LVMH Moët Hennessy - Louis Vuitton, Société Européenne
Q4 2018 Earnings Call Transcript

Published: 29 Jan 2019

[Chris Hollis:]

Ladies and gentlemen, it's my pleasure to welcome you here for the presentation of LVMH Group 2018 Annual Results. I'm especially pleased to be welcoming you here because once again the results are quite good. We've broken several records. So my pleasure to announce this -- you already have the figures; revenue of €46 billion. Operating -- profit from operations going above the 10-day profit from recurring operations, going with a €10 billion mark, net profit is €6.34 billion, up 18%. Available cash flow €5.4 billion, 16%, that going down by 23%. This excellent performance is thanks to several different factors; the main one being the effectiveness of our teams, I'd very much like to congratulate them, many of them are here. I'd like to greet them and congratulate them because this is thanks to their daily work. They've worked very hard and we know that we combined quality, creativity, people come up with some amazing original ideas bringing often -- bring us towards some unexpected novelties very often, the organization has been very tight so the products that come from these very interesting ideas are then distributed worldwide in the most highly organized fashion possible, thanks to all of this. Furthermore in 2018 we've benefited from the global market, global economy that were buoyant; the economy was positive in all the regions where we have points of sales. This very buoyant economy; well the question is will this continue for years to come. It's been buoyant for a fair few years now. Currently, since the 2008 crisis the economy has been doing well but supported often by various phenomena such as low interest rates, sometimes negative interest rates. Furthermore, there has been available cash quite abundant available liquidity's worldwide, the question is whether this will continue indefinitely, obviously, no. When will there be a turnaround that's the big question. I think as I've already said, as I said last year; we need to expect that at some point there is going to be an economic crisis, not to try to slowdown investors in any way but I'm just saying that we are being cautious. We know that nothing goes on forever and we know that this economic cycle won't go on forever either. Nevertheless, I can say that 2019 has gotten off to a good start, I won't give you the specific figures for January but January is also looking very good. My view regarding the arrival of a recession which will happen at some point, probably due to a hike in interest rates we've already seen in the U.S., since interest rates went up things got a little bit more difficult, listed companies stock prices -- maybe a little bit less extravagant than previously. That trend will come to Europe at some point, I don't think right away; I think 2019, the overall environment should remain buoyant but necessarily in 2020 or 2021 there will be a similar phenomenon to what we're seeing today in the United States. That being said, the long-term view which has being the success of LVMH, the reason this group has been successful; for 20 years we've seen across the board increases in people's purchasing power and our customers living standards, that's going to continue. For the medium term, therefore, we can continue to be very optimistic, I am. This also why we continue investing in this group and very much believe in it's prospects. The environment, the economy was buoyant in 2018. I just talked with some of the results of growth in business which is well balanced in all of our markets. If we take a little bit more detailed look at the various business areas, all of them have been very successful in 2018. Let's start with Wines & Spirits; Wines & Spirits would observe here and 2018, harvests were excellent. So very good potential for supply Champagnes & Wines grow, especially thanks to price increases. We also observed very good growth here in the most exceptional qualities, and most expensive ones. Cognac Hennessy's success has been quite exceptional, very soon Hennessy may well be the number one spirits wine -- spirits brand in the world, it's second ranking currently, and that's just because of supply inventory constraints that were not number one yet but it's very interesting to see that that brand is now developing well in all continents, not in France because the French don't drink that much cognac but in Asia, in China, specifically in the U.S., Hennessy is wildly successful. I won't go into detail. Other brands, other group spirits brands looking good as well. Just to mention, some very exceptional wines; [indiscernible] all of them have been top rated, all of them have a great deal of potential. We're seeing a lot of consumption, great to taste for top wines, vintage wines growing worldwide so we can be quite confident to move on to Fashion & Leather Goods. We can say that performance of our flagship brand, Louis Vuitton, is exceptional as has always been the case. I can say we've gone well beyond the €10 billion in sales in 2018, and this isn't just a target but a target -- the target, the objective in our business is quality, is desirability, that's the objective we set our sights on at Louis Vuitton, Dior, and the other houses, it's not a target regarding revenue; revenue and profits are a knock-on effect or consequence of this. We could probably generate even greater revenue but we always endeavor to either most desired brand in the world. For instance, at Vuitton, as you know, we never organize discounted sales, we don't sell Vuitton products through outlets in discount malls worldwide. No, we could do that, that would be very successful; we've never wanted to do that. At Vuitton, thanks to the Vuitton teams, thanks to the exceptional designers we have; Nicolas Ghesquière for Women's Collections and now Virgil Abloh, who just came on-board this year 2018 for Men's Collections. We've got the creative team which is one of the top teams in the entire world, we've got the products team led brilliantly by Delphine [ph], we're trying to underscore that and develop products based on the designers ideas, and they're all highly