LVMH Moët Hennessy - Louis Vuitton, Société Européenne

Thank you. Ladies and gentlemen, good afternoon, and welcome to this conference call.

I am Jean-Jacques Guiony, the Chief Financial Officer of the LVMH Group. Before I begin, I must remind you that certain information to be discussed on today's call is forward looking and is subject to important risks and uncertainties that could cause results to differ materially.

For these, I refer you to the Safe Harbor statement included in our press release. Let's now move to today's topic, first half figures.

I shall cover the first part with most significant figures, and Chris Hollis, Group's Head of Investor Relations, will cover the main developments of our different business groups. After this, both Chris and I will be available for your questions.

The press release is available on our website, lvmh.com, as well as the slides for today's presentation and the interim financial report. So let's move to Slide 2.

I shall start with the revenues for the first half of the year as shown on the slide. As you may see, we had a fairly strong semester with all our businesses growing more or less double-digit in organic terms.

Having in mind that revenues grew organically 15% in the first half of 2011, we can be extremely satisfied. You will note that the published growth is much higher than organic growth due to a significant currency impact of 6% combined with 8% stemming from the first-time consolidation of Bulgari and Ile de Beauté.

Chris will comment on main business groups in more details, but main points are the following. Wines & Spirits had a very strong semester with a 15% organic growth.

We enjoyed a 6% rise in volumes over the semester, which was topped by 5% price backed and 4% mix. Fashion & Leather is up 10% in organic terms with a very strong performance from Céline and Marc Jacobs in particular, worth noting last year's strong comparison base of plus 14%.

Perfumes & Cosmetics is up 9% in organic terms despite challenging conditions in Europe. Watches & Jewelry had a strong first half with plus 13% with a significant slowdown in the Asian part of the business.

Selective Distribution is also showing a very good performance with plus 16% organic, both stronger retail in Sephora have shown a very solid growth with a strong positive impact from like-for-like, but also from store openings. Let's now move to Slide 3 where you can see comparisons between first and second quarters in terms of organic growth.

As you may see, a bit of a slowdown across the board in Q2, although most groups of activities are close or above the 10% mark. Worth noting the very resilient performance of Wines & Spirits after a very strong start in Q1.

Let's move to Slide 4, which shows the geographic breakdown of revenues. Europe and Asia, including Japan, accounts for roughly 1/3 each while the U.S.

is 1/4. Emerging market taken together account for roughly 38% of the group's total revenues.

Moving to Slide 5 where you may see the evolution of sales in our main geographies. Only Europe is single digit with a strong performance of the U.S.

and Japan. More than -- and Japan more than recovering from the 6% drop in H1 2011 connected with the consequences of the Sendai earthquake.

Let's now move to the next slide where you may see our simplified profit and loss account for the period. My main comments are the following.

We already discussed revenues. Gross margin suffered a bit being 65% of sales, mainly explained by mix changes.

Operating expenses grew 11% if we exclude perimeter and currency impact at a slightly lower rate than revenues. Selling expenses were up 12%, marketing 15% and G&A 3%, again, excluding currency impairment impact.

Current operating profit is up 20% with operating margin reaching 20.5%, a slight drop compared to last year, which I shall comment later on. Other operating income and charges are negative by EUR 122 million, reflecting mostly amortization and depreciation of intangible, and the EUR 70 million write-off that we took on a real estate property we acquired almost 10 years ago.

I shall discuss financial charges in a separate slide in a minute. The group's tax rate is about 27%, a bit lower than the year's forecast, as it benefited from the exemption regime on the exceptional Hainan [ph] dividend.

As a result, group share of net profit is up 28% at EUR 1.681 billion. Let's now go in some details in the current operating income, which is broken down by businesses -- business groups on Slide 7.

Wines & Spirits had a very strong first half with plus 20% in current operating profit despite a currency impact that was less positive than other business groups. Fashion & Leather enjoyed a 10% rise in current operating profit somewhat below sales growth due to heavy marketing investments during the semester.

Perfumes & Cosmetics showed a 9% increase in current operating profit, also a bit below sales, due to marketing investment. Watches & Jewelry had a very strong semester with a rise of 87% of its operating profit, the bulk of which came from the first-time consolidation of Bulgari.

Finally, very strong progress as well in the Safety Distribution group of businesses with an advance of 30% compared to last year. Both travel retail companies and Sephora had a very strong first half.

Let me address the currency and structure impact on the current operating profit that you may see on Slide 8. We have a positive currency impact of EUR 166 million while recently acquired businesses brought an additional EUR 66 million, mostly coming from Bulgari.

From an operating margin viewpoint, currencies albeit positive in absolute terms as we've seen, were neutral, whereas newly acquired businesses had a negative impact on overall operating margins, which explains the largest part of the 110 basis points drop we had in the group's operating margin -- current operating margin. Let's now turn to Slide 9 and the analysis of the net financial charge.

Three important points. The cost of debt was flat in the first half despite the significant rise in the group's net debt connected with the Bulgari acquisition of last year.

We benefited from a 0.4% drop in average interest rates, but more importantly, the Bulgari payment was largely made out of cash balances whose return were quite low, due to the level of short-term interest rates. We were, therefore, able to fund about EUR 2 billion in additional debt without a significant impact on financial charge.

The cost of hedging was much lower than last year as we anticipated at year-end 2011, yet such a drop may not be extrapolated for the rest of the year. Finally, income on financial investment portfolio was much higher than last year, mostly due to the exceptional dividend income of EUR 5 a share from Hermès.

