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Jean-Jacques Guiony – CFO

Christophe Navarre – CEO


Luca Solca – Exane BNP Paribas

Antoine Belge – HSBC

John Guy – Berenberg

Mario Ortelli – Sanford C. Bernstein

William Hutchings – Goldman Sachs

LVMH Moet Hennessy Louis Vuitton SA (OTCPK:LVMHF) Q4 2013 Earnings Call January 30, 2014 12:00 PM ET

Unidentified Company Representative

Well good evening. Thank you for joining us once again for this Annual Meeting presenting our results with the LVMH management team. So for the results you will have received the press release. I’m sure it was circulated earlier. The results for the year are good because we have achieved an excellent performance in terms of revenue, we’re nearing €30 billion profit from recurring operations which is the indicator followed by analyst for the first time is above €6 billion, net profit is also up and it’s important to note that the performance in terms of cash generation is good because gearing remains below 20% in spite of the acquisition this year, Loro Piana.

Well might you say generally growth is faster, I’m expecting that question? So why has growth being of only an 8% which is pretty good and the results likely less. Three reasons. First reason, the global economic climate and this will come as a surprise to know, one, a number of high growth countries have slowed a little on the one hand. Furthermore China has taken a number of measures that were implemented during the course of the year such that the consumption of luxury or rather high end products has been slowed slightly in some areas that was not the case, a bit more in Wines & Spirits, you will see in that a number of Wines & Spirits companies have presented their results and we’ve seen that Cognac sales have been hit with Mr. Neva, we’re fortunate in being very responsive.

So bottles of wine sold in China was sold elsewhere, but it didn’t nevertheless impact the momentum somewhat. So generally speaking slightly less growth and dynamism in a few emerging markets. Second reason, the currency impact in 2013 and currencies had a negative impact on business whereas in previous years it was a reverse, currency impact was a negative because the dollar declined, a number of currencies declined, the euro remained very strong and in Japan the Yen lost 25% in a year that’s considerable. So even if some of our brands during the course of the year we’re able to catch up through price increases, the 25% cannot be retrieved overnight so that did the way. A few currencies in Latin Americas, you’ve seen are suffering from the strong euro and the relative decline versus the dollar. So, that’s the second factor.

Third factor that is most specific to the Group, we’ve decided and I explained this at the time of the Shareholders’ Meeting to continue at Louis Vuitton. A growth strategy but a more reasonable growth strategy in which the portion of products that are iconic of Louis Vuitton with the Monogram canvas of course continues to be the spearhead of Louis Vuitton, but we no longer wish to have two stronger growth and we’re developing a whole series of products, thanks to the creation of Louis Vuitton and the new teams who have joined Louis Vuitton. At Louis Vuitton we have a new designer who has just arrived whose first collection will be presented on the 5th of March, which – he is very talented and actually fully suited and aligned with the Louis Vuitton style. We also have a new management team; I won’t go back on the reasons why we had to replace the management team. This was essentially due to a health problem with the previous Chief Executive.

So these changes have led us to focus on a whole series of leather goods. Delphine who arrived at – Dior is following that very closely and we put in place some fantastic products, but the problem is when you have great products well you have to produce and when they are very successful and sell well where we can’t keep pace with them. That’s the situation in which we find ourselves, but of course that’s not an unhappy problem. The problem isn’t to have unbridled growth with all these products but it does put us in a situation as compared to what we were doing two or three years ago and over 10% growth was slightly below the 10% growth mark.

Interesting to see as you’ll have noted in the figures that profitability of Fashion & Leather Goods is slightly below, it’s not because of Louis Vuitton whose profitability has remained unchanged, it’s quite exceptional and I can take questions on that later. So, the companies, the major event in 2013 was the acquisition of Loro Piana, a great brand. The acquisition was closed in December, so it will be, it will appear in the figures for 2014. It’s an iconic brand manufacturing exceptional products with unique textiles, cashmere. It’s absolutely outstanding and has great potential.

This company was acquired and the Loro Piana family remains shareholder with us 20%, it’s a family business, Antoine Arnault is now the Chief Executive of this company and we will continue its expansion in 2014 with exactly the same mindset that is the best, the finest products in terms of the materials with a timeless very appreciated style yielding interesting results because revenues for these stores per square meter is increasing and is quite exceptional at the start of this year.

Just returning to the highlights of 2013, the various business segments. Wines & Spirits delivered an excellent performance, strong demand for Prestige Cuvées in Champagne, you’ll have seen the Dom Pérignon bottle designed by Jeff Koons. This – he is now a sculptures, collectors, items and investors, investments I don’t know if they are any left, but I’m sure that in a few years’ time that Jeff Koons’s sculpture that contains the Dom Pérignon bottle will probably be in a museum and will have appreciated considerably.

