking only about DFS or do you think that it could have also an impact on other businesses, such as retail for instance, thank you.

Jean-Jacques Guiony

Okay, thank you Catherine. So retail slightly as it was the case in the first two quarters of the year the growth in retail was slightly below the rest of the division. You know that retail growth’s never differs very materially from the division’s average. But it was a bit below exactly as I said in the first two quarters of the year.

Region by region I will not go into many, into many details but the U.S. numbers were reasonably good. I mean we had numbers which were little bit more than mid-single, single digit in the U.S., Europe as well due to the tourist activity, activity particularly of Chinese customers was in the same, the same range.

Asia was flattish and Japan was mid-single digit negative in Q3. The sales to Japanese customers at LV since the beginning of the year is slightly negative between good tourists and as you know the drop in the touristic activity with Japanese is extremely significant as we told you due to the drop in the value of the yen.

The new regulation regarding your last question on the new regulation regarding travels in China my comment was mostly on DFS, because it effects only the conducted tours, and the conducted tours people being investors is mainly business that has some impact for DFS in Hong Kong. It could have a marginal impact on other businesses. But the bulk of the impact would be if any, as I said it’s too early to say but if any the bulk of the impact would be on DFS.

Catherine Rolland – Kepler Cheuvreux

Okay and regarding the sales to Japanese customers is it true to understand that you had a slight worsening in Q3?

Jean-Jacques Guiony

Yes, but it mainly comes from the domestic situation where as I said we had a shift from Q3 into Q2 due to the price increase.

Catherine Rolland – Kepler Cheuvreux

Okay, thank you very much.

Operator

We have a question from Antoine Belge from HSBC. Please go ahead.

Antoine Belge – HSBC

Yes, hi it’s Antoine Belge, HSBC. Just few questions first of all I would like you to maybe comment a bit more on the whole of the (inaudible) Louis Vuitton being referred in the press as being the number two of the brand. What does it really mean, what, on which area is it particularly focusing on, so how do you expect the transition period from Marc Jacobs to somebody else.

My second question relates to Louis Vuitton, assuming that Louis Vuitton did 1% or 2% less than the division average, it’s hard to say that the continuation from selling space mostly coming from enlargements was in the sort of mid-single-digit areas. And finally could you comment maybe on the Champagne harvest and especially the yield and what could be the impact on the margin from that, especially compared to the very depressed H2 to last year. Thank you.

Jean-Jacques Guiony

Okay as you may expect I will not really elaborate on your first question, that it’s concentrating on products, will that be replacing Marc Jacobs but I think it’s pretty obvious to anyone on the call already. And that’s all I’m going to say. The question on LV and the contribution of new space as you know it’s awfully difficult to isolate the contribution of space particularly when we are talking more about enlargement than we are increasing the number of stores.

The number of the store count at Vuitton was a stable, has been stable since the beginning of the year, so the growth in space which is in same order of magnitude as it’s been for the few years is mostly coming from enlargement and it’s very difficult to tell what is the, what is the impact.

On the harvest a little bit too early to say. I mean we need a few days at least probably bit, bit more than, bit more than that. But the anticipation, we ended up the year, last year with a very low harvest which was 8,800 kilograms per hectare. We expect, bit early to say again but we expect to be above 11,000 this year. So it should be a much, much better harvest with some positive consequences in terms of profit. As you know we booked the profit on the own harvest which is one fourth of our volumes in the year of the harvest and not when we send the corresponding bottles.

So it will have a positive impact which will be all the more positive than we had a negative, strong negative last year as you remember.

Antoine Belge – HSBC

And maybe just to do a quick follow-up, just a bit on your comments about the technical impacts of FX being actually positive in 2013. Is it fair to say that it should be the reverse in 2014 and I think last time you commented on hedging for the yen you had, had for your exposure for 2014 booked, hedged at the 119 and this is 104 for 2013 and I’m assuming that the remaining part has been done at least twice above 120. So maybe you know what would be the sort of most recent average rate for 2014. And also on Marc Jacobs can you make any comment that you’re considering an IPO for the brand and what would be the rationale of doing this since you don’t really need cash and as you said it’s one of the most promising brand in your portfolio?