Moving on to Slide 10, where you can see the balance sheet structure. The structure of the balance sheet did not evolve much compared to 2011 year end.

Total liquidity is about 50% of the balance sheet whilst inventories rose 1 point to 17% of the total. Turning to Slide 11.

A few words on the cash flow statement. First, cash from operations was up EUR 662 million, i.e., 20% a bit more than operating profit.

Yet the tax side was quite penalizing. Due to the rise in profit in 2011, the final payment of taxes in the U.S.

and France largely exceeded installment already paid in 2011, causing a big jump in the cash tax charge in H1. Such a rise will not occur in second part of the year.

Working capital requirements were about EUR 400 million unfavorable to last year. This is not particularly surprising, given the strength in the activity and the connected inventory buildup in most businesses.

The second half of the year should be more favorable. Finally, capital expenditures are significantly up with an additional EUR 80 million for the semester.

Overall, the net cash from operations is about EUR 530 million for the first half of 2012, close to last year's level. I will finish this first part of the presentation with the comments on the group's net debt, which reached EUR 5.5 billion, about EUR 1 billion higher than at year end.

This increase is mainly due to the payment of dividends to our shareholders and minority equity partners. The group's net debt as at 30th of June 2012 represented 22% of total shareholders' equity.

I will now turn to Chris, who is going to review the main developments within our various business groups. Chris?

Thank you, Jean-Jacques. We'll start with Slide 14.

Let me begin with the Wines & Spirits. As you can see, reported revenue reached EUR 1.759 billion, up 23% compared to last year's first half.

After taking into account a positive 8% currency impact, organic revenue grew 15% in the period compared to 13% in the same period last year. So a good progression.

If we look at the 2 main categories, Champagne & Wines increased to EUR 748 million, representing a 16% increase over the same period last year. And after taking into account a positive 5% currency impact, organic revenue increased 11%.

For cognac and spirits, organic revenue growth reached 18%, which together with a 10% positive currency impact, resulted in reported revenue of just over EUR 1 billion for the period. Profit from recurring operations was up a strong 20% to EUR 496 million for the first half of this year, with Champagne & Wines up 17% and Cognac and Spirits up 22%.

We noted this time last year that a significant amount of the margin improvement came from currency impact. This year, the margin did not benefit from this impact.

Turning now to Slide 15 and some of the factors behind the numbers. There was a strong demand across all major regions in this group with Asia up a robust 25%, followed by Japan at 17%, Europe at 10% and the U.S.

at 7%, all driven by continued strong consumer demand. Price increases, which were implemented last year at the beginning of this year -- and also the beginning of this year, played a role in this growth notably for cognac.

To give you some more detail in the Champagnes business, volume overall was up 6%, reflecting particularly -- reflecting in particular growth of Prestige vintages and rosé Champagnes. And the Wines business also saw strong revenue growth due to a product mix improvement in the Estates and Wines, as well as the successful launch of the exceptional 2009 vintage Château d'Yquem, which was very highly praised by wine connoisseurs.

Cognac volumes rose 8%, reflecting good performance across all qualities. And with particularly strong momentum in Asia and in the U.S., Hennessy reaffirmed its position as market leader.

The cognac business is also progressing rapidly in important high-potential markets, including Vietnam and Russia. I should also note that Glenmorangie continues to deliver strong revenue growth.

Looking into the second half of the year, the objective is to maintain and build the momentum underway across the Wines & Spirits business by continuing to execute on the strategies that have been driving its success, these include controlling volume growth through focusing on the best performing and most profitable markets, reinforcing the desirability of the brands through strong and exciting marketing and communications, developing new and innovative products that drive demand, maintaining a pricing policy that reflects quality and optimizing supply management to support future growth by ensuring that we have adequate quantities of grapes and eau de vivre. Now let's turn to Fashion & Leather Goods, Slide 17.

Reported revenue reached EUR 4.656 billion or 17% higher than the same period last year. Excluding a positive 7% currency effect, organic revenue for this business group rose 10% in the first 6 months.

Profit from recurring operations also rose 10% from EUR 1.381 billion in the first half of 2011, and these results come on top of a significant growth in the first half of 2011, demonstrating the enduring appeal of our Fashion & Leather brands. To give you some more detail on Slide 18, the main growth regions in this business group in the first half of the United States up 18% in U.S.

dollar terms followed by Europe at plus 9% in local currency. Louis Vuitton continued its double-digit revenue growth, which has been ongoing for some time.

This reflects broad-based growth across the brand with all categories and markets contributing and strong momentum from both Chinese and American consumers. Tourism in Europe where the exceptional savoir faire of the brand's items has its roots continued to make a positive contribution to growth in this region.

The strategic and qualitative expansion of Louis Vuitton's store network continued in key markets with, for example, the very successful expansion of Roma Etoile, the brand's first Maison in Italy in a magically restored cinema in the center of Rome. The success of the Empreinte soft leather line, the good performance of Louis Vuitton's high-end leather goods and the strong reception to new colors in the wonderful Epi line all contributed to this good revenue performance.

Other brands contributed to the growth in the Fashion & Leather Goods group in the first half as well. Some highlights include Fendi, saw strong growth of its iconic Baguette bag, which remains a top seller as it celebrates its 15th anniversary, an event that captured terrific media coverage.

The Peekaboo line and the Octo continued to perform strongly. Céline has performed remarkably well, thanks to the success of its creation, which is designed by Phoebe Philo with all product lines contributing to this growth.