Cognac, another fine year buoyed by the U.S. market because we had to return to a number of products and in China the Colosseum vintage continues to sell well with the same value creation strategy. Fashion & Leather Goods I mentioned Louis Vuitton, the other companies growing strongly requiring a lot of investment this year which may account for a slowdown in profitability in this portion of activities. Fendi is extending its network in terms of quality, it’s been focusing its offering towards the sold after products such as the Peekaboo, Céline, great growth, thanks to Phoebe and it’s team, Berluti, we’ve invested considerably. This is a company, it’s gone from manufacturing the finest shoes for men in the world to a complete men’s style company with a new designer investments in that. All these brands are gaining strength and we’re very confident as to the development. Marc Jacobs, very fine brand.

Let me say that Marc Jacobs, the designer has left Louis Vuitton and is now focusing on this brand that he will be developing separately and exclusively so that we can consider its flotation in the near future. Just to give you some figures into what the appetite of investors of analysts so I believe that in the group’s accounts this company is valued at few 100 million if that because we started from scratch. We started from scratch at the end of the 90s and today it generates about $1 billion in revenue. Let me take the example of another business that we sold a little too soon, that can happen. Michael Kors and since we promised Marc Jacobs and the future managers of Marc Jacobs to have an IPO. They looked at what Michael Kors did and today Michael Kors much to everyone surprised is worth $15 billion and the stock market if we can do something along those lines or even half that I’m sure everyone will be happy. It’s an objective, I’m not saying you will get there, we will see.

Perfumes & Cosmetics, well that’s worked very well, very strong innovation. Christian Dior has managed with his perfumes. Rouge Dior today is far and away a leader in a number of markets notably France and today is one of the world’s leading perfumes and the objective for Dior and for Rouge Dior is to become the world’s number one, we will get there, we can’t be far from achieving that. A few competitors, no names mentioned, but we have overtaken them globally and then a whole series of successful products in terms of lipstick and we’ve just launched at Sephora, a tense skin makeup, it’s working, it’s selling very well, La Petite Robe Noire from Guerlain is also a big success, Orchidée impériale is continuing to grow strongly, an opening of the iconic Champs-Elysées store with a great restaurant in the basement run by (indiscernible).

I recommended and it’s open at lunch time and in the evening including on Sunday because it can open on Sunday and even on Sunday evening whereas next store at Sephora we had to shut the store. And some days it’s very irritating but that’s the way things are. Everyone was willing to work in that store, all the staff were willing to work from nine to – midnight they were paid, they’re going to be paid 25% more and driven the home by taxi and the unions outside Sephora managed try to do the – we tried our utmost to stop that, but they were able to go to court and get us to close this store in the evening. So we’re of course appealing that. We’re losing some of the revenues, there were 60 people who were employed in the evenings.

But of course we’re going to keep some them on, we’re not going to let staff go for that reason but it’s very strange to have to arrive at that situation and customers who are buying on the Champs-Elysées out and what they will do they will go and shop in London or elsewhere, that’s all very regrettable. Furthermore in Perfumes & Cosmetics, inauguration this year of a new research and development center at Saint-Jean-de Braye, 500 researchers and it’s a very modern state-of-the-art building to strengthen our expertise or know-how and it’s off to a very good start.

Watches & Jewelry, strategy is continuing there, good success achieved by Bulgari this year, good increase growth in jewelry, success of the collection presented by Carla Bruni called (indiscernible), it’s a great success, we were unable to produce enough items, new collection is just been launched, a new design concept is going to be tested in the United States and the (indiscernible) we’re going to develop all that.

So we’re very confident and furthermore something that’s key in this business, we’re trying to manage the watch making as well as jewelry know-how with a new manufacturing plant in Switzerland for Tag Heuer. So good progression, Selective Retailing also performed well. The figures are somewhat distorted here because we won a concession in Hong Kong, so these are figures to be added. We just opened the concession in 2013, it’s off to a good start, it’s always less profitable to begin with so that’s impacting DFS but it offers great potential and Chinese visitors are buying less in China but when they are in Hong Kong or Macau, they continue to buy and to increase their visits. When you see in Macau all the casinos that have been built some of which that are listed on the stock markets, these sales are growing strongly.

Sephora performance continues to be quite remarkable. We are gaining market share in all markets. In the United States we will become the leading distributor of Perfumes & Cosmetics in the United States which is a remarkable performance because at the end of the 90s when we started in the United States people were saying you might as well close this store because it’s never be a success and it’s profitable. Furthermore Sephora is launching a whole series of exclusive brands sold only in its network of stores. Marc Jacobs for example the new cosmetics make-up line that are a big success. So that was for 2013.

Looking ahead to 2014, I won’t read out everything that’s on the slide but we’ll continue to implement the same strategy, it’s – there is nothing new but in terms of strategy we’re continuing but lot of product innovation the most important thing here which really explains why we’re so confident or at least reasonably confident as regards to 2014, it’s the Group’s ability to attract high level teams to motivate them and to retain them.