desirable products. This is the -- all then orchestrated and coordinated worldwide through the stores that are all appropriate and distinctive stores; what we were saying with Michael [ph] -- we're trying not to have one single model stores that are suited to each country, each location, each region so that we're providing our customers with distinct feeling of diversity and similarity nonetheless when they go to Vuitton store. Also in passing that Louis Vuitton to keep pace with demand is hiring many craftsmen and women building workshops in France, and for instance in 2018 built a workshop in St. Florence [ph]; therefore further projects to be built in 2019. You realize to build an open workshops you need to train employees, that's something that takes time, you can't do it overnight, and this is why when you want to attain the best quality you need to to some degree hold back growth because of your concern for quality. Therefore, Vuitton is booming but we're controlling the growth at selective growth and again our target is first and foremost desirability, we certainly have designers who create a great tool of buzz in the social networks and so forth, but we are targeting is quality, sustainability, timelessness of our products. It's a unique blend at Vuitton, modernity together with the history of this house, travelling and contemporary products and everything that we can create. I could speak at length on this. To move on to Dior now; the first year within LVMH very satisfactory with excellence growth in all areas where Vuitton is established. For Vuitton, sorry, I wanted to make another point; new stores, new points of sale, the ones that we are currently opening, I said they are distinctive, I'm thinking of three specifically that are different; Sydney, which will be quite original, then the location in Osaka, currently being built, this will be a Vuitton Missa [ph], it's tremendous. And then the [indiscernible] access which will open this year, one in London, Bond Street; I've seen the work there and I think it's going to be truly extraordinary. Now Dior; to mention Dior here as well we've got woman products designer and a designer for men's product, very successful both of them. Their products aren't yet all in the stores but when they arrive there they sell very quickly, they're selling very well. Dior's growth rates are very good and here is well with Couture, the objective is for the brand to be the most desired fashion and old Couture house in the world, and we'll be talking about this for the next year, we need to keep some things in store for you for future meetings. Other brands; some highlights. The arrival of a new designer, Hedi Slimane at Celine. At Celine, the first men's and women's runway, and a second men's re easure [ph] last week, amazingly successful. Hedi Slimane, as I said, he is very much on the way to enable that brand to reach €2 billion in revenue. Silano [ph] in-charge and I'm sure that will be successful. But here we can't do things -- our speed will be too great, either we've got news or new design, new products, this takes time but is certainly on the right track, commercial success is certainly with us for men's products that I specially look at, and young people in my family, we often have a hard time buying them because they've already been sold. Other brands, there is also developing the Rimowa suitcases and Bernard Arnault. First fashion show last week, and I think that the brand pretty lead us for men's products should very much benefit from their arrival. Perfumes & Cosmetics now; the star brand here as well is Dior, excellent performance. You've got the iconic perfumes, J’adore and Miss Dior, that continue their extraordinary growth so forth men's fragrance, one of the top men's fragrances in the entire world, the number one men's fragrance in France, you may say France is small but worldwide we're at the very top. I believe within a year or two, we'll see Sauvage, thanks to the efforts -- commercial efforts of -- also Dior and the amazing success of the fragrance itself, the scent, as well as it's presentation, it's image and so forth; I believe we should be successful in getting to the very top worldwide. Many successes are we're going to talk about to the success of Dior's makeup, whether it's -- it's continuing. We're also developing very successfully skincare called Prestige for the women here who like creams, and these products, they contest this and they'll see us really excellent. Other brands, Guerlain; Guerlain also doing beautifully in 2018 with a perfume called Mon Guerlain which is developing very well. And then a major success for lipstick, Rouge G, slightly more expensive than usual lipsticks, slightly more expensive; it's very interesting kind of reasoning case, little mirror inside and it's in great demand. I won't go through all the other brands. Fragrances with let down deep, [indiscernible] very successful, incredible success with Rihanna and Fenty Beauty launched in 2017, 2018 reaching around €500 million in sales starting from zero; we must really emphasize this, that sort of buying business, some people would do that, buying hundreds of millions, here we started from zero and already reached almost €500 million in revenue. This is next to Chris who found this and managed to build it. We could speak at length about perfumes and cosmetics. To move on now to Watches & Jewelry; we'd like to emphasize the somewhat surprising and remarkable success of Bvlgari, strong growth for Bvlgari. Especially in jewelry, Bvlgari with it's basic line, Serpenti, you are familiar with Bvlgari Sephora [ph], and B.Zero1, and now Dior Fiorever, recently launched and very successful. Also watches; Tony will be able to shows us his watch; this is the slimmest -- thinnest watch in the world called Octo Finissimo, got all the awards possible in watchmaking. Do take a look at it, it's truly magnificent. It's difficult to make enough of them that are so successful. Under watches, there is TAG Heuer with it's classic products, Formula One, Hublot, [indiscernible], he set it up and then sold it to us continuing to track this. Hublot is a brand that's becoming ever more successful, the growth is