And the Donna Karan, the DKNY accessories collection, made good progress and the Jeans license was bought back in house. Looking at the second half of the year, Slide 19, there are a number of exciting developments to come in the Fashion & Leather.

Firstly, Louis Vuitton's recently opened first high-end jewelry store in Place Vendôme in the world's headquarters of the most impeccable jewelry. It also houses the brand's first high-end jewelry workshop.

It'll be a showcase for exceptional pieces created there that were at Cannes and celebrate Louis Vuitton's continued renewed legend of the spirit of travel. They also just reopened last week a redesigned and wonderful new Maison at Shanghai's Plaza 66, which received major media coverage in the fashion press worldwide as you may have seen.

And finally, as you may have read recently, Louis Vuitton has entered into a collaboration with a famous Japanese artist, Yayoi Kusama, including a fantastic polka-dot covered product line, which is already seeing enormous demand after its launch earlier this month. There's a major exhibition of Kusama's work in the Whitney Museum in New York happening right now.

And in general, she and her collaboration with Louis Vuitton are getting exceptional media attention around the world. Moving on to some of the other brands.

The Spanish luxury leather goods leader, Loewe, is accelerating the rollout of its new store concept. Céline, the focus is on continuing to renovate and selectively expand its store network to ensure its boutiques reflect the brand's ambitions in key locations.

Berluti's expanded offering of products in ready-to-wear leather goods will also be rolled out in the second part of this year. And in general, the objective is to further accelerate the profitable growth across the group's other fashion brands.

Turning now to Perfumes & Cosmetics, Slide 20. Revenue rose 14% to EUR 1.7 billion in the first half.

After a positive 5% currency impact, organic revenue grew by 9% compared to the same period last year. Profit from recurring operations increased by 9% to EUR 197 million in the first half of this year.

The primary growth regions on Slide 21 in the first half of this business on a constant-currency basis were Asia, excluding Japan, up 16 percent, the United States up 15%, Europe was up 5% and Japan up 8%. Once again, Parfums Christian Dior's solid performance was driven by the global desirability of the brand and its exceptional products.

The clearest example of this is J'adore. Its iconic fragrance, which continues its strong momentum.

Dior Homme also remains very well received with excellent performance in the first half, and the brand's high-end skincare, Prestige, remains a top choice for discerning customers. Guerlain also continues to benefit from its wonderful heritage coupled with its commitment to innovation.

Its recently launched La Petite Robe Noire fragrance is off to an excellent start in France while its Orchidée Impériale line continues to deliver strong performance. There were highlights in the other brands as well.

Parfums Givenchy recently launched Irresistible Electric Rose, which is off to a good -- a very strong start, as is Homme Sport at Parfums Kenzo. Benefit continues to grow strongly, thanks to its innovations, including most recently They're Real mascara and Make Up For Ever with its unique link to the artistic world is now expanding into the Brazilian market, which is one of the top world's top markets for beauty.

I'll talk about this market with respect to Sephora in just a moment. Turning now to the second half for Perfumes & Cosmetics on Slide 22.

In this business group as well, the focus will be on continuing to execute the successful strategy of product innovation coupled with significant media investments, which together drive consumer awareness and excitement. Asia continues to be a region of substantial opportunity, and the group plans to focus on further developing its fragrance offering in this region.

At Parfums Christian Dior, there will be further support for its iconic lines in conjunction with the exceptional Christian Dior Couture business. We also plan for additional progress in their makeup and skincare lines in the second half of the year.

Guerlain will expand La Petite Robe Noire, which I just mentioned is off to a good, great start in France, to the rest of the world, and will do the same with Super Aqua skincare. International rollouts are also a key part of the strategy at Givenchy with Dahlia Noir and at Parfums Kenzo with Madly Kenzo.

The group will also introduce its successful American brand Fresh in Asia later this year. Now Watches & Jewelry, this is on Slide 23.

Revenue reached EUR 1.343 billion in the first half of this year. This was boosted by, of course, by the addition of Bulgari, which was consolidated as of the end of June last year.

Excluding the impact of Bulgari and a positive 7% currency impact, organic revenue was up a healthy 13%. This group also saw a rise in profit alongside this growth, up 87% from EUR 85 million to EUR 159 million or 11% on a constant perimeter basis.

The main growth regions in organic terms in this business on Slide 24 were Europe, up 24%, the U.S. and Japan are each up 8% and Asia up 4%.

This reflects the favorable consumer demand for our watches, watch brands in all the key regions. The key driver of this was the excellent response to the group's brands at the key watch fairs in the spring, where the innovations across the brands were very well received among retailers and resulted in record orders.

Additionally, the stores run by our jewelry brands delivered strong performances. To give you some other highlights, the integration of Bulgari has gone very well, and now it's part of LVMH.

The brand is focusing on enhancing communications surrounding its iconic lines. And at TAG Heuer, the construction of a new manufacturing plant in Chevenez, Switzerland has been started to augment the production capacity of the brand and support increasing demand for its quality products.

Looking to the balance of the year, Slide 25, the objectives in this business group is to continue to deliver market share gains across its various brands. The key will be to remain focused on the upmarket positioning of the brand through the strategic and proven combination of industry-leading innovation and targeted communication.

An example of this is the upcoming launch of Bulgari's Octo watch, which will strengthen the offering for men in this category. To support anticipated future demand, this Watch & Jewelry group will accelerate the in-house production of watch components by leveraging expertise across all of the business group's brands and encouraging synergies between them.