Jean-Jacques Guiony

Okay on the FX since you know that the impact on margin in percentage terms again. I mean that’s the point I want to stress, the hedging is particularly disturbing when it comes to analyzing margins in percentage terms which all of you love to do. So the impact will be slightly positive this year and all things being equal, i.e. not having hedging gains next year in the same magnitude but passing on price increases to customers obviously it should have a negative, slightly negative impact.

As far as the rates for the yen are concerned this year we are 90% hedged at 104. And for next year it’s about two-third of the exposure at 121. So yeah, chances are that we will receive benefits from hedging gains next year on the yen but obviously to a much lesser extent than what we had this year.

As far as Marc Jacobs is concerned and the IPO prospect is concerned we are not the only shareholders. I mean both Marc Jacobs and Robert Duffy are shareholders of Marc Jacobs as well. They’ve been shareholders since the beginning and the IPO may enable them to get the liquidity on their shares, should they want to which is not decided yet obviously.

Antoine Belge – HSBC

What is actually the minority stake in the company?

Jean-Jacques Guiony

I cannot comment at this point in time, next time we will be talking, I will be able to answer this question.

Antoine Belge – HSBC

Okay thank you.

Operator

We have a question from Julian Easthope from Barclays. Please go ahead.

Julian Easthope – Barclays

Yeah. Thank you very much, morning guys, just three questions from me if I may. First of all in terms of the Watches and Jewelry division, you’ve introduced a new jewelry ranges and I just wondered how important jewelry was in terms of the growth rates for the division in the third quarter and if you can distinguish between jewelry and watches that would be great. The second question is regards to the evolution of the quarter, we heard from others that July was weak and August strong really due to the shift in Ramadan but September deteriorated. And assuming you saw that trend and if you’ve got any comments to make on it.

And lastly when it comes to the Fashion and Leather Goods division, you did about, you’ve always said you did about $0.25% of leather, $0.25 of canvas and 25 soft leather. Has that actually changed materially in this quarter and where would you says that likely to go in sort of three to five years’ time, where would you actually want your, want your ranges to be, okay, thanks?

Jean-Jacques Guiony

Okay watches and [jewelry] definitely I will not go into the details of the respective performance of for both segments but definitely jewelry did really well. We have double-digit growth in Q3, Q4 for jewelry so they did really well. We had some introduction of new collection with (inaudible) at Bulgari. They really did well. The Watch business did better but not necessary up to our expectations. We are in positive territory but we’re still suffering a bit mostly in the U.S. and in Mainland China, the rest of Asia and Europe and Japan as well are doing quite well.

With regards to your second question on September. I mean I never comment on monthly performance but well there are differences but not meaningful ones, so I don’t think it is particularly interesting to comment on this. And finally your question on Fashion and Leather and the objective for leather I assume that the question is mostly for Vuitton. It’s hard to tell but definitely within the very big, very big window of opportunity with regards to soft leather. And we expect to benefit from (inaudible) should introduce the appropriate, setting a goal in terms particularly in percentage of total sales for such a big company is awfully difficult. So I really cannot answer.

Julian Easthope – Barclays

All right. Thank you very much.

Operator

We have a question from John Guy from Berenberg. Please go ahead.

John Guy – Berenberg

Good morning Jean-Jacque. Chris I have a questions for you please. Could you comment first of all in terms of what the impact, if any has been with regards to the new collections versus the iconic ranges that you have within the Louis Vuitton, appreciate its early days. But certainly looking at the new collection ranges it looks like there has been an average selling price increase across, entry midst to high of around 23% and as you said they’ve been well received but appreciate they’re at the high ends so that’s my first question.

Secondly with regards to wines and spirits you talked around a rebound within the champagne market, albeit reasonably soft. Could you just elaborate on where you’re seeing the strength and by how much has the French markets moved. And finally in terms of the pricing delta for Louis Vuitton between Beijing and Paris, I know at the beginning of the year it was around about a 45% to 47% delta which moved I think to the first half around 30%.

So I was just wondering over the nine months or effectively the end of Q3 if there has been any material difference or change? Thanks very much.

Chris Hollis

Okay. Thank you, John. Well I think I more or less answered on your first question already. I mean the new collections are doing well, they are doing very well. At the high price point therefore they have a marginal impact on global numbers. They are significant in terms of strategy and what we intend to achieve. I have said that many times but nevertheless they are not moving the lines, it’s too early to say. So I will not further comment on that particular point.

