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Executives

Bernard Arnault – Chairman & CEO

Jean-Jacques Guiony – CFO

Christophe Navarre – Wines and Spirits

Analysts

Luca Solca – Exane BNP Paribas

Antoine Belge – HSBC Global Research

John Guy – Berenberg

Mario Ortelli – Sanford C. Bernstein & Co., LLC

William Hatchings – Goldman Sachs

LVMH-Moet Hennessy Louis Vuitton ADR (OTCPK:LVMUY) Q4 2013 Annual Results Earnings Conference Call January 30, 2014 12:00 PM ET

Bernard Arnault

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 all have received the press release, I’m sure it was circulated earlier, the results for the year are good because we’ve 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 open, 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 of Loro Piana.

Well, might you say generally growth is faster; I’m expecting that question so why has growth been of only 8% which is pretty good and the results slightly less. Three reasons, first reason, the global economic climate and this will come as a surprise to no 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, bit more in wines and spirits, you will see that a number of wines and spirits companies have presented their results and we’ve seen that iconic sales have been hit with Mr. Nava, we’re fortunate in being very responsive. So, bottles that weren’t sold in China were sold elsewhere, but it did 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, currencies had negative impact on business whereas in previous years it was a reverse currency impact was negative because the dollar declined and 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 were able to catch up through price increases, the 25% it cannot be retrieved overnight, so that did weigh. A few currencies in Latin America as you have seen are suffering from the strong Euro and the relative decline versus the dollar. So that’s the second factor.

Third factor that is more 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 too stronger growth and we’re developing a whole series of product thanks to the creation of Louis Vuitton, the new team who have joined Louis Vuitton. At Louis Vuitton we’ve a new designer who has just arrived, whose first collection will be presented on the 5th March, which he is very talented and it’s 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, the (Delfin) suit arrived that Joe 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 when they are very successful and sell well, but we can’t keep pace with them and 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, over 10% growth was slightly below the 10% mark.

Interesting to see, as you all have noted in the figures that profitability of fashion and 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 Piano, 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 Piano family remains shareholder with us 20%, it’s a family business, Antoine Arnault is now the Chief Executive for this company and we will continue its expansion in 2014 with exactly the same mindset that is the best finest products in terms of the materials with a timeless very appreciated style yielding interesting results because revenues for the 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 and spirits delivered an excellent performance, strong demand for Prestige Cuvees Champaign, you will have seen the Dom Pérignon bottled designed by Jeff Koons. This is now scotches collectors’ items in investors, investments, I don’t if there are any left, but I’m sure that in a few years time the Jeff Koons’ scotch that contains a Dom Pérignon bottle will probably be in a museum and will have appreciated considerably iconic and other fine bought by the U.S. market because we had to return to a number of products and in China the (Classium) Vintage continues to sell well with the same value creation strategy.

Fashion and leather goods I mentioned Louis Vuitton, the other companies are 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 [indiscernible], Celine. Great growth thanks to (Febe) and it’s team, we’ve invested considerably this is a company that’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 is a very fine brand, let me say that Marc Jacobs, the designer has left Vuitton and is now focusing on this brand that he will be developing separately and exclusively so that we can consider its floatation in the near future. Just to give you some figures into what the appetite of investors of analysts, I believe that in the groups accounts this company is valued at few hundred 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 Kos) and since we promised Marc Jacobs in the future managers of Marc Jacobs to have an IPO. They looked to what Michael Kos did and today Michael Kos much to everyone surprise is worth $15 billion in the stock market if we can do something along those lines or even half that I am sure everyone will be happy. It's an objective, I am not saying we will get there, we will see.

Perfumes and cosmetics, well that’s worked very well, very strong innovation. Christian Dior has managed with his perfumes. J’adore 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 J’adore is to become the world's number one. We will get there. We can't be far from achieving that. There are 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 have just launched the Sephora a teens' skin make-up that’s working, that’s selling very well. [Indiscernible] is also a big success. [Indiscernible] is continuing to grow strongly and opening of the iconic Elysées with a great restaurant in the basement run by [Indiscernible] I recommended and it's opened at lunch time and in the evening including on Sunday because it can open on Sunday and even on Sunday evening whereas next door it’s for, we had to shut the store on Sundays.

