LVMH Moët Hennessy - Louis Vuitton, Société Européenne

[Foreign Language] Ladies and gentlemen, good evening. I'm delighted to welcoming you for this meeting, presenting the annual results of 2016.

At the risk of tiring you, I'd like to say that the 2016 results are record results. You will no doubt have read the press release.

Revenue for the first time has topped the EUR 37 billion mark. We have profit from operations that exceeds EUR 7 billion, up 6%.

Net income is up 11%, and free cash flow is also up at about EUR 4 billion. And so the gearing has dropped to around 10%.

It's been a very good year. Pretty mixed year on the whole.

The first part of the year more restrained, with the second part of the year displaying sharp acceleration. I'd like to review the various business groups before giving you my views on 2017, which is one of caution, and then I'll explain why.

So 2016 Wines and Spirits, a good year, very good performance and increase in the United States, recovery in China after some difficult years. The prestige cuvées and champagne delivered an excellent result.

Moët & Chandon strengthening its global leadership position of champagne. We're developing the Moët & Chandon brand across the world, very dynamic.

And we're also developing innovations in various areas for champagne. I won't go into all the details.

Hennessy, of course, is very successful. You mustn't expect Hennessy to continue too long because we're out of bottles, so be cautious.

The problem is to deliver. The stocks are at an all-time low, and so we're faced with that situation that may seem excellent, but is going to put a brake on the expansion of our business there.

But the strategy that we put in place with Mr. Navarre is bearing fruit because we constantly create value.

We've always resisted the most difficult times. In China, we didn't cut prices that some of our peers did in order to continue to grow.

We've never done that. And we truly are market leader for wines and spirits premium.

Over now to Fashion and Leather Goods. The, of course, leading brand is Louis Vuitton, that put in an excellent performance with a slower start to the year but a stronger growth in the second half of the year.

This growth is achieved throughout the world, thanks to innovation, thanks to extremely creative products and an exceptional organization such that in a company such as Vuitton, in spite of its sales that I won't disclose, we have 1 month of stock, which is a remarkable performance. And I'd like to say that we can't expect huge expansion because we are constrained by manufacturing, 1-month stock, and then we have to make the products, we have to create workshops, even if we're going to create a new workshop in the United States, as we've announced.

And last, if there are problems of tariffs and duties, we'll be able to bypass that. But we have to train the people and the teams.

The customer demand would allow us to do this, but we need to bide our time. There's no point in achieving too much growth.

We have to do it in a consistent fashion, of course, during the year. We achieved a number of successes with new openings, at least store renovations.

You've seen the number of stores is reducing some. We're increasing the sales per square meter, and we're creating new stores that are quite exceptional.

A few weeks ago, there was the opening of the renovated store in Hong Kong that are quite extraordinary. And there, again, the sales not -- perhaps not skyrocketing but nevertheless increasing sharply in spite of the situation, thanks to their efficiency and innovation displayed in these locations.

Other brands are also growing well, have grown well in 2016, strong increase in Fendi. Loro Piana that's opened a store at the end of -- right close by.

Unfortunately, it'll be closed at the end of this meeting. But I urge you to take a look when you can.

There is some very fine products there, especially with the cold weather. There are some fine cashmere products available.

Other brands making good progress: Céline, of course; Kenzo, that's sort of been repositioned; Berluti, there, again, is achieving considerable success. We've disposed of Donna Karan.

That wasn't quite in line with our other brands. We're reorienting -- repositioning Marc Jacobs.

And we acquired a majority holding in Rimowa, so we're now a majority shareholder of this fine German company of -- manufacturer of high-quality luggage of excellence. With increased air travel, these are the lightest and most robust cases to be found on the market.

After those of Vuitton, of course, but those of Vuitton are not in the same price range and they're almost impossible to find. On Perfumes and Cosmetics.

Here, again, many events. The prime event is that of our new creative studio at Grasse, Les Fontaines Parfumées.

If you're passing through Grasse, I invite you to visit this new facility, a lot of craftsmen and artisans who are developing the Vuitton and Dior fragrances. Vuitton, I didn't mention in the highlight, but launched its collection of fragrances last year that prompted considerable demand.

On Dior, that is the leading perfume brand. The success of the iconic lines, J'adore and Miss Dior, continues.

Sauvage for men that we launched 2 years ago has achieved success worldwide. It's #1 in several country and one of the leading fragrances in the world.