On the champagne business as I said we’ve seen some improvement in Q3 compared to the rest of the year. As I said Europe is a bit better but still negative in volume terms. U.S. is much better we have seen some shipments particularly for (inaudible) and Dom Perignon so the US market definitely proven stronger in Q3.

Japan is still very, very strong. It’s a market which is not particularly important in terms of volumes but in terms of value as the bulk of what we sell there is Dom Perignon, in terms of value it’s very important market and we are getting very high growth, very strong double-digit growth in Japan and Asia, which is at this point and time an emerging market for Champagne but is growing very fast as well.

So that’s the global picture for champagne. It’s not entirely satisfactory. All-in-all our volumes over the first nine months are up 2%. But Q3 is encouraging so we will, we’ll wait and see but we could have a pleasant surprise for the end of the year.

Finally your question on price difference between Beijing and Paris. If I am not mistaken we should be about 27%, 28% premium in between Beijing and Paris. If I am not mistaken we should be about 27 to 28% premium in between Beijing and Paris. The price differential, which was much higher a year ago was reduced by price increases in France, but also by the fact that we didn’t increase prices in China and we had a reduction, a little bit of a drop in the renmimbi, not a major one but a little bit of a drop in the renmimbi, so at this point in time, the price differential is what is in our view justified by the difference in taxes and in lending costs.

John Guy – Berenberg

Okay, great. That’s very helpful, thanks. Maybe just one follow-up please just on the watches and jewelry. You talked around, watches and highlighting some softness certainly at the wholesale level in terms of reordering in the U.S. and mainland China in particular. Towards the end of the quarter have you seen any potential shift or sort of exit rates looking like they are improving and certainly exports data for Mainland China and Hong Kong gets very soft within the months of September, October, and December in particular so I was just wondering what your thoughts are going into the fourth quarter.

Jean-Jacques Guiony

It’s difficult to be that precise, I would say that the Mainland Chinese market is proving very soft, but the peripheral markets like Hong Kong and Macao particularly are quite strong. So it is difficult to look in the next two to three months to figure out how the year end will be. But it is unlikely that this growth differential will be very different in the last part of the year.

John Guy – Berenberg

That’s very helpful. Many thanks.

Operator

We have a question from Julian Easthope from Barclays. Please go ahead. We have a question from Matthias Eifert from MainFirst. Please go ahead.

Matthias Eifert – MainFirst

yes, hi, Matthias Eifert from MainFirst. First question on Fendi, was that a drag on your performances in third quarter and could you tell us when you think the wholesale clean-up and so on will be finished, and could you comment on the space growth trends for LV in the first nine months. I mean, you touched on it earlier, briefly that there were no store openings, but roughly a figure would be very helpful, to get here. And thirdly on Bulgari, was there still an impact and of the de-emphasis of the cosmetics line in the third quarter for the whole Watches and Jewelry division?

Jean-Jacques Guiony

Thank you. On Fendi, as you know, we don’t comment on individual brands. We feel the retail performances are pretty good. And exactly as we said before, wholesale figures, wholesale numbers are a bit under pressure as we decided to reduce the wholesale business at Fendi. So nothing really different from what we’ve seen since the beginning of the year, although we can comment that the openings in Milan and Paris did very well, and are strong contributors to the brand.

Space growth at LV is about high single digit as it has been over the past few years. And as far as Bulgari and perfumes and cosmetics are concerned, the situation which was highly negative in the first six months of the year was much better in Q3 due to introduction of some new products or new development of existing lines. So we moved from the negative into the positive territory for the perfume and cosmetic and at the same time Bulgari improved its performance for watches and to a lesser extent for jewelry which was pretty good with double digit growth.

Matthias Eifert – MainFirst

Excellent. Thank you.

Operator

We have a question from (inaudible) from MorningStar. Please go ahead.

Unidentified Analyst

Good morning Chris and Jean-Jacques. Thanks for taking the questions. Wanted to drill down or maybe get some more color on your comments about the Spirits and Cognacs in China, you said that there was, you had a discussion earlier with the sell-in, the sell-out, is there any more color on the product type or is it pretty much across the board, in other words, is the high end doing better, or are there certain types of spirits that are maybe softer and dragging the category down?