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 mid night. They were paid, they were going to be paid 25% more and driven home by taxi and the unions outside Sephora managed, try to do their, we tried our utmost to stop that but they were able to go to court and get us to close the store in the evening. So we were of course appealing that we are losing some of the revenues with 60 people who are employed in the evenings. Of course, we were going to keep them on. We are not going to let staff go for that reason but it's very strange to have to arrive at that situation and costumers who are buying on the store, I don’t… they will do that go and shop in London or elsewhere that’s all very regrettable.

Furthermore in perfumes and cosmetics, in a duration of this year of the new research and development center at Saint-Jean-de Braye, 500 researchers and this very modern state of the art building to strengthen our expertise on knowhow and it's off to a very good start.

Watches and jewelries strategy is continuing the good success achieved by BVLGARI this year. Good increase growth in jewelry. Success of the collection presented by Carlo Bruno called [indiscernible] it's a great success. We are unable to produce enough items, new collections has just been launched. New design concept that’s going to be tested in the United States, we are going to develop all that. So we are very confident and furthermore something that’s key in this business which we are trying to manage the watch, watch making as well as jewelry knowhow 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 want 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 Macao, they continue to buy and to increase their visits when you see in Macao, 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 shares in all markets. In the United States we will become the leading distributor of perfumes and cosmetics in the United States, which is remarkable performance because at the end of the 90s when we started in the United States, people were saying you might as well close the store because it will 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 big success. So that was for 2013.

Looking ahead to 2014, I won't read out everything that’s on the slide. But we will continue to implement the same strategy. There is nothing new but in terms of strategy we are continuing with a lot of product innovation. The most important thing here which really explains why we are so confident or at least reasonably confident as regards to 2014, it's the groups’ 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 student wish to work for and that’s why LVMH is succeeding in somewhat more challenging environment and whatever the business plan is, we manage to grow. Thanks to highly motivated, highly competent teams that fully invested in the business, in the stores, in recruitment. I won’t go to more detail because I am sure you will have questions in due course and I will hand over now to Jean-Jacques Guiony, our CFO for the figures because I am sure that’s what you are most interested in.

Jean-Jacques Guiony

Hello. Well, I am not sure if it's the figure you are after that. I will try and keep you interested all the same. Let’s start by revenue with the right hand side of this slide as Mr. Arnault said, we are just below €30 billion, up 4% at (121150). We have 8% in organic growth and I will tell you more about this in the more detailed analysis and negative effect of 4% from foreign exchange and you know that in previous year 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 the organic growth in dark blue is stable quarter-on-quarter 7988 percent. So no major change there in the way which we have been growing. However, the foreign exchange factor has deteriorated minus 3 at the beginning of the year, minus 2 and then minus 6 and again minus 6. 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 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, this we are getting close to double-digit this year and this is driven all sorts of things; cosmetics for our own brands or through Sephora. So that did extremely well in 2013.

Wines and spirit specially 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 economic has picked up a bit in that account for that. In Asia as a whole not including Japan, Asia has enjoyed extremely good growth and is of course a significant portion of our growth at 13% even though that number is also to do with the concessions in the Hong Kong airport 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 a disaster either, if you have steady growth even at 2% or 3%, it's perfectly honorable for Europe. Now if we look again at this 8% organic growth on a business by business basis, we look only at organic growth here, you can see except for selective retailing, everybody is doing about 5% or 6% in growth admittedly for wines and spirits up 6% but also fashion and leather goods 5%, perfumes and cosmetics 7%, watches and jewelries slightly below, but not significantly but selective retailing has enjoyed remarkable performance but of course, this is to do also with the concessions at Hong Kong airport but even without that, you still stand out at about 12%. So selective retailing certainly faired extremely well with double-digit group.

Likewise, if you look at the last quarter for Q4 you will find that Q4 was pretty good. There was a stepping up of growth not in wines and spirits and you may have questions about that but there was significant destocking that was run and entirely performed in China for Cognac. We had too much stock there and of course, but the rest of, well the market has 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 and 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 and cosmetics Asian driven growth, Japan and Asia drove growth in cosmetics and perfumes. Watches and 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 there 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 growth 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 & Selling expenses up 7% so it would be on a constant exchanger basis would be 10%, if you look at selling expenses that is the cost of our retailing network, our own shops were the other shops in the full-year therefore the Hong Kong end of foreign exchange effect we would be at only 3% likewise. General, G&A would be 6% without the foreign exchange effect. So the profit stands at up was 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 from recurring operations would be about 6% as opposed to 2%.