quite amazing, becoming very successful as well in Asian markets. Lastly Chaumet; Chaumet developing well, Chaumet is an exceptional brand, I believe it's the oldest French jewelry maker, started back under Napoleon Josephine being client. They just did an amazing exhibition in Tokyo, very successful, so they are developing their sales well. And to complete my list of activities I'd talk about selective retailing; first of all, Sephora. Sephora's success continues, Sephora gaining market shares, thanks to the team that Chris put together for Sephora. Our success is global. Sephora is currently the number one distributor of selective perfumes and cosmetics worldwide, look at it throughout the world including the Asia, the Middle East, Europe, the United States; growth everywhere has been quite tremendous, outlook is good. Sephora, especially in the U.S. is the number one internet seller for cosmetics. This year in selective retailing, DFS has shown quite a substantial turnaround in profitability for two reasons; firstly, an uptick in business in it's stores in Asian markets. Furthermore, thanks to the closing of the Hong Kong airport concession, it was losing money, the contract had never been negotiated. So that's now been turned around. DFS in 2018 was very profitable, the outlook is very good, we're seeing ramp up of Italian stores and in the near future opening of the store in summer intern [ph] in Paris, that will be in 2020. Lastly, the Belmond shares; it's -- probably, the Paris department stores had the best growth rates in 2018. Before concluding, I'd like to say that all of this is very positive giving us every reason to be proud, all of our employees and all of our managers can be proud. I'd like to emphasize briefly two points; firstly, all of us pay careful attention to the environment to sustainable development. I'd also to mention parenthetically that this has been a concern of ours for 25 years where the group that began environment activities, probably the longest to go of all the CAC 40 companies; we have a very active program, we try to make sure that a large proportion of our products are designed with the environment in mind, we make sure that we're here the top standards worldwide, I won't dive into detail but we try to cut our greenhouse emissions. This year we're doubling the carbon fund that we set up, we also are constantly striving to improve the economic environmental performance of production sites and our stores, our programs carefully kept track of -- I'd also say that it's received many international awards and they are recognized by various organizations. The second point I'd like to mention to you; during our meeting today we have our managers and executive members, Board of Directors, and executives, whoever are part of this, it's our economic footprint. In 2018, in France, we hired around 13,500 people; today there is sometimes criticism, people claim that capitalist groups in 2018 -- man, that we're doing the right thing where we paid some €1.2 billion in taxes in France last year, if it weren't as economically successful, if it were, then we wouldn't be able to pay taxes in that order. France, except under 10% of our sales making up 50% of the taxes we pay worldwide though. We have over 30,000 employees, I mentioned hiring them a moment ago. We contribute to investments in France, last year we invested over €1 billion in building industrial sites, I mentioned Vuitton, also I'd mention Wine & Spirits, Cognac, Champagne; we've got hyper modern cosmetics and perfume factories that we invest in. Another very important point, recruiting, hiring, something very important to us. For other process is training people, we train young people; we have a school called the Institute for Excellent Crafts. We train people that send us from difficult neighborhoods [indiscernible], recently we hired young people who sometimes have seen failure at school; we hire these people, we train them in our training institute with an opportunity if they do well of being hired by us subsequently in one of our companies. And this has been very successful, the success rates are between 80% and 90% of young people -- we can say that 500 apprentices and trainees have been trained through our institute last year. We invested €40 million in this. I'd also mention we contribute to French cultural life, our success has been quite substantial, the Louis Vuitton Foundation has been very successful, 100 and some million visitors last year. Since opening the foundation we've seen more than 5 million visitors, in February we're opening up a new exhibition and invite all of you to visit us with a collection -- in a precious collection, exceptional one coming from England and you've got money, [indiscernible], quite something. To conclude; I'd like to say to you as I indicated earlier, I am confident but cautious, so cautiously confident for 2019. We'll continue our policy of seeking innovation, striving for quality, these are the key components in our strategy and our group's values. The entrepreneurial spirit will guide us, the young people we're hiring at LVMH can become true entrepreneurs, can shoulder genuine responsibility very early on in their careers, it's an enormous group, there are many opportunities in this group; thanks to this, I believe we have the top people, we have top managers, these are managers that are interested in creativity, they are not just rational, of course they need to be rational, clear managers, not just dreamers. But nonetheless, they have to be able to dream, they have to make their contribution to creativity, to innovation which is part of our group, part of our real environment. We have a team of creative people, Hedi Slimane, the various -- people mentioned [indiscernible] and others; these are the top people in the world, so I think we have every confidence in 2019 which as I've said has gotten off to a good start. But again, watch out, we're not in charge of the global economy, at some point in the next three years we will see a drop in the economy. I don't think it will happen this year but it will necessarily happen. Thank you very much. And now, Mr. Guiony will talk to you about some figures.