And the goal that we've set ourselves to be world #1 will be achieved in 2 years' time. The other perfume brands held up well, notably Guerlain with the fragrance La Petite Robe Noire and also, more iconic brands.

Of makeup, the new brands acquired and launched by Sephora, Kat Von D. Mr.

Lapuente has presented the store. It's full of this brand and it's full of customers, whereas we're not making any advertising.

So makeup is a good segment. Watches and Jewelry.

It's really all good news. Perhaps you might find it's rather tiresome, but Bvlgari has achieved a performance better than market.

And you can see on this photograph that we've launched the new collection of Serpenti, the Bvlgari historic model that's very successful as well as the enhancement of lines Diva or Lvcea, a women's watch that works well. TAG Heuer, the watch market is down, but TAG Heuer is up, thanks to the success of the company under Jean-Claude Biver.

We've revamped the strategy. And with the iconic lines, with the refocusing of the strategy on what it's achieved, the success of the brand.

And also, thanks to the connected watch that is a big hit. We've achieved growth in the watch segment likewise for Hublot, which for different reasons is continuing to grow, and Chaumet is also achieving excellent momentum, with a new concept store inaugurated in Hong Kong, which I saw recently, that's very successful.

Selective Retailing. Pretty mixed performance.

Sephora continues to deliver surprising performance. I won't give revenue, but it's growing strongly for several years now.

Double-digit growth for Sephora and also profits, all that's useful. We're #1 in the distribution of perfumes and cosmetics in the United States, both in physical stores and online, ahead of all our U.S.

peers, be it Macy's for stores or Amazon. For Amazon, the pretty much mass market products, not really our competitor, but there's huge potential with this company that's extremely dynamic, which not only is opening stores, selling and distributing products, but also taking majority holdings in brands that we're developing very fast, thanks to the global network that tops the 2,000 stores now.

In '98, let me remind you, when we acquired the company, it had barely 10 stores, so that's a considerable success. Not so great for DFS.

Well, DFS is suffering from the situation in Hong Kong that made the mistake of taking a license in Hong Kong Airport that cost us a lot of money that we're continuing to pay. That's stopping at the end of the year.

We'll exit next year, but it will still impact on this year's results in Hong Kong, one of the places in the world where the outlook's the most challenging. And Le Bon Marché achieved very useful results.

I invite you to visit the latest exhibition organized by Mr. Wagner that's attracting a lot of people that's quite exceptional.

So much for the events of the year. And that explains why our results are what they are, that is, very good.

In spite of all that and in spite of the fact that the year is beginning with green lights, I'm very cautious about 2017. Why?

It may sound strange. Well, first of all, when everything's going well as it is, it's always in these times that something unexpected occurs and that we have to be very vigilant.

So I said to the teams, let's be vigilant in a period that may seem euphoric and may give -- encourage people to let our people congratulate each other. The stores are full.

We don't know how we can meet demand. That's pretty much the summary of the situation and they tend to ease up, but I believe we need to be extremely vigilant because from experience, every time we found ourselves in such a situation, the year ended not so well.

And why could that happen? First of all, for almost 10 years now, there hasn't been a major crisis.

The last one dates back to 2008. And when I see my friend, Warren Buffett, he always tells me, I'm very optimistic for the long term.

I'm also very optimistic for long term. But over a 10-year period, normally, there are 8 good years and 2 not-so-good years or even a very bad year.

Now we're coming to the end of the 10-year period. So what's going to happen when we see a global outlook with interest rates that are defying gravity as low as they are, with share prices that are rising with exuberance, to quote a well-known term, with a geopolitical situation that's difficult to read.

There's talk of a trade war, tariff war, currency war, with very low growth in Europe. So can all that continue to be buoyant for all our business?

I think we need to remain cautious. It's better to expect a first half that will be relatively easy because comparisons are easy.

The 2016, the first half, wasn't that great, so this year should be okay. Geopolitical economic events that might unfold in a way that isn't particularly helpful, and the way the second half of 2016 was promising, we must expect things to be far more difficult the second half of the year.

So this year, and I'm -- conveyed this to my teams. I've conveyed to them a message of great caution in spite of the results and the excellence of the figures that we're presenting.

It doesn't only have disadvantages, a difficult situation, because these are periods when we can seize on opportunities. Currently, shares are very high so people continue to buy.