Operating profit is, well operating income and expenses down we have mostly depreciation of intangible assets, so that’s where we have less this year than last year, that’s sorry that was from net financial income, income tax no comments this there actually we are slightly down turning to 31% compared to last year, it is this paradoxical that we should be paying less tax this year than last year, this is because we have recognized number of differed tax assets and so that meant that the income tax was less. Minority interest is up because of the improved performance of wet and see, 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 one is significant, the overall improvement is up 2%, but just let’s look at Wines & Spirit compared to the Euro sales, Wines & Spirits you are looking at 20% if you have, it was 20% only 13% for if you take into account the foreign exchange effect so 1% improvement and sales generated at 9% improvement in profits.

For Fashion & Leather goods the margin is down even though the revenue is up. It's not to do with 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. This investment is costly but necessary to improve our image and make our brands attractive.

Perfumes and cosmetics some pressure on the top line because sales were up 3%, profit up 2% good year for watches and jewelry. The sales were down 2% in Euros, the operating profit is up 12% so that’s the significant difference. Significant improvement of the margin attributable largely through BVLGARI, selective retailing was slightly down compared to the growth in sales but this is just sorted 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 in that account for the 2% overall improvement in profits from recurring operations.

The foreign exchange effect we were used to positive effects, well this time it's not – is the other way around. We were getting used to that in H1. We had about 60 million in positive currency impact but over the year and the complex situation has brought 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 negative effects of the currency impact and the hedging effect was positive that was not enough to compensate for sales in our subsidiaries and conversion of that profits.

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 data, that was down. That was down, interest rates were down so all in all our debt cost us 100 million in financial expenditure. The ineffective portion of foreign currency, that increased significantly at every meeting I said that this is an unpredictable item on our accounts. It's difficult to analysis, the charge traveled that economically the amount that we spend for hedging about 105 million was the same as the previous year. So we can expect that next year we will have that item down.

The net gains to do with our financial instruments and other financial assets, we had Hermes. Hermes has bought in about 120 million Euros in dividend but that was in one-off dividend that didn’t reoccur in 2013 and that is why this item is down compared to the last year and that accounts for most of the variations 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 emphasis that. And then we can move on to cash flow and well this is really cash flow as opposed to cash evaluation. Cash flow was up to 149 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, well we did consumed 617 million during growth. You need to have more stock and therefore debt is payable to our customers but the overall effect is up almost 200 million Euros and investment is about the same as last year, 1.7, so free cash flow is almost up 500 up 20% compared to last year.

Now on the next slide, you have the results of all this looking at well the net debt is up 1 billion from 4.2 to 5.3 billion. So how did that come about? Well to make it simple but you do have the details in the financial documents, 3 billion in cash flow, 2.3 billion in financial investment mostly European and 1.7 million in cash out for dividend. So that was up 1 billion roughly 1.1 billion but the main thing is that that 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 are suggesting is an increase of 7% increase in dividend. 1.90 for dividend because there was 1.2 already paid out in December. So all in all 3.10 up 7% compared to last year and over five years it's 14% annual growth which is of course most attractive. This is where I’ve to say thank you for your attention.

Question-and-Answer Session

Bernard Arnault

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

Luca Solca – Exane BNP Paribas

Good afternoon. I am from Exane BNP Paribas. A question on the brands of fashion and leather goods, you seem to be investing considerably if you were to prioritize the brands aside from Vuitton that could make a significant contribution in terms of your operating profit. What would your hierarchy be? On another point you mentioned the strengthening of wines and spirits. That was the first point for 2014. Could you perhaps give us some additional color on the programs on that front? And lastly Hermes what's the situation regarding your stake in the brand? Thank you.