This work is, in fact, well underway and going very well. And our brands will continue to selectively expand their store networks, including the new store concept for both Bulgari and TAG Heuer in order to even better showcase the unique elements of each brand.

Finally, let's take a look at Selective Retailing where reported revenue, on Slide 26, reached EUR 3.59 billion in the first half of this year. This increase of 27% over the first half of 2011 was boosted by a perimeter effect of 4% relating to the consolidation of Ile de Beauté, the Russian Perfumes & Cosmetics retail chain, and a positive currency impact of 7%.

Consequently, organic revenue was up a very solid 16% in the first half of the year. Profit from recurring operations in this business was up 30% to reach EUR 373 million in the first 6 months of 2012.

On a regional basis, Slide 27, organic revenue rose a strong 22% in Asia, 14% in the U.S. and 9% in Europe.

To break the results down by business, at DFS shopping by Asian clientele, contributed strongly to the solid momentum in this business, in particular DFS saw rapid progress in its Hong Kong and Macao Gallerias and also began to see a recovery in Hawaii in the Mid-Pacific regions of Guam and Saipan. This growth was also driven by continued upmarket positioning by DFS in its offering and overall retail experience, as well as a consistent focus on delivering innovation across its merchandise assortments in terms of brands, products carried and services it offers to customers.

Sephora's fine performance reflected -- reflects its continued leadership in the specialty beauty business on a global basis with market share gains in all regions. The success of the concept is reflected in its immediate appeal in the new markets it entered, including Mexico, the Middle East and South Asia.

Sephora also opened its first store in Denmark. As of the end of the first half, Sephora network totaled 1,349 stores, an increase of over 120 stores since the same time last year.

And in this business group too, Slide 28, the objective for the remainder of the year is to further market share gains. DFS will open its third Galleria in Hong Kong to continue to take advantage of the opportunity in this market, and we'll also start 3 new concessions at the airport there at the end of the year.

DFS will also renovate and expand its Macao and Singapore Gallerias to ensure it is best capitalizing on the potential of these markets as well. Sephora will continue its successful global expansion in key regions with approximately 70 more openings planned for the balance of the year.

An example of this is in Brazil where it recently opened its first store in this very large beauty market, complementing the online presence it has had there through the 2010 acquisition of, in fact, the top online Prestige beauty retail. It will build on its use of innovative technologies by continuing the development of mobile technologies for clients within its stores.

Sephora is also continuing to enhance its e-commerce capabilities and should benefit from the recent renewal of its updated U.S. e-commerce site.

And finally, Sephora will continue to enhance its existing store network by further refining and improving its signature retail experience through exceptional innovation and the introduction of new services. With that, I'll turn the call back over to Jean-Jacques for a brief wrap-up before we take your questions.

Thanks, Chris. I would like to conclude this brief overview of the activity with a few comments on H1 performance, highlighting the most significant points.

First and foremost, I would like to point out that almost all our businesses grew double digits in the semester showing the strength of our businesses and of our brands. Likewise, all our geographies are growing high-single digit or double-digit growth rate.

Thirdly, our businesses despite strong marketing and selling investments were able to fund a strong marketing push through a limitation of selling and admin expenses. And finally, despite significant investment, our balance sheet remains very strong.

So all in all, a strong performance in the first half of the year. What about the rest of the year?

Always difficult to make forecast, but I shall give you some points, which we view as important. First, some markets remain well oriented.

This is the case for the U.S. and for tourism, which irrigates our stores in Asia and in Europe.

This should be a strong support for the growth in the months to come. Secondly, we think our product and marketing pipeline is stronger in the second half of the year than in the first.

This is not only true at LV, where we should benefit from the [indiscernible] initiative and from the impact in Mainland China of the reopening of our Plaza 66 store in Shanghai, which now is the largest Vuitton store in the world. We also mentioned Lady Link, TAG Heuer, the global rollout of La Petite Robe Noir gala, with the opening of DFS' third Galleria in Hong Kong.

And finally, we are as convinced as ever that the best way to create value is to invest behind our brands and we shall carry on doing so in a thoughtful and disciplined way. That is basically all we wanted to say, and we shall now open the Q&A session.

Melissa?

I have 3 questions. First, can you talk about what you're seeing in China specifically?

And if sales there are still trending in more the high-single digit range there in the second quarter and whether or not you've seen any sort of impact from slower gifting sales? And also perhaps talk about sort of the significant slowdown in Watches & Jewelry that you're seeing there.

Secondly, on Selective Retailing, it looks like Asia moderated a bit in the second quarter. Could you comment on what you're seeing at DFS, particularly in Hong Kong and Macao?

And also, if you could provide the total Sephora comp in the quarter along with the regional comps in the U.S. and Europe.

And just lastly, Wines & Spirits obviously, still very strong. I was wondering if you can update us on how depletion rates there are trending in the quarter, particularly if Cognac is still up double digits in the U.S.

and China and whether or not you've seen any improvement in champagne in the U.S. just following the price increases that you've implemented back in March.

Okay, thanks. Many questions.

Starting with China. Rough figures in China in organic terms for Q1 and Q2 are basically exactly the same.

I mean, we are around, for the whole group, around 15% growth for both Q1 and Q2 in China. So no change at all in the global trend.

Yet if you look at various businesses, what we saw is that Wines & Spirits did better in Q2 than in Q1. Q1 was already pretty good, but Wines & Spirits did better.