I was with the President of a leading French school who was telling me how keen his students were to join LVMH and this group for a number of years has had an active Human Resources policy and in the top slot of groups that business school students wish to work for and that’s why LVMH is succeeding in a somewhat more challenging environment and whatever the business climate we manage to grow. Thanks to highly motivated, highly competent teams that fully invested in their business, in their stores, in recruitment, I won’t go to more detail because I’m sure you’ll have questions in due course and I’ll hand over now to Jean-Jacques Guiony, our CFO for the figures because I’m sure that’s what you’re most interested in.

Jean-Jacques Guiony

Hello well I’m not sure, it’s the figures after that, I’ll try and keep you interested all the same, it’s started by revenue with a right-hand side of this slide as Mr. Arnault said we’re just below €30 billion up 4% at 121, 150. We have 8% in organic growth and I’d tell you more about this in the more detailed analysis. And negative effect of 4% from foreign exchange and that in previous years it was the other way around. In any case there are quite a few numbers on this slide, but the first thing to note is that organic growth in dark blue is stable quarter-on-quarter, (7988%). So no major change there in the way in which we have been growing, however the foreign exchange factor has deteriorated minus three at the beginning of the year minus two and then minus six and again minus six. So it has had an effect on profit. This was a challenging year in this respect.

If you look at the breakdown of sales, you can see that the – this pie chart hasn’t changed much, you have Japan, you have the effect of course of the degradation of the Japanese Yen which explains why Japan only has 7% of the sales, the rest hasn’t changed that much. More relevantly if you look at organic growth that is in foreign exchange. If you look at the various regions our growth is 9% in the U.S. in dollar terms which is pretty good because it’s a fourth year running where we have a double-digit growth, we are getting close to double-digit this year. And this was driven by all sorts of things cosmetics for our own brands or through Sephora. So that did extremely well in 2013. Wines & Spirits especially Cognac did well as well. So a number of growth engines were involved in the United States.

In Japan the numbers are good at least in Yen because organic growth there is up 10%. This also reflects paradoxically the drop in the Japanese Yen because significant portion of the business is done through Japan. Japanese tourists, there is less of that this year, but then there has been more domestic purchases in Japan. And so even though well Japanese economy has picked up a bit and that may account for that. In Asia as a whole not including Japan, Asia has enjoyed extremely good growth and it’s of course a significant portion of growth up 13% even though that number is also to do with the concessions in the Hong Kong airports not included in our scope, but which do contribute to our revenue, overall revenue in Europe no medical there, but then again it’s not the disaster either. If you have steady growth even at 2% or 3% it’s perfectly – is perfectly honorable for Europe.

Now if you look again at this 8% organic growth on a business-by-business basis, if you look on here at organic growth here you can see except for Selective Retailing everybody is doing about 5% or 6% growth admittedly for Wines & Spirits up 6% but also Fashion & Leather Goods 5%, Perfume & Cosmetics 7%, Watches & Jewelry slightly below but not significantly but Selective Retailing has enjoyed remarkable performance but of course this is to do also with the concessions that are on Hong Kong airport but even without that you still stand at about 12%. So Selective Retailing certainly are fared extremely well with double-digit growth. Likewise if you look at the last quarter for Q4 you find that Q4 was pretty good, there was a stepping up of growth not in Wines & Spirits and you may have questions about that, but there was significant destocking that was voluntarily performed in China.

For Cognac we had too much stock there. And of course but the rest of – well the market as a whole stood well, but we decided to reduce sales voluntarily in the fourth quarter in China and so the Cognac elsewhere but the other areas are doing well, 7% in Fashion & Leather compared to 5% or 3% in other months of the year. Around the world by the way Asia, the United States and even Europe likewise for Perfumes & Cosmetics Asian driven growth, Japan and Asia drove growth in cosmetics and perfumes. Watches & Jewelry did extremely well at the end of the year 6% whereas it was only 1% in H1. And Selective Retailing you have 13% but that’s only you have to look at the concessions in Hong Kong. That was only in the last part of the year. So if you look at 13% for Q4 compared to 17% for the rest of the year was – a technical difference because precisely of this Hong Kong situation. If you look at gross margin that has grown faster than revenue up 5% compared to 4% for revenue so we stand at a record level almost the record level of the group. Marketing and selling expenses up 7%. So it’s – would be on a constant exchange rate basis would be 10%.

If you look at selling expenses that is the cost of our retailing network, our own shops or the other shops and if you leave out there for the Hong Kong and of foreign exchange effect you would be at only 3% likewise general – G&A would be 6% without the foreign exchange effect. So the profit stands at upwards of €6 billion up 2% and if you leave out Hong Kong which at the beginning of the concession actually drew us down. You see that profit for recurring operations would be about 6% as opposed to 2%. Operating profit is well operating income and expenses is down.

We has monthly depreciation of intangible assets so that’s where we have less this year than last year. That’s sorry that was for net financial income. Income tax no comments at this. There – actually we’re slightly down 31% compared to last year, it is paradoxical, that who should be paying less tax this year than last year. This is because we have recognized a number of deferred tax assets and so that’s meant that the income tax was less. Minority interest is up because of the improved performance of Moët Hennessy. And so the net income stands at €3.436 billion, slightly above last year 0.4%.

