LVMH Moët Hennessy - Louis Vuitton, Société Européenne
Q4 2014 Earnings Call Transcript

Published: 3 Feb 2015

[Executives:]

Jean-Jacques Guiony - CFO

[Analysts:]

Antoine Belge - HSBC Melanie Flouquet - JPMorgan Mario Ortelli - Sanford Bernstein

[Unidentified Company Representative:]

Good evening, ladies and gentlemen, thanks for joining us to attend this annual meeting, presentation of the results of LVMH and following my overview Jean-Jacques Guiony will give you a presentation of the figures in greater detail, I’m sure that is of interest to you and then we’ll take questions if there are any. So, in 2014 the group’s net profit has reached a record also in terms of sales and distribution and we can say that 2014 was a good vintage for the group LVMH, the global economic climate was characterized by a good growth level throughout the world, but mixed effects on the currency front. We were impacted adversely by the currency trends as you will see in a moment, there was a change during the year and in the second half, the euro managed to decline which hadn’t happened for a number of years and this made our products more competitive and for French exporters in general. It was very buoyant, furthermore, the economic at the end of the year was somewhat boosted by two factors. The drop in the price of oil and more recently by the injection of liquidity into the European economy. So, this business climate in 2014 was marked by some less positive effects, currency developments, the geopolitical situation in China that are returned to and also the geopolitical situation in Russia which has consequences given that purchasing power, the ruble has dropped you’re all familiar with that. In spite of that we’ve seen a significant increase in revenue. We’ve topped the 30 billion revenue mark for the first time, net income has reached a record level, we can’t expect perhaps that to continue every year. But, let’s make the most of it with the 2014 figures. Profit from recurring operations has trended in light of the currency effect that impacted adversely the bottom line by some 250 million, which Jean-Jacques will explain. The Chinese geopolitical situation which impacted the results of Cognac, Mr. Nawab have to tell us a word about that through destocking in distribution and the duty free shoppers group that was impacted by that situation in China and the subsequent shop slowdown that followed in Macau and Hong Kong to major centers for DFS. In spite of that results we reached record levels for the group. The financial situation is particularly strong with giving ratio of some 20%. If we review now the various business segments, China adversely impacted Cognac operations, the Cognac business responded rapidly because it distributed some of the stocks that would band for China to other countries, but that doesn’t prevent the results that you’ll see for this business segment. In China business grew well, but Cognac had the business as a whole and we maintained sustained CapEx notably. In production on fashion and leather goods we can say that Louis Vuitton has encountered excellent response to Nicolas Ghesquière, he arrived in 2014, the first show was held in March and there were two subsequent shows and these collections accompanied by number of accessories, leather goods etcetera met with an excellent response and some of the products indeed were not delivered owing to a shortage of production capacity. But, Vuitton’s profit held up at the excellent level as it has over the past few years and we saw a very favorable development in terms of new products. And then Loro Piana that was integrated this year, an example of integration of a family business in the group, Loro Piana still holds a 20% stake and its sales have risen and the quality of the products remains outstanding, Cashmere products in Vicuna, the finest world products. Loro Piana is experiencing excellent business as well as Fendi and the other brands of the fashion group run up by Mr. [indiscernible] is doing well as well as Celine and Givenchy experiencing strong success and we’re currently redeploying Marc Jacobs and Donna Karan. Perfumes and cosmetics had good year, delivered there in particular Christian Dior experiencing strong success with it iconic J’adore, Miss Dior and Dior Homme plants to increases them in Dior [Mo] to arrive one day at global leadership position in perfumes worldwide. We’re almost leader in makeup and we’re also developing skincare considerably. In other brands, Guerlain experienced strong success with La Petite Robe Noire and benefit a U.S. brand that we acquired some 10 years ago is expanding well in makeup and it’s now number one in the U.K. Turning to watches and jewelry, well 2014 we experienced strong success with Bvlgari, in particular both the watches, the watch shown here which is Lycea watch, a new watch designed by the Bvlgari teams and is off to a excellent start notably in the stores owned by Bvlgari. New lines launched in jewelry encountering considerable success for TAG Heuer, this is what somewhat adversely impacted the operating profit of this activity, we’re redeploying it, we’re in redeployment phase in terms of the product range and distribution. And as Jean-Claude Biver, who is heading that up we’re very confident for the future, but it did lead some one-short cost during 2014. Selective retailing we must acknowledge the excellent