But when share price drops, that's when they tend to sell, that they lay down their arms. But a few years later, it picks up.

Perhaps during this year or next year, there will be opportunities for the group, because it's true that it's in more challenging times, I've noticed, that we've always managed to increase our market share and to outperform our peers. But one never knows.

We really need to be prudent. But I believe, nevertheless, we will strengthen our lead over the market this year.

Over now to Jean-Jacques Guiony for more information on the financials.

[Foreign Language] Good evening. I don't want you to get depressed.

If you look at the figures for last year, they are pretty outstanding, especially looking at sales. The numbers here, you have sales on a quarterly basis.

There's lots of numbers on this table. Two things you have to note: Organic growth over the year is -- was 4% in Q1, that's the dark blue, 6% in Q2 and 8% in Q4 and overall organic growth was 6%.

And then if you look at the ForEx and structure effect, they're almost negligible, compensate one another. So organic growth is, in fact, not very different from growth in euro terms.

If you look at distribution of sales, 3 big blocks: U.S., Europe, Asia; 26%, 28%, for each. Over a 3-year period, Asia is down 2 or 3 points and the U.S.

is up 2 or 3 points. There's some parity effect, differential growth rates.

But all in all, same numbers. But if you look at the dynamics of growth, you can see, if you look at the 4 major regions, 3 are up: U.S., Asia and Europe, and one region which suffered the backlash of some events, Japan.

Japan did well with tourists until March or April, whereupon the yen went up and the Chinese authorities, the customs authorities, were much more restrictive as to the imports of goods imported from Japan into China. And so that, of course, hampered our growth in Japan.

And so the numbers are stable or indeed slightly down. That's the only dark point.

If you look at the U.S., we're looking at 7% growth, accelerating at year-end. And yet, you had some negative effects: The consolidation of a joint venture we had with Grand Marnier and that we had to dispose of; and then the negative effect of Donna Karan, because Donna Karan, month on month, during the transition period, had negative performances.

So if you leave that out, and so these are one-offs, of course, we were looking at upwards of 10% for the period as a whole. So that's pretty good.

Asia is interesting, because we're looking at 5% growth for the year as a whole. But if you look at H1, 0; and H2 is 10%.

So there was -- in June, July, there was a complete turnaround in Asia. And this actually occurred also in China, indeed, in greater numbers, because if -- I think China was like 14% growth.

Likewise, H1 was, say, average, whereas H2 was much, much better. And finally, Europe, it was 7% growth, and I don't think anyone in this room, at the same period last year, would have bet on that, 7% growth in Europe.

In France, we're slightly down, I think, minus 1%, slightly negative. But all the other countries did well.

And there was indeed, as business really picked up at year -- at the end of the year. Now looking at the -- at our various business groups, in organic growth.

And of course, Mr. Arnault mentioned this already, but if you look at the right-hand column, you have, for Wines and Spirits, we're looking at this 7% organic growth, slightly better for Cognac and Spirits.

If you look at Cognac specifically, even better, slightly better than Champagne, but look, both numbers are very good. Fashion and Leather Goods, 4%, but it was 0% in H1 and 8% or 9% in H2.

So a significant contrast, even though the Donna Karan cost us 2 or 2.5 points of negative growth in these numbers. Perfumes and Cosmetics, 8%, and this is an environment where growth is not as good as all that, so we're doing extremely well.

Watches and Jewelry, 5%, with Bvlgari ending the year beautifully, and TAG Heuer did well throughout the year. And then very contrasting figure in Selective Retailing.

Sephora, double-digit growth and DFS was in negative territory throughout the year, even though it picked up slightly at the end of the year, but for reasons that you already know. Now then, this time looking at H -- well, even on a quarterly basis, looking at business groups.

You have the dynamics. Wines and Spirits, 4% in Q3.

And of course, compared with 2015, the base of comparison was somewhat distorted. Fashion and Leather Goods, the same effects that I mentioned.

H1 was flat literally, but of course, a pickup in H2. Perfumes and Cosmetics and Watches, Jewelry and Selective Retailing, a few swings but by and large, sustained activity.

And you can see that Selective Retailing went up, but the numbers are not due to Sephora but rather DFS that was able to turn around at the end of the year. If you look at the income statement: Sales, up 5%; gross margin, up 6%, EUR 24 million compared to EUR 23.1 million last year; overheads or -- and marketing expenses, up 6%; overheads, administrative expenses, up 10%.