Bernard Arnault

Well, to give you a hierarchy for the brands I mean it's rather difficult to knob it truly, I mean why would I prefer the profit potential of Celine 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 smaller than others Celine is getting bigger. (Shevashi) is growing fast. Fendi is already a major brand we are redirecting it to investing. Berluti has great potential. This is small company we are 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 am sure that we will get there for each of these brands very interestingly. It’s already the case for some of them but it can take time if you take the example of Celine I believe Celine was acquired in 1987 you see. So today it's in great business where we achieved excellent results in terms of growth, excellent product 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 its management. We need a designer that fits with the brand. 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 win very strong in maths of course it’s a different part of the brand that you need to design products that appeal to the public. Now Wines & Spirits perhaps Mr. Neva 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 if fully focused on brand they already improving their image of value creation strategy, we see clearly the profitability of each of our brands we were discussing the outlook for 2014 if we go round the world very rapidly, the U.S. very buoyant we ended the year well we are after a good start this year, very confident for North America, Latin America side for a few Forex changes in Argentina were very confident that continent that’s great they were 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 are enduring up in China, things are moving we are creating market for champagne that’s the new opportunity we have a small but powerful portfolio and let me end on his strength that’s remarkable and wait and see, we have management team in place for a number of years now, wait and see and they know their business, they have been in the company for at least five years that’s the big advantage when we compare ourselves with some of our peers. So I believe it will be a year during which will continue to build on the efforts for our brands with new territories and that’s very exciting.

Bernard Arnault

So your final point, part of your question was on Hermes, you have before you a happy shareholder who is happy with the performance of the company and supports it’s, I simply regret that the reverse is not quite the case but I am sure that things will work out one day in the next 20 years one never knows. Next question, please.

Antoine Belge – HSBC Global Research

Antoine Belge, HSBC, I have three questions number one you said that among the three reasons why growth was slightly less this year was partly the situation in China and the situations, the political situations and the changes in governmentary cabinet reshuffle. Do you think this is long lasting situation that might change consumption patterns? Might there be a difference between luxury watches and jewelries as opposed to wines and spirits? Now on Louis Vuitton and fashions and leather goods, you saw that sales took off in Q4. I remember that in the third in the Q3 said that high end products were doing well but it was difficult to find adequate supplies specially for leather goods. Has the situation improved at all and does that account for this new – this rebounding growth for or is it simply because a better targeting of your sales and regarding the sales could we have a breakdown between wines and spirits and fashion and leather goods with 139 million effects, and if you look at 2014, the hedging that you have for the Yen in 2013 stood at about 105, the slot level is less than that so what hedges have you planned for 2014 and what would be the effects be,– the negative effects in H1? Maybe Jean-Jacques can give us details about that?

Jean-Jacques Guiony

Well, it's only about China. Well China it's pretty difficult to arrive at long term outlook but for 2014, we can say that the effects of this new sales campaign will continue to initially but we could see the effects that’s started with the Chinese New Year week on week on monitored developments. We have positive signals coming in but it's a bit early days now as we – as you know last year there was a increased purchases in China but then purchases were made abroad. There was the anti-corruption campaign and also people wanted more transparency on price advantage between various positions. So we compared Mainland China with Macao with 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 and jewelries especially with the brother watches, that did significantly better than other products because by contrast cosmetics of course that, well slowed down but the unit price is less so we didn’t that’s the reason why the advertizing campaign didn’t cover cosmetics, but rather watches & jewelry.

[Audio Gap] We are looking at now is 10 or 15 year outlook of course and this might be more interested in the immediate future in 2014 but so as we are looking at the 10 or 15 year potential and I think we have reason to be confident there maybe ups and downs, they could be economic or geopolitical up evils but we have a strong trend and the real issue is whether the industrial countries will be able to keep growing.

The United State 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 the leather goods and whether the supplies were too low. It is true we find it difficult to keep up with demand, we have waiting list 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 craftsmen need to be trained and workshop to grow in size if it to accommodate greater output and we can’t do this just overnight by flicking a switch.

Regarding foreign exchange, by the way there was between Q3 and Q4 there was no, there was no sudden changes so it’s not as if products we’re not able to produce in Q3, we are able to do in Q4 it was continuous, 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 – there are hundred or so million was mostly on the fashion with Vuitton, and the few in the remaining on the other businesses for the hedging you said that’s a Yen in 2013 well that’s of course past history but in 2014 we have got about 75% covered for the Yen about 129 which is a significant margin compared to the present stage and for the dollar about 1.31 to the dollar and that’s again leaves room for maneuver for foreign exchange I well, I cannot make predictions if you tell me what the foreign 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 one might not be enough.