success Sephora here which is experiencing double digit profitable organic revenue growth. We’ve opened in new countries, Australia and Indonesia in 2014 and in all countries where we’re present we’re gaining market share, we’re far in a way number one in France. We expect to be number in the U.S. market, where the leader of internet sales for cosmetics in the United States, so strong potential there in this business that delivered well in 2014. On the other hand DFS in spite of very effective management in terms of containing operating costs they were in the area of the well that were adversely impacted by developments in China and both in Hong Kong and Macau that are two, the prime regions, it was more challenging and that explains why the results were adversely impacted by that situation. For 2015, I believe the economic situation that prevailed at the end of last year is said to continue that is relatively competitive euro commodity prices that will trend to follow. Global growth at the order of 3% continued growth on the U.S. market that’s very significant for us. Russia we don’t quite know how things are going to develop there, we can perhaps expect for it to remain more or less in the present situation. China, some say China is experiencing a slowdown growth forecast sort of 6%, 7% which isn’t bad. Given the problems that we encountered both in the consequences of developments in China and the consequences stemming from currency slides. On the macro-economic fund as regards our business, we’re in a situation of relative rebound. For currencies that’s fairly obviously and in China we’re adapting, Cognac is adapting full, the other activities ditto and so we’re relatively confident regarding the trend of global business in 2015. Having said that what’s important for us and what really is the source of our confidence is the word desire the group sets itself as being the group that creates desire in its customers and that is our number one objective far more than revenue, results, profitability that stem from this desirability and this pushes us in all our businesses to seek to create new products, new concepts or new ways of interacting with our customers. Notably for the flagship brands such as Louis Vuitton, we will continue to offer creative products, but products whose quality is exceptional, it’s combination of quality, creativity, the timelessness I would say and modernity that for many years now still the case today. And in the future will be the success of Louis Vuitton brand, for this we have a great many plans with Nicolas Ghesquière with Delphine and all those who are in charge of new products. I won't describe them all to you here, but we have a great many ideas, you will no doubt have seen at the end of last year all the products that we created around the monogram which is an iconic product. The monogram is absolutely amazing. It's a mythical product. A product which at the same time is lasting and modern and one never tires of it, it’s like the blue sky, when you see the blue sky you are immediately optimistic and you want it to last and the monogram fabric is same principal. But it needs to get it to evolve from time to time as cloud passes and that makes it fun. We have done that with the five designers who worked on the monogram at the end of last year with considerable success. Everything is out of stock, I mean, it's quite surprising. We did a case with Cindy Sherman the great photographer; it's an absolutely amazing case in limited issue which cost nevertheless 130,000 Euros. While this case was sold out in the fortnight, I wasn’t even able to buy one. I wanted to get one, but I was too unable to acquire one, this really just to give you a sense of the strength of this fabric. There are many other brands that have fabric. This is mythical and our goal is to nurture it to develop it and at the same time we’ve developed and created a whole series of iconic products with leather, with noble materials, with exotic leather, I won't go into the details of all Vuitton products. But, we are extremely confident in our ability in 2015 to deliver to create desirability on the part of our customers with all the new products that we will place on the market. It goes for Vuitton many other brands. I won't go into the details of all our plans because it would take all evening. So, aside from this fundamental tenet of creativity and desirability, it's key to continue, search, quest for quality at every level which is the other key pillow that contributes to the group success to sustain the agile entrepreneurial spirit of our team. So, you have here the leaders of a number of our businesses, LVMH is [indiscernible] of companies managed quite independently, managed by entrepreneurs who feel the owners of the companies and from varying in sizes from the startup, we have a few startups through the very large company with thousands of employees. So, this entrepreneurial spirit which allows us to attract the best talents in the market both from the creative and managerial standpoint is one of our strengths and that's why we are confident for 2015. And lastly, against the backdrop of a business climate that varies from country to country, rigorous cost containment well that's a straight forward will be continued that’s why we are confident for 2015. Over now to Jean-Jacques Guiony to review the financial in greater detail.