[Jean-Jacques Guiony:]

Thank you, good evening everyone. As I usually do, we'll start with the revenue, that's not the easiest presentation but is the easiest slide in the presentation. On dark blue you have organic growth of revenue per quarter, to make it even more interesting, we have half year so it becomes completely incomprehensible but to make it simple, we were looking at anywhere between 10% and 11% throughout the year, H1 we were 12%, H2 10%, and on the year as a whole, 11%. And you may remember, in terms of organic growth of the revenue, you also have to had the 2% to account for the termination of the concessions in the Hong Kong airport that was ended this year but they were not restated in terms of a structure impact; so you have this lack of restatement. Then you have the structure impact in grey, only in Q1 and that's because of the consolidation of Dior Couture that was consulted as of July 1, 2017, so we had an effect in the first quarter but not afterwards, so this is diluted afterwards. And then, the currency effect, it is quite significant like the structure impact in H1 minus 8% in currency effect. You may remember this, we have almost nothing in H2 only minus 1%, and all in all, about 4% negative currency effect; and so we have €46.8 billion in revenue in sales which is a record. The breakdown is about the same as last year, 29% in Asia, one point more; 24% in the U.S., one point less but it's mostly a currency effect again because the U.S. dollar was 1.18 to the euro compared to 1.12 the year before. Looking at the main regions, you can see that the growth was almost everywhere; U.S. plus 8%, we were looking at this -- we've been looking at that growth number for the past 10 years or so, so year-on-year this is a region which enjoys a regular growth, Japan almost 15%, and that's pretty unusual, the last year was pretty good too but not as good as this. Asia as a whole, not including Japan, 15%, that is slightly down because of the termination of Hong Kong otherwise it would be 22%. Europe, plus 7%, good number because you have to remember last year we had a 12% growth on a tough comparison basis. You can see that Q4 was in line with the rest of the growth, especially Asia and Europe, a slight decline in the U.S. that is because of our selective retailing activity. Looking at the various businesses, let's look at organic growth numbers; the most significant 11% overall which we saw earlier on the Wines & Spirits, good business, sales up 5%. And as you know, this doesn't generate double-digit growth numbers because, of course, of the limitations you have in terms of volumes in two main categories; Champagne and Cognac. Fashion & Leather Goods, pretty good year, up 15%, everything took part in that, you have Vuitton but also Dior, and that of course stands to reason as it was a very good performance. Perfumes & Cosmetics, up 14%, also a significant number in cosmetics. Watches & Jewelry, up 12%, there again, that's good performance. In selective resetting you have to restate it for Hong Kong about 6%, we're looking at 6% in February plus 12% for our double-digit growth numbers, one is traditionally single digit, and that is Wines & Spirits. We have to distinguish between the first 9 months in Q4; you saw that there was some slowdown in Wines & Spirits. In Q4, Wines & Spirits suffered because of the lack of availability of volumes, we ran out of bottles, especially Cognac in Q4 in the end of the year; hence a slightly slower growth in Q4. Not the case for Fashion and other goods, in fact, it picked up three additional percentage points in fashion and other goods in Q4. Perfumes & Cosmetics in line, slight decline in Watches & Jewelry, and likewise, in selective retailing, especially in the U.S. but the rest was looking good. Looking at the income statement per se, you had that numbers just now; we went past the €10 billion mark in profit from recurring operations which is our main indicator. Sales up 10%, gross margin now since at 66%, so it grew faster than revenue, if marketing and selling expenses -- so marketing and sales, you have 5% for sales and 14% growth in marketing expenses, and you can see that we've invested a lot in marketing behind our brands which stands to reason in the present state of affairs. If you look at administrative expenses, we have expenses growing not as much as gross margin, and so profit from recurring operations is up 20%. If you look at taxes, they are slightly down, and you have the depreciation of intangible assets. If you look at the financial performance, they do have a slide above this and I can give you more details. If you look at income tax, it was up in absolute numbers but slightly down as percentage of profit before tax, it's about 26% now, it was about 27% last year, the lower rate is to do with lower corporate income tax in the U.S. And of course, it doesn't make as much a difference as for France but still a significant