Now let’s look at the profits by business group, Wines & Spirits is significant. The overall improvement is up 2%. But let’s look at Wines & Spirits compared to the euro sales, Wines & Spirits, you’re looking at 20%. If you have a worst 20% only 13% for – if you take into account the foreign exchange effect. So a 1% improvement in our sales generated a 9% improvement in profit.

For Fashion and Leather Goods there the margin is down even though the revenue is up, it’s not to do with Louis Vuitton because the profit margin was stable in 2013, but we did have capital expenditure both for our retail network and the image of our brands, that has brought profits down. These investments is costly but necessary to improve our image and make our brands attractive.

Perfumes & Cosmetics some pressure on the top-line because sales were up 3%, profits are up 2%. Good year for Watches & Jewelry, sales were down 2% in euros, the operating profit is up 12%. So that’s a significant difference, significant improvement of the margin attributable largely through Bulgari.

Selective Retailing was slightly down compared to the growth in sales, but this is just taught by the Hong Kong airport. If you take that out sales were up 7% and profit up 9%. So again the profit margin was better and that accounts for the 2% overall improvement in profits from recurring operations. The foreign exchange effect we were used to positive effects well this time is not is the other way around. We were getting used to that in H1. We had about €60 million in the positive currency impact but over the year the complex situation has bought about an overall negative currency impact. So if you look at the effects on sales, on profits and our hedging policies all this has combined for the first two effects were negative because we have a negative effects of the currency impact and the hedging effects was positive but was not enough to compensate for sales in – on subsidiaries and conversion of that profit.

Something about financial income. We have to get into some detail because it is a complex situation there. If you look at the cost of net financial debt that was down, debt was down, interest rates were down. So all-in-all our debt cost is €100 million in financial expenditure. The ineffective portion of foreign currency debt increased significantly. At every meeting I said that this is an unpredictable item on our accounts difficult to analyze the charge traveled but economically the amount that we spend for hedging about €105 million was the same as the previous year. So we could expect next year we will have that item down. The net gains to do with the – on financial instruments and other financial assets we have Hermès, Hermès they had brought in about €120 million in dividends but that was an one-off dividend, it did not reoccur in 2013 and that is why this item is down compared to last year and that accounts for most of the variation in the net financial income.

Something about the financial structure it is sound, you can see that we have €27 billion in total equity, no need to emphasize that. And then we can move on to cash flow and well this is really cash flow as opposed to cash variation, cash flow was up €249 million before variations and working capital. So it is better than the profit from recurring operations. So this is a positive development likewise in working capital requirements where we did consume €617 million during growth you need to have more stock and therefore that’s feasible, pay able to our customers, but the overall effect is up almost €200 million and investment is about the same as last year at 1.7. So free cash flow is almost up €500 million up 20% compared to last year.

Now on the next slide you have the results of all of this. Looking at well the net debt is up €1 billion from €4.2 billion to €5.3 billion. So how did that’s come up well if you make it simple but you do have the details in the financial document. Three beginning cash flow, €2.3 billion in financial investment mostly Loro Piana and €1.7 billion in cash out for dividends. And so debt was up €1 billion, roughly €1.3 billion, €1.1 billion. But the main thing is that debt at end 2013 accounts for 19% of equity, so gearing is perfectly comfortable, the debt to equity ratio.

Let me just finish with dividend. What we’re suggesting is an increase, a 7% increase in dividend, 1.90 for a dividend because it was 1.2 already paid out in June, in December. So all-in-all 3.10 up 7% compared to last year and over five years it’s a 14% annual growth which is of course lowest attractive, this is where I have to say thank you for your attention.

Question-And-Answer Session


Well ladies and gentlemen, we are available to take your questions. Kindly state your name before asking your question. Thank you.

[Foreign Language]

Luca Solca – Exane BNP Paribas

Good afternoon. I’m from Exane BNP Paribas. A question on the brands, Fashion & Leather Goods, you seem to be investing considerably. If you were to prioritize the brands aside from Louis Vuitton that could make a significant contribution in terms of your operating profit. What was your hierarchy be? Another point you mentioned the strengthening of Wines & Spirits that was the first point for 2014. Could you perhaps give us some additional color on the programs on that front? And lastly Hermès, what’s the situation regarding your stake in the brand? Thank you.

[Foreign Language]

Unidentified Company Representative

Well the – to give you a hierarchy for the brands I mean is rather difficult to now betray really I mean why would I prefer the profit potential at Céline as compared to Fendi I mean that’s rather difficult. I believe that each of the brands offers fine potential, their size are different, some are smaller than others. Céline is getting bigger, (indiscernible) is growing fast, Fendi is already a major brand, we’re redirecting it and investing, Berluti has great potential, it’s a small company, we’re investing considerably. So since we have not decided to give the detail company-by-company otherwise it would take us forever I won’t do that exercise. I see none that has no potential to say that the potential will be revealed very soon, no that would be presumptuous. But I’m sure that we will get there for each of these brands and very interestingly, its already the case for some of them, but it can take time.