[Jean-Jacques Guiony:]

Good evening, few words then about the numbers for 2014 starting with revenue and then we will look the income statement, the balance sheet and the cash positions. So, they are numbers, they’re quite a few numbers on this, but we will look at the sales, the revenue on the quarterly basis. Three things to remember, organic growth, the dark blue is 5% in H1 and almost and 5% following quarters and 5% for year as a whole. So, not much change in organic growth about 5% on a constant basis. The foreign exchange effect was strong negative in H1, minus 4% you may remember, you will find this on the table, but this reversed and in Q4 it was positive up 2% and so all in all the negative effect is 2% but still the overall effect is minus 2%, it's going the right way. And then, the third point, we consolidated Loro Piana this year for the first time. This operation was concluded last year. It started in 2013, but it was end 2013 and so in 2014, you have Loro Piana’s contribution to revenue about 3%. Now, if you look at the breakdown of revenue by region, it is pretty straight forward. U.S. is about 25%, quarter of a revenue. It's going up and you expect some more growth but it's not just mechanical growth because that is the region which enjoyed the best highest revenue throughout 2014. You can see this on this table. So, you were familiar with the numbers and that's why I have them here Q4 added, made its own contribution. The U.S. Q4 was very good, 13% double digit growth mostly Wines and Spirits. So it’s excellent quarter for Wines and Spirits especially Cognac in the U.S. also fashion and leather goods and selective retailing and Sephora did extremely well in Q4. So, the United States sustained double digit growth especially competitive for 2013. Japan was pretty good, I mean, you may have remembered, the things there were hiccups at the beginning of the year with increase in VAT in April, Q2 was under pressure, 11% for the first half of the year. But, the second half especially Q4 did well and there was tourist purchasing in Japan that was rather new to do with the currency effect but a positive development in Japan and so overall 8% growth for the year. Asia as a whole without including, not including Japan is a contrasted picture, minus 1% for the year as a whole. Wines and Spirits especially Cognac as Mr. Arnault said made a significant difference especially in China because in China there was a negative development. But outside Wines and Spirits growth would have been plus 4% as a whole. I am not sort of playing down this effect, but I mean, it was mostly the Wines and Spirit that made almost 5% differences. Europe as a whole modest growth 3%, still significant growth at year end, 5% in Q4, 2014 mostly driven by fashion and leather goods but also selective retailing which was under pressure since Sephora had a difficult year, beginning of the year with competition in particular, but ended the year brilliantly especially here in France. If you move onto the next slide, revenue by business group, we’re getting contrasted picture, but also within each business Wines and Spirits to start off organic growth, I am only looking at organic growth here. Low and indeed minus 3%, but you can see significant difference between champagne up 6% good year, 4% in volume, 3% to 4% and then there were price increases and mix effect was positive. So, all in all a very favorable development at plus 6% and negative development for Cognac, although the volumes are up, up 2% on volumes but the mix effect because we sold more VS and much less VSOP and XO, so negative price effect. Fashion and leather goods plus 3%, the year ended well, again contrasted picture but less so then in other businesses. Perfumes and cosmetic doing well, 7% was difficult to work out on the global basis, but a few percentage points is always good. And Christian Dior did extremely well. Watches and jewelries bit more complicated. We will look at the details on a quarterly basis, but the numbers are driven down by buybacks of products that were sold at the end of the year to cleanout especially at TAG Heuer so that had a negative effect on the trend as a whole, but there was a big contrast between Ghesquière’s or TAG Heuer and Bvlgari. Bvlgari had a splendid year, well high performances in jewelry, nothing new there because it was already the case last year, but outstanding performance in watches for Bvlgari and that is good news because it means that all the efforts that we’ve made in terms of new products and marketing starting to bear fruit. Selectively retailing, Sephora did quite well, but DFS had some negative sort of headwinds especially in Macao, Hong Kong, China. Travel retailing was under pressure most of the drivers for DFS was in the red last year, so performances as a result were down too. So that’s the revenue, let’s focus briefly on Q3, Q4 I mean, you know about Q3, but let’s take a closer look at Q4. Wines and Spirits had a much better performance especially in the U.S., but not just the United States, performance was much better in Q4 than the rest of the year. Fashion and leather goods, thanks to Europe and the U.S. had a better performance again in Q4 than Q3. Perfumes has been high performance, watches and jewelry, they were as I said product, well products buyback means negative revenue, I mean that has of course a negative effect on revenue and that selective retailing had stable growth for the year and indeed for the last two quarters. If you look at the income statement well you know the numbers, but gross margin is slightly under pressure, I mean, up 4% whereas revenue is up 6%. So, you had some pressure there mostly currency and foreign exchange effect. Foreign exchange had a negative effect on gross margin, marketing and selling expenses up 9% there’s some scope effect and without the scope effect and foreign exchange would stand at about 7%, this includes selling expenses up 9% but marketing expenses up 6%. Of course deliberately we decided to continue investing behind our brands in terms of advertizing. General and administrative expenses up 6% under the like-for-like basis, the numbers slightly better, at the end of the year there were some provisions made at the end of the year which drove down, well added G&A but that enable us to face a number of situations. So, it did add up, in the end I hope we come up with a better figure in 2015. So, all in all profit from recurring