Now we have new accounting rules. There are additional provisions.

And indeed, most business groups were -- completed their accounts with significant provisions out of caution, but not including the provisions, of course, there wouldn't be such an increase in admin and overhead. We're looking at EUR 7 billion in profits from recurring operations, up 6%.

I think we were looking at 18.7%. If you look at the other income and operating expenses, slightly less than last year, but you have depreciation.

And there are some goodwill amortization. And then the capital gains on Donna Karan, about EUR 40 million, and it is recognized here.

The financial result on this is complicated, I'll return to that later. Income tax is always too high, 2.8% of the income before tax.

The net income is stable and the minority interest is down, not because of Moët & C, because Moët & C did well, but because of DFS, whose performance was down. And this is reflected in the minority interest.

And finally, we are just under EUR 4 billion in the actual net group income -- group share of net profit, but still up 11%. Now if you look at profit from recurring operations by business group.

Wines and Spirits, up 10%, whereas sales were only up 5%, so profit margin was significantly increased in Wines and Spirits. And this is particularly visible for Champagne and Cognac.

Fashion and Leather Goods, 3%. What -- 3% increase in sales and 10% in profits, so again, profit margin significantly up and a dramatic improvement in H2.

Perfumes and Cosmetics and Watches and Jewelry, if you look at sales and operating profit, they increased to the same tune. But Selective Retailing, the minus 2% is not due to Sephora, but DFS, which -- whose performances declined over the year, even though they picked up at the end.

And then finally, the -- if you look at the effects, are mostly due to organic growth. How to account for the increasing profit?

Most of it is organic growth, which was roughly equivalent both in sales and profit, even though that indicator for organic growth is not really the one we would choose. The currency effect is limited compared, say, with last year.

The net in -- the change in net financial income. Now it's always a complicated story.

You start with a simple line, which is the cost of net financial debt, which is roughly stable. There were little by way of interest or debt outstanding, but there was a -- well, our cash is not bringing in as much, so -- because the interest was down.

But that doesn't make much difference. The net ineffective portion of foreign currency hedges, and that's what we do to cover our positions, there were significant one-off costs last year, which we do not have this year.

So the EUR 330 million is a recurring expense. But it is exceptionally high, because normally, it should be somewhere like EUR 160 million, EUR 170 million.

The recurring part of this charge was much less last year, and it should be much less next year. As you know, it is not linear.

IFRS 9 should allow for linear recognition of these currency hedges. The cost of the ineffective portion, that is the cost of these hedges for 2017, we recognize more in 2016 than the actual cost that was disbursed, which is, of course, absurd, both in accounting terms and in economic terms.

We'll fall back on our feet next year, but of course, it's just as absurd. The net gains or losses due to the disposal of assets, well, of course, we didn't have any capital gains last year.

Well, this year that we had last year, and so hence, the difference. Now if you look at our balance sheet, equity is about half our liabilities.

We have some increase in stocks. The -- we have a sound financial structure and we have undrawn credit lines through June of EUR 3.4 billion.

So that's EUR 3.7 billion indeed. Cash flow is also a source of satisfaction.

Let's look at our cash from operations, up almost EUR 800 million at EUR 8.7 billion. Working capital requirements is mostly stock changes maintained to almost the same level as last year.

It cost us EUR 400 million last year, now EUR 500 million this year, but we're looking at the same numbers. Operating investments, slightly up, we're looking at EUR 2.2 billion compared with EUR 1 billion -- we're just under EUR 2 billion last year.

All in all, the free cash flow stands at roughly EUR 4 billion, just under EUR 4 billion, just under, but it's almost EUR 4 billion there. And so this is a significant improvement compared with last year, and along with sales and profits from recurring operations, this was a record year.

Now if you look at the debt position, well, this is in dark blue. Debt stood at EUR 4.2 billion.

Now it stands at EUR 3.2 billion. So we're -- the debt is down EUR 1 billion.

There was EUR 4 billion in cash flow, EUR 2.2 billion for dividends, EUR 200 million for acquisitions, EUR 300 million for the buyback of shares and EUR 2 million or EUR 3 million in various operations, leasings, adjustments or monetary adjustments. All in all, we were able to reduce the debt to the tune of EUR 1 billion and gearing stands at 12% debt to equity, so this is a low number.