If you take the example of Céline I believe Céline was acquired in 1987 you’ll see. So today it’s a great business where we achieved excellent result in terms of growth, excellent products but we did go through a rather slow period and now it’s working very well. So with all these brands we need to find a right balance between the brand, design and it’s manager, management, we need a designer that fits with the brand and we need a manager who is really fully imbued with the brand and synergy whether it’s as I was explaining this morning to the leader of major school even if you are very strong in maths of course it’s a different part of the brain that you need to design products that appeal to the public now.

Wines & Spirits perhaps Mr. Navarre could give us the details on Wines & Spirits.

Christophe Navarre

Yes, thank you. Well what we can say is that we have a strategy that remains unchanged for many years and we will continue to implement it. It’s fully focused on brand building, improving their image, the value creation strategy, we see clearly the profitability of each of our brands, we were discussing the outlook for 2014 if we go around the world very rapidly, the U.S. very buoyant, we ended the year, well we’re off to a good start, this year very confident for North America, Latin America aside for a few ForEx changes.

In Argentina we’re very confident, a continent that’s great that we’re discovering Africa growing strongly. We look at the geographies, growth rates very enviable as compared to Europe and Asia we are opening new markets. So new opportunities as to China as Mr. Arnault said we reacted very swiftly and we’re ending – up in China. Things are moving. We’re creating a market for champagne that’s a new opportunity. We have a small but powerful portfolio. And let me end on a strength that’s remarkable and wait and see. We have a management team in place for a number of years now for Moët Hennessy and Chandon, they know their business, they’ve been in the company for at least five years that’s a big advantage when we compare ourselves with some of our peers. So I believe it will be in a heading which will continue to build on the efforts for our brands with new territories and that’s very exciting.

Unidentified Company Representative

So your final point part of your question was on Hermès. You have before you are a happy shareholder who is happy with the performance of the company and support its managed by simply regret that the reverse is not quite the case, but I’m sure that things will work out one day in the next 20 years well he never knows. Next question please.

Antoine Belge – HSBC

Antoine Belge, HSBC. I have three questions, number one, you said that amongst the three reasons why growth was slightly less this year was partly the situation in China and the situations, the political situation and it changes in the government, cabinet we’ve shuffled. Do you think this is a long-lasting situation that might change. Consumption patterns might there be a difference between Luxury, Watches & Jewelry as opposed to Wines & Spirits

Now on Louis Vuitton and Fashion & Leather Goods you saw that sales took off in Q4 remember that Jean-Jacques Guiony in the third – at Q3 said that high end products were doing well, but it was difficult to find adequate supply actually for leather goods, as the situation improved at all and does that account for this new this rebounding growth or is it simply because of better targeting of your sales? And regarding the sales could we have a breakdown between Wines & Spirits and Fashion & Leather Goods for the 139 million effects. And if you look at 2014 the hedging that you have for the yen in 2013 suited about 105, this slot level is less than that. So what hedges have you planned for 2014 and what were the effects be, the negative effects in H1 maybe Jean-Jacques can give us details about that?

Jean-Jacques Guiony

Well talking about China, well China it’s pretty difficult to arrive at a long-term outlook but for 2014 we can say that the effects of this new sales campaign will continue initially what we could see the effects that started with the Chinese New Year, week-on-week we monitor developments, we have positive signals coming in but it’s a big early days now as we, as you know last year there was an increased purchases in China but then purchases were made abroad, there was the anti-corruption campaign and also people wanted transparency on price advantage between various positions.

So if you compare Mainland China with Macau, Singapore, Hong Kong and Europe. Regarding the high end prices of course the effects of well there was more effect on the high end prices or the high end products and it’s true that Watches & Jewelry especially with the broader watches that did significantly better than other products because by contrast cosmetics of course that well that slowed down but the unit price is less. So we didn’t – that’s the reason why the advertising campaign didn’t cover cosmetics but rather Watches & Jewelry.

The other effects on Wines & Spirits I mean that we find that restaurants and other areas might had slowed down their purchases but there will be growth but less so this year. Well today China is a huge growth engine in terms of economic growth. If you compare economic growth in China with the Rest of the World I mean people nowadays say that I mean we had a discussion with experts early on, people were saying wow. The develop world will take over growth and takeover from the emerging economies that is something of an exaggeration. Emerging economies, of course, you have ups and downs. And in China you had and well and also in South America, Argentina, but the growth potential for emerging economies is quite significant and significantly higher than here. What we are looking at now is that 10-year or 15-year outlook of course and this might be more interested in the immediate future in 2014, but for us we are looking at the 10-year or 15-year potential. And I think we have reason to be confidently there may be ups and downs. They could be economic or geopolitical upheavals, but we have a strong trend and the real issue is whether the industrial countries will be able to keep growing, the United States seems to be on the way to recovery, but we don’t know about Europe, Western Europe.