operations down 5% and operating profit down, lost 200 basis points. But, if you look at other operating income and expenses 294 including 44 in restructuring costs and then 240 on the sales of some assets, we felt that there were profits made on Hermes and so we wanted to clean out some of the assets that will help to sell that we were normally that would be staggered over several years. And so, we were able to wind up a number of depreciation and that’s why you have instead of, we have an additional 150 on depreciation, more than in 2013 number. This is of course non-recurrent, this enabled us to clean out some of these old assets. If you look at net financial income you will have a picture slide on just that so I will come and take later, income taxes about 27% compared to 32% last year it’s stands at 2.273 billion that’s because the Hermes operation was less heavily taxed than the other operations and so without Hermes in fact the tax rate is about the same as last year. Minority interest down and that’s because of wait and see in Hermes, so we have a group share on net profit at 5.6 billion up 64% and has – you have mostly the 2.7 billion due to the Hermes operation. If you look at the profit from operations by business group, Wines and Spirits down 16%, there was of course destocking in China, but the foreign exchange effect for some of the sales denominated in foreign currencies. There were also some hedging effects which were less favorable this year than last year. So, all in all we have profit down 16%. Fashion and leather goods of the foreign exchange effect also account for this lesser performance than that of revenue. Likewise for perfumes and cosmetics, there was also some restructuring, by the way there were some businesses in fashion and leather goods being restructured and so restructuring costs had some effects on revenue, but of course, it seemed necessary to do this even though this is probably not the best time to do this, but over the long run it will be worthwhile. Watches and jewelry, contrasted picture, TAG Heuer, we had a complete reorganization of the business. We simplified product process, the products also, we had to sit too many categories, too many product lines, phones and chronographs that we decided to do away with that and there were some commercial restructuring, buying back some products precisely with a view to give a better availability of funds for TAG Heuer products to be sold to retailers. But of course, the one thing you should remember is that Bvlgari had enjoyed significant improvement both in revenue and profit. Selective retailing had contrasted picture, Sephora did well. Double digit growth in operating profit, but of course, it was driven down by DFS, DFS had less revenue and the operational effect was negative like is always the case in DFS. Well, in retailing the fixed expenses are constant and so they have a negative effect on profit. The scope effects should be seen here on the next slide. Loro Piana made all the difference, 125 million. The currency effect now that includes the foreign exchange effect in various subsidiaries and also the hedging policies, so double negative there. The sales to our subsidiaries and conversion of foreign denominated sales had negative effect, but then the hedging effect had a positive effect, but not enough to compensate for the two first factors. So, the currency effect is almost 25% of the current, the profit from recurring operations, so a significant number. The financial income, now again, there was something of an offset, we start with the cost of net financial debt up 14 million from [indiscernible] the Loro Piana, well the debt increased - interest rates came down. So, the cost of debt was about up 15%. The ineffective portion of the foreign currency hedges moved sometimes one year or sometimes another. The real explanation I am not sure, it's completely understandable but what you recognize in this line is the cost of our foreign currency hedges, it's not a cash cost. It bates on the cash value of the derivatives that we use for hedging. And so, as early as 2014, we recognized the cost for the hedges for 2015, at the end of 2013 60% of the cost of hedges for 2014 were already recognized because the euro came down, 98% of the cost of the currency hedges were recognized in 2014 for 2015. So that's why you have such bloated number here. There is not much else we can do with that the third big line of course is the gains related to the sale of assets held for sale. There was of course Hermes where we distributed Hermes shares to our own shareholders and that accounts for this big number here. And so that means why there is such a significant difference in the net financial income. The financial structure also reflects the Hermes operation because the distribution of the Hermes shares meant that equity was down 6.9 billion, but all things being equal, it doesn’t mean that we have less money. There were 2.7 million in the cost, but there was a capital gain of 4 million. So, if you compare to the situation where we had not invested in Hermes, the cost would only be 2 billion as opposed to 6 because of course there was this 4 billion in capital gains, our rating was confirmed as A+ even though the net debt of the group came down. Cash flow and you have it on this slide, the net cash flow from operations before changes in working capital is down only about 9, you have lots of provisions in the operating profits. So cash flow, net cash flow diminished less than operating profit. We paid less taxes last year and so the net cash flow hasn’t changed even though the cash before interest and income tax was down 200 million. And so, we end up with free cash flow at 2.83, one of the best performances ever even though it's slightly less than last year. So, as I said that meant debt was down, you will see on the dark bars, debt was down from 5.3 to 4.8, 500 million reduction in the debt level. We have 2 billion in dividends, 1.6 to LVMH and 1.3 to wait and see NGFS minority shareholders so 800. 250 were absorbed by acquisitions, various acquisitions on the way, they were not that many and so we were able to bring debt down by 500 million and so you have the new numbers. All the same, debt is only 21% of equity. And finally, dividend we suggested a 3% increase from 3.1 to 3.2 Euros per share and that means that we have a 3% increase compared to last year. That's what I have to say for the year as a whole.