Same thing for Perfumes & Cosmetics, slightly better in Q2, and we had Fashion & Leather doing a bit lower than in Q1 being positive, but being lower than Q1 and Watches & Jewelry being much lower than Q1. But as you know, I mean, this doesn't have a lot of impact on us as this is the smallest division altogether and particularly when it comes to Asia and China.

You mentioned the impact of gifting. Obviously, there are specific issues in China today, which affect particularly brands like Vuitton.

We have the gifting business which, more or less, came to a stop for a local specific reason. Very hard to quantify how big it is, but we think it has some impact on Vuitton.

We could also mention the fact that price differences between Europe and Asia and China in particular, due to the drop in the euro and the strength in the dollar and therefore in the renminbi are at one of the highest level we've ever seen. Obviously, this has some impact on the business.

Our customers, if they can do it, would rather buy outside China than inside China. And also, I should mention the fact that our biggest store, Plaza 66, had been closed for a year now has re-opened last week, and we expect this to have some impact on the business.

So there are specific factors in China today, but all in all, I mean, the global performance remains more or less what it was in Q1. You mentioned Asia and a specific question on DFS.

I mean, DFS performance in Asia was pretty, pretty strong in Q1 and Q2 -- in Q2, a bit lower in Q2 than it was in Q1. And you mentioned specifically Hong Kong and Macao.

Hong Kong's performance of DFS in our 2 Gallerias in Q2 was significantly lower, very positive, but I would say high-single digit as compared to excess of 20% in Q1. So we saw some slightly lower figures at DFS in Q2 in Hong Kong.

Macao was as strong as it was in Q1, so very, very strong figures at Macao. So a little bit of a difference in between the 2 areas.

Chris, you would want to comment on Sephora's like-for-like?

Yes, the Sephora like-for-likes for the first half were plus 3% in Europe and plus 10% in U.S. The Sephora like-for-likes in Asia are probably very high double digit or even triple digits.

So I don't think they're very meaningful.

Okay. And lastly, your question on Wines & Spirits.

Well, depletions in Q2 were more or less in line with Q1. So they are pretty strong in China.

They were -- they are seated pretty strong in Cognac in the U.S., although single digit. Obviously, as far as champagne is concerned, the situation is a bit more complex to read due to the price increases.

But we see, we've seen regularly since April pretty strong depletions in champagne in the U.S., which lead us to think that the price increases have been well absorbed by the market and our volumes of champagne in the U.S. recovered very, very significantly from the first half.

In the first half, they were negative about 10% and our volumes in the U.S. in champagne are at very, very strong single digit, low double digit in excess of 30%.

So we recovered sharply from the slight drop that we had in the first quarter.

Three questions for me too, please, if possible. So on the Fashion & Leather division.

So the margin declined about 220-odd basis points. Can you just give us some color on the breakdown for that?

And on the related question, do you expect the ongoing shift of the spend from Asia to Europe by tourists really having an impact on that margin? Secondly, did you pass on any price increases at Louis Vuitton in the second quarter?

And then lastly, have you got any comment, just going back to the China and Hong Kong question that you just answered, but we heard that there was slowing traffic in May and June towards the end of the period. And I wondered if there was any change throughout the 3 months.

Okay. So on Fashion & Leather, so there is a drop of 220 basis points.

A lot of it, half of it roughly is Vuitton. And as far as Vuitton is concerned, we have the main reason for the drop is connected with marketing investments.

We had very strong marketing investments, events -- mostly events actually, in the first half. We had the Plaza 66 event, which was quite a strong investment, which the bulk of it was expensed in the first half, although the event itself took place in the second half.

We had the runway show. We had the Musée des Arts Décoratifs initiative.

We have prepared for the Kusama initiative as well. So we had a big boost in the marketing budget, which explains the bulk of the slight drop that we had in margins.

The rest comes from 2 or 3 things. One is heavy investment at Berluti.

As you know, we are very keen on developing the brand on the worldwide basis. Secondly, we took over from Liz Claiborne at the Jeans License at Donna Karan, which is a pretty significant business, which came with a pretty low contribution to the bottom line.

So that has a negative impact on margins. And thirdly, margins were negatively affected at Fendi by the fact, as we mentioned before, that we are trying to cut as much as we can the Wholesale business in order to concentrate on the Retail business.

So that's roughly speaking the breakdown of what happened in Fashion & Leather. As far as price increase is concerned, no decision taken yet, but I mentioned the fact that our Chinese business is suffering from the price differential between China and Europe, which is at its highest.

So we have the choice between lowering prices in China or increasing prices in Europe. We have not taken any decision but we'll do what is in the best interest of Vuitton and LVMH profits.

And maybe I will ask you to repeat your third question, because I missed it. Sorry, Louise.

If you could just talk about any changes in the trading during the period. We've been hearing about the slowing traffic to Hong Kong.

Obviously, from the mainland Chinese towards the end of the period. And actually, if I could just ask one sneaky next question or my last question, just on the margin again, do you expect an improvement in the second half given you know what the marketing budget's going to be?

On the traffic, it's difficult. No, I think we had -- I mean, it's very difficult to make such an analysis because traffic from one month to another can vary without really us knowing exactly why.

So, no, I cannot really answer on this. Margin improvement, we would expect so.

I mean, the marketing spending I was mentioning are not going to be repeated in the second half of the year. So as far as Vuitton is concerned, I think we should be back to previous margins.

I've got 2 questions. First one on FLG, it's up 10% in H1.