Regarding the question on Louis Vuitton, you asked about leather goods and whether the supplies were too low. It is true. We find it difficult to keep up with demand. We have waiting lists that are growing longer and longer. So we find it difficult to keep up with demand. It’s true that there is a shortage of raw materials, but there is also a situation that workshops and craftsman need to be trained and the workshops need to grow in size to accommodate greater output and we can’t do this just overnight by flicking the switch.

Regarding foreign exchange by the way there was between Q3 and Q4 there was no sudden changes. It’s just not – it’s not as if products we are not able to produce in Q3, we are able to do in Q4. It was continuous. The €103 million in negative foreign exchange, in Wines & Spirits there was no negative currency impact. We had good hedging and that covered all the primary and secondary currency effects. There was the €100 or so million was mostly on the fashion and leather goods with Vuitton and the few and remaining on the other businesses. For the hedging you said that’s yen in 2013, well that’s of course past history, but in 2014 we have got about 75% cover for the end yen about 120, 129, which is a significant margin competitive presence space and for the dollar, about €1.31 to the dollar, and that’s again leads room for maneuver. For foreign exchange I – well I cannot make predictions. If you tell me what the – for the exchange it will be then I can tell you what the impact will be, but we will see as it goes on. But as you know the hedging effect is not enough to cover the primary and secondary impacts I mentioned, so even that may not be enough.

Unidentified Analyst

Question from JPMorgan. I have four questions if I may. The first on Wines & Spirits, what’s the situation regarding inventory levels, do you think they are at a sound level, will there still be some pressure during the first half of this year? And on the acceleration in Q4 up 7% on Fashion & Leather goods, can you confirm. I understand that Louis Vuitton was not affected by that acceleration, it was the other brands from I understood from what you said? Third point, on other brands and investments that will weigh on the profitability for Fashion & Leather goods this year, what you would anticipate for 2014, 2015? Can we expect sustained CapEx and at the expense of what brand because plainly in 2013 CapEx remained flat, so something was reallocated? My fourth question, what’s the growth in the total Chinese consumer if we include tourism for Louis Vuitton in 2013? Thanks.

Jean-Jacques Guiony

Mr. Navarre will speak to inventory levels.

Christophe Navarre

Yes, thank you. So inventories, this is something that we have been really keeping a close eye on. First thing, inventories at a very healthy level across territories notably in the United States where they are particularly low, which is a good thing on China. As Jean-Jacques said inventories are fully under control. The first quarter, there will be a slight difference between sell-in and sell-out. Sell-ins are slightly lower than last year, but the sellout is expected to come out positive. So overall everything is under control. I would say at a very healthy level. On the other points, fashion and leather goods Q4 there was an acceleration because Q3 was up 3.2% both for Vuitton as well as the other brands. CapEx for next year, we expect that there should be on a par. So it’s difficult to assess the start of the year, so budgets tend to come in around February, but we expect to be about the same level as last year. In terms of investments, it’s true that in 2013 there were a number of trade-offs in the CapEx far or less in real estate that allowed some of our brands suffer, but also Vuitton continued to invest Fendi, Berluti to continue to invest in order to expand mid-term as we mentioned earlier the Chinese consumer at Vuitton is up and like-for-like basis 5% versus last year, so all markets, the Mainland and the tourist markets. Next question please.

Unidentified Analyst

Good evening (indiscernible) what is the way to have China in overall revenue, that’s question number one. And the second question the new regulations regarding travel restrictions for Chinese national since October, has this has an effect on DFS and other brands since – in October and November?

Jean-Jacques Guiony

Revenue, China comes for about 8% and Greater China depending on whether you include Taiwan or not, but we include Macau and Hong Kong and of course depending on that you may include Taiwan or not, but 15% without Taiwan and 17% including Taiwan. Regarding the new travel restrictions for Chinese nationals the effects on DFS were rather minor, it’s only a few shops in Hong Kong, Singapore and Australia that were affected. The effects in terms of traffic was rather high in October and November, less so in December. There were more effects in traffic with less affects in sales because the people who travel less were people who are spending less anyway.

Further questions, yes. Sorry. Okay, the lady first.

Unidentified Analyst

Yes, if I could just come back for a point of clarifications, I could understand in your EBIT the line although seems to have improved to sharply versus what was expected in the second half?

Jean-Jacques Guiony

I can’t tell you why it improved just compared to what you expected. I mean I can tell you what happened, but not really as compared to your expectations further number of pluses and minuses, lot of things in that. Others holding costs, re-billings of some of these holding cost, the results of Royal Van Lent some real estate operations, the holding cost slightly down and the holding in that as a cost, so that slightly down. Royal Van Lent it doesn’t have regular earnings because when you sell ships for your own account, you book it in the year of sales, but not in advance when there are vessels that are built for an account of sales for own account a fair number of profits booked on that occasion. So – and the result was slightly down in 2013. So it’s the matter of those two items that accounts for the changes of the others line.