Unidentified Analyst

Question from JP Morgan. I’ve four questions if I may. The first on wines and spirits, what’s the situation regarding inventory levels do you think there is sound level? Will there be still pressure in the first half of this year and on the acceleration in Q4 up 7% on fashion and 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 at point on other brands and the investments that will round the profitability for fashion and leather goods this year. What you anticipate for 2014/2015? Can we expect to sustain CapEx and at the expense of what brand because plainly in 2013 CapEx remain flat so something was reallocated. My first question what's the growth in the total Chinese consumers if we include tourism for Vuitton 2013? Thanks.

Bernard Arnault

Mr. Neva will speak to inventory levels.

Christophe Navarre

Yes. Thank you so inventories. This is something that we have been really keeping 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 would be a slight difference between sell-in and sell-out. Sell-ins are slightly lower than last year but the sell-out is expected to come out positive. So overall everything is under control. I would say at 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 they should on a par. So it's difficult to access at the start of the year. So budget tends to come in around February but we expect it 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 less in real estate that allowed some of our brands Sephora but Vuitton to continue to invest. Fendi, Berluti to continue to invest in order to expand midterm as we mentioned earlier. The Chinese consumer at Vuitton are up and like for like basis 5% versus last year. So all market, the Mainland and the tourist markets that is.

Bernard Arnault

Next question please.

Unidentified Analyst

Good evening, [indiscernible] from Garnier. What is the weight of 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 had an effect on DFS and other brands since October and November?

Bernard Arnault

Revenue from China comes about 8% and greater China depending on whether you include Taiwan or not, but we include Macao, and Hong Kong and of course depending on if you may include Taiwan or not, but it's 15% without Taiwan, 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 were rather high in October and November, lesser in December. There were more effects in traffic with less effect in sales because the people who traveled less were people who were spending anyway. Further questions yes? Sorry. Okay, the lady first.

Yes, if I could just come back for a point of clarification. So I could understand in your a bit the line other seems to improved to shop versus what was expected in the second half. I can't tell you why it improved as compared to what you expected. I mean I can tell you what happened but not really as compared to your expectations fairly number of pluses and minuses lot of things in that others, holding cost, rebilling of some of these holding costs. The results have Royal Van Lent, some real estate operations, the holding cost slightly down and the holding in that there is the cost so that’s slightly down. Royal Van Lent doesn’t have regular earnings because when you sell ships for your own account, you book it in the Euro sales but not in advance when there are vessels that are built for an account. I have sales for own account fair number of profits booked on that occasion and the result was slightly down in 2013. So it's the net 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. Arnault, with regards to your strategy on space growth for Louis Vuitton, you have made it clear in the past that you don’t want to plant flagships in two or three, four or five cities in China you want to retain exclusivity for the Louis Vuitton brand. Could you please comment on 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 is the biggest opportunity in 2014 and what you think is the biggest challenge for the group? Thank you.

Bernard Arnault

Alright, regarding space growth at Louis Vuitton 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% or 5% over the next three or four years because as you pointed out, we have started to reallocate CapEx in 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 flows 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 this maybe 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, I mean, to look for new products and earlier you mentioned Louis Vuitton but we have at Louis Vuitton the whole series of new products. We have a new designer and this in itself is a major event for 2014, the fact that we will have new collection with new designer at Vuitton and somebody with huge potential and that is exactly in line with the Vuitton spirits of creative or audacity 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 general nature but it's everything on the case by case basis how do 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's 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 cashmere products and this is something that we can draw on for our other brands. They have a remarkable knowhow also in running their stores. I mean, the reason why is, you do your shopping at [indiscernible] it's probably not cheap but 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 where I myself in my personal capacity was a big customer and can confirm this because on Saturday when we came together to look at the jewel products and we went to Lora Piana next doors to do our own shopping because it is this – the service is so superb.

