LVMH Moët Hennessy - Louis Vuitton, Société Européenne
Q3 2014 Earnings Call Transcript

Published: 15 Oct 2014

Executives:

Jean-Jacques Guiony - CFO Chris Hollis - Head, IR
Analysts:

Paul Swinand - Morningstar Antoine Belge - HSBC Mario Ortelli - Sanford Bernstein Laura Levy - Barclays Capital Thomas Chauvet - Citigroup Melanie Flouquet - JPMorgan Stephanie D'Ath - Bank of America Merrill Lynch Warwick Okines - Deutsche Bank Hermine de Bentzmann - Raymond James David Da Maia - Aurel BGC Javier Escalante - Consumer Edge Research
Operator:

Ladies and gentlemen, welcome to the Third Quarter 2014 Revenues. I now hand over to Mr. Chris Hollis. Sir, please go ahead.
Chris Hollis:

Thank you, Charlotte. Hello, I am Chris Hollis Director of Financial Communications at LVMH and with me is Jean-Jacques Guiony, Chief Financial Officer, thanks you for joining us. We have some brief remarks to make about LVMH’s revenue for the first nine months of 2014 as in previous periods these figures are reported in accordance with IFRS. After these remarks Jean-Jacques and I will be happy to take your questions. 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 risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the Safe Harbor statements included in our press release. Turning now to our third quarter nine months revenue announcement, hopefully you have had the chance to read our release which was issued yesterday evening in both French and English and as always the release is available on the Web site, www.lvmh.com as are the slides that we’re using to guide today’s discussion. So, with that let me start with Slide 2 performance of our brands in the third quarter continue to trending slow in the first half of 2014. We did see a reduction in negative currency impact compared to previous quarters. Overall we demonstrated solid momentum in the U.S. and the Middle East and showed good resilience in Europe in the context of an ongoing challenging economic environment. While the Asian region was subject to some volatility we are pleased to see Japan return to growth. At the brand level we continue to deepen our focus on leather goods and distribution excellence at Louis Vuitton, while investing in our other fashion brands. Wines and Spirits continue to get affected by the destocking in China and we saw strong progress in our Jewelry segment which was partially offset by ongoing destocking by Watch multi-brand retailers. Sephora continued its strong performance. Turning now to the evolution of the Group’s revenue performance, we generated organic revenue growth of 4%, both for the quarter and for the nine month period. Reported figure, growth figure of 6% for the third quarter reflects a 2% structure change resulting from the acquisition of Loro Piana and that was only a very minor currency impact in the period. Our revenue mix continues to be diversified and well balanced across geographies if you see from the Slide 4, the graph on Slide 4 shows the revenue breakdown in euros with Asia including Japan representing 37%, Europe including France 29% and U.S. and others 34%. Compared to last year’s nine month period, the 1% increase in weight in Europe over Asia compared to last year essentially reflects the integration of Loro Piana and the impact of softness of Cognac in China. Now moving to, as you can see from our Slide 5, organic revenue growth for the first nine months was up across all regions compared to the prior year period. Revenue rose most significantly in Japan 9%, up 9% and followed by the U.S at 6%. Revenue from Europe and Asia grew 1% demonstrating the Group's continued execution against challenging backdrops in each region. And for the quarter, geographically, we saw a slightly higher growth in the U.S. and in Europe, up 8% and 3% respectively while Asia was down 3% and Japan was up 5%. Turning now to the revenue by business group, let's start with Wines and Spirits. Organic revenue was down 3% for the nine month period, driven by the continued destocking by Chinese distributor that I mentioned earlier. Total revenue in this group was €2.6 billion compared to €2.8 billion in the same period last year. Revenue in this business group was further impacted by a negative 4% currency effect. If you just look at the third quarter organic revenue was down 7% compared to the year ago period. And after a negative 1% currency effect, reported revenue was down 8% to €948 million compared to the same period last year. Now if we look at the business group in more detail, for the first nine months of the year, Champagne and Wines’ organic revenue grew by 6% after a negative 5% currency effect, this resulted in the reported revenue of €1.195 billion compared to 1.181 billion in 2013. For the third quarter, Champagne and Wines reported revenue reached €472 million reflecting a 7% increase in organic revenue and a 3% negative currency impact in the quarter compared to the prior year period. If you now look at Cognac and Spirits delivered €1.4 billion in revenue for the first nine months compared to €1.6 billion in the year ago period. This represented an organic revenue decline of 10% and a negative currency impact of 3%. In the third quarter for Cognac and Spirits, while currency was only slightly negative, organic revenue declined 17%, resulting in a reported revenue of €476 million, compared to €577 million in the prior year period. This demonstrates a marked break to the selling of Cognac during the quarter. Looking then at Slide 7, Champagne volumes rose 4% in the nine months reflecting solid progress of prestige cuvées and strong performance in U.S. and Japan, Estates and Wines also delivered solid performance. So Cognac and Spirits, Hennessey volumes were down 2% and this was essentially due to persistence of the slowdown taking place in China and this has resulted in destocking by local distributors of high quality Cognac such as the VSOP and XO and prestige ranges. This was slightly offset by the rapid growth we saw in the U.S. combined with the sustained volume growth of our Glenmorangie and Belvedere plants. It’s worth mentioning here that the difference between the declines in volume and value for the ninth months is entirely due to product mix. Now looking at the Fashion and Leather Goods, revenue in this business was up 3% on an organic basis for the first nine months of 2014. Reported revenues were up 8% to €7.7 billion from €7.1 billion in the same period last year. This includes an 8% positive structural impact resulting from the integration of Loro Piana and a 3% negative currency impact. In the third quarter on its own revenue was €2.6 billion reflecting a 2% increase in organic revenue, a 7% positive structural impact, again Loro Piana, and no currency impact. Slide 9 gives a little bit more detail. Louis Vuitton continued its strong creative dynamic focusing on the development of its Leather products and the selective expansion of its store network in the quarter. One exciting highlight of the third quarter was the communication around the iconic Monogram line re-imagined by six artists and designers including Christian Louboutin, Cindy Sherman, Frank Gehry, Karl Lagerfeld, Marc Newson and Rei Kawakubo. These products which will be available in the fourth quarter continued an exciting tradition of Louis Vuitton partnering with artists and other creative people to celebrate and re-imagine the Monogram. Nicolas Ghesquière’s first collection also rolled out into the stores during the quarter and is being well received. In terms of the other fashion and other goods/brands Céline’s Leather goods and shoe collections did have good performance and the brand opened at second New York store and the third. Givenchy, Kenzo and Berluti continue to show good momentum and Fendi good performance also continued driven by Leather Goods and Furs while it prepared for the opening its New York flagship store. Jonathan Anderson at Loewe is new Creative Director but that is his first show which has received a few drastic reviews and Loro Piana continued its smooth integration into the Group with its luxury goods division seeing rapid growth as it continues to develop its exclusive textile expertise. The business group also made some exciting new announcements in the quarter, notably the appointment of Sebastian Suhl as CEO of Marc Jacobs which took effect in September and the recent announcement that Caroline Brown will become the new CEO of Donna Karan in January of next year. Moving on to the Perfumes and Cosmetics business group, revenue increased by €2.8 billion from €2.7 billion in the nine month period of last year. And on Slide 10 excluding a 4% negative currency impact this represented an 8% rise in organic revenue. For the third quarter specifically, revenue in this business group reached €961 million, up a negative 1% currency impact organic revenue was up 11% over the year ago period and all three segments Fragrances, Skincare and Makeup contributed to this growth in this what was a fairly exceptional quarter. Overall Slide 11, this business group drove further market share gains in key regions particularly driven by make up in Asia. Turning to its brands Parfums Christian Dior launched new communication initiative for its iconic J’Adore fragrance, had good success for Dior Addict and continued to see solid growth from Miss Dior and Dior Homme. And the Dior makeup line is performing strongly, thanks to the new additions to the Addict offering. Guerlain rolled out its new male perfume Idéal internationally and its Abeille Royale for the premium skincare line experienced rapid progress during the first nine months of the year. During the third quarter, Guerlain opened a new cosmetics production site La Ruche at Chartres in France. Givenchy launched new women’s fragrance Dahlia Divin and Benefit continued to enjoy strong momentum driven by the success of its latest eye liner They’re Real! and Fresh and Make Up For Ever both delivered excellent performance. Now turning to our Watches and Jewelry business Slide 12, revenue in this group was €1.97 billion compared to €1.93 billion in the first nine months of the last year including 5% organic revenue growth partially offset by a negative 3% currency impact. For the third quarter on a standalone basis revenue was €706 million representing an organic revenue increase of 8% over the year ago period and there was no currency impact. To give you some highlight to this business group for the first nine months Jewelry delivered excellent performance while Watches continued to be impacted by cautious purchasing environment among multi-brand retailers. At the brand level, Bvlgari had a robust third quarter in its 130th Anniversary year. The key drivers behind its performance were the renewed and successful focus on Jewelry the full takeover of its distribution in the Middle East and a promising launch of its new Lvcea watch. TAG Heuer decided to optimize its production capacity and continued the destocking of its distributors and it focuses on its historical bestsellers. Hublot made strong progress notably with Classic Fusion and gained great visibility during this summer’s soccer World Cup through its partnership with FIFA. Finally, Chaumet demonstrated strong retail momentum. And now for the selective retailing, Slide 14 this group delivered a solid 8% organic revenue growth slightly offset by a negative 3% currency impact for the nine month period this comes on top of 19% increase in organic revenue for the same period last year. And for the third quarter on its own revenue reached €2.2 billion up from €2.1 billion in the third quarter of last year and this reflects organic growth of 7% and a very small negative currency impact. DFS saw further development of Asian Tourism which helped to drive portfolio but was partially offset by a weak yen impacting travel destinations of Japanese travelers. Hong Kong airport concessions continued to perform well, the Gallerias in Hong Kong and Macao saw some softening due to the change in profile in presequence of the Mainland Chinese clientele. The North American airport concessions also delivered strong growth and DFS also began the renovation in its Changi airport concession in Singapore. And finally the loyalty program continued its successful roll-out. And turning to Sephora, this business once again grew strongly increased its market-share in all key regions and continued to generate notable comparable store revenue growth in North America and the Middle East. Sephora’s first stores opened in Indonesia during the quarter and online sales saw continued rapid progress. So, in summary, our ability to deliver 4% organic revenue growth in the third quarter and nine month period, despite the Cognac situation in China and against an ongoing challenging economic backdrop in key regions demonstrates a good overall performance. In fact, excluding Cognac destocking in China all regions and business groups contributed to growth in the quarter. Going forward, LVHM will continue to focus on offering innovative high quality products combined with selective store network expansions and a focus on cost management, with the aim of further increasing the Group’s leadership on the global luxury goods market. Thank you and with that we’ll now take any questions you might have. Charlotte can you please open the line?
Question:

(Operator Instructions) We have a question from Paul Swinand from Morningstar. Please go ahead. Mr. Swinand, your mike is open.
and:

(Operator Instructions) We have a question from Paul Swinand from Morningstar. Please go ahead. Mr. Swinand, your mike is open.
Paul Swinand:

Hello. This is Paul Swinand. Yes, sorry, I couldn’t -- I wasn’t sure I was online. Thanks for taking the questions. First just you mentioned that Nicolas Ghesquière’s collections are getting good traction, is there still some roll-out to go in other words has he touched all of the different product areas and is that ongoing for 2015?
Morningstar:

Hello. This is Paul Swinand. Yes, sorry, I couldn’t -- I wasn’t sure I was online. Thanks for taking the questions. First just you mentioned that Nicolas Ghesquière’s collections are getting good traction, is there still some roll-out to go in other words has he touched all of the different product areas and is that ongoing for 2015?
Jean:

So I am saying we do progressively obviously ready to do a collection is the women looks to our collection as Nicolas’ touch with Louis Vuitton’s to handbags obviously this will I mean the influence of what it does will afford progressively so there I would say more decline.
Jacques Guiony:

So I am saying we do progressively obviously ready to do a collection is the women looks to our collection as Nicolas’ touch with Louis Vuitton’s to handbags obviously this will I mean the influence of what it does will afford progressively so there I would say more decline.
Paul Swinand:

Okay. Thank you. And then you noted that Watches and Jewelry was a little bit better than expected but the Jewelry was the driver and Watches still had some destocking. Can you comment, is the fall in Watches isolated to TAG and is it even around regions or is it really driven by Hong Kong and the destocking in China?
Morningstar:

Okay. Thank you. And then you noted that Watches and Jewelry was a little bit better than expected but the Jewelry was the driver and Watches still had some destocking. Can you comment, is the fall in Watches isolated to TAG and is it even around regions or is it really driven by Hong Kong and the destocking in China?
Jean:

Not really as far as TAG Heuer is concerned it's apart from Japan where we do very strong business with TAG Heuer. The rest of the world particularly the U.S. where TAG is historically very strong but also Europe, it's not really destocking it is connected with the fact that the high priced novelties of last year are through movers, and through movers in the system are preventing the retailers to yield the fast moving items and the best service. So it's really a little bit of this situation that we are experiencing, so it's not really destocking, it's a lack of ability by the retailers to buy the bestselling products in Europe and obviously in the U.S.
Jacques Guiony:

Not really as far as TAG Heuer is concerned it's apart from Japan where we do very strong business with TAG Heuer. The rest of the world particularly the U.S. where TAG is historically very strong but also Europe, it's not really destocking it is connected with the fact that the high priced novelties of last year are through movers, and through movers in the system are preventing the retailers to yield the fast moving items and the best service. So it's really a little bit of this situation that we are experiencing, so it's not really destocking, it's a lack of ability by the retailers to buy the bestselling products in Europe and obviously in the U.S.
Paul Swinand:

So you are saying that even in TAG in the U.S. the traditional sellers are doing okay but it's just the comp against the novelties of last year?
Morningstar:

So you are saying that even in TAG in the U.S. the traditional sellers are doing okay but it's just the comp against the novelties of last year?
Jean:

Yes, it's defined that they have open to buy allocation buy brand, they still have part of the open to buy money which is take interest in movers. So we expect these movers to diminish in proportion and to release some money that will be invested retailers into the bestsellers. So that's the situation we've been in since the beginning of the year.
Jacques Guiony:

Yes, it's defined that they have open to buy allocation buy brand, they still have part of the open to buy money which is take interest in movers. So we expect these movers to diminish in proportion and to release some money that will be invested retailers into the bestsellers. So that's the situation we've been in since the beginning of the year.
Paul Swinand:

Got it, thank you very much, I'll let somebody else get in the queue. Thanks. Bye.
Morningstar:

Got it, thank you very much, I'll let somebody else get in the queue. Thanks. Bye.
Jean:

Thank you.
Jacques Guiony:

Thank you.
Operator:

A question from Antoine Belge from HSBC.
Antoine Belge:

Yes, hi it's Antoine Belge for HSBC. I've got three questions, and the first one regarding Cognac. I think in the Q1 conference call in April you had called the destocking was over and it was not the case so, and how can you be sure now that there is not a lot of inventories in the different tiers or sub-tiers on distribution in China. It seems that obviously you've changed management in the Asian region, so what's your view and do you expect any improvement now to take, it's more like in 2015 or in the next quarter? And second question relates to the situation in Hong Kong. It seems that DFS was actually quite resilient in the quarter, but did you see a deterioration more recently, or so could you comment on the Hong Kong as it's sort of broader topic for the Group and do you think that this is a temporary situation and do you expect actually to recoup some of the sale at a later stage, maybe at other destination? And finally, could you update us on your hedging policy given especially the more recent move of the euro, it's not only just hedging value but also how you are hedged I know that you have been strictly using options, tunnels so it certainly should be able to take benefits from part of the favorable movement as soon as Q4? Thank you.
HSBC:

Yes, hi it's Antoine Belge for HSBC. I've got three questions, and the first one regarding Cognac. I think in the Q1 conference call in April you had called the destocking was over and it was not the case so, and how can you be sure now that there is not a lot of inventories in the different tiers or sub-tiers on distribution in China. It seems that obviously you've changed management in the Asian region, so what's your view and do you expect any improvement now to take, it's more like in 2015 or in the next quarter? And second question relates to the situation in Hong Kong. It seems that DFS was actually quite resilient in the quarter, but did you see a deterioration more recently, or so could you comment on the Hong Kong as it's sort of broader topic for the Group and do you think that this is a temporary situation and do you expect actually to recoup some of the sale at a later stage, maybe at other destination? And finally, could you update us on your hedging policy given especially the more recent move of the euro, it's not only just hedging value but also how you are hedged I know that you have been strictly using options, tunnels so it certainly should be able to take benefits from part of the favorable movement as soon as Q4? Thank you.
Jean:

Well thank you for your three questions. One, starting with Cognac, I don't really remember that they have said that destocking was over in Q1, I mean I had two minutes actually on the Cognac product itself but that's not really what I said, I said destocking would be -- we expected destocking to be over by the end of the year. So it's going to by the end of 2014. So this is exactly what's going on. Destocking is not over yet. We are -- the system in China, we have two levels of wholesalers and the first level of wholesalers, I mean now we are direct clients. We see the level of inventories being reasonable, let's say not ideal, but reasonable and in good shape to end up the destocking, it's as we speak. That's why, the second level of wholesalers and we are talking about smaller people, smaller players. Inventories in this part of the distribution system where we have less impact then in the first year inventories are still too high and it will take probably the rest of the year to clean them up. So the destocking is not over and that's what explains why our numbers in Q3 were particularly poor, our selling numbers were particularly poor and we are pretty serious in making sure that by the end of the year, this will be, if not entirely but the vast majority of the issue will be behind us. So that’s as far as destocking is concerned, if you look at the market itself, I mean what we can see I don't have the numbers at the end of September, they are not ready yet, but at the end of August, the VS business I am talking sellouts, the VSOP business, sorry, is minus 4, so more or less in line was what I told you at the end of June and I think it was minus 3 at the end of the June. So we had -- the month of August was a bit difficult but nothing really worrying. And XO is more difficult, XO is minus 15 for the first nine months, sorry the first eight months of the year. And it's really the discrepancy between these numbers which are not very good, but not very bad either and our selling number that we call is the destocking to, that according to destocking and hopefully we’ll make the stocks to a normal level by the end of the year. That for Cognac Hong Kong you have a question on DFS I would say that the DFS situation is in Hong Kong is a little bit complex to analyze and if you look at DFS numbers in Hong Kong there were about plus 7% to 8% in H1 and they were very slightly and breaking even or gross what negligible in Q3. So definitely we have already seen Q3 some negative impact on the business which is mostly coming from what is currently culminating with the protests in central that is for the anti-Chinese sentiments that progressively crystallize in course of the quarter and which affected a bit the business there particularly when it comes to top-end customers have indeed independent travelers as opposed to the group travelers. So that’s what we have seen in Q3 obviously the big demonstration started on the 30th of September so the business itself was in Q3 was not affected by that what we’ve seen ever since is quite complex to read our numbers are not too bad in the first part of October but bear in mind that they compare with very low numbers last year because there was a change in the regulation in China regarding group travels and our figures were extremely poor in Hong Kong last year at the same period. So basically the situation is I think we are down something like 5% or 6% in Hong Kong in the first two weeks of the months which is not but in itself but hides a fairly easy comparison base and on top of that I would say there is more to come as you know that Chinese authorities decided not to granting visas to group tourists as they are all fighting it was a 7th of October or something like that so we hardly see anyone now as far as groups are concerned we don’t see many people in the stores. So it’s a little bit too early to really assess the impact of the current situation which by the way is not over so really if we tell you to assess the impact of the current situation the comments I’m making, and the figures I just gave you are Hong Kong Downtown and a point to bear in mind is that the airport is not particularly affected by that. The first two weeks of October the airport is about 10% it was up also 10% in Q3, and we’re doing good business in the airport which has nothing really to do with what’s going on in central. So that’s a little bit of a situation in Hong Kong. As far as hedging is concerned obviously we took advantage of the recent drop in the euro to improve our hedging. We now have a hedging rate more or less same on dollar and yen about 72%-73% obviously the average rate for hedging in 2015 reflects the fact that the bulk of the hedges we’ve put in place earlier on this year at a much higher level for the euro dollar and the euro yen 135 for the dollar and 138 for the yen but nevertheless it goes into the regulation with regards to the hedging strategies we either bodes in the past play in the New Year put options so we have no issue whatsoever if the euro continues to soften we will benefit from the rates that we’ll get on the market as opposed to the rate of the hedging strategies. And sometimes we have done also I mean we buy upfront we buy put option and we sell collections but we are pretty far at the current level we’re pretty far from the level of the collections we should benefit from a further strengthening of the currency against the euro in a very major way if it happens.
Jacques Guiony:

Well thank you for your three questions. One, starting with Cognac, I don't really remember that they have said that destocking was over in Q1, I mean I had two minutes actually on the Cognac product itself but that's not really what I said, I said destocking would be -- we expected destocking to be over by the end of the year. So it's going to by the end of 2014. So this is exactly what's going on. Destocking is not over yet. We are -- the system in China, we have two levels of wholesalers and the first level of wholesalers, I mean now we are direct clients. We see the level of inventories being reasonable, let's say not ideal, but reasonable and in good shape to end up the destocking, it's as we speak. That's why, the second level of wholesalers and we are talking about smaller people, smaller players. Inventories in this part of the distribution system where we have less impact then in the first year inventories are still too high and it will take probably the rest of the year to clean them up. So the destocking is not over and that's what explains why our numbers in Q3 were particularly poor, our selling numbers were particularly poor and we are pretty serious in making sure that by the end of the year, this will be, if not entirely but the vast majority of the issue will be behind us. So that’s as far as destocking is concerned, if you look at the market itself, I mean what we can see I don't have the numbers at the end of September, they are not ready yet, but at the end of August, the VS business I am talking sellouts, the VSOP business, sorry, is minus 4, so more or less in line was what I told you at the end of June and I think it was minus 3 at the end of the June. So we had -- the month of August was a bit difficult but nothing really worrying. And XO is more difficult, XO is minus 15 for the first nine months, sorry the first eight months of the year. And it's really the discrepancy between these numbers which are not very good, but not very bad either and our selling number that we call is the destocking to, that according to destocking and hopefully we’ll make the stocks to a normal level by the end of the year. That for Cognac Hong Kong you have a question on DFS I would say that the DFS situation is in Hong Kong is a little bit complex to analyze and if you look at DFS numbers in Hong Kong there were about plus 7% to 8% in H1 and they were very slightly and breaking even or gross what negligible in Q3. So definitely we have already seen Q3 some negative impact on the business which is mostly coming from what is currently culminating with the protests in central that is for the anti-Chinese sentiments that progressively crystallize in course of the quarter and which affected a bit the business there particularly when it comes to top-end customers have indeed independent travelers as opposed to the group travelers. So that’s what we have seen in Q3 obviously the big demonstration started on the 30th of September so the business itself was in Q3 was not affected by that what we’ve seen ever since is quite complex to read our numbers are not too bad in the first part of October but bear in mind that they compare with very low numbers last year because there was a change in the regulation in China regarding group travels and our figures were extremely poor in Hong Kong last year at the same period. So basically the situation is I think we are down something like 5% or 6% in Hong Kong in the first two weeks of the months which is not but in itself but hides a fairly easy comparison base and on top of that I would say there is more to come as you know that Chinese authorities decided not to granting visas to group tourists as they are all fighting it was a 7th of October or something like that so we hardly see anyone now as far as groups are concerned we don’t see many people in the stores. So it’s a little bit too early to really assess the impact of the current situation which by the way is not over so really if we tell you to assess the impact of the current situation the comments I’m making, and the figures I just gave you are Hong Kong Downtown and a point to bear in mind is that the airport is not particularly affected by that. The first two weeks of October the airport is about 10% it was up also 10% in Q3, and we’re doing good business in the airport which has nothing really to do with what’s going on in central. So that’s a little bit of a situation in Hong Kong. As far as hedging is concerned obviously we took advantage of the recent drop in the euro to improve our hedging. We now have a hedging rate more or less same on dollar and yen about 72%-73% obviously the average rate for hedging in 2015 reflects the fact that the bulk of the hedges we’ve put in place earlier on this year at a much higher level for the euro dollar and the euro yen 135 for the dollar and 138 for the yen but nevertheless it goes into the regulation with regards to the hedging strategies we either bodes in the past play in the New Year put options so we have no issue whatsoever if the euro continues to soften we will benefit from the rates that we’ll get on the market as opposed to the rate of the hedging strategies. And sometimes we have done also I mean we buy upfront we buy put option and we sell collections but we are pretty far at the current level we’re pretty far from the level of the collections we should benefit from a further strengthening of the currency against the euro in a very major way if it happens.
Antoine Belge:

Thank you. Maybe just a follow-up on Hong Kong I mean I was wondering what was the solution for Louis as well and maybe just some on Cognac I mean I think Chris mentioned that there was a lot of mix impact that’s in terms of peer pricing and your are talking to each of the mainstream players it seems that everyone is choosing the other two capitalizing. Can you comment on to your pricing and where do you see your pricing especially for the excellent category in China?
HSBC:

Thank you. Maybe just a follow-up on Hong Kong I mean I was wondering what was the solution for Louis as well and maybe just some on Cognac I mean I think Chris mentioned that there was a lot of mix impact that’s in terms of peer pricing and your are talking to each of the mainstream players it seems that everyone is choosing the other two capitalizing. Can you comment on to your pricing and where do you see your pricing especially for the excellent category in China?
Jean:

We have not we are not accusing anyone of lowering prices and be particularly aggressive which doesn’t mean that we are doing it. The situation if you want to we’ll answer it is a little bit complex we’re trying to summarize it. Basically what happens is particularly on trade we are paying fees to the outlets we have contracts with and as you know we’ve been pretty aggressive in contracting with more outlets particularly in the modern on-trade segment but also with the nightclub segments over the past few months which means that with modern on-trade being up I think that if you look at sell outs for the first part of the year the modern on-trade for VSOP for instance is at 27% so it’s quite substantially increased which means that the fees we are paying which are based on actual sales by the outlet are also up in a significant way. Technically the way we book for it is that these fees not costs but they are offsetting sales but our sales offsetting so we have a combination of much lower selling numbers and so much lower sales as we explained before and higher fees being paid to the outlets so in percentage of sales the fees we paid to the outlets is obviously increasing quite significantly because of this discrepancy between the basis for the fees and what we have set them against. I hope it’s clear so on the face of it you can say that actually the level of fees which is the sales incentives is increasing in percentage of sales but it’s only apparent because we have set it against selling and not sell out as we don’t have the ability to do it but the economic logic of it is this one.
Jacques Guiony:

We have not we are not accusing anyone of lowering prices and be particularly aggressive which doesn’t mean that we are doing it. The situation if you want to we’ll answer it is a little bit complex we’re trying to summarize it. Basically what happens is particularly on trade we are paying fees to the outlets we have contracts with and as you know we’ve been pretty aggressive in contracting with more outlets particularly in the modern on-trade segment but also with the nightclub segments over the past few months which means that with modern on-trade being up I think that if you look at sell outs for the first part of the year the modern on-trade for VSOP for instance is at 27% so it’s quite substantially increased which means that the fees we are paying which are based on actual sales by the outlet are also up in a significant way. Technically the way we book for it is that these fees not costs but they are offsetting sales but our sales offsetting so we have a combination of much lower selling numbers and so much lower sales as we explained before and higher fees being paid to the outlets so in percentage of sales the fees we paid to the outlets is obviously increasing quite significantly because of this discrepancy between the basis for the fees and what we have set them against. I hope it’s clear so on the face of it you can say that actually the level of fees which is the sales incentives is increasing in percentage of sales but it’s only apparent because we have set it against selling and not sell out as we don’t have the ability to do it but the economic logic of it is this one.
Operator:

We have a next question from Mario Ortelli from Bernstein. Please go ahead.
Mario Ortelli:

Good morning. Jean-Jacques good morning, one question about the Louis Vuitton, we have seen that in Q3 the Fashion and Leather division had that organic growth of 2%. Can you give us some color about the performance of Louis Vuitton in comparison to the other brand? Only thing Louis Vuitton can you give also an idea if Louis Vuitton has done any price increase in the last quarter or has opened any new store. And I know this is a safe conference call but if you can reassure us that the margins of Louis Vuitton are still stable? Thanks.
Sanford Bernstein:

Good morning. Jean-Jacques good morning, one question about the Louis Vuitton, we have seen that in Q3 the Fashion and Leather division had that organic growth of 2%. Can you give us some color about the performance of Louis Vuitton in comparison to the other brand? Only thing Louis Vuitton can you give also an idea if Louis Vuitton has done any price increase in the last quarter or has opened any new store. And I know this is a safe conference call but if you can reassure us that the margins of Louis Vuitton are still stable? Thanks.
Jean:

Thank you, Mario. Well, LV this is also the Louis Vuitton and yours is not very far off size as a ways in with the EBIT of difference but not a very significant one. The price increase nothing new we had a price increase in trends to align French and other European prices I think it was in early July but not any apart from that stores nothing in the quarter. There were probably a few store openings and closures as always but I think the store count remained flat in the course of the quarter, so nothing really significant. And as far as margins is concerned to-date margins are in line with what I said before and are stable.
Jacques Guiony:

Thank you, Mario. Well, LV this is also the Louis Vuitton and yours is not very far off size as a ways in with the EBIT of difference but not a very significant one. The price increase nothing new we had a price increase in trends to align French and other European prices I think it was in early July but not any apart from that stores nothing in the quarter. There were probably a few store openings and closures as always but I think the store count remained flat in the course of the quarter, so nothing really significant. And as far as margins is concerned to-date margins are in line with what I said before and are stable.
Mario Ortelli:

Thank you very much.
Sanford Bernstein:

Thank you very much.
Operator:

A question from Laura Levy from Barclays, please go ahead.
Laura Levy:

Laura Levy from Barclays, so another question on the Fashion and Leather Goods division, can you give us a bit of color by region and did you see Asia down 2% in line with the group and also the moving part for Hong Kong and the Mainland? I have another question is about the Hermes distribution. Can you remind us about the tax and balance sheet implications? And lastly a question on Europe that accelerated over the last quarter. Can you tell us about the dynamic between tours and spending on local demands? Thanks.
Barclays Capital:

Laura Levy from Barclays, so another question on the Fashion and Leather Goods division, can you give us a bit of color by region and did you see Asia down 2% in line with the group and also the moving part for Hong Kong and the Mainland? I have another question is about the Hermes distribution. Can you remind us about the tax and balance sheet implications? And lastly a question on Europe that accelerated over the last quarter. Can you tell us about the dynamic between tours and spending on local demands? Thanks.
Jean:

Thank you Laura so Fashion/Leather by division by region sorry, what we, we didn’t see a lot of changes there. I think Europe was a bit better, U.S. was a bit better, Japan as well and China and Asia were a little bit lower. But no big discrepancy compared to Q2 and each one with exception of Japan which was obviously quite negative in H1, sorry Q2 H1 was positive in Q2 and which is flattish in Q3. But the changes in Fashion and Leather were not tremendous. Hermes for the tax impact, as far as our image is concerned is about 350, it would depend obviously on the valuation of Hermes on the day of the distribution but about €350 million. In taxes and the balance sheet impact will also depend on the valuation of Hermes on the day of the distribution. But basically the impact is 24.3 billion shares multiplied by the share of Hermes the pressure price of Hermes on the day of the distribution, plus 350 million actually gets down to the into global impact on shareholders’ equity of the Group. Europe as you said is slightly better, tourism is better with Chinese customers and I would say where else we go the other customers particularly South American, Japanese and other Asian countries. So all-in-all tourism is I think difficult to draw conclusion for the whole of the Group, as you know we just monitor tourism in a precise way for Vuitton. But all-in-all tourism in Europe is slightly up, but more or less in the same trend as what we’ve seen so far this year in Europe.
Jacques Guiony:

Thank you Laura so Fashion/Leather by division by region sorry, what we, we didn’t see a lot of changes there. I think Europe was a bit better, U.S. was a bit better, Japan as well and China and Asia were a little bit lower. But no big discrepancy compared to Q2 and each one with exception of Japan which was obviously quite negative in H1, sorry Q2 H1 was positive in Q2 and which is flattish in Q3. But the changes in Fashion and Leather were not tremendous. Hermes for the tax impact, as far as our image is concerned is about 350, it would depend obviously on the valuation of Hermes on the day of the distribution but about €350 million. In taxes and the balance sheet impact will also depend on the valuation of Hermes on the day of the distribution. But basically the impact is 24.3 billion shares multiplied by the share of Hermes the pressure price of Hermes on the day of the distribution, plus 350 million actually gets down to the into global impact on shareholders’ equity of the Group. Europe as you said is slightly better, tourism is better with Chinese customers and I would say where else we go the other customers particularly South American, Japanese and other Asian countries. So all-in-all tourism is I think difficult to draw conclusion for the whole of the Group, as you know we just monitor tourism in a precise way for Vuitton. But all-in-all tourism in Europe is slightly up, but more or less in the same trend as what we’ve seen so far this year in Europe.
Laura Levy:

Okay and last question on just Louis Vuitton, I am looking at the Chinese pending overall so globally, did you see any changing trends in Q3 versus H1?
Barclays Capital:

Okay and last question on just Louis Vuitton, I am looking at the Chinese pending overall so globally, did you see any changing trends in Q3 versus H1?
Chris Hollis:

It was a bit lower, you remember that Q1 was very strong and Q2 was less strong and on average we were a bit lower than H1 other we were up a few percentage points compared to H1 which is something like 5% or 6%. So, it's a bit lower but nothing really significant a few percentage points lower.
Laura Levy:

Perfect. Thank you very much.
Barclays Capital:

Perfect. Thank you very much.
Operator:

A question from Thomas Chauvet from Citigroup, please go ahead.
Thomas Chauvet:

Good afternoon, Chris and Jean-Jacques. Three questions please. The first one on Perfumes and Cosmetics and Sephora, can you just elaborate a little bit on what happened there very strong in Perfume and Cosmetics as well as I think Sephora in the U.S. and some emerging markets. Can you provide like-for-like for U.S., France and let us know whether China and Asia for Sephora has been weaker in recent months? Secondly, in terms of profits for the second half I just was wondering whether we should be aware of any potential one-offs in the first half I think the restructuring charge at TAG Heuer, rental inflation at DFS Los Angeles, and San Francisco and Marc Jacobs startup cost had a quite bigger impact, are there anything else we should be aware of and are these affects in the first half are going to carry on in the second half? And finally, on more the Group vision and strategic moves, obviously you’ve announced the disposal of your entire stake in Hermes some of investors are probably seeing that as a strategic move. But would you consider that are we focused on organic growth from now on? Are you happy with the current depths of the brand portfolio are there still some gaps that you would like to feel so you’re investing for instance in European travel retail with DFS. So question more on the Group portfolio after the Hermes disposal? Thank you.
Citigroup:

Good afternoon, Chris and Jean-Jacques. Three questions please. The first one on Perfumes and Cosmetics and Sephora, can you just elaborate a little bit on what happened there very strong in Perfume and Cosmetics as well as I think Sephora in the U.S. and some emerging markets. Can you provide like-for-like for U.S., France and let us know whether China and Asia for Sephora has been weaker in recent months? Secondly, in terms of profits for the second half I just was wondering whether we should be aware of any potential one-offs in the first half I think the restructuring charge at TAG Heuer, rental inflation at DFS Los Angeles, and San Francisco and Marc Jacobs startup cost had a quite bigger impact, are there anything else we should be aware of and are these affects in the first half are going to carry on in the second half? And finally, on more the Group vision and strategic moves, obviously you’ve announced the disposal of your entire stake in Hermes some of investors are probably seeing that as a strategic move. But would you consider that are we focused on organic growth from now on? Are you happy with the current depths of the brand portfolio are there still some gaps that you would like to feel so you’re investing for instance in European travel retail with DFS. So question more on the Group portfolio after the Hermes disposal? Thank you.
Jean:

Thank you, Thomas. Perfume and Cosmetics, we saw improvement obviously modestly were in the world, in the U.S., in Asia and particularly in Asia, we had a very strong quarter in Asia between the U.S. too and in Europe. A bit of this comes from a few launches such as Homme Idéal at Guerlain or the eyeliner the real Benefit, but it doesn't even should pick this out I mean the quarter was pretty strong. But the business did very well. With regards to Sephora, I will give you the like-for-like but they were exactly the same as what we had in H1 about 14% in the U.S. flattish in Europe, 7%-8% in China and I don't remember the figures in Middle East, that's pretty high, I mean something like 20% or something like that. So we had a very good quarter at Sephora again I would say and no sign of slowing down or weakness in Asia and our Southeast Asian business is doing really well, it's improving, it will break even this year. It's not sort of, we have not been in this business for a long period so we are breaking even probably faster than what we thought in Southeast Asia. The Chinese business is holding up extremely well with nice like-for-like figures. So we are pretty satisfied with the evolution of the business. Second question on the one-offs, you mentioned H1 one-offs. I would say that as far as the three you mentioned TAG Heuer, Marc Jacobs and DFS, I mean what you saw in H1, you will also see in H2 I mean the comparison basis 2003 and '04 H2 doesn't take into account a pretty complex situation at Marc Jacobs and at DFS with the mix being unfavorable to DFS, so the comparison will play in negative way again in H2 and is the same for TAG Heuer we expect to have some more restructuring and exceptional expenses to be booked in the second part of the year. Apart from that, it's a bit early to say that I don't see major points worth mentioning. So your last question on Hermes and our acquisition strategy, I mean we basically we imply that Hermes was an acquisition or an attempt to acquire something I view this more as a financial investment. But anyway your question on whether we would have some interest in your controller repay for instance. Frankly I doubt it I mean it’s an airport business, we are more excited with downtown locations as shown by our projected investment in Venice. I don't see us as of today being investing into a big airport operator through populations or very large scale strategic move. And as far as our overall acquisition strategy is concerned, you know that we are clearly optimistic, and I'd say opportunistic and that we have nothing in mind and we will try to concentrate as you suggested on organic growth which is obviously the most important thing for us.
Jacques Guiony:

Thank you, Thomas. Perfume and Cosmetics, we saw improvement obviously modestly were in the world, in the U.S., in Asia and particularly in Asia, we had a very strong quarter in Asia between the U.S. too and in Europe. A bit of this comes from a few launches such as Homme Idéal at Guerlain or the eyeliner the real Benefit, but it doesn't even should pick this out I mean the quarter was pretty strong. But the business did very well. With regards to Sephora, I will give you the like-for-like but they were exactly the same as what we had in H1 about 14% in the U.S. flattish in Europe, 7%-8% in China and I don't remember the figures in Middle East, that's pretty high, I mean something like 20% or something like that. So we had a very good quarter at Sephora again I would say and no sign of slowing down or weakness in Asia and our Southeast Asian business is doing really well, it's improving, it will break even this year. It's not sort of, we have not been in this business for a long period so we are breaking even probably faster than what we thought in Southeast Asia. The Chinese business is holding up extremely well with nice like-for-like figures. So we are pretty satisfied with the evolution of the business. Second question on the one-offs, you mentioned H1 one-offs. I would say that as far as the three you mentioned TAG Heuer, Marc Jacobs and DFS, I mean what you saw in H1, you will also see in H2 I mean the comparison basis 2003 and '04 H2 doesn't take into account a pretty complex situation at Marc Jacobs and at DFS with the mix being unfavorable to DFS, so the comparison will play in negative way again in H2 and is the same for TAG Heuer we expect to have some more restructuring and exceptional expenses to be booked in the second part of the year. Apart from that, it's a bit early to say that I don't see major points worth mentioning. So your last question on Hermes and our acquisition strategy, I mean we basically we imply that Hermes was an acquisition or an attempt to acquire something I view this more as a financial investment. But anyway your question on whether we would have some interest in your controller repay for instance. Frankly I doubt it I mean it’s an airport business, we are more excited with downtown locations as shown by our projected investment in Venice. I don't see us as of today being investing into a big airport operator through populations or very large scale strategic move. And as far as our overall acquisition strategy is concerned, you know that we are clearly optimistic, and I'd say opportunistic and that we have nothing in mind and we will try to concentrate as you suggested on organic growth which is obviously the most important thing for us.
Thomas Chauvet:

Thank you, Jean-Jacques.
Citigroup:

Thank you, Jean-Jacques.
Operator:

A question from Melanie Flouquet from JPMorgan, please go ahead.
Melanie Flouquet:

Yes, good afternoon. I have three questions as well, sorry. The first one is on Fashion and Leather Goods. I was wondering whether you can go back a little bit on the Mainland China point because if I recall well, Q1 was actually pretty strong has that surprised you on the upside, Q2 has been deteriorated and I am trying to understand a bit better what happened in Q3, not in comparison to H1, but in comparison to the Q2 trend. Did you recover a little bit and was the price increase that you pursued in Q2 absorbed into Q3? The second question is on Cognac, you gave us a sellout trend for VSOP and for XO up to August would you be able to give us your selling to compare that to and to other media that the sense of how the destocking and how aggressive is destocking condition already? And to follow-on to that, what would you expect in terms of Q4 if you can give us any sense of whether we should expect another sharp decline or a little bit less given what's happened to sort of new clubbing for they have rested? And last just sorry it's really you are keeping from the earnings to European growth in quarter three for the Group? Thank you.
JPMorgan:

Yes, good afternoon. I have three questions as well, sorry. The first one is on Fashion and Leather Goods. I was wondering whether you can go back a little bit on the Mainland China point because if I recall well, Q1 was actually pretty strong has that surprised you on the upside, Q2 has been deteriorated and I am trying to understand a bit better what happened in Q3, not in comparison to H1, but in comparison to the Q2 trend. Did you recover a little bit and was the price increase that you pursued in Q2 absorbed into Q3? The second question is on Cognac, you gave us a sellout trend for VSOP and for XO up to August would you be able to give us your selling to compare that to and to other media that the sense of how the destocking and how aggressive is destocking condition already? And to follow-on to that, what would you expect in terms of Q4 if you can give us any sense of whether we should expect another sharp decline or a little bit less given what's happened to sort of new clubbing for they have rested? And last just sorry it's really you are keeping from the earnings to European growth in quarter three for the Group? Thank you.
Jean:

I missed your last question Melanie.
Jacques Guiony:

I missed your last question Melanie.
Melanie Flouquet:

The last question is on I mean Europe sales growth in Q3, sorry, during your presentation? Thank you.
JPMorgan:

The last question is on I mean Europe sales growth in Q3, sorry, during your presentation? Thank you.
Jean:

The what? Sorry didn’t hear you again.
Jacques Guiony:

The what? Sorry didn’t hear you again.
Melanie Flouquet:

Europe growth, thank you, interest rate for the Group.
JPMorgan:

Europe growth, thank you, interest rate for the Group.
Jean:

Okay. So let’s start with Mainland China in Fashion and Leather our growth was a bit lower than what it was for Q2 shared by most of the brands Vuitton probably a little bit more than others. We saw more action basically outside China than within China I mean with Chinese customers obviously. The tendency for Chinese customers to shop more abroad than they do at home is still there in Q3 so it has a little bit of an impact on our figures but all-in-all I mean we are a bit lower than what we were in Q2 a bit more compared to Q1 but lower than Q2 but nothing really striking. And Cognac where our selling numbers in China were sharply down in terms of volumes in Q3 we were down about 50% of EBIT more than that. So, we will find it a bit harsh so reconcile this and sell out numbers because the basis is entirely different. So, I will not go into all the details with the number of cases, et cetera. But as I said and the destocking is not over as we speak and we expect it to be almost over, it’s not over, by the end of the year. And we’ll take the necessary measures in terms of reduction in selling to make sure that we meet this objective. And Europe growth in Q3 was 3%.
Jacques Guiony:

Okay. So let’s start with Mainland China in Fashion and Leather our growth was a bit lower than what it was for Q2 shared by most of the brands Vuitton probably a little bit more than others. We saw more action basically outside China than within China I mean with Chinese customers obviously. The tendency for Chinese customers to shop more abroad than they do at home is still there in Q3 so it has a little bit of an impact on our figures but all-in-all I mean we are a bit lower than what we were in Q2 a bit more compared to Q1 but lower than Q2 but nothing really striking. And Cognac where our selling numbers in China were sharply down in terms of volumes in Q3 we were down about 50% of EBIT more than that. So, we will find it a bit harsh so reconcile this and sell out numbers because the basis is entirely different. So, I will not go into all the details with the number of cases, et cetera. But as I said and the destocking is not over as we speak and we expect it to be almost over, it’s not over, by the end of the year. And we’ll take the necessary measures in terms of reduction in selling to make sure that we meet this objective. And Europe growth in Q3 was 3%.
Melanie Flouquet:

Could you give us any indication of the sort of magnitude of decline that you will expect in quarter four given that I think you are saying the second layer you’re less exposed to in that is the one that needs to be cleaned up?
JPMorgan:

Could you give us any indication of the sort of magnitude of decline that you will expect in quarter four given that I think you are saying the second layer you’re less exposed to in that is the one that needs to be cleaned up?
Jean:

No I can’t tell you frankly I mean if you’re adjusting the numbers from both the sell outs depending on how the sell outs happened and on the number of the amount of stocks and it could create a lot of volatility in the business. On top of that, we get, as you understand. The sell out numbers with a little bit of delay as we speak we don’t have the sell out numbers at the end of by channel at least at the end of September. So if we really want to adjust inventories by the end of the year chances are that we’ll get we have to anticipate a little bit on the business. So it’s quite complex money to range of business there so I really cannot tell, I don’t have any idea of this.
Jacques Guiony:

No I can’t tell you frankly I mean if you’re adjusting the numbers from both the sell outs depending on how the sell outs happened and on the number of the amount of stocks and it could create a lot of volatility in the business. On top of that, we get, as you understand. The sell out numbers with a little bit of delay as we speak we don’t have the sell out numbers at the end of by channel at least at the end of September. So if we really want to adjust inventories by the end of the year chances are that we’ll get we have to anticipate a little bit on the business. So it’s quite complex money to range of business there so I really cannot tell, I don’t have any idea of this.
Melanie Flouquet:

Thank you
JPMorgan:

Thank you
Operator:

A question from Stephanie D'Ath from Bank of America, please go ahead.
Stephanie D'Ath:

My first question is on the timing on the share distribution if you can please give us a bit more clarity on that. And the second question in inside the quarter where there and especially maybe the exit rate were there any deterioration. And then my third question is given Asia grew 3% in H1 and only 1% in the nine months that implies negative growth in the third quarter. So could you maybe specify which divisions were being not negative in Q3 in Asia and also comments on the Russian consumers please?
Bank of America Merrill Lynch:

My first question is on the timing on the share distribution if you can please give us a bit more clarity on that. And the second question in inside the quarter where there and especially maybe the exit rate were there any deterioration. And then my third question is given Asia grew 3% in H1 and only 1% in the nine months that implies negative growth in the third quarter. So could you maybe specify which divisions were being not negative in Q3 in Asia and also comments on the Russian consumers please?
Jean:

Okay. So I will make sure that you will get all the details soon probably some point nest week we are going to release to try the press release on this so I cannot really elaborate it as of today but it will be as we said I mean before the end of the year and through the course of the month of December. But you will get all the details probably by the end of next week. I am sorry I missed your second question.
Jacques Guiony:

Okay. So I will make sure that you will get all the details soon probably some point nest week we are going to release to try the press release on this so I cannot really elaborate it as of today but it will be as we said I mean before the end of the year and through the course of the month of December. But you will get all the details probably by the end of next week. I am sorry I missed your second question.
Stephanie D'Ath:

Inside the third quarter, were the trends in terms of growth the same or was the exit rate? So the end of the quarter maybe a slight deterioration I was wondering?
Bank of America Merrill Lynch:

Inside the third quarter, were the trends in terms of growth the same or was the exit rate? So the end of the quarter maybe a slight deterioration I was wondering?
Jean:

Not really I mean we had some changes obviously not all the months were equal but nothing outside the normal volatility of monthly performance the month of September was in line with average of July and August. And thirdly on Asia and the division analysis I mean how the division -- I mean all the divisions are positive with the exception of Wine and Spirits all the other ones. I mean if you look at Asia excluding Wine and Spirits the region did plus 4% so the bulk of the impact on the Asian numbers was the impact of the Wine and Spirit and after China obviously destocking.
Jacques Guiony:

Not really I mean we had some changes obviously not all the months were equal but nothing outside the normal volatility of monthly performance the month of September was in line with average of July and August. And thirdly on Asia and the division analysis I mean how the division -- I mean all the divisions are positive with the exception of Wine and Spirits all the other ones. I mean if you look at Asia excluding Wine and Spirits the region did plus 4% so the bulk of the impact on the Asian numbers was the impact of the Wine and Spirit and after China obviously destocking.
Stephanie D'Ath:

Okay. Thank you.
Bank of America Merrill Lynch:

Okay. Thank you.
Operator:

A question from Warwick Okines from Deutsche Bank, please go ahead.
Warwick Okines:

Yes. Good morning afternoon Jean-Jacques Guiony and Chris. And three questions from me as well please, firstly on currencies can I ask the hedging question in a slightly different way to before. In the first half you said that currency was €235 million drag on profitability, can you give us any sense of whether H2 is materially better than that or similar sort of pressure? Secondly, could you talk about pricing for Vuitton I think you worked pretty hard to reestablish the traditional price differential between different markets given all the currency swings do you think that’s the right thing to do on a longer term basis or do you see some compression of prices between markets overtime? And thirdly if I can just come back to your answer to the question about Fashion and Leather by region you compared the performance of Q3 with the Q2 and H1 numbers but I don’t think you actually gave all of those numbers at the time of the call probably if I missed it on the H1 call but you could just be a bit more specific about the regions I think you’re saying that Europe was a bit better which I think you did say was flat in H1 U.S. a bit better I’m not sure what you have said for the first half and Japan can you just confirm you actually it was flattish for Q3?
Deutsche Bank:

Yes. Good morning afternoon Jean-Jacques Guiony and Chris. And three questions from me as well please, firstly on currencies can I ask the hedging question in a slightly different way to before. In the first half you said that currency was €235 million drag on profitability, can you give us any sense of whether H2 is materially better than that or similar sort of pressure? Secondly, could you talk about pricing for Vuitton I think you worked pretty hard to reestablish the traditional price differential between different markets given all the currency swings do you think that’s the right thing to do on a longer term basis or do you see some compression of prices between markets overtime? And thirdly if I can just come back to your answer to the question about Fashion and Leather by region you compared the performance of Q3 with the Q2 and H1 numbers but I don’t think you actually gave all of those numbers at the time of the call probably if I missed it on the H1 call but you could just be a bit more specific about the regions I think you’re saying that Europe was a bit better which I think you did say was flat in H1 U.S. a bit better I’m not sure what you have said for the first half and Japan can you just confirm you actually it was flattish for Q3?
Jean:

So it’s for Fashion and Leather for the group?
Jacques Guiony:

So it’s for Fashion and Leather for the group?
Warwick Okines:

That’s for Fashion and Leather, please.
Deutsche Bank:

That’s for Fashion and Leather, please.
Jean:

Fashion and Leather I’d come on that okay, the first question no, I cannot give you answer I mean give me exchange ratio and I’ll give you the currency impact, the only thing I can say that chances are that the breakdown of the impact will be entirely different from what it was in the first part of the year and in the first part of the year we had a big negative coming from conversion of profits and big negative coming from the impact of currencies on exports and a positive coming from higher hedging gains chances are that it will be the other way around in H2 with no hedging gains almost no hedging gains, but obviously better euro not yen but I think euro dollar and probably not euro yen but euro dollar conversion ratio that will enable us to get some benefit from the conversion and the export number whether we will end up with a much more favorable figure, more favorable or less favorable I don’t know at this point in time and particularly I don’t know at which level I should be making the calculation. Pricing equation about long-term pricing and differences between markets is an interesting question I would say that we don’t do price differences just because we want to impose higher prices to non-European customers when the idea is also to reflect higher lending costs but more importantly in many markets including the U.S. but obviously most Asian market tariffs I mean import duties and different consumption taxes it’s particularly true for China. So as far as we’re concerned as look as there will be differences in terms of taxes in the various markets. We expect to reflect that in selling price it wouldn’t make any sense to standardize transactions and business in a given country at a price which doesn’t reflect the various taxes we have to pay. So, we definitely expect to keep a price hierarchy that will show these differences. That being said, these differences may vary in the future there has been a lot of discussions for what more is about import duties in China being lower, about consumption tax being different from what it is today. Obviously, if there were some changes there we will immediately reflect that into our local prices. But for the time being and that is not that this doesn’t happen we think the price hierarchy is a logical one and we intend to keep it. So the Fashion and Leather by region the numbers I mentioned were the comparison between Q2 and Q3 so I said it’s a bit better in Europe much better in Japan as Q2 was obviously reflecting the VAT in the aftershock on sales VAT increase. They were better in the U.S. and a bit worse in Asia. But again I mean very comparable from one quarter to the other.
Jacques Guiony:

Fashion and Leather I’d come on that okay, the first question no, I cannot give you answer I mean give me exchange ratio and I’ll give you the currency impact, the only thing I can say that chances are that the breakdown of the impact will be entirely different from what it was in the first part of the year and in the first part of the year we had a big negative coming from conversion of profits and big negative coming from the impact of currencies on exports and a positive coming from higher hedging gains chances are that it will be the other way around in H2 with no hedging gains almost no hedging gains, but obviously better euro not yen but I think euro dollar and probably not euro yen but euro dollar conversion ratio that will enable us to get some benefit from the conversion and the export number whether we will end up with a much more favorable figure, more favorable or less favorable I don’t know at this point in time and particularly I don’t know at which level I should be making the calculation. Pricing equation about long-term pricing and differences between markets is an interesting question I would say that we don’t do price differences just because we want to impose higher prices to non-European customers when the idea is also to reflect higher lending costs but more importantly in many markets including the U.S. but obviously most Asian market tariffs I mean import duties and different consumption taxes it’s particularly true for China. So as far as we’re concerned as look as there will be differences in terms of taxes in the various markets. We expect to reflect that in selling price it wouldn’t make any sense to standardize transactions and business in a given country at a price which doesn’t reflect the various taxes we have to pay. So, we definitely expect to keep a price hierarchy that will show these differences. That being said, these differences may vary in the future there has been a lot of discussions for what more is about import duties in China being lower, about consumption tax being different from what it is today. Obviously, if there were some changes there we will immediately reflect that into our local prices. But for the time being and that is not that this doesn’t happen we think the price hierarchy is a logical one and we intend to keep it. So the Fashion and Leather by region the numbers I mentioned were the comparison between Q2 and Q3 so I said it’s a bit better in Europe much better in Japan as Q2 was obviously reflecting the VAT in the aftershock on sales VAT increase. They were better in the U.S. and a bit worse in Asia. But again I mean very comparable from one quarter to the other.
Warwick Okines:

Sorry then, could you give us the Q2 U.S. number because I am not sure I’ve got a record of what you said at the time?
Deutsche Bank:

Sorry then, could you give us the Q2 U.S. number because I am not sure I’ve got a record of what you said at the time?
Jean:

I probably didn’t refer give it to you so that’s why you don’t have to recall it in the U.S. it was flat in Q2 and it is slightly positive in Q3.
Jacques Guiony:

I probably didn’t refer give it to you so that’s why you don’t have to recall it in the U.S. it was flat in Q2 and it is slightly positive in Q3.
Warwick Okines:

Great, thank you very much.
Deutsche Bank:

Great, thank you very much.
Operator:

A question from Hermine de Bentzmann from Raymond James, please go ahead.
Hermine de Bentzmann:

Hi. Good afternoon. First question please on Watch and Jewelry clearly the quarter was quite dynamic. Can you precise a bit the capital months by region please and if you what kind of slowdown do you expect in this division in Q4 due to the recent protest in Hong Kong that may impact this division? And my second question and can you discuss about recent trend that you saw in Taiwan, Singapore and South Korea? Thank you very much.
Raymond James:

Hi. Good afternoon. First question please on Watch and Jewelry clearly the quarter was quite dynamic. Can you precise a bit the capital months by region please and if you what kind of slowdown do you expect in this division in Q4 due to the recent protest in Hong Kong that may impact this division? And my second question and can you discuss about recent trend that you saw in Taiwan, Singapore and South Korea? Thank you very much.
Jean:

So by region the Watch and Jewelry business was in line in Europe and in U.S. with pushing a bit better in Europe but not really meaningfully better. It was obviously comparing Q3 and Q2 much better in Japan for the reason I mentioned before for Fashion and Leather it’s exactly the same thing. And it was much better in Asia for what it’s worth as you know I mean particularly our Watch business in Asia is relatively small. But definitely it was better, not a big change overall a big impact on the business overall. But it was better. What’s happening today in Hong Kong will have some impacts probably although a big part of our business takes place in Kowloon and Kowloon is less affected than Central. So I don’t have precise numbers for Jewelry business and for Bvlgari as I have for the FX for instance but it will have some impact. Way too early to asset it so I cannot really say. And your last question was on Taiwan, Taiwan have, I have no idea I think the market is quite soft. Singapore is down quite significantly I think 5% or 7% something like that. This is mainly connected with the Chinese customers not visiting Singapore and Malaysia and Thailand because there were package tours that were going from China into Singapore, Malaysia and Thailand and for reasons connected with the political situation in Thailand and the airplane crash in Malaysia. This business is under pressure, Singapore is not going too well, unlike Korea which has a good year and a fantastic quarter. We see more and more Chinese tourists in Korea and basically the people we don’t see in Singapore and we see less in Hong Kong tend to go to Korea. So the Korean business was very good in -- has been good since the beginning of the year and was good in Q3.
Jacques Guiony:

So by region the Watch and Jewelry business was in line in Europe and in U.S. with pushing a bit better in Europe but not really meaningfully better. It was obviously comparing Q3 and Q2 much better in Japan for the reason I mentioned before for Fashion and Leather it’s exactly the same thing. And it was much better in Asia for what it’s worth as you know I mean particularly our Watch business in Asia is relatively small. But definitely it was better, not a big change overall a big impact on the business overall. But it was better. What’s happening today in Hong Kong will have some impacts probably although a big part of our business takes place in Kowloon and Kowloon is less affected than Central. So I don’t have precise numbers for Jewelry business and for Bvlgari as I have for the FX for instance but it will have some impact. Way too early to asset it so I cannot really say. And your last question was on Taiwan, Taiwan have, I have no idea I think the market is quite soft. Singapore is down quite significantly I think 5% or 7% something like that. This is mainly connected with the Chinese customers not visiting Singapore and Malaysia and Thailand because there were package tours that were going from China into Singapore, Malaysia and Thailand and for reasons connected with the political situation in Thailand and the airplane crash in Malaysia. This business is under pressure, Singapore is not going too well, unlike Korea which has a good year and a fantastic quarter. We see more and more Chinese tourists in Korea and basically the people we don’t see in Singapore and we see less in Hong Kong tend to go to Korea. So the Korean business was very good in -- has been good since the beginning of the year and was good in Q3.
Hermine de Bentzmann:

Okay, thank you very much.
Raymond James:

Okay, thank you very much.
Operator:

A question from David Da Maia from Aurel BGC, please go ahead.
David Da Maia:

Yes, good afternoon. My questions have already answered. But maybe on Jewelry is there any kind of exception on a very high-end sales which you can explain the shopping according to treeing this business?
Aurel BGC:

Yes, good afternoon. My questions have already answered. But maybe on Jewelry is there any kind of exception on a very high-end sales which you can explain the shopping according to treeing this business?
Jean:

Yes, a bit, but not to a great extent. As you know we have the BNL in Paris early on September which went well for Chaumet and Bvlgari I think it's more significant for Chaumet because of the others were pretty good when compared to the rest of the business it’s significant for Bvlgari, we did well. But it doesn’t affect trend. If you take out BNL I mean the rest of the year and the rest of the businesses is really doing okay. So, we really had a good quarter at Chaumet and at Bvlgari in particular which was sort of magnified by the BNL impact.
Jacques Guiony:

Yes, a bit, but not to a great extent. As you know we have the BNL in Paris early on September which went well for Chaumet and Bvlgari I think it's more significant for Chaumet because of the others were pretty good when compared to the rest of the business it’s significant for Bvlgari, we did well. But it doesn’t affect trend. If you take out BNL I mean the rest of the year and the rest of the businesses is really doing okay. So, we really had a good quarter at Chaumet and at Bvlgari in particular which was sort of magnified by the BNL impact.
David Da Maia:

Okay. Thank you.
Aurel BGC:

Okay. Thank you.
Operator:

The last question from Javier Escalante from Consumer Edge Research, please go ahead.
Javier Escalante:

Yes. Good afternoon everyone and thank you for taking the call. I just want to if you can comment on both in two businesses the one that did well cosmetics and selective retailing on cosmetics. Could you tell us whether you have visibility about actual retail sales versus shipments because I think you were lapping a very easy comp in cosmetics? And if you can help us understand what is sustainable going forward on the cosmetic side? And on selective retailing last time duties cost about the low compression rates for DFS and that you wanted to have more time to understand where was driving these. If you can help us, if you can tell us what you’re findings where in the context of what was the growth rate of the Sephora versus the growth rate of DFS and that will be very helpful? Thank you.
Consumer Edge Research:

Yes. Good afternoon everyone and thank you for taking the call. I just want to if you can comment on both in two businesses the one that did well cosmetics and selective retailing on cosmetics. Could you tell us whether you have visibility about actual retail sales versus shipments because I think you were lapping a very easy comp in cosmetics? And if you can help us understand what is sustainable going forward on the cosmetic side? And on selective retailing last time duties cost about the low compression rates for DFS and that you wanted to have more time to understand where was driving these. If you can help us, if you can tell us what you’re findings where in the context of what was the growth rate of the Sephora versus the growth rate of DFS and that will be very helpful? Thank you.
Jean:

Okay. On the cosmetics question, bear in mind that the cosmetic business in retail, it is a low inventory business they have a few weeks of inventories. So there is, it's very rare that we end up with a discrepancy between sell-in and sell-out, it may happen in one quarter if particularly shelf loadings of product ahead of the big launch, which happened a bit as I said before to us was Homme Idéal and They’re Real! eyeliner. So, number is what positively impacted by that but to a limited extent anyway, but all-in-all I mean the sell-in and sell-out numbers are always the same if you take over two or three quarters that were the same. So, we have no particular worry that the current situation would end up in low selling numbers because of excess stocking, I mean that’s not something that we have in mind that we expect to alter the business in Q4. The visibility nevertheless is as good as yesterday sales and you never know, as far as sell out is concerned, but as I said as of today I mean the business is doing okay. The geographies which are doing well like the U.S., the UK et cetera are still doing well and some geographies like Russia for instance are improving. They were pretty poor in the first part of the year and they are just improving car retail improving as well. Obviously there is a little bit of unknown as far as the Hong Kong situation is concerned but it's not a big market. As far as selective distribution is concerned, I have no memory of commenting on conversion rate at DFS, but maybe I did, as I said, I mean the sales at DFS in Q3 were flattish. With the division being plus 7% in a winning terms and DFS and supply being more as half-half, I let you draw the conclusions as to the type of growth that Sephora got in the course of the quarter obviously a very, very strong performance.
Jacques Guiony:

Okay. On the cosmetics question, bear in mind that the cosmetic business in retail, it is a low inventory business they have a few weeks of inventories. So there is, it's very rare that we end up with a discrepancy between sell-in and sell-out, it may happen in one quarter if particularly shelf loadings of product ahead of the big launch, which happened a bit as I said before to us was Homme Idéal and They’re Real! eyeliner. So, number is what positively impacted by that but to a limited extent anyway, but all-in-all I mean the sell-in and sell-out numbers are always the same if you take over two or three quarters that were the same. So, we have no particular worry that the current situation would end up in low selling numbers because of excess stocking, I mean that’s not something that we have in mind that we expect to alter the business in Q4. The visibility nevertheless is as good as yesterday sales and you never know, as far as sell out is concerned, but as I said as of today I mean the business is doing okay. The geographies which are doing well like the U.S., the UK et cetera are still doing well and some geographies like Russia for instance are improving. They were pretty poor in the first part of the year and they are just improving car retail improving as well. Obviously there is a little bit of unknown as far as the Hong Kong situation is concerned but it's not a big market. As far as selective distribution is concerned, I have no memory of commenting on conversion rate at DFS, but maybe I did, as I said, I mean the sales at DFS in Q3 were flattish. With the division being plus 7% in a winning terms and DFS and supply being more as half-half, I let you draw the conclusions as to the type of growth that Sephora got in the course of the quarter obviously a very, very strong performance.
Javier Escalante:

Thank you very much.
Consumer Edge Research:

Thank you very much.
Chris Hollis:

Thank you this ends this conference call on the Q3 numbers. Thanks for attending the call and I look forward to discussing with you our full year numbers probably in the first day of February. Thank you. Bye-bye.
Operator:

Ladies and gentlemen, this concludes the conference call. Thank you all for your attending. You may now disconnect.

LVMH Moët Hennessy - Louis Vuitton, Société Européenne Q3 2014 Earnings Call Transcript

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LVMH Moët Hennessy - Louis Vuitton, Société Européenne
Q3 2014 Earnings Call Transcript