John Guy – Berenberg

John Guy from Berenberg. A few questions, please. First of all Mr. Jean with regards to with regards to your strategy on space growth for Louis Vuitton, you have made it clear in the past that you don’t want plant flags in Tier 3, 4, 5 cities in China, you want to retain exclusivity for the Louis Vuitton brand. Could you please comment as to how you see space growth for the Louis Vuitton brand going out for the next three years in terms of new space, but also in terms of extensions and refurbishments which is something that’s been ongoing for the last few years? Also in terms of capital allocation to the Louis Vuitton brand if we assume there are less store openings, can we assume that we are going to see similar levels of strong free cash flow generation over the course of the next few years as we have seen this year? And also in terms of – my final question in terms of what you see as a biggest opportunity in 2014 and what you think is the biggest challenge for the group? Thank you.

Jean-Jacques Guiony

Right, well, regarding space growth at Louis Vuitton I can confirm that the idea is not to develop in the second rate or fourth rate cities in China. We do want to keep our presence in China in iconic areas growth or space growth was about 8% or 9% in 2013 compared to 2012. It will level off to 4%, 5% over the next three or four years because as you pointed out we have decided to reallocate CapEx for Louis Vuitton towards renovation and refurbishment rather than opening new stores. Now, will this new capital allocation will this generate more free cash flow compared to this year? Well, this business has a significant potential, so it should generate not just profit from recurring operation, but cash flow as well, so there is no reason why that should be negative.

Regarding our objective for 2014, what I would say is this. And I know that they may be disappointing, but we are not changing strategies, we do not. I mean, we will look at all items that may lead to improving our position, our market position, our brand image, that is our strategy that is the underlying strategy. Now, it’s very exciting to see and then in, I mean to look for new products and earlier you mentioned Louis Vuitton, but that we have at Louis Vuitton the whole series of new products. We have a new designer. We and this – and itself is a major event for 2014, the fact that we will have new collections with a new designer at Vuitton and somebody with huge potential and that is exactly in line with the Vuitton spirit of creative or audacity [ph] with extreme refinement. I mean, you talk about challenges and opportunities, this is on the opportunity side of the sheet.

Now of course, Louis Vuitton is not the only brand, we have about 60 odd brands that you – well, of course the question is of a general nature, but it’s everything on the case-by-case basis how you propose to promote our brands. We want to look at Loro Piana. We want to develop that brand while remaining loyal to its brand image, its history. And of course the fact that we brought that in was a significant capital expenditure. So, it weighs on our profit, that we can bring a lot to the image, we can do a lot with that company, we can develop that company, we can – and we can make the most of their exceptional knowhow for high quality, high end cash near products and this is something that will – that we can draw for other brands.

They have a remarkable knowhow also in running their stores. I mean, I believe the way if you do your shopping at Loro Piana it’s probably not very cheap, it’s very beautiful. And you will see that the service there is absolutely outstanding. I have never seen this anywhere else and this was one of the very few brands outside the group and myself – in my personal capacity was a big customer and Mr. (indiscernible) can confirm this because on Saturday when we came together to look at dual products and we went to Loro Piana next doors to do our own shopping because it is the service is so superb that it was exactly sort of thing that we want to invest in, but we want to work with these people so as to really make the most of that incredible culture, service and disseminated throughout the group. And that’s an example and I have many of such examples, but that is not the purpose of this session, so that was on the opportunity side of the sheet.

On the challenging side of the sheet, while there are challenges everywhere on there, I mean, they are geopolitical risks. I mean, you don’t know what’s going to happen next. We mentioned this early on the Chinese and the Japanese are rattling sabers and that might get out of hand more probably not, but we don’t know. The Middle East is getting out of the hand there. We don’t know whether the situation will eventually come down, whether this will make for a more conducive business environment or not, we do not know the economic policy of the American fed. Now they are – they have decided to getting their foot off the gas, but we hope they don’t put the brakes on too quickly because of course that might jeopardize growth. And these are challenges, but of course these sort of challenges are outside our direct control that we have to prepare – be prepared for everything. There will be economic crisis in the coming years that is inevitable, but we gave been able to weather this and as Warren Buffett says that’s where the best operations, the best opportunities lie during times of economic crisis, what we have to do is remain in a sound financial position and of course our position – our financial position is very sound indeed. And so when we face the world where the economic – overall economic climate is in trouble where we tend to weather the storm better than our competitors, I mean, I am sorry this is sort of a general statement, but I am afraid we can be more specific than that. No further questions, yes, question there.

It’s already 7:05.

Unidentified Analyst

It will be a quick one on from outdoor [ph], could you give us an update on watches and jewelry, Bulgari profitability what can we expect to have a mid-term target for us and do you have profit differences by region and between watches and jewelry?