And finally, we're offering a dividend. What we'll be offering is EUR 4 per action, up 13%, and this is in line with the net results.

So EUR 4 will be paid out, EUR 1.4 in December, so the final payout will be EUR 2.6 paid in April. Thank you.

[Foreign Language] All right. Well, ladies and gentlemen, if you have any questions, we're available to answer you.

If you'd kindly state your name before your question. Thank you.

[Foreign Language] Antoine Belge, HSBC, 3 questions. You mentioned the United States with a number of constraints, border tax.

What's the percentage of your business achieved, for example, in Fashion and Leather Goods in your factories in California? Jean-Jacques Guiony said that the tax rate was too high.

Mr. Trump might perhaps give you a helping hand on that front.

Second question, on Cognac. There's probably a difference between the capacity constraints that you mentioned and the sellout.

Could we have some feedback from the Chinese New Year? And how do you plan to address these problems of supply?

And might that lead to a couple of quarters to distributors that would be lower than to the end users? And in terms of your use of cash, you made an acquisition, Rimowa.

Perhaps you could tell us a bit more about that. Could you confirm that you've also taken 10% in the Italian company Marcolin and why?

And as to share buybacks, EUR 300 million, is that a beginning? And might that become recurring in the coming years?

[Foreign Language] So for the U.S.A., well, the U.S.A. is the world's leading market.

So obviously, for us, it's very important to follow what's happening. Currently, the market's very promising, very buoyant.

The atmosphere is -- well, perhaps not euphoric, but almost, you see that the stock market has, what, topped the 20,000 mark in the Dow Jones for the first time. That's historic.

Is all that going to continue? Well, I have to say that the measures that have been announced, the tax cuts, easing regulation and investments in infrastructure, I mean, all that's pretty promising for companies that are in the United States.

So we, for the time being, have little manufacturing in the United States. For 25 years, Vuitton offers a certain manifest advantage.

If border taxes were to increase, obviously, the -- for products manufactured in the United States, there's no problem. So I don't have the exact figure, but a large part of Vuitton products sold in the United States are made in the United States.

So we're really quite immune there. For the other products, we'll see what happens.

But there, again, we do have some flexibility on the prices. Most important is to see what's going to be the global impact of changes underway; change in economic policy, which for the time being, is very well perceived in the United States.

They're far more positive than negative points. I mean, the changes in Europe with Brexit, there, again, for the time being, in terms of the way our business goes in the U.K., it's pretty promising.

Everything's cheaper for visitors when they go to the U.K., except for Vuitton products. But when they go to the U.K., they have cheaper hotel rooms, cheaper taxis, et cetera.

So they travel far more to the U.K., perhaps a little less to France, but they travel a lot to the U.K. So it ultimately -- the likely poorer state of the Britons following Brexit will be such that it's going to create political and economic problems in the U.K.

That needs to be seen. It's -- we'll see in 2 years.

I mean, it's a very long period of time for the politics in any particular country. It's impossible to say what will happen exactly.

But for the economy, there are a number of uncertainties. What's going to happen with China?

Will there be a battle on customs tariffs with China? Will China be more difficult to access?

The Chinese president gave a speech in Davos praising free trade, but one never knows. That's why we believe we need to be cautious as regards to the development of our business this year, with -- what's more, we need to -- you mentioned Cognac.

Well, Cognac sales might decline. I mean, if we don't have enough Cognac, we can't invent it, unless Mr.

Navarre does miracles. But once we've exhausted the stock, we have to rebuild the inventory.

So -- but currently, demand is outstripping supply. I don't know what that will lead to, but we're faced with that reality.

On the cash front, so okay, the acquisition of Rimowa, right. We sold Donna Karan and we bought Rimowa.

It's a profitable business. It has a lot of potential.

It's one of the finest SMEs in Germany, ranked as such in all the corporate rankings for Germany, outstanding German quality and we believe it has great potential. And there's currently strong demand for their products.

In fact, today, I invite you to visit the store just opposite the Bristol Hotel in Paris that's quite outstanding. You can find these cases that we also sell in the United States.

Marcolin, I won't make any comments about that. I won't tell you what we're doing.

In any event, whatever we do, I mean, it's a small operation. As regards to cash, on the cash front, we need to be prudent with cash.

It's better to have some than not to have any. Currently, we're in a rather strange period.

