LVMH Moët Hennessy - Louis Vuitton, Société Européenne

Good evening, ladies and gentlemen. I'm delighted to welcome you for this full year results meeting for 2017, and then, of course, to answer your questions.

As per usual, we have the business development, et cetera. So 2017, once again, I would say has been a record year.

So at the risk of being somewhat tiring in my presentation, but let's recognize things. The results are there.

Revenues up 13%, over EUR 42 billion. Profit from recurring operations, up 18% at over EUR 8 billion.

Group share of net profit, up 29%, topping the EUR 5 billion mark as to the financial position. Free cash flow, close to EUR 5 billion, and we have a gearing, in spite of the acquisition of Christian Dior Couture, that has remained at 24%.

Now why such an increase in earnings and such results? There are 2 explanations, I believe.

First of all, a buoyant global market, a favorable outlook that really boosted the sales of all our brands. And secondly, is the ability for our brands to bring to market highly-creative, desirable products that have all met with remarkable success.

And I'd like to congratulate the teams who are -- some of whom are present here, to thank them for delivering these 2017 results. Where -- it needs to be said that not everything was easy, particularly in terms of manufacturing and production with the constraints always generated by an acceleration on the sales front.

Now if we look at all geographies, growth was good across all regions. What's quite remarkable, very strong growth in the United States, where the market continues to be very buoyant.

China's back, 2 years now Chinese market becomes very dynamic, and this global business trend is continuing into this year. It's a little too early to make any forecast, but we don't make any forecast.

It's always a bit hazardous, but early January is really confirming the trend seen at the end of last year, 2017. If we now move into the various segments one by one.

Wines & Spirits had a great year with a very sharp increase in revenue and volumes, but a strong limitation of possibilities given to manufacturing. And yet, we've invested in November.

Some of you were -- traveled with us to Cognac to see the opening, the inauguration of the Cognac bottling plant. That's ultramodern and now has capacity of some 2 million cases per year, and that's going to be boosted with a second line to 4 million, but it's not enough to meet demand.

And in certain countries, we're not able to service all our customers, notably, with V.S in the United States, where we are particularly constrained at the present time. Now the success of Hennessy, as it happens, is truly remarkable.

In the global market, it's far and away the leader. I don't know if you're fully familiar with the position of this brand, but it's interesting to note that as compared to its direct competitor, the #2 brand that I won't mention.

I don't want to be unkind to any competitor, but Hennessy is 4x bigger in volume, #2's 4x smaller. That really does illustrate the difference between a brand such as this and its various competitors.

So we've made great strides across regions of the world, particularly in the United States. China has confirmed progress.

And so it's a market where the biggest difficulty at the present time is supply, the ability to find the raw materials to manufacture and deliver more bottles. In champagne, the success is equally spectacular, with [ moderate ] manufacturing constraints because the climate this year wasn't great.

So production constraints there again, so we -- that we, of course, depend on. The prestige cuvées had a great success in 2017.

The Dom Pérignon P2 of 1998 vintage that met with great success and already sold out. A few acquisitions in Wines & Spirits, Colgin in the United States, the very prestigious Napa Valley wine that is sold directly, for the most part, to end users.

And these customers buy a few bottles a year and everything is sold when the products are delivered. We also acquired a small -- don't know if we can call it a startup, but it's a modest-sized company that manufactures American whiskey in the United States.

And there, again, offers good potential. And in 2017, we launched tequila with a Mexican partner.

You see that an important bottle was sold this week. That's meeting with strong demand across the Atlantic, and there, we're quite well positioned with this brand.

It's a brand that's just getting started with us. If we now move to the Fashion & Leather Goods.

Well, fashion continues to go from success to success, starting with Louis Vuitton, the world's greatest brand that this year has grown. Our ambition is not to move too fast even if we are going very fast.