portion, and so that meant that we had slightly lower income tax rate. And the group; net profit is up 18% at €6.3 billion, another record. If you look at profit from recurring operations; Wines & Spirits had a profitable development plus one -- plus 5%, but if you look at euros, you had an improvement in the margin, especially in Cognac which -- I mean [indiscernible] will confirm this but we had an improvement in 2018. Fashion & Leather Goods, profit is up 21%, slightly to do with structural intake because we consolidated [indiscernible] in H1 and that was not present the previous year, but for the rest it's actual growth, and you can see that revenues were up, also -- and so were profits. Likewise, Perfumes & Cosmetics, again, profits grew faster than revenue. Watches & Jewelry, remarkable growth, almost 40%, mostly to do with TAG Heuer but also Bvlgari and -- well, they contributed more than TAG Heuer actually but both are involved. And then selective retailing; DFS had a splendid performance and that's why our profits were up 30% in that department. Now there were a number of other effects; first as I said, the structural impact, the consolidation in H1 of Dior Couture bringing in €151 million, so that was not last year. Then the currency effect is significant at €400 million, almost €440 million; it's been a long time since we had such a negative effect. And then the rest is growth that was brought by operations, almost €2 billion, and that is why we have this 21% increase in profits from recurring operations. If you look at the financial income; now, there are -- while IFRS9 created some upheavel, I will not get into the delights of all these new change. For once, I'm not going to complain about the lack of legibility of the financial income statement because now it's more legible, in fact we have three items; the cost of net financial debt, and what we call [indiscernible] in French but even though the debt is slightly down, with the acquisition of debt we have -- the rate is down almost 50 basis points, and hence financial expenses -- while interest expenses were down, but we have -- now we have included all the financial expenses, not just interest expenses. Then you have the currency derivatives; here we're looking at the cost of currency directives. Whenever we use a derivative and whenever it comes to term, we have 60% of the cost of that that derivative in our P&L. And so we have the cost and that cost remains stable from one year to the next, whereas previously we had completely incomprehensible variations and now it's stable and this is in line -- this is the actual cost of our hedging instruments. Then you have the net gains and losses of [indiscernible] available for sale assets, we have a portfolio of about €1 billion, we have actual financial investments which -- whose value may vary with the underlines. It was up €260 million last year, it came down in 2010 to the tune of €108 million, it's under loss by the way, it's the value that is down compared to the high point that was reached on December 31, 2018. So now there will be some volatility in the financial performance which is due to changes in the value of the portfolio and that causes variation in the net financial expense which was €59 million and now €388 million. If you look at the financial structure, you can see that almost half in equity debt is down nothing worth mentioning here. But if you look at the available cash flow and that is a significant indicator for our operations significantly up -- up €756 million, you had three items there; first, cash flow -- cash from operations -- sorry, net cash from operations more than €2 billion. Working capital requirements increased, so that's an additional expense to the tune of €573 million, mostly to do with our inventories which were up because of our operations. Then you have operating investment also up, we have a record level of €3 billion, there is some property there but other investments for this -- and of course, we reach a huge free cash flow and yet we invested considerably in capital expenditure, almost average of €4 billion and yet we were able to generate a record free cash flow, net debt and free cash flow of €5.4 billion. Now you have the dividends of about €3 billion last year, paid out last year; two other items, €800 million in shares buyback and other operations. Debt was down by €1.6 billion, so debt went from €7.1 billion last year to €5.5 billion at the end of 2018; thanks of course mostly to the cash flow but also the other items I listed and so the gearing debt to equity about 16%, and that you have to admit is pretty low. Now dividend finally; in view of the good performance we are proposing -- we will be proposing a dividend of €6, up 20% that was an interim dividend of €2; so the balance for euros will be paid on 29 April. If memory serves, at one point as dividend is up 14% over the five past years. Thank you for your attention.