[Unidentified Company Representative:]

Ladies and gentlemen we are available to take your questions. Kindly introduce yourself before you ask your question.

[Q -Antoine Belge:]

Antoine Belge, HSBC, good evening, HSBC, three questions. Louis Vuitton you mentioned clouds that had cleared what remains to be done as you see it to return to higher growth levels possibly in terms of products or distribution. Second question on Cognac, on one slide you are expecting a rebound of VSOP in China in 2015, what about the more lucrative qualities for the group, what are your current inventory levels in the various distribution sectors in China, when are you expecting this rebound? Margins have been heavily squeezed does that the disappearance of a bubble and is this going to be the new standard going forward or can we expect a rebound of the margin in Cognac? Currency effects expected to fluctuate a good deal this year, surprised to see you didn’t benefit from the weakness of the Euro in Q4, Mr. Guiony said that there was simple optional hedge, so you should have been able to lock that in and benefit from it. So, how can you model the impact in 2015? The other impact in the slide in the Euro as of today Louis Vuitton bag cost 39% more in Hong Kong than in Paris, how you are going to address these key pricing issues?

[Jean-Jacques Guiony:]

Well, your first question on Louis Vuitton, well on Louis Vuitton, you mentioned clouds, I mean, I mentioned clouds in a blue sky that is on the monogram canvas. I mean, there was some drawing. It was evocative, it wasn’t clouds on Vuitton's development on the contrary, Vuitton is performing very well. But our objective with Vuitton as with many other brands as I indicated early is to increase the desirability of our products not necessarily more revenue or more profitability. I am not saying there won't be any, but you must view this as a consequence and not an objective. And it's very particular ventures where of course, we’re trying to sell but that’s not, the objective is to elicit desirability from customer with quite a wide range of competitors to offer them products that elicit the greatest desirability with constant creativity. If you have visited the store next to the entrance to this building, you will see that we really are trying to bring in new developments at front where we’re quite successful. So it's quite probable that it will boost sales in fact, during the first month of this year Vuitton's results sharply up. But, I mean, it's almost too much we need to be prudent and in any event we won't be able to deliver all the goods. So, don't derive any conclusions for the year. The new products are arriving on the basis of our production capacity. I am very confident regarding the development of Vuitton for the next 15 years. Our objective is in 15 years time Vuitton should still be the number one brand in the world, the most desirable and always capable of surprising all its customers and all those who view and who follow Vuitton's design. As regards to Cognac, Christophe Navarre will give you a more detailed answer. Well, just to return briefly to 2014, we saw that it was, there was a China impact and China alone, so Chinese New Year in 2014 not good that's the first point. Second point, what we saw an acceleration of anti corruption measures in China that was widely commented in the press and that means a sudden sharp shutdown of closure of night clubs where our products were distributed. So accounts receivable up sharply and so stock levels increasing and actions in March/April to measure the impact of these inventories in the distribution sector and to begin to destock. The destocking started in April, picked up during the second quarter in the later part of the year. So, China impacts the industry as a whole what's going to happen is since we have begun to destock as of Q2, 2014, we are going to have still a rather challenging quarter first quarter in 2015. And then, there will be the positive effect, the rebound at least towards the end of Q2 and more certainly and considerably in the second half of the year. Having said that when we look, I mean, it's no excuses as we said earlier, but hence is a strong brand that has the big advantage of being distributed throughout the world NC Cognac is rising sharply in the United States, Latin America, Africa, at the end of the day we look at the region, shipments down 4% in the comp industry whereas NC is up 0.5% so market share gain of NC over it peers. So, we are very well positioned to grow significant in the U.S. as we mentioned last year, double digit growth. Okay, with younger quality so there is a mixed effect there, but growth in the U.S. is tremendous. It's one of the most sold after brands in the U.S. so we’ve deployed considerable resources to accelerate growth as we saw in Q3. We’re very confident rebound in the second half in China towards the end of Q2 and all means are deployed to grow on Cognac, we have gained market share and on Champagnes. On basic Champagne our prestige [indiscernible] we have grown, we have outperformed our peers, we’re gaining market share, we were 80% of the value in Champagnes created by wait and see, despite it’s a pretty sharp shop given these anti-extravaganza measures. The wait and see strategy is to be evenly spread across the four continents to be that poised optimistically into experience a significant rebound in 2015. On currency effects of Jean, well just remember the figures for the first half, 250 minus 250 for the full year, so there is a second half this is more favorable as I showed on sales but it’s also true for profits, if you look by quarter we should be at minus 40 Q3 and up 10 in Q4. So, with a positive upside in currency in Q4, but it’s dampened two key factors, firstly, all currencies didn’t perform well, the yen slid, the Euro no need to recall what happened. Second thing that’s always fundamental to understand the ForEx impact when currencies rise there is no currency appreciation, doesn’t mean we have losses, we had considerable increases, we had good hedges that have won lot of money. So, full year our hedges generated the same profit as last year then in 2013, but far more in the first half then in the second half. So, there is an imbalance here, but all in all we have a normal trend on the currency impact across the year as to giving you directions to modulate, I mean it’s difficult enough for us, it’s not easy. I’m delighted to see that a [indiscernible] doesn’t understand any better than I do, have currency fluctuations. Next question please.