We're being lent money and we're being paid to borrow money. We're at negative rates, which can encourage people to do very silly things.

Wisdom, with Mr. Guiony, we try and not yield to temptations.

We bought back a few shares, but they're too expensive now. So we won't be doing any more share buybacks.

They're too expensive. I'd rather wait.

I mean, if the market collapses, then at that point, we'll buy back some more shares. But once again, one never knows.

There are investors -- investments, totally abnormal, that were done. I mean, I took part in 2007, just before the crisis.

No one predicted that, as you recall. And then I recall that I bought LVMH shares at 40 years -- EUR 40.

It's not that long ago. I'm not saying that we can hope for that, but it's best to wait.

Any further questions?

It's John Guy from MainFirst. Can I start with CapEx and returns, question for Jean-Jacques, please?

In 2011, I think you had a CapEx as a percentage of sales over 7%. You've been normalizing closer to 5%.

Your free cash flow continues to skyrocket and the gearing is very low. So when you think about the prospect for future returns, can you maybe give us an indication as to where you think normalized CapEx is and what we can expect for a sustainable rate or return on invested capital going forward?

My second question is with regards to the global Chinese consumer. We saw a very sharp rebound in global Chinese consumption in the third quarter.

Could you maybe talk a little bit about how the Chinese -- global Chinese consumer evolved in the fourth quarter? And finally, to Mr.

Arnault, with regards to Cognac and Louis Vuitton, capacity constraints. How do you think about pricing or the volume and value mix going forward?

I did notice that in the U.K., we saw some pretty strong pricing activity. But the volumes remain very strong, so that's a testament to the brand equity and clearly, the desirability of your product.

So how do you think about that going forward?

Actually, regarding CapEx, you mentioned 5%, and 5% is sort of the ratio of CapEx to sales. It's an objective.

I don't mean all sale -- all brands will do the same. Some brands need to spend more on CapEx, because that is to -- and such brands as Fendi need to do this to ensure better return on the brand.

And so they have high CapEx, but other brands as well. So we're looking -- I mean, what we're aiming for, but it's not an actual stable objective, we're looking, but we're aiming for is 5%, but there are exceptions to that.

And we can -- that can lead to returns, well, that is return on capital, was slightly down in the years 2012, '13, '14. But now returns on capital invested is on the up, although it's not a -- it hasn't increased that dramatically.

[Foreign Language] You had a second question on a sudden rebound in Chinese consumption. What we have found was that while Chinese customers were -- have always been loyal.

But what happened in H2 -- well, Q3, and of course, this accelerated in Q4, what we had is repatriation of Chinese consumption towards Mainland China. And we have, if you look at the main malls in China, they were stagnating at single-digit growth until the summer, and then now, they are into double-digit territory.

And of course, the brands -- well, the better-positioned brands are doing better. And as Jean-Jacques pointed out, it's partly to do with the currencies.

But also, the Chinese differential is not as significant as it was in the past. But also, the Chinese authorities want to repatriate consumption.

That is, they want people to consume at home than buying from abroad. Chinese New Year is still underway, and I don't think we could look at the events now as the continuation of Q3 and Q4.

Regarding the stocks of Cognac and Vuitton, well, we can always hike up the prices, but the profit margins are pretty good as it is. We also have some responsibility vis-à-vis our customers.

We now found ourselves in a situation that there's more demand than we can meet. But I think the thing to do is act responsibly and preserve the future rather than hike up the prices in the short term and find ourselves in a position which is not really neither tenable nor ethical vis-à-vis our customers.

And so there may be situations where revenue may not be as buoyant as one might ask, but so be it. We will survive.

We will make do with that. Yes?

Luca Solca from BNP Paribas. I have a question about Fashion and Leather Goods.

It has been some time that you find yourselves in this position with Marc Jacobs. Well, in the same position with Marc Jacobs, is there any changes underfoot?

And on the digital sales, I mean, will there be a point where you will be able to sell online or to reconcile this with sales in shops? Do you have any ambitions for e-commerce?

And Mr. Arnault, I believe that your encounter with the U.S.

President hasn't reassured you vis-à-vis the situation. Would you care to comment on that?

Well, I'm more concerned about Marc Jacobs than the U.S. President.

Well, in any event, I mean, he can -- I don't think he can do much about the U.S. policies.

But of course, Marc Jacobs is well -- is a challenging situation. Mr.