Our ambition, as we say, with the managers of these companies, is to remain at the head of desirability for the next 10 years and beyond. And we, of course, must be wary of 2 striking and divisive fashion trends, whose [ disbenefit ] is to impact the image.

We seek to combine modernity with timelessness, and I think we've succeeded pretty well conferring on this timelessness, the extraordinary quality of Vuitton product, an aspect that is sometimes surprising, ultra contemporary. What we did with Jeff Koons in the master line, where Jeff Koons used his creative talent so that some of our products resemble some of his works.

And I'm sure that you've seen the Leonardo da Vinci paintings that he twisted with his own hand, so to speak. There's Van Gogh and Monet, met with considerable success, and with the men's products, too, cooperation with the U.S.

brand that some of you probably know that are very sought after by young people. Supreme, that was a big success.

Everything was sold out in 2 weeks, and we had to shut down a few pop-ups where we've launched the products, owing to a lack of product, since there were too many people waiting to enter the stores and that might have created some difficulties for the public. So highly creative products, big success of the ready-to-wear line, with a wonderful fashion show in Kyoto.

The croisière line, that is meeting with considerable success. Two major exhibitions this year for Louis Vuitton: one in Korea, in Seoul; another in New York, an exhibition that was held here for the first time at the Grand Palais that was very successful.

They showcased the history of the house into the middle of 19th century with the first trunks, and those of the latest creations by Nicolas Ghesquière. The high point was the opening mid-September of the Vendôme house of Louis Vuitton, which is possibly the finest, most refined luxury fashion store in the world.

That's very successful, visited by all aficionados of luxury products coming to Paris, and that adds, quite extraordinarily, to the renown of Louis Vuitton. Speaking of renown, up until -- that was actually sun on the facade that illuminated the Place Vendôme because this building, that lifted building, was built by Mansart under Louis XIV.

And inside the Louis Vuitton themes, we constructed a Louis Vuitton -- a Louis XIV statue. And it's, from time to time, quite amusing when it holds a Vuitton bag.

I don't know if you've visited it, but you're all invited and most welcome to visit this absolutely magnificent house. Another very important event for Fashion & Leather Goods, this year is the arrival of Christian Dior because we acquired the Maison de couture Christian Dior that is now part of the LVMH Group.

That, obviously, offers many advantages that allows us to have an even more unified strategy, both for couture and Perfumes & Cosmetics. It also means that we have a full unit for management.

Mr. Toledano, who headed up the company for a number of years, has now moved to the LVMH Group and will be directly in charge of all the brands of the fashion group.

That is all the brands outside Dior, Vuitton and a few others, Fendi and Loro Piana. The first acquisition, as you noted, is the arrival of the new Creative Director at Céline, and not just anybody, but one of the most well-known global superstars, Hedi Slimane.

And I'm sure with the arrival of this creative designer of this brand, that's already a big success. We're not giving figures and details, but very close to EUR 1 billion in revenue.

The objective with him is, for the next 5 years, to achieve between EUR 2 billion and EUR 3 billion, possibly more. We want to make it one of the leading fashion brands in the world, I'm sure, with a design of his caliber and talent, and the group works well with him.

We have long-standing ties with him. He launched Dior Homme in the middle of the year 2000.

We have every -- all the assets to make this brand grow quite substantially. Just a word too, the Loro Piana has delivered a [ very fine ] increase as well as Berluti that Antoine is in charge of.

And these are more classic brands and an opportunity for us at high quality and attract more and more customers throughout the world. Next, Perfumes & Cosmetics.

You can see the increase, delivered an increase on a like-for-like organic growth in the order of 14%. That's worth noting.

We have very few cosmetics and perfumes companies that deliver such growth levels. I've seen some of my competitors.

I always respect my peers, but this luxury cosmetic segment is up by 7% or 8%, have extraordinary reviews and saying what great increase. We're at 14%, which isn't bad either.