Jean-Jacques Guiony

Well, of course, I can’t be too specific, Bulgari is now very well integrated into the LVMH and for the past two years profitability has grown strongly particularly last year. And I missed on those well-satisfied with what – but I did pay rather a lot for the company. Yes, it was paid high price, but it will – it was worth a lot a fine brand. Yes it was expensive at that time, but it’s far or less expensive today, but I can’t going to details unfortunately. But it’s true that last year performance profitability was very encouraging. Things have really changed there and the basis there to move to strong profitability, the famous 20% that you often ask for, obviously it’s something we haven’t yet reached, but that’s achievable going forward.

Okay, are there any further questions, yes.

Mario Ortelli – Sanford C. Bernstein

Mario Ortelli, Sanford C. Bernstein. Another question on watches and jewelry, as the integration of Bulgari is completed has been setup and you said should we expect new store openings in the next year. And if possible if you can give us an idea for what store openings we have to express. And the second one on that is on your M&A strategy what M&A strategy should we expect from LVMH in the next years?

Jean-Jacques Guiony

Regarding Bulgari we – our strategy is to be very discriminating in the opening of new stores in 2014. They had two significance stores that will be opened in Asia that will make a big difference. The other brands also are discriminating watch makers have a pure sales strategy, but they – in the past they have invested in single brand shops and they will – we will continue to open new shops. Yes, well, even for watches we can open new stores. There will be a Hublot shop in New York on 5th Avenue. Yes, and we will – we have on the (indiscernible) a new store the Capucine on 5th Avenue last year as well for TAG Heuer. So well, TAG and Hublot will continue their strategy in terms of new stores. For the M&A strategy there is no strategy, there is no strategy. We are not proactive, we are only reactive. We have no ambitions to buy new businesses we are very pleased with the businesses we do have and they have good potential. Should anything attractive we know is the case for lower Loro Piana. We can afford to do this, but with sales it is not. An objective this is not I mean that was an opportunity that just happened to be there that we cannot turn down. But right now we have nothing specific in mind. I believe that’s it, sorry, sorry, please.

William Hutchings – Goldman Sachs

Good afternoon, it’s William Hutchings from Goldman Sachs. Just a broader question about your digital strategy as a group, how do you see this evolving both in terms of how you market your brands across your group but also e-commerce? And related to that is as you stop slowdown the pace of store expansion is this partly related to the potential you could see on e-commerce and digital? Thank you.

Jean-Jacques Guiony

It’s a very interesting subject obviously. I would say that we are totally committed on all the brands to be present in the virtual world for what concerns connecting with the customer and the communicating wherever the customer wants to communicate. Obviously, they are much more present there. So all of our brands need to build the same differentiation that we have built in brick and mortars and in conventional media in that space as well. When it comes to e-commerce that’s a little bit different. We have a huge business in terms of e-commerce with Sephora. Okay, it’s not in old countries but where we are present is strong growing and very profitable.

We are experimenting on a smaller based with some other brands and learning in a major way. Today, market wise in luxury. Okay, e-commerce, it’s only as more percentage whether 3% or 4% depending on the region. It’s often very discounted that’s not the model that we wanted to be involve with. And our idea is that e-commerce can be very attractive if we can add the same emotion and make something special if it’s just a transaction it’s a lot less interesting. On the other hand we will need to present in e-commerce because the customer will want to shop in a different way in different places and we will need to be there whether it’s a service or reach. So we are very committed to be present individual we are – and leading I think all of our brands out of the win data. We are little bit more prudent in e-commerce with exceptional support. Okay that’s the last two questions

Unidentified Analyst

I have three questions, one on the profit margin of fashion and leather goods, Vuitton was stable the other brands for the back two years they have the dilutive effect already in 2012 and the fact that you took (indiscernible) license will that mean better by 2014 the investments will have a neutral effect or do you expect that capital expenditure to have a negative effect in profit margin. About Sephora we didn’t say much but can you compare sales between Europe and the U.S. on the comparable basis and a few words about the strategy in China. How many Sephora shops do you have in China are they profitable at all? And have you revisited your long-term objectives. And as I need for the leather bags in Louis Vuitton. I think about – in 2012 was about one-third of sales and 20% in volume has this changed much in 2013?

Jean-Jacques Guiony

Regarding profit margin in fashion and leather goods the effects of non-retail brands, the effect there is neutral. You cannot leave out good R&D best surprises brand by brand. We are looking here at launch number of brands not everything goes necessarily according to plan and so at times it is difficult to see exactly where we are going. But overall the effect should be if not neutral at least than where it was in 2012 and possibly 2013.

Regarding Sephora, we don’t give you the details of revenue per square meter. Well Sephora had a good quarter double-digit growth in Q4, strong growth in Europe. And well double digits in the U.S., good growth in Europe and good progression in China. We have a 150 Sephora stores in China almost 30 new stores every year and we are profitable we are breaking even in China num.

Alright. Thank you, ladies and gentlemen and enjoy the evening.

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