Lvmh moet hennessy's lvmuy ceo christophe navarre on q2 2014 results Thank you.Ladies and gentlemen good afternoon and welcome to this conference call.I'm jean jacques guiony, the chief financial officer of the lvmh group. Before i begin i must remind you that certain information to be discussed on today's call is forward looking and is subject to important risk and uncertainties that could cause results to differ materially.For these i refer you to the safe harbor statement included in our press release. Let's now move to today's topic first half figures.I shall cover the first part with more significant numbers and chris hollis, louis vuitton luggage uk
group's head of investor relations will cover the main developments of our different business groups.After this, both chris and i will be available for your questions. The press release is available on our website as well as the slides for today's presentation and the interim financial report. So, let's move to slide two and i shall start with revenue for the first half.As you may see we ended the semester with most of our business groups in the positive territory.You will note that publish growth is lower than the organic growth despite a roughly 2% positive regulatory impact stemming from the first time consolidation of loro piana.We suffered an adverse currency impact of about 4% with a 4% drop in the dollar and 11% drop in the yen. Chris will comment on business groups in more detail, but the main points to be reminded are as follows. Fashion and leather is up 4% in organic terms with heavy impact from japan we shall discuss in a moment.Perfumes cosmetics is up 6% in organic terms beating most, if not all markets performances in its main geographies.Watches jewelry was a bit under pressure in the first half particularly with regards to watch component of the business.And finally selective distribution is showing a very strong performance with a 9% growth in organic terms. Let's move to slide three, where you can see a comparison between the first and second quarter in terms of organic growth.The key point to have in mind is that anticipated purchases ahead of the rate increase in japan boosted sales in the first quarter.They about two points to q1 organic growth as we discussed before, while q2 was affected about one point of decrease in the japanese business after the vat increased implementation in early april.If you take this out, our organic growth despite differences division by division was essentially stable in q1 and q2. Let's now move to slide four, which shows the geographic breakdown of revenues.Is one quarter, no major change on louis vuitton luggage sale
this chart in the first half of the year. Moving to slide five, you may see the organic evolution of sales in our main geographies.You will see the impact of the japanese vat increase which i mentioned before with plus 32% in q1 and minus 11% in q1.Yet overall japan grew 11% in first half.Other geographies showed similar growth in between q1 and q2.Europe is essentially stable while asia is impacted by the weakness of the wine spirits business in this region.Is showing mid single digit growth with a slight improvement in quarter two. Let's now move to the next slide where you may see our simplified profit and loss account for the period.Main comments are as follows.We already discussed revenues which is growing 3%.Gross margin was quite stable at 65.5% of sales sorry 65.8% of sales in the same period of last year. Operating expenses grew a bit faster than sales, excluding currency impact and the first time consolidation of loro piana, selling expenses grew about 9%, marketing 6% and nim expenses 4%. Profit from recurring operations is down 2% excluding currency impact we shall discuss this in a moment.Other operating income and charges are negative by 49 million reflecting mostly amortization and depreciation of intangibles at a level which is not entirely different from last year's. I shall discuss financial charges in a separate slide in a minute but no major difference compared to last year.Same comment for income taxes with tax rate being stable at around 30.5%.As a result group's share of net profit is down 4%. Let's now let at the profit from recurring operation which is broken by business groups on slide seven.Wines spirits had a difficult first half as i told you with minus 15% in profit from recurring operation.This is obviously the consequence of the 7% drop in sales in euro terms, chris will discuss in more detail this in a moment. Fashion leather did more flat penalized by negative currency impact and the complete strategic reshuffle at marc jacobs.To be noted that lv margin was stable in the first half of the year. Perfume and cosmetics shows a 2% increase in profit from recurring operations in line with sales in europe.Watches and jewelry was affected by softness of the watch business and the production and distribution reorganization currently being implemented at tag heuer.Otherwise the rest of the business was quite strong. Finally, with selective distribution, we had very solid first half at sephora, but dfs margins suffered a significant adverse impact stemming from both product mix and rising occupancy cost in airports. Let's move to slide eight and a word on the reasons for the change in the profit from recurring operations.You are familiar with this chart, what you can see is that the perimeter impact of 47 million on loro piana helped the profit by about 2% while currency had a negative impact of almost 9%.Excluding both these items, organic growth in profit would have been around plus 2%. Let's now turn to slide nine and the analysis of the net financial charges.A few points to mention, the cost of debt is slightly down despite a 25% rise in debt in connection with the loro piana acquisition funded at the end of last year, which formally benefited from lower interest rate obviously.The cost of hedging was a bit lower than last year and hopefully represent about one half of the total year's amount.Finally income on the financial investment portfolio was in line with last year the bulk of this amount as you know is dividend we received on our holding. Moving on to slide 10, where you can see the balance sheet structure.The structure of the balance sheet did not evolve much compared to 2013 year end.Total equity is in excess of 50% of the balance sheet whilst inventories represented about 17% of the total.Minus louis vuitton bags uk
2% compared to last year's number.Working capital used about 1.27 billion in cash, about 250 million more than last year.This comes mostly from an increase in inventory as well as decreasing payable which is normal at the end of the year but its magnitude was higher than it was last year.Finally capital expenditures are more or less in line with last year's number. I will finish the first part of the presentation with the comment on the group's net louis vuitton outlet online shop uk
debt which you can see on slide 12.The level of net debt reached 6.5 billion about 1.1 million higher than at the end of last year.As you all know, this increase was usual in the first half of the year while the payment of dividends to our shareholders and minority equity partners exceeds traditionally our net cash flow.The group's net debt at the end of june represents 23% of the total shareholder liquidities. I will now turn toChris who's going to review the main developments within our various business groups.Chris? Thank you jean jacques.I will turn the discussion on our business groups beginning with wines and spirits on slide 14.This business as you all know was impacted negatively by both of the destocking by distributors in china, following the anti extravaganza measures being taken there and by the impact of the strong euro.Consequently this group saw a 1% decrease in organic revenue growth on a reported basis, taking into account the negative currency impact.Revenues were reported down 7% at 1.677 billion compared to 1.705 billion in the year ago first half. Looking at the two main categories in the first half of 2014 champagne and wine organic revenues grew by 6% but after a negative 6% currency impact, reported revenues fell only slightly to 723 million compared to first half of 2013.For cognac and spirits, organic revenue declined 7% and after a 4% negative currency impact, reported revenue was 954 million compared to $1.68 billion in the year ago period. Profit from recurring operations for this business group declined 15% to 461 million for the first half of this year.Breaking this down, champagne and wine stood at 152 million in profit while cognac and spirits contributed 309 million for the first half.This reduction was primarily due to the negative mix impact resulting from the current destocking of cognac in china. For wine specifically the solid momentum underway at chandon was offset by the negative effect of the depreciation of argentina peso and a more limited contribution of some high end french wines due to a different phasing of shipments.