And that's due to the success of all our brands, Dior to begin with, great success with its perfumes. Sauvage men's fragrance, launched 3 years ago, is one of the leading global perfumes, and this year, with the launched brand of the eau de parfum, the first men's perfume in the world; J’adore, which continues to make great strides up with the leaders; Miss Dior.

The Dior cosmetics products, notably the lipsticks, that are meeting with considerable success and growing strongly because Dior, today, makeup is probably the world's #1 brand. So the Dior increase is impressive.

Other brands are doing very well. Givenchy for makeup, Guerlain with the new perfume that we launched.

And quite, quite surprising success that I'd like to mention this year is the launch of a makeup line founded with this wonderful actress, Rihanna, which is called Fenty Beauty. Massive popularity of that product that is reaching figures of hundreds of millions in the first month of launch.

Never seen before. We started from scratch in September for that, and so the objectives for 2018 are also very high.

Here, let me stress for our investors here present that we launched this business where we have a majority stake, in which of course the creator is associated. We started from 0.

We didn't pay any investment, where we see some of our respectable peers who buy businesses of EUR 200 million or EUR 300 million in cosmetics and pay over EUR 1 billion for them. We just need to stress in passing the difference in approaches compared to our strategy.

So let me add that we, this year, acquired a small perfumes business, Francis Kurkdjian, which is a great brand offering considerable potential. The Watches & Jewelry, and then, Selective Retailing.

Wines & Spirits, I've already covered. Sorry, I was confusing watches and wines.

So Watches & Jewelry, and I'll end with Selective Retailing. Watches & Jewelry, good progress.

The market is picking up slowly. Excellent increase in jewelry.

Bvlgari has gained market share. It's one of the brands growing the fastest in jewelry at the present time, with iconic lines.

For Bvlgari, we reopened the New York store on Fifth Avenue on the corner of 57th. That was opened at the end of the year and that's getting off to a great start.

Let me just mention in passing, even if we don't give the detail of the figures. I don't know if I'm allowed to say this, Jean-Jacques, in terms of the operating profit of this, but we acquired it at the end of 2011.

In 2017, the operating profit generated by Bvlgari is 5x the operating profit that we found when we bought the business. And everyone was saying at the time, well, you paid over the odds, maybe.

But when we see what the situation is today, wasn't that expensive. It was a very good investment.

That's just in passing. [ We all found ] that Bvlgari, a great workshop to meet demand and production requirements.

So that's making good strides. And Chaumet is also progressing well.

We had a wonderful exhibition in The Forbidden City that I visited in China. The sales in China are growing well.

It's a small business with great potential. TAG Heuer watch is very successful with the Connected Watch.

Connected Watch, in the coming years, is going to the make great inroads, notably in terms of the technology. I'll tell you more about that at the next meeting, but we'll be innovating quite a lot.

Hublot, detailed, very creative, as always, with watches from the basic models, limited series and a number of stores opened. So that's a good success.

Moving to Selective Retailing. Let's start with Le Bon Marché.

Well, excellent figure. It's not the biggest retailing operation, but posting the great just increase amongst the department stores.

Good profitability. We inaugurated La Grande Epicerie on the Rive Droite in the form of Franck & Fils Store that you may have also visited.

DFS confirmed recovery of sales with the recovery in travel. We had a problem with DFS that's now behind us at Hong Kong Airport.

For contract reasons, it wasn't profitable, that's now been closed. So DFS was profitable, overall, in 2017.

We'll be even more profitable in 2018. And, of course, the big success, as every year, is Sephora.

That continues to post double-digit growth, gaining market share. It's far and away the #1 retailing operation for perfumes in the United States, physical and online, very dynamic, very innovative teams.

So very good digital expansion for that. We acquired the business of Internet sales in Southeast Asia that's growing well, Luxola, and quite sustained growth in China.