[Operator:]

[Melanie Flouquet:]

Hello, good evening, Melanie Flouquet from JPMorgan. I have a couple of questions among one on fashion and leather goods in Q4. As an analyst I’m positively surprised by the plus 4% and Q3 was more of a challenge especially on Louis Vuitton can you confirm that Louis Vuitton enjoyed a 4% increase as well? And was it the new products that drove this trend, upward trend and do you expect new launches in 2015, every quarter and this year they were mostly in October and December that’s question number one? Number two, can you tell us about the provisions that were placed above the current EBIT? No, I will leave it to that issue if you will.

[Jean-Jacques Guiony:]

The end of the year was good for Louis Vuitton, mostly thanks to the new launches, but also because of the significant growth in the American market and we certainly intend to continue innovating and launching new products month-on-month at Louis Vuitton and we are very confident, I mean, at the beginning in the first weeks of the year have started extremely well. Don’t derive from this that we will enjoy huge growth levels that’s not the purpose, I mean, the main concept for us is to make our customers happy to increase asset desirability, but if it means that people have to wait a bit longer to get a new leather goods or what not, well they will have to wait that much longer even if it means less revenue right now. But, I mean because of the size of the market if we launch a new product you distribute it around the world and we don’t always have the distribution and production capacity to meet demand and especially as customers are particularly keen to buy new products, but that strategy we will certainly continue. It's always more fun to look at new products than existing products. Now about provisions, I expected the question and I try to get an answer, but we have as many as 60 brands and it's pretty difficult to know. I mean, we have a bit more than 50, a bit less than 100, but we have some reversal of provisions in 2013 not repeated in 2014, some reversals in 2014. It’s not complicated, but you have a lengthy less and it's pretty difficult to have it, but we have about between 50 and 100 million all in all about in provisions above EBIT. At the back of the room

[Unidentified Analyst:]

[Indiscernible] An Italian paper you talked about the good performance of Loro Piana, can you give us any indication or some numbers on Loro Piana?

[Jean-Jacques Guiony:]

Well, there is one thing about Loro Piana, and you probably know they don't advertise ever and of course they save a lot of money there because most businesses do advertise and sometimes quite a lot. But, Loro Piana doesn’t advertise, nor does it advertise its performances, its numbers. So, all I can tell you it's doing well. It's doing even better. It's growing, but indeed better than we expected, than we were expecting. Well, the trend is an exciting one because what I do find remarkable here is we were able to integrate that company within the group while safeguarding its family nature, it's a family owned business and the family is still very much present in the running affairs. You know that company actually manufactures the thread, the fabric all the items that are sold as it were homemade and the textile sold in Italy are exemplary, I started off in this business it was quite well 1984 with [Boo Sac] plant and I know little bit about these things. Believe in me these textile plants are very different here, you have high level of automation, there was lots of investment to get these high standards and even though this is based in Italy believe in me, this is very profitable business. We do have our people there [indiscernible] in particular is running all this in the most effective and constructive way. I don't know how many – it's not really an answer to your question, but I am afraid that's all I could say. I do apologize, I mean, maybe Antoine can display products or things because that's - there you could have a better idea of what Loro Piana is all about. Somebody is – well, thank you for being so understanding. We – sorry we couldn’t say more. Further questions out there, yes please.