This is exactly the sort of thing we want to invest in, that we want to work with these people so as to really make the most of that incredible culture of service and disseminated throughout the group and that’s an example and I have many, 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, well there is challenges everywhere, aren’t there? I mean there are geo-political I mean you don’t what's going to happen next. We mentioned this earlier on the Chinese and the Japanese are rattling sabers and that might get out of hand, well, probably not but if we don’t know. The Middle East is getting out of 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 have decided to getting in their foot of the gas. But we hope they don’t put the brakes on too quickly because of course that might jeopardize growth.

I mean these are challenges but of course these sorts of challenges are outside our direct control but we have to prepare for everything. There will be economic crisis in the coming years. That is inevitable but we have been able to weather this and Warren says that’s where the best operations, the best opportunities lie in during the times of economic crisis but what we have to do is remain in the sound financial position and of course our position are – our financial position is very sound indeed and so when the phase of the world or the economic overall economic climate is in trouble where we tend to weather the wet, this is too embedded in our competitors. I mean, I am sorry this is sort of general statement but I am afraid we can't be more specific than that. No further questions? Yes. Question there.

It's already 7:05.

Unidentified Analyst

It will be a quick one from Odo. could you give us an update on what watches and jewelry Bulgari good profitability? What can we expect? Do you have midterm target for us and do you have profit differences by region and between watches and jewelry?

Christophe Navarre

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

Bernard Arnault

Are there any further questions? Yes.

Mario Ortelli – Sanford C. Bernstein & Co., LLC

Mario Ortelli, Sanford C. Bernstein. Another question in watches and jewelry. As the integration of Bulgari is completed as we set and said, should we expect a new store opening in the next year and if possible if you can give us an idea of what store openings we have to expect and the second one is on your NMA strategy. What NMA strategy should we expect from LVMH next year?

Bernard Arnault

Regarding Bulgari we our strategy is to be very discriminating in the opening of new stores in 2014 there are two significant stores that we will be opening 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 where they will – we will continue to open new shops.

Yes well, even for watches we can open new stores. There will be a (Eblue) shop in New York on 5th Avenue. Yes and we have on the [Indiscernible] new store, on 5th Avenue last year as well for TAG Heuer. So, well TAG and Eblue 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 only reactive, we have no ambitions to buy new businesses. We are very pleased with the business we do have and they have good potentials. Should anything attract I mean that was the case for Lora Piana. We can afford to do this but in not itself it is not an objective. This is not I mean that was an opportunity that has happened to be there that we cannot turn down but right now we have nothing specific in mind. I believe that’s it up. Sorry. Sorry. Please.

William Hatchings – Goldman Sachs

Good afternoon, its William Hatchings from Goldman Sachs, just a broader question about your digital strategies as a group. How do you see this evolving both in terms of how you market your brand across your group but also e-commerce and related to that is as you start to slow down the pace of store expansion is this partly related to the potential you could see on e-commerce and digital? Thank you.

Bernard Arnault

It's 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 that 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 [indiscernible] 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. It's not in all countries but where we are present is strong growing and very profitable. We are experimenting on a smaller base with some other brands and learning in a major way. Today market wise in luxury e-commerce it's only a small percentage whether it's 3%, 4% depending on the region. It's often very discounted that’s not the model that we want to be involved 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 the transaction, it's a lot less interesting. On the other hand, we need to be present in e-commerce because the customer will want to shop in a different way, different places, and we need to be there whether it's a service or reach. So, we are very committed to be present in the virtual world in leading. I think all of our brands out to win that, we are little bit more prudent in e-commerce with exception of Sephora.

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 on the other brands for the past two years they have had diluted effect already in 2012 and the fact that you took the license will that mean that 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 better, can you compare sales between Europe and the US on the comparable basis? And if you were to start 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 finally for the leather bags in Louis Vuitton, I think about in 2012 it was about one third of sales and 20% in volume. Has this changed much in 2013?

Bernard Arnault

Regarding profit margin in fashion and leather goods, the effects of non Vuitton brands the effect there is neutral. You cannot leave out good oriented bag supplies brand by brand. We are looking here to a large 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 if it is less than what 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, a double digit growth in Q4, strong growth in Europe and well double digit in the U.S. good growth in Europe and good progression in China we have 150 Sephora stores in China almost 30 new stores every year and we are profitable, we are breaking even in China now.

All right, thank you ladies and gentlemen and enjoy the evening.

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