And so all lights are green. In closing, let me remind you that in 2017, we integrated, for the first time, Rimowa, a company that manages -- manufactures the finest luggage in Germany and has great potential, because if you look at the growth planned in air travel over the next 10 years, strong increase.

Just look at the number of aircraft being sold, so air travel set to grow strongly. We have, with Rimowa, a company with great potential that will expand.

And let me just end this presentation of the various business segments by saying a word, just a word, on the Louis Vuitton foundation. That's not a profit center, so it's perhaps less of interest to shareholders, but it's a great success.

I'm sure that a number of you visited the exhibitions that were held at the Louis Vuitton Foundation this year, in particular that was held at the beginning of 2017, that exhibition of the Shchukin Collection from Russia, an exhibition that had the greatest success of all the art shows that were presented in Paris, with over 1.3 million visitors in 4 months. So that's an astounding success.

There's currently an exhibition of the works of the Museum of Modern Art from New York. That's also very successful.

We have a great many plans, and let me mention that the Shchukin exhibition, for which we took a risk, but given how popular it was, didn't cost the foundation any money. So I just mention that to you, as investors, to give you a quantitative item of information about an area where we really look to fantasize rather than to look at the figures.

So for 2018, well, I'll say the same thing as for 2017, in fact, with just a slight qualification. Today, the world is in a quite surprising economic situation.

Interest rates close to 0 or close to negative. Since the CFO is particularly outstanding, he gets us to borrow at negative rates.

So people pay us to borrow. That sheer folly.

Let's take full advantage of it, since we can do it. Interest rates at lowest ever.

Money is awash. All the bankers beating a path to our door to lend us money.

When you put money in a business, I mean, you have to put it in a bank. You have to pay the bank so that it can look after your money.

I mean, it's just amazing. Asset prices are reaching stratospheric levels.

Equities or physical assets, a period of total unreal -- unreality. There hasn't been a crisis for 10 years.

I'm personally convinced that over the next 5 years, I can't say when, but there'll be a crisis, so we have to be cautious. That's why I say that for 2018, I'm confident, but one needs to be cautious.

The crisis will happen. Will it be the explosion of a bubble?

Maybe. Maybe bubbles are forming.

Crypto currencies, is that going to end in a bubble? Don't know.

I mean, all the analysis on this, some think it's great. Others don't understand it.

Some say it's sheer folly. We don't know, but there's money going into that.

Not huge, some at this stage, but it can inflate. Also geopolitical risks that are considerable, Middle East, Iran, Korea, maybe.

So something can happen on a geopolitical front, that's why I believe we need to be cautious. But I'm confident for our business in the medium-term because the development that accounts for the increase in our client base, customer base, that is increased living standards in most countries, be it developed countries such as the United States or developing countries.

We don't call them developing countries, but Asian countries, China or others, that's set to continue. As I said for travel, all that is set to continue.

We'll continue to have a market that's in growing [ trends ]. There can be ups and downs.

When will they happen? There'll be [ sharks ] with an additional factor this year on the currency front.

You see the euro has risen. So it's difficult to make forecasts.

It may continue to rise a little. Maybe the dollar will weaken.

So all that's difficult to predict. Be that as it may, today, the exchange rate for us is rather negative as compared to what it was last year, so that's just a slight caveat as compared to 2017.

But I'm very confident as to all the products we'll be launching. We have a whole range of extraordinary products that we're going to launch.

We're increasing our investments in digital technology, but we need to be prudent there so as not to want to sell at all costs and try and be strong. On the digital front, where we go out and sell at all costs, we mustn't really trivialize our products.

I mean, Louis Vuitton is the only brand in the world that never does any sales. Only brand, never does sales.

Certain other brands don't, but they have a 20%, 30% of revenue sold in outlets. We don't do that.

We don't have a single store in which our products are sold at knockdown prices, be it in our own stores or outlets. We're very attentive to that.

We could significantly boost revenue because we could sell on the Internet and all possible channels, but we don't do that. And I think we're right.