[A - Chris Hollis:]

Ladies and gentlemen, the time has come for you to put questions if you have any. Please identify yourselves. Even though I recognize some of the faces here.

[Antoine Belge:]

Good evening. My name is Antoine Belge from HSBC. I have three question; number one, on Fashion & Leather Goods, this number 17% in Q4, in 2015-2016 there was a slowdown and there was almost a complete -- but there was a warning and correction in Asia also because of the value of the RMB, and now the RMB is still low and yet this division is -- seems to defy gravity what accounts for this positive development in the present context? Second, you announced the acquisition of Belmond; is this an opportunistic investment or are you really looking at a new business, luxury hospitality? And then, the last question for Phillip [ph], who followed Mr.Natwar [ph]; this year there was modest growth in volumes, I understand that of course, compared to previous harvest you didn't have that much but are you trying to create more of a premium situation and allowing a greater role for price and mix to make a difference compared to previous years?

[Chris Hollis:]

On Fashion & Leather Goods, what we can see in the numbers is a consequence of what I was saying earlier, the fact that our products are becoming more desirable and they are in greater and greater demand. And you can see that the market now -- the Asian market, in particular, the Chinese market are very -- is very buoyant indeed, growth in China has accelerated in Q4 compared to the previous quarters and the beginning of this year is the same; so that accounts for this performance. Plus of course there is only so much we can manufacture, and so we can't go much faster than that. There would be a little point in going fast, anyway it makes more sense to develop new products and new ideas, at least that's what I think. Now the Belmond shares, you asked whether there was an opportunistic investment; well, of course it is opportunistic, it was a great opportunity, you have beautiful hotels. And then of course, opportunity makes -- well, not the thief, opportunity makes for business we can build on this. But let's first visit all the hotels, about 30 of them that will take us time and it's -- there are worse things in life than staying in these luxury hotels. And then the Wines & Spirits, maybe [indiscernible], well, the answer is yes. Volume is limited, especially for Champagne, not the case for Cognac, Cognac is somewhere 3% and that is in line with what we have with Cognac. But Champagne slightly down but that's -- well, you have the mix effect but this is also because the Maisons brand was significantly down in volumes because while we have high quality grapes in the Maisons which we could not put to use with Maisons brand, so we decided to use it for other brands. And so we have a negative volume effect but the positive mix effect and if you look at the difference between the volume effect and organic growth, you have like five points difference compared to two or three points usually. So you have the fact that -- while we have a new strategy here looking at value rather than volumes. Other questions?

[Edouard Aubin:]

Good evening. Edouard Aubin from Morgan Stanley. On the Fashion & Leather Goods; again, if you look at the numbers for H1, the operational leverage not including Dior, you had an improvement of 300 basis points in margin compared to 50 basis points in H2. And then on Sephora, you said there was a slowdown in the U.S., also the U.S. media are mentioning J.C. Penny maybe going bankrupt and they have hundreds of Sephora shops; should that happen what would be the effect on Sephora?

[Jean-Jacques Guiony:]

On the first point; it's a technical point but let me say this, the numbers are misleading if you look at the growth in profits from operating -- the operations in H1 and H2 and you remove the structure impact in H1, there is not much of a difference but there is a big difference in sales in Europe because there was a negative currency effect in H1 that we don't have in H2, and so the hedging policies could offset the currency effects in terms of profitability and we had good profitability and we had almost the same growth in profitability with almost the same organic growth but not the same currency effect in H2. So it's not the difference in the operating leverage, it's the difference is we have an effective currency policy in H1 but there was no currency effect in H2, so no need for currency policy. The question in the U.S., well, says Mr.Ahno [ph], the performance in the U.S. last year were outstanding, fair enough. Q4 was slightly down compared to previous quarters for two reasons; number one, most of the promotions took place in H1, lesser in H2 and at the end of the year if you look, well, there was less business in malls in America but that's just one quarter and that cannot allow us to draw conclusions for the long-term, in fact the year has started -- gotten off to a rather good start in the U.S. Yes, J.C. Penney; I don't know if they will go under but what I can say is that in the U.S. when a company goes under Chapter 11, it's still a running -- going concern, we have points of sales, these are more that will draw in customers and they were keep buying, say for our products. Now J.C. Penney may go under new management that may will be the case but that will not have any effect on Sephora. Yes, ma'am.