Roussel is working on that. That's the only business, along with DFS, which is in the red.

We will pull out, I'm sure. But in the fashion industry, you have to be cautious.

Things are volatile. And indeed, in retail, it's the same.

You have to -- you do not want to turn this company into a fashion company, because when things go out of fashion, then you've had it. Vuitton is a timeless company.

It's a company where we have this sort of a timeless robustness, just like, well, watches. I'm not saying that our fashion goods are accessories.

But whereas for Marc Jacobs, Marc Jacobs is very much a fashion business. And so when things are in fashion, fine.

And when they go out of fashion, not so fine. Regarding sales on the Internet, yes, Mr.

Belloni, well, we have been looking at the issue of digital sales. And of course, all companies are very much concerned with the digital dimension.

Of course, you can't just go online. You need to have the infrastructure, you need to have the talents, you have to have the databases.

You have to have all the wherewithal for -- to be able to offer a satisfactory digital experience. Our customers have been doing this.

And on -- we -- our sales on the Internet are significant. We're looking at about $2 billion, so -- and significantly -- and growing significantly.

Some brands are doing better than others. So we can be happy with the digital transition.

Or at least, we can see that in all business groups, digital -- we have been making significant digital inroads. It's not just a matter of piling up sales.

We have to offer an integrated experience so that our customer is fully supported. Now regarding American policies, I may have sounded concerned.

I think as things stand now, the policies are in our favor. I read a paper, in the Daily Telegraph, saying that the new U.S.

President is very much criticized and this has always been the case. But there's the question, what if it worked?

What if it -- I'm not sure if you read that paper, but this thing -- it could just work. It -- and indeed, some of the measures taken by Mr.

Trump, lowering taxes, deregulating, increasing or giving a push to major infrastructure projects, all this is positive stuff. Now most people appointed, at least for positions to do with the economy, they're highly trained professionals, people from the banking industry, having good bankers -- a good banker working in the financial sector, well, that can only be good news.

Yes?

[indiscernible] if I may. The first one on pricing.

In your cautious outlook for 2017, which price increase do you expect for businesses like Vuitton, that in the past year, took a lot of overgrowth from pricing. The second one, always linked to your cautious attitude for 2017 is about divestor.

You are a fantastic collector of brands. Last year, you surprised us selling one of them, that is not very common in the House of LVMH.

Should we expect a portfolio assessment of the various business that you have and further divestitures? The last question is always linked to your cautious attitude for 2017, and it's about the agility of the organization.

You work in a business where there are a lot of fixed costs. Which are the changes that you are asking to your management team to be more agile?

And how do you want LVMH to react in the next years?

[Foreign Language] Well, on prices, I mean, I believe I've already answered. I think we have great elasticity.

But we're already expensive and we have excellent profitability. So we have a responsibility, I won't say social, but at least moral, Vis-à-vis our customers, to really set the right price.

And when we see the result of the group, the results of Louis Vuitton, with Cognac, since the question was asked, I mean, I don't think it would be appropriate for the short-term benefit -- for additional short-term profit to give oneself an image that would not be consistent with the general ethics of the group. [Foreign Language] Disposals.

Okay, that's really at the margin. I mean, the disposal that we made were just very small companies that didn't necessarily have an assured future in the group.

So if there are other minor small disposals, they will just be -- they will be just that. Small disposals, nothing significant.

As to the cost base, well, yes, I mean the cost base, we're constantly striving to make it more variable. But you must realize that in an organized group, teams must be organized.

They must have good morale, they must grow. And for that, we have to have teams that are very, very different.

I mean, from startups -- I mean, we also have startups. But in a company such as Louis Vuitton or Wines and Spirits, or now Sephora, it's necessary for the smooth functioning of these large companies, companies whose revenue exceeds several billion euros, to have an organization that operates and that operates whatever the ups and downs of the market.

It doesn't mean that the organizations must not be agile, mobile and highly entrepreneurial. And I believe the teams in the group have 2 characteristics, as I often say.

First of all, they must have an entrepreneurial spirit and be aware that they're in a family business. That's very important, because a company such as LVMH is not an anonymous company.

It's a company where there's a family atmosphere, in addition to the fact that the family controls the business, we try and manage the various brands like family brands. Mr.

Burke, who heads up Vuitton, considers that he is the owner of Vuitton and manages as such. Mr.

Toledano at Dior has been there for some time. Well, he is Mr.