[Unidentified Analyst:]

Hi, good evening. It’s [indiscernible] from Morgan Stanley. One question from me please, I wondered if you could tell us about your longer term growth expectations generally for the luxury market when we are seeing brands such as Apple and Samsung being referenced as luxury gifting items particularly for the Chinese and really your expectations around the longer term growth, is there a new level of competition for the luxury? Thank you.

[Jean-Jacques Guiony:]

I prefer Tony to answer because he is specialist of market. I don't know very well market. I don't take market globally. I like specific things, but Tony is very well with market.

[Unidentified Company Representative:]

I will address it in English, I believe that the midterm and long term growth vector that supported the growth of luxury market for so many years well ahead of the general economy we will continue to be there. It is true however that in the short term there are a number of instabilities, one of them, the most important is effectively the anti corruption campaign in China which impacted debt rate growth probably in 2014 and 2015, we are seeing the lowest level in terms of organic debt but we are still talking about growth around 4%, 5% organically which many markets will be quite happy about. So, I think that any brand or category that has a good story can still do very, very good performance and that the midterm perspective are very positive.

[Jean-Jacques Guiony:]

Further questions please?

[Unidentified Analyst:]

Good evening from [indiscernible] you decided to allow your shareholders to benefit from the capital gains on Hermes making them very happy. Can you tell me what the amount was please?

[Jean-Jacques Guiony:]

So, just to respond in order of value of the Hermes stake distributed 6.9, the economic cost price 2.7 that’s a CG of 4.21 billion have been booked in 2010, that's 3 billion 0.2 CG, 500 billion tax, so that's the net CG of 27. We are not going to do the same thing again this year.

[Unidentified Analyst:]

Two questions if I may, first time what was the development of Cognac sales, sell out sales in China full year and towards the end what's the share of your revenue in the Middle East and Russia? Thank you.

[Jean-Jacques Guiony:]

No, sell out was the question. Sell out well, was negative for reasons outlined earlier. I can't really tell you much more. Rest of the world, as I said earlier we have strong increase but didn’t last to compensate. But sell out was negative in 2014. Middle East 3%, Russia 2.2% of sales of course. Yes, we’ll take your question I see you had your hand up for a while.

[Mario Ortelli:]

Thank you very much. Mario Ortelli of Bernstein, two questions from me. The first one is about investment. You have got 65 brands where you have lot of entrepreneurs that are asking for money to develop their successful business. What are the three businesses in which you will increase the most of your investment in 2015 and the second question is about cost control? In the presentation you mentioned rigorous cost control and always see all the managers of the group that are looking very bad. But, have you got any specific initiative in place for cost control and which result can deliver in 2015? Thank you.

[Jean-Jacques Guiony:]

Well, the first question on capital expenditure, what are the brands what we propose to invest. I think what you have to remember is that if you want to invest in a brand, and that's what we have been doing ever since this group has existed. The first thing you need to do is to come up with the right, the winning formula and that depends that varies from brand to brand. You can come up with a formula very early on, I mean, Loro Piana as a case in point, I mean, this is a formula that works. You can develop, you can create boutiques, you can speed things up. But then, another example is Celine that took much longer even before LVMH was created, we purchased Celine back in the 1980s right at the beginning. And it took us 15 years to come up with the right formula I mean, I am not saying it was losing money or anything, but we felt this was not worth investing because we didn’t have the sort of winning formula, the sort of that would make the difference which would make Celine different from the others, more desirable than the competition. And once we did come up with the right formula, but then we came in full and invested a lot and generated growth as well. So, the brands in which we propose to invest those brands that have reached this critical point where you are onto good thing. But, it takes a while to get to that stage when you have brand new brand, flash for instance initially well was something of a challenge, but thanks to the efforts made by Tony and his team, now this is very successful business specially in Asia indeed it's one of the first brands for skincare around the world at least and indeed in Asia. So again, we have a very sort of differentiated investment policy and we trying to do it right, no point investing in a brand unless you are able to generate the sort of this - following this enthusiasm and as I said when we decided to go all out with Celine was only when we realized when it came along with good management, then we felt okay we have got this ready to go to take off and the time has come from us. I mean, by that time it was already big. You did have shops and everything but we sort of pressed ahead when things were really looking ready to take off. Right and what's item number two. Whether we have cost control measures under way, well yes I mean the – we are very stringent on cost control especially on capital expenditure, I mean, when you have an investment program on a brand these are pretty long term affair. So, you have to see these things through, but before you get started you discuss this on a strategic level, we discuss it at budget, but you do have to look at the context growth in various market went from double digit growth to single digit growth which mean that you have to be much more selective. And so, brands were asked to be again more rigorous, I mean, all in all many of our brands had modest growth compared. I beg your pardon, you found that costs had only modest growth and that’s because we are able to keep things under control. However, for certain brands it was well worth investing more. For Bvlgari, it was well worth it to invest in display, so this was not capital expenditure. This was working capital expenditure, but it was well worth it. I am sorry. Could you speak a little louder? Can you speak into microphone? Thank you. Okay. That’s good.