[Unidentified Analyst:]

Suzanna [ph] from [indiscernible]. I have three questions, please. First of all on trends by nationality in the quarter, I mean you've mentioned there was some acceleration in China, so it would be really interesting to hear how the Chinese consumer progressed globally? And also specifically on the U.S. consumer because I think some of the comms [ph] in this sector have been mentioning perhaps some slowdown because of the weaker consumer sentiment in the U.S. So it would be interesting to hear if you've also seen this globally. Second question, there was something recently mentioned in the press, it could be wrong of course, about LVMH potentially launching a new fashion brand with Rihanna, and -- now that obviously follows the success you had with Fenty Beauty but is this just an opportunistic move because of the success of the beauty brand or is this maybe some sort of a new business model you may be testing going forward? And then finally on selective retailing; I mean you have mentioned some of the issues that impacted perhaps Sephora in the U.S. but generally there was some slowdown in Q4. Would it be specifically related to Sephora or was also anything happening at the FS? Thank you.

[Jean-Jacques Guiony:]

On question number one, if you look at these transnational effects, we could spend quite some time without try and keep it simple

[Unidentified Analyst:]

I'm a journalist from the Chinese press. I have two questions; firstly, on the Chinese market. Earlier you mentioned the Chinese market continues to do well and there has been a speed up in Q4; could we get a big idea as to the specific figures for the market last year? My second question; have you observed new trends among young generation of Chinese consumers such as online purchasing? Do you think that may have an impact on the LVMH Group strategy in China? Thank you.

[Chris Hollis:]

We don't comment on specific figures, we don't give specifics; you see the trends -- we know that Chinese customer service is very important in China and outside of China. Major customers often -- customers for different product categories, thought the main contributors to market growth and brand growth. Pertaining to new trends, of course, yes. Chinese customers are buying more and more in a few; in a few year's time they have become basically most sophisticated customers and there is a lot of online purchasing, there is no other country. We have so much -- so many online payments. Services can be provided online which at being used are media investments, migrate to digital media that we seek to maintain as part of emerging communication and marketing, the media. Certainly, in China we felt the customers where they go, and the customers always have their phone in hand and use their phones. We keep pace with them, we try to be proactive and we know that things are changing very quickly.

[Melanie Flouquet:]

Melanie Flouquet. Hello, I'm from J.P. Morgan, I have three questions. Firstly, sorry to come back to the speed up in Q4 for Fashion & Leather. If we look at the nationality, you'd say same trends in China and the U.S. but what speeded up in terms of strict nationality or brand; could you help us better understand exactly what took place in Q4? Other groups didn't see such growth and momentum in Q4. Another question, could you share with us amount of sales and profitability for Bvlgari today and your intentions for this beautiful project, especially on, vis-à-vis, their leader today having really caught up was unclear -- more than caught up. And then the third question, cost flexibility; I see marketing costs grew by 14% this year, that's quite a substantial increase and I would like to understand, as you see it, is this a cost that's growing structurally or with a lot of other variables? Do you think things may slowdown in the next three to four years?

[Jean-Jacques Guiony:]

First of all in Q4, difficult to dive into detail to talk about all the products; we can just say it's a general phenomenon. I said earlier in our group we have wonderful teams, highly creative, we've got designers that are coming up with ever more desirable innovations towards the end of the year, you had various things coming together leading to a boost in purchasing, basically in all of our brands growth rates were very strong. For the main brands, of course Vuitton and Dior, and Fashion -- another goes, that was your question but not only there; also a lot of impact from online sales, they were quite buoyant also. Bvlgari, we don't give the specific figures, it's one of the number one brands in jewelry worldwide. I don't know if it will become the number one brand one day, time will tell. We can certainly set our sights high. Profitability, compared to when we bought the company has multiplied by what -- by five or six increased five to six fold. It's a company that still has a great deal of potential. Marketing costs; we say they are neither fixed nor variable, they are discretionary. The U.S. shows us that very well, it was a good year, you saw this in every respect, we made lots of investments in our brands, I'm sure you remember that in years that weren't quite as good, fairly quickly we were able to cut those costs. So we have to view these costs, it's like a tap, like a faucet you open and close. And hear things, the environment lent itself to marketing investments. Are there further questions?

[Unidentified Analyst:]

I'm a journalist for The New Malden [ph] newspaper. I wanted to talk about online selling e-commerce; could you tell us the proportion of your online sales in Fashion & Leather goods. What are the conclusions you draw from the first months of operating? Did your shop in the United States -- another point, could you talk to us about your price policy in China considering the drop in customs duties for products to China? Thank you.