Louis Vuitton is double digit. You mentioned Céline and MG were pretty strong.

So who are the bad performers? And the second one regarding Watches & Jewelry in Asia and in Q2, could we have some -- a split between Bulgari versus your legacy brands in terms of top line growth?

Okay. As far as Q2 is concerned, the growth for the Fashion & Leather division is not double digit.

It's 8%. It was 12% in the first quarter of the year, and it's 8% in the second quarter of the year.

And Louis Vuitton is double digit in euro, but not in organic terms. So that's -- I mean, it's pretty complicated for the division and Vuitton's figure to differ materially and they are pretty close.

As far as Watches & Jewelry Q2 figures are concerned, so we are -- the Watch & Jewelry Q2 figure is 9% organic growth. Bulgari is slightly below that, the main reason being that we had less high jewelry sales in Q2 than we had last year and in Q1 but also particularly in the U.S., and U.S.

performance is pretty low. We are just a few points positive.

But apart from that, I mean, be it Europe and mostly Asia and China, we are very pleased with the performance of Bulgari in Q2.

Okay. Then just a follow-up to be sure.

So on Slide 18, for H1 you mentioned Louis Vuitton is double digit. So it's year-over-year and not at constant currency, correct?

The double-digit figure we mentioned in our communiqué is at current exchange rate.

Okay, and I guess...

Constant exchange rate in Q2 is not double digit.

Antoine Belge, HSBC. Just 3 questions.

First of all, I would like to follow up on the margin decline in Fashion & Leather. So you mentioned that LV wasn't really different from the rest, but you made quite active comment about some of the other brand doing extremely well.

And then maybe one of -- I would have expected maybe LV outperforming the divisional average, I think a negative brand mix impact on the margin. And [indiscernible] I saw that in the past, you had mentioned that actually the transfer from consumption from China to Europe would really not have a big impact on margins.

Since in China, if I'm not mistaken, you're paying variable rents whilst you're paying fixed rents in Europe. So I mean, could you maybe confirm that actually that was not the case on that front, so it's having a negative impact on margins.

The second question is on Louis Vuitton. Maybe explaining at least quickly that [indiscernible] the difference is of evolution of price, mix, volume [indiscernible], what was the net variance in terms of store openings versus maybe some closure?

And finally, obviously, the change in FX will be a big booster for you in the second half. Can you maybe go through some of the technicalities like your hedging rate.

And if so, you're probably at the moment, you're not exercising your reserve, the auctions, because you have no interest in doing this. So what would be maybe the likely impact of that in the second half?

Okay. So starting with margin at Vuitton, though, there is no such thing as a noticeable significant geographic mix impact on margins.

As I said, the bulk of the margin impact comes from the fact that we had a rise in marketing expenses that was higher than the rise in sales and gross margin. And hence, we had a slight negative margin impact at Vuitton.

There is no such thing as a noticeable geographic mix impact on Vuitton's margins. As far as your second question is concerned, price, mix, volumes, et cetera, you know that we don't really go into detail on this.

The only thing I can say is that year-on-year space, selling space was about 7% higher than what it was last year. And as far as price is concerned, the price impact, as we had no price impact in Q2, we didn't implement any price increases in Q2 as opposed to last year.

So the price impact, which we had in Q1 is rapidly fading away. It's still positive in Q2.

And if we don't increase prices further, we shall not have any or hardly any in Q3. So price impact is less, price increase impact is less of a factor in Q2 than it was in Q1.

Finally, on FX. The -- what, you're right about the put options.

I mean, given the strength in the dollar, we were it's great sometimes since we've seen that type of exchange rates. It was impossible to put together some hedging at such a favorable rate.

So we -- all our hedging is at a less favorable rate, but very open as always. I mean, we buy options or collars.

And so we give up the put options. And for the time being, we have not suffered from any call options being sold.

So as you noted, the collar is a purchase of a put option and a sale of a call option. So we have not been capped in terms of exchange rate by the rising dollar.

So we are still benefiting from the full increase in the value in the dollar, and that should be the case, 1.15 more or less.

Okay, maybe just one follow-up on growth in Asia for Fashion & Leather as a whole. I think in Q1, you said very close to or slightly below 10%.

Yes.

What would be the indication in Q2?

Mid-single digit.

I was wondering if you could talk about across the groups and the segments in the different brands. Are you seeing any differential in the performance at the high end of your luxury businesses as opposed to maybe some of the more middle-end luxury businesses, whether regionally or on a global basis?

Well, it's a very difficult question. The answer is no, but it's a question that is very difficult because the high end and the entry price range do not evolve in the same way throughout the year.

I mean, the high end for instance, would be something very important at Chinese New Year or at Christmas time, whereas the entry price would sell more or less evenly throughout the year. So it's quite difficult to draw a conclusion from the observance of a short period of time in terms of differences between the high end and entry price.

But our feeling is that we don't see major differences.

Okay, that's helpful. And then could you also -- could you maybe talk about briefly your thoughts on the U.S.

markets, that's the wealthiest country in the world. It probably looks under penetrated in terms of personal luxury goods, and your brands penetrations in terms of what the long-term opportunity could be.

It's a market that you're hearing a lot of positive data points from brands like yourself, as well as other companies in terms of the strength there. Do you have any insight in terms of what's driving that, the sustainability of the U.S.

as a large growth opportunity in the personal luxury goods sector?

Well, it's exactly as you said. I mean, it's an area where repeatedly for quite some time now, we are enjoying double-digit growth in most businesses.