Here, I'm not going to give you a long presentation on the group's value, quality, creativity, spirit of enterprise. I think that given the success of the group, we have the ability to attack -- attract the best talents, the best young graduates.

That's thanks to human resources. They always seek to find the best.

It's not always easy, but we try and attract, and the best designers, we have enough proof of that this week. So with that, we will increase still further our sales across the luxury market in 2018.

Now over to our CFO, who will give you the details of the financials.

Thank you. You have behind me the smile of Alicia Vikander, who discovered the numbers for 2017.

So good results, and just starting with revenue, and this is probably the most difficult chart in this presentation. First, you have organic growth in dark blue; light blue, the currency effect; and in gray, the structure impact, which is significant -- which was significant in 2017.

Organic growth was stable around the average -- the annual average, about 12% every quarter, and we have added H1 and 9 months, but we run about 12%. And indeed, we have 11% in Q4.

In terms of currency effect, in light blue, the year had its ups and downs. We had a positive contribution of the currency effect in the first half, but then it was negative to the tune of 5% in the second half of the year.

And then the structure impact, which was limited in H1, that was Rimowa coming in and Donna Karan going out, but this became more significant to the tune of about 6% in H2, with the consolidation of Dior Couture starting in July of 2017. If you look at revenue in geographical distribution, we've gone [ one point or 2 ] in Asia.

We lost a point in the U.S. Not that the U.S.

had a bad year, but you have a currency effect there. So speaking of which, and the breakdown of sales by geographical area is -- you can see on the right-hand side that all countries all -- over all regions had double-digit growth, except for the U.S.

Well, it did have a double-digit growth. I had mentioned this in June.

There was the termination of the contract we had in the first half of the year with Grand Marnier, so that cost us 1 point. But if you restate the numbers, we would have 10% in the U.S.; 11% in Japan -- 12% in Japan, so that was a good surprise.

You have, in Asia -- in Japan, tourists returning to Japan. They had stayed away in 2016, but there's also domestic customers.

And so that was new. Asia, not including Japan, had significant growth, 17%.

And indeed China, within that, is even higher than that. And what you have to remember is that a number of markets that had recovered, including Hong Kong and Macau, have indeed continued that recovery with, again, double-digit growth.

And then, finally, Europe, 10% growth. We're looking, again, at significant growth.

And in Europe, just as in Asia, you have slowdown of growth in Q4. This is mostly a basis-of-comparison effect.

Because if you look over 2 years, the growth rates are essentially the same, in fact, higher. So the basis of comparison was tougher in Q4 2016.

And that is why the rate -- the growth rate for the last part of 2017 was not quite as good, but nothing significant there. Now if you look at the various business groups.

And Mr. Arnault mentioned this in terms of quality, but let's put numbers to that in the various businesses.

You can see that everybody had double-digit growth. Of course, the main indicator is organic growth.

So everybody had double-digit growth except for Wines & Spirits, only 7%. But again, Wines & Spirits, you can't have double-digit growth that easily because there are supply issues, there are technical issues, and so 7% or 8% growth is sustainable, but double-digit growth wouldn't be sustainable.

So good growth, with organic growth in Wines & Spirits. Champagnes and Wines as well as Cognac and Spirits are sharing in that growth, and everybody else has double-digit.

Fashion & Leather goods, superb year. They are up 13% in organic growth.

Perfumes and Cosmetic business, Mr. Arnault said up 14%.

Likewise, Watches & Jewelry, 12%, slightly above the benchmark, at least on the market. And then, Selective Retailing did extremely well as well.

And there's a number which I usually comment. I used to say Sephora was doing well, DFS not so good.

But now Sephora is doing well, and DFS even better now. 2017 was an outstanding year, and well, let's hope that 2017 -- '18 will be even better once the Hong Kong airport is out of the radar.