Jean-Jacques Guiony

It is very difficult to hear your questions. So if I am not mistaken, your question is about growth in China and whether there are some differences in between high end and other categories, right?

Unidentified Analyst

Correct. And I was talking in the Cognac but you could comment on either?

Jean-Jacques Guiony

Okay. Cognac. Right. No. There are no major differences. I mean if you look at depletions since the beginning of the year each store and DSOP are showing more or less the same type of drop, around 10%. What they may comment nevertheless is that we’ve introduced for the nightlife mostly on entree a new category which is called [Platinum] which is less expensive and therefore more for the young customers which is doing extremely well. We are growing very fast, promise more (inaudible) obviously, but growing extremely fast. So that’s the only comment I could make but otherwise I mean the performance is more or less the same across the board.

Unidentified Analyst

So that’s the product that you are mentioning for the younger consumer that is new product.

Jean-Jacques Guiony

The [Platinum.]

Unidentified Analyst

I am sorry. Can you hear me, I said is it based in – the fast growth is from the new products?

Jean-Jacques Guiony

Is it faster, it’s from new products is that the question?

Unidentified Analyst

Correct, you said it was for a younger consumer?

Jean-Jacques Guiony

Yes. That’s the product where we get the fastest growth from a small base but we get the fastest growth there. Yes.

Unidentified Analyst

Understood. Thank you very much.

Jean-Jacques Guiony

Thank you.

Operator

We have a question from (inaudible) from Nomura. Please go ahead.

Unidentified Analyst

Yes. Good morning guys. I am just wondering if you comment on your marketing strategy at LV I have seen some changes in how you’ll trying to put the product given the evolving product strategy I just wondered on your interpretation as in the whole success of that marketing policy and how that may evolve overtime. And then secondly just online trends, just wondering if you comment on the online trafficking conversion rates, globally and across the group really? Thank you.

Jean-Jacques Guiony

Okay. Well the question of marketing strategy there will be growth so it’s pretty difficult to answer that. We already touched upon the product strategy and the opportunity in soft leather. You’ve seen a shift and also in the communication strategy of Vuitton which you’ve seen in the magazines and the newspapers. So I don’t think I have to elaborate further and as far the distribution strategy of Vuitton is concerned. I also alluded to the fact that the emphasis is on enlarging the stores as opposed to multiplying the number of stores in the various geography. So in two minutes that’s a little bit summary of the marketing strategy of Vuitton.

As far as online is concerned I mean the trends are pretty good. Across the board, I would say at Vuitton in particular, but across the board we see e-commerce being very positive at a small base. We don’t see all that e-commerce could be very, very major part of the business for all the brands but nevertheless close rates are pretty significant and justified the investments we have already made.

Unidentified Analyst

Perfect. And maybe just a quick follow-up on Vuitton given that the shift towards soft leather from a manufacturing perspective. Is a significant investment needed in the supply chain and the production of that product as you shift from canvas to leather over time?

Jean-Jacques Guiony

Well in terms of capital spending not really but nevertheless manufacturing soft leather bags and canvas bags are not exactly same manufacturing techniques. And it’s much longer obviously to manufacture, to produce soft leather bag so we have to adapt to that and improve the productivity up to the level we had for other categories. So it takes time.

The big challenge is mostly on the supply of quality leather which is a scarce resource for the time being and that’s the biggest challenge that we have for this year and for next year.

Unidentified Analyst

Okay. And do feel that causing some restrictions at the moment in terms of supply?

Jean-Jacques Guiony

Yes, definitely without supply concerns we would certainly produce and sell much more than what we do. But as I said before I mean these things will not [actually] selling. It’s takes a little bit of a while, we are talking about very, very large company and moving the lines and the numbers in such a large company takes a while.

Unidentified Analyst

Sure. Thank you very much.

Operator

We have no more questions.

Chris Hollis

Okay. I think that can conclude that call. Thank you very much for listening and we’ll speak – the next formal meeting will be the results beginning of next year but I am sure I’ll speak to you before – between now and then.

Operator

Ladies and gentlemen, this concludes the conference call. Thank you all for attending. You may now disconnect.

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