I think the main reason for -- there are 2 main reasons for that. One is the strength in the cosmetic market, which is important for us, not only for our Perfumes & Cosmetics business, but also for our Sephora business.

So we benefited heavily from that. It seems the month of June was a bit tougher than previous months, but it seems that the cosmetic market in the U.S.

is holding up extremely well. So that's a strong supporting factor for our business, and the second point you mentioned it is the fact that by and large, the U.S.

market is still under penetrated in terms of luxury goods as compared to Western Europe, for instance, which enables brands, ourself and probably also competitors to make further inroads into the U.S. market and to benefit from that.

How sustainable is this? We are very optimistic about the U.S.

market, and we keep on investing in improving our network in the U.S. at all times because we think it's one of the driving force behind our goals for the years to come.

I just wanted to ask you on Vuitton sales growth, I wanted to know if you could give us some color about Vuitton sales growth to Chinese costumers, the overall trend in Q2 versus Q1, was there any change in trend? And could you give us also some color about what happened to U.S.

customers for Vuitton, please?

So on Chinese customer base altogether, so including Mainland China and touristic purchases, it's more or less the same figure as the one we had in Q1. So we are around 10%.

We haven't seen any changes. What we do in China is more or less the same type of growth as we had in Q1 and Q2.

And as far as touristic sales are concerned, it's also exactly the same type of -- that type of growth. So the bulk of the growth in the Chinese client base takes place outside China, and the portion of business we do outside China with Chinese people is about a little bit more than 1/2, about 55% of the total business we do with Chinese customers.

As far as the U.S. customer base is concerned, the growth is a fairly strong double digit, but the bulk takes place in the U.S.

as you know. The Chinese -- the U.S.

business -- U.S. citizen business takes place in the United States.

Sure. And was there any change in trend in Q2 versus Q1 for U.S.

customers?

Slightly lower, but nothing really significant.

Three questions, please, for me. The first one just on Louis Vuitton and the space you talked about, a 7% space growth in the first half of the year.

Are you on track to hit, do you think, 7% for the full year? And with regards to your space strategy, if you like, in terms of extending stores more recently and reducing the number of net openings, is that something which we will expect to see continue going into 2013?

My second question is just around the volume in value splits, please, for cognac and champagne for the first half of the year. And my third question is around the cost of investment within the Watches & Jewelry business in terms of investing in new manufacturing.

Could you quantify that in terms of EBIT margin investment, please?

Okay. Yes, 7% growth for the rest of the year.

On a full year basis, it's close to what we should achieve. We have fairly good visibility on that, obviously, given the fact that we engage into projects quite in advance, and that's what we should have.

In terms of strategy for space increase, we see no reason to change our strategy. I mean, we are trying to expand the footprint of the brand, obviously.

But at the same time, we need to have balance between accessibility and desirability of the brand. So the strategy we described quite some time ago now, it's 2 or 3 years ago, of opening less stores but making them more spectacular and more a statement for the brand will not be changed.

Cognac and champagne for the first half on top of volume growth that Chris mentioned, I think we have 2% mix and 2% price. That's for champagne.

And as far as cognac is concerned, we have almost in between 7% and 9% increase in prices and about 1% in mix. So the mix impact for cognac is obviously lower in Q2 than it is in Q1 as we don't have the Chinese New Year impact, which is always very favorable on volumes -- on mix, sorry, in Q1.

Finally, your question on the cost, EBIT cost of investment in Watches & Jewelry connected with the industrial capability buildup, I think it's quite negligible, I would say. We are planning to make some in between EUR 30 million and EUR 40 million a year in capital spend for the next 2 to 3 years as we did in the past, actually, with a depreciation period which is reasonably long.

So we don't expect a major impact, if any, on our EBIT margin.

Okay. I just have one quick follow-up.

Just with regards to market share in cognac. In 2011 on a global basis, Hennessy market share dropped by about 140 basis points and within the statement today, you called out the U.S.

as being particularly stronger. And are we starting to see Hennessy claw back some of the lost share, particularly in the U.S.

and in Asia over the past year or so?

Well, I should ask you what type of market share analysis you make, because if you're doing it on the basis of what is being sent by the French companies to the subsidiaries, it's always a bit misleading. As far as we understand, we have a stable market share in China.

And in the U.S., it's slightly growing. So given the fact that we have in excess of 40% of the worldwide market, I mean, you cannot expect huge shifts in market share, but we are not particularly worried as far as our market share is concerned in cognac.

Yes, I've just got 2 questions, please. One is on Sephora.

I'm just trying to understand a little bit on the margins, because I understand from previous conversations that the margin in China and Asia was quite different from the margins you achieve in the U.S. I was wondering if you could give us an update on the operating margin between the regions.

And secondly, on the Watches & Jewelry business, if we were to think about it just between what's going on with the Bulgari brand and what's going on with your other brands, is there a big difference in the performance of Bulgari versus the other brands?

No, I think I already alluded to your last question on Bulgari. In Q1 and Q2, Bulgari's figures are pretty close to the division's average, although they are not in the figures as they are noncomparable up to end of June.

But they are pretty close to the division's figures, a bit lower. And as far as Q2 is concerned, it's mostly due to high-end sales, so high jewelry sales.

As far as margins in Sephora are concerned, basically margins in Europe and in the U.S. are a bit in excess of 10%, a bit better in the U.S.

than in Europe due to the fact that some European countries are not yet at their full margin potential. But we are both 10%.