If you look at the same issue on the last 2 quarters, to put growth in perspective, you'll find that the Wines & Spirits, for reasons of availability and supply, the second half of the year was a bit weaker. Organic growth was 5% compared to 10% in the first half.

So less growth because of its intrinsic challenges. Fashion & Leather Goods remained extremely high in all activities, including Fashion & Leather Goods' Q4 in 2016 was up significantly, so the basis of comparison was much higher, especially in Q3, and especially Q4.

And so the fact that there's a slight slowdown in growth in Q3 and Q4 in wine -- in Fashion & Leather Goods is not significant. Perfumes & Cosmetics, we find, in fact, that H2 had the higher growth than H1.

Likewise, for Watches & Jewelry, and Selective Retailing. Sephora had double-digit growth throughout the year, but DFS had a slow start of the year and made tremendous headway in the second half of the year, and you can see this stepping up in numbers in Q3 and Q4.

Now let's move on to the income statement. It is not for me to repeat, but revenue, up 13%.

Gross margin up 13%. It's stable in terms of sales -- percent of sales, but still up 13%.

If you look at profit, well, you'll have a structural effect, but the marketing expenses were up 12%, not including structural impact and currency effects. Selling expenses were up 9%.

Regarding the G&A, we're looking at 7% increase. Now these are the numbers, but operating costs are less than marketing expenses.

And so the profit from recurring operations was up 18% over the year as was pointed out, but I'll return to this looking at various -- at the various businesses. Other operating income and expenses.

There's an increase to EUR 180 million. We had gained from the DK disposal last year.

We don't have this time -- we don't have this time, this year around, so higher charges, higher expenses. The profit, well, you have financial expenses.

That moved a lot. It's difficult to understand, I'll go through that.

Income taxes also increased in absolute numbers. However, in terms of percentage they are down.

We actually gained 2 to 2.5 percentage points less than last year. There were lots of movements in 2017.

We had the reimbursement of the 3% tax. We had an exceptional additional tax.

We had lower taxes in the U.S. And on deferred tax assets, we -- well, there are a number of details.

But all in all, netted out meant that we had a 2% decrease -- or 2 percentage point decrease in the percentage of taxes even though the absolute numbers are up. Net profit before minority interest, up 29%, and the group's share of net profit is upwards of EUR 5 billion for the first time, up 29%.

That's a historic record. Unlike the previous record in 2014, where we had an exceptional profit because of the Hermes effect.

Now apart from the taxes, there's nothing else that -- there's no exceptional event. Regarding the profit from recurring operations, we have Wines & Spirits up 4%, in line with the revenue.

Not as good as in H1 in -- I mean, in terms of phasing, we had less growth in H2, but it was also in the distribution of expenses, especially for promotions and advertising. We had more expenses in H2 than in H1 at a time when growth was less.

So the growth, all in all, was less good in H2, even though overall for the year it was pretty good at up 4%. The Fashion & Leather Goods, something of an outstanding performance, up 27%.

But even not including structure impact, you can see that Couture brought in about 6%. So we would have about 20% even without that.

So a significant contribution there. Good performance also in Perfumes & Cosmetics and Watches & Jewelry.

We're looking at growth in line with the growth in sales and in revenue. Likewise, with Selective Retailing in H2, had growth in profit, significantly higher than growth in revenue, which was not the case in H1.

So there was a rebalancing of growth of revenue and profits and -- which merged. And Selective Retailing, 10%, is pretty good, much higher than the growth in revenue.

All in all, 18%, as was mentioned. Increase in our profit from recurring operations.

This is a breakdown of various sources. So you have organic growth, even though this doesn't mean much.

But still, the structure impact, and we're looking at Dior Couture and Rimowa. In second half of the year, the Dior Couture, EUR 287 million in contribution.

The currency effect is significantly heavy, EUR 243 million is a lot of money here. We're looking at a significant impact.

We're looking at a significant impact in terms of -- for the currency effect. It was slightly positive in