Dior. And in fact, he could design the dresses.

At least I mean, he's already designing the bags, which is pretty good. You see?

And so on and so forth. And so we convey this highly entrepreneurial spirit, but also very family-oriented.

We're in a family. We're not an anonymous, with mass market machines.

I mean, some have come from there, some -- and who joined the family and who fitted into the family very well and become one of the pillars of the family, but it's another mindset. It's the family entrepreneur company.

It's still small. I say that we're really only at the beginnings, as I often say.

Everything remains to be done. [Foreign Language] A couple of questions and because then, there will be time for drinks.

Let me talk about Italy. What are your intentions with Safilo?

I believe you have licenses, and -- with Céline. And then with Marcolin, and I know you won't tell us more, but do you propose to take another supplier?

Or what do you propose to do?

Look, we do have a strategy. I cannot tell you what it is.

So it will be a surprise and you will find out sometime this year. There are still -- still, things are being finalized as we speak.

So I'm afraid I will not be able to give you a premature answer. But things will be all right.

So a final question then, a final question.

Karen [indiscernible] from [indiscernible]. I have a single question.

You have decided to buy -- to acquire Rimowa. You have purchased this operation in Grasse and Beauty Island in Russia.

So I believe you are reaching out to the middle class, aren't you? Is this to say that you are hoping to reach out to new markets?

And what are your expectations in terms of volumes? And also, do you -- do you believe that by giving the middle class a sort of a way to access your brands, you can also enchant them and make brands that were out of their reach, make them able to reach them?

Well, that's exactly right. We -- and for many of our brands, look at Dior.

Dior is the largest -- is the greatest haute couture company in the world, and there was a splendid fashion show last week. And you can purchase very, very expensive dresses.

But you can also purchase lipstick with only EUR 30. So that brand has the dream -- or carries the dream of the -- of extreme luxury.

But you can also, it can also be affordable. But we are not just selling to a closed sort of a restricted elite.

We are reaching out to the general public. And through that, through our products, you have access to the creativity of the whole brand.

With Louis Vuitton, we have remarkable products. We sold custom-made hampers whose average prices were EUR 10,000 and we sold hundreds of them.

And it takes -- the waiting list is 6 months. You can't just pick them off the shelf.

So you have these EUR 10,000 hampers. But you can also get a -- buy a bottle of perfume for no more than EUR 200.

And likewise, with these suitcases that you can procure in Germany in terms of value for money, well, they are certainly very good value, indeed. There's a lady at the back of the room.

I have, in fact, 2 questions. Number one, you said that in 2017, you told your teams to be cautious.

And I would like to know whether this means you will impose more stringent criteria in terms of profitability. And might this make more difference next year?

I mean, there's innovation in various brands, but are there areas where you -- we have to be particularly careful or where you will be more demanding in terms of profitability? Another point, last year, you said you were not satisfied with the financial flexibility of your company because of volatile interest rates.

You've reduced debt by EUR 1 billion. Would there be any interest for you to broaden the group's structure and scope so as to have more flexibility?

Because you said there would be attractive opportunities this year or next year.

[Foreign Language] Well, on that, I mean, it's difficult to answer you because even if we had a plan, which isn't the case, we couldn't -- we wouldn't be able to disclose it. I mean, it's very difficult.

As I said earlier, interest rates are so low that one can find money very readily. But once again, one needs to be able to invest it wisely.

So I'm really waiting for a turnaround in the market. It's necessarily going to happen.

I mean, I'm not saying it's going to happen in 2017, but it -- or happen in 2018, but it's necessarily going to happen with this ecstatic exuberance, which was not short-lived at least, but I mean, I don't see it lasting for several years. On the profitability criteria, we always have profitability criteria for our business.

But what matters most, and this is what we're discussing the most, the criteria of quality and image of the brands over the long term. When you're managing a company, every morning, asking yourself whether in 10 years' time, we'll still be the market leader as Vuitton is today, the finest luxury brand in the world, or with Sephora, the best retailer of products in the world.

What must we do today to continue driving forward the quality of manufacturing and motivation of the teams? And then profitability follows.

It's not an objective, because when you start setting targets from profitability, then it's really addressing the problem from the wrong angle. Profitability really stems from the sound good management of the brand equity and the quality of the products.

Thank you very much. [Foreign Language] invite you to go next door for refreshments.