[Mario Ortelli:]

Can you please consider or in the future could you consider to divest from brands we didn’t find yet the winning formula to be successful in the market?

[Jean-Jacques Guiony:]

Why not, but we don't see right now any brand to divest. What we have in plan is something different, for instance for brand like Marc Jacobs we said that we are aiming to do an IPO with it because it's a brand in which we are going to be in relatively different initials of market, more competitive to some other brands like if you know [indiscernible] which is not exactly, it's more competitor with price points that are lower and coming from the U.S. And for that brand we are managing it differently, we are managing it with U.S. team that is really motivated by gross and potential IPO. Just to give an example, if you take what is the market cap now of maker cost, I don't know, but it's above 10 billion. Okay, if the team succeeds in doing that so maybe at that time we can do another very good dividend for our shareholders, maybe but success is never guaranteed.

[Unidentified Analyst:]

Thank You. It’s [indiscernible] with regards to top line growth and thinking about the mid to long term profile, Antony talked about 5% in the short to midterm. And if you think about your brand manager’s performance in terms of taking market share and growing at a double digit rate over the last 20 years. Are you starting to now think of a shift away from a prioritization of top line and focusing more on returns, certainly in light of the MS distribution and your comments just in with regards to potential, another dividend should Marc Jacobs succeed in this IPO plans. Is this a fundamental shift now that we are starting to see that you will embed in your managers to focus more on return rather than top line? Thank you.

[Jean-Jacques Guiony:]

I think we have to aim for good equilibrium. We are looking to grow, but as I said it’s not the main objective. Our main objective is really to stay at the top of the desirability and two, profitability and return is also an objective and we see with this opportunity of Marc Jacobs a way to maybe do it again in the few years maybe. So it’s an equilibrium of the same game, but it’s early to discuss.

[Unidentified Analyst:]

Sir maybe the last question. Good evening from Barclays three questions on fashion and leather goods. First on the improvement in organic growth in Q4, could you give us some color by geographic area particular the trend of Vuitton in Asia and sequentially in Hong Kong in particular? Second question on price, the increases of Louis Vuitton booked in Q4 and your price hikes planned in 2015 and your margin you say that it was flat over the first half, what about the second half? Well, last question it’s easier, it’s stable and age 2, no difficulty there for the operating margin as to the split, I’ll handover because this is very technical.

[Jean-Jacques Guiony:]

Improvement as I said, I’ll go into details by geography, but improvement in the U.S. improvement that really explains as a move to 4% improvement in the U.S. and Europe and a deterioration in Asia, stability slightly down in Japan. As to LV in Asia, LV of course was adversely impacted by the situation in Hong Kong, LV was negative in Hong Kong, even across the full year, well Q4 ditto in Macao as the situations rather challenging in those two areas. True there, I mean, ditto for DFS, it’s a bulk of the activity in those two areas, they’re suffering quite a lot and they generate a significant bulk of the revenue, we were third of Asian revenue for the group of Vuitton. So that was an unfavorable trend in those two geographies. And a trend with Chinese customers that remained acceptable that’s positive throughout the year and in Q4 price increases of Vuitton in Q4 that weren’t any expect in Russia I think, but very few if I’m not mistaken. And for the year, for the full year remains shroud and secrecy. Thank you all very much.