[Chris Hollis:]

I can talk about online sales. Group wide we booked €3.7 billion, approximately €3.7 billion online sales growth on the order of 27% to 28 % versus the previous year. I want -- first of all I buy brand but by sector. Perfumes & Cosmetics, as well as – selective retailing; saw substantial growth in online selling, and watches and jewelry, wines and spirits, less so -- less growth, although growth rates were fairly similar in most sectors. There was a second question about the Dior online store. It's starting up, we're learning a lot. I believe it's the first part of the process, the learning curve. We had a surprise -- the surprise of -- wonderful feedback, very wildly popular products but it's -- the beginning stages were very enthusiastic, we're expecting very substantial growth from Dior online but we're in the initial stages. So, the third question -- what was that? Yes, on the drop in customs duties in China. Michael will correct if I'm mistaken, we've reduced prices by 4% in July-August to reflect that effect, and we don't -- I believe that was the case also in all the group brands.

[Unidentified Analyst:]

I've got three questions. Firstly, IFRS 16, if the standard is implemented and if 2018 -- what would the gearing ratio be and when we present your financials, some as per that standard I suspect in H1. Second thing, price policy, if we don't -- and Wines & Spirits in '18, will this be changing versus recent years, then the U.K. what's the exposure of your revenues in the U.K.; think about Brexit, are you into any degrees inventories there? Have you checked related to what duties will have to be paid in the event of there being no Brexit deal?

[Chris Hollis:]

In terms of IFRS 16, the impact will equal to zero of course because nothing is happening, you just book differently the liabilities for rental. This will be an order of €11.1 billion, it won't be in the group's financials, this changed and accounting rules is just a question of accounting policy and it's really absurd, and we're not going to start changing both management indicators that we work with, and motivate people in operations with nor the financial ratios just because there are some regulators that wanted some excitement, that wanted to change the rules pertaining to these elements; so this will have no impact whatsoever on our debt ratio as the implementation mandatory as it were in January '19 and we're accustomed to it hearing to this type of dictate. And -- so the financials compared to June will reflect IFRS 16. Plus there will be some presentational events – elements, so we won't be at a loss to figure this out and look at it in conjunction with what we're used to seeing, as well as the economic facts of this group. These will be big changes due to the rules as they are really a question of a dogmatic approach.

[Unidentified Analyst:]

Pricing policy; pricing policy for Wines & Spirits this year. Any points on that?

[Chris Hollis:]

We continue with the value creation strategy, so we're continuing increasing prices for Champagne's and Cognac's in various countries since there is a limit to our supplies as just as well to be creating value either through the mix or the price. And part of the question regarding Brexit, I'd answer that our Wines & Spirits; which added 4 months inventory to the U.K. so that we are ready for the worst case scenario if there were difficulties with deliveries. And custom duties, I can't answer that time particular point where clearly as the U.K. represents 4% of your group's revenue. Are there further questions?

[Unidentified Analyst:]

I'm coming back, I have a question [indiscernible] laughing here that you could be working to try to benefit from problems in their corporate governance and the arrival of Elliot [ph] in their share capital.

[Chris Hollis:]

I don't want to disappoint you but I have to tell you, we had nothing to do with any of that. I don't know no one from our company knows Elliot, the activists, investment fund really had no contact with them. Secondly, my family has a friendly relationship with Alexander Ricard [ph], we would do nothing that would be problematic to him in any difficulties he may be having with that investment fund.

[Unidentified Analyst:]

I'm from the Attire [ph] Press Agency, I have a quick question. LVMH is a major investor to Italy; I'm wondering are you concerned to see this sort of war going on between the French and Italian governments, specifically Italy turning inward?

[Chris Hollis:]

After all, we're the second trading partner, friends. We take a long-term view. What happens in the short and medium-term in international relations is something that of course we have no control over and we try to not be involved at all in any of that to keep an eye on our long-term rational. We can't think of politics the various countries where we've been located. Over the past 15 years there has been numerous shifts, ever called a rainbow is coming to the government and we continue going our road, continue investing for instance in Italy, continue hiring as we do in France, we continue investing and hiring. Our motivation is the long-term economic interests of this group, and the interests of the countries where we're long-term investors such as Italy; but we would never step in, would not take any account of political shifts as I mentioned that can be quite different and sometimes short-term in various regions of the world. We'll field one last question. If there is no last question, I would like to thank you.