As far as Asia concerned, we are now positive. We were positive for the first time in 2011, and we are in between 3 and 5 -- we should be in between 3% and 5% for the year.

So it's progressing as expected, but it's progressing.

This is Matthias from MainFirst. First of all, quickly, can you clarify your previous comment about margin development at Louis Vuitton in the second half?

And when you say it should normalize in the second half, do you mean this second half versus second half last year? Or is it a comment based on the full year margin this year compared to last year?

And second question would be on your Watches & Jewelry division. Are their current sell-in trends in line with the sellout trends or do you saw already a certain de-stocking happening in the second quarter?

Okay. Now what I said about LV margins is that in the first half of the year, we had marketing expenses growing faster than sales, and we don't expect this to happen in the second half of the year.

That's all I wanted to say as a forward statement on the margins of Vuitton. As far as Watches & Jewelry sell-in and sellout are concerned, always difficult to monitor, particularly in Asia.

But our understanding in Asia is that our sell-in figures are way lower than our sellout figures, quite again difficult to monitor. And as far as the U.S.

is concerned, which is the other relevant area where we can do some monitoring, our sell-in figures are also lower to a smaller extent, but they are lower than the sellout figures.

In the Fashion & Leather Goods business, could you specify the growth region for Asia Pacific and for Japan as you've given it in the U.S. and Europe?

That would be the first question. Second question, could you confirm -- I wasn't really sure that on a full year basis, we could also expect DFS space to increase by roughly 7%.

And then could you clarify what's in the other income that you've been mentioning? And also that for Sephora Q2 like-for-like in Europe seems to be flat.

I think I already answered on Fashion & Leather in Asia. It's mid single digits.

I also think I -- Marc, I answered on the 7% space growth at Vuitton, which is the objective for the full year.

Okay, sorry about it because my line wasn't clear.

No, that's quite all right. I'm sorry, your other question was about?

The question was about on the other income. So maybe if I came back just on the Fashion & Leather Goods, actually for Japan, could you give us an idea of the magnitude of the trend there?

In Japan?

Yes.

It's same thing, mid single digit for Fashion & Leather in Q2. I mean, I probably missed your question.

Yes, what's your question on other income and charges?

I mean, the other income and you were talking about amortization, except in amortization what are some assets kind of things or.

We had a EUR 122 million charge for the quarter. The bulk of it comes from a land that we bought 10 years ago in which we planned to make a development but including a Vuitton store, which never materialized.

So we have decided that we should sell this property and the value of the property dropped very significantly in between. And unfortunately, the currency, the naked currency rose also very significantly in the period, increasing the value of the depreciation.

So that, hence, the EUR 70 million charge that we took in the first half.

Okay. And so just Sephora in Europe, the color you've [indiscernible] it was almost flat.

No?

No, I think it's positive or like-for-like, you mean? Like-for-like in Europe in -- no, it's positive.

It's not a big figure, but it's positive by 2% or 3%.

Yes, Melanie Flouquet, JPMorgan. I was wondering whether you could tell us what was the growth rate of the consumer base of the Mainland Chinese back in 2011 compared to the 10% you've given us for quarter 1 and quarter 2.

That would be my first question. The second question is you mentioned that Louis Vuitton should recover or should be back on a similar level in H2.

Or at least that we wouldn't [indiscernible] expense anymore. But with regard to all the other pressure that is going on, that are going on at the other brands, I suspect this is going to repeat into the second half.

So I wanted to get confirmation whether we should expect 110 basis points pressure in margin in the second half on your other businesses. And my last question, sorry, is on Wine & Spirits.

Given the strength of your business in Q1 and Q2, and you repeatedly told us not to extrapolate the structure of Q1 into the full year, what do you expect -- when are you going to start either holding off the pedal into the selling? Should we expect that already in quarter 3 or will you also start to face volume cost trends?

Okay. So your question on margins in Fashion & Leather, you don't really expect me to answer in a quantitative way on this.

But you're right in saying that some of the issues that we have faced in the first half of the year will still be there in the second half of the year. I mean, we carry on investing at Berluti.

Fendi's margins will still be under pressure if we carry on, and we will carry on stopping diminishing at least the Wholesale business. And the Donna Karan Jeans business margins will not improve materially in the second half of the year.

I mean, it's more a longer-term plan to put them back at par with the rest of the businesses. There will be some margin pressure in the second half of the year in this respect.

On Wines & Spirits, sorry, the question was?

What should we...

It's operation, sorry. But a point to bear in mind is that volume growth in H1 was high but not, I would say, totally unsustainable.

I mean 6% volumes for both champagne, cognac and the rest of the business, which is what we had in H1 is not entirely unsustainable. Chances are that it will be a bit lower than that, but it's doable.

Yet we had some significant mix impact, which are more difficult to get in the second half of the year, and the impact of strong pricing last year will progressively fade away. I mentioned that for Vuitton, it's exactly the same thing, particularly for cognac, will progressively fade away.

So you shouldn't expect on top of a solid volume growth the same type of boost from mix and prices as we had in H1. But nevertheless, we are pretty hopeful that we'll do a fairly strong second half of the year although it should be probably at a lower growth level than it was last year.

And the consumer base in -- the Chinese consumer base last year compared to the second...

If I remember correctly, it was in excess of 20 -- the growth for the total customer base was in excess of 20%.

Okay, so that concludes the call for today. Thank you for attending it.

And both Chris and I look forward to discussing with you third quarter figures in October. Thank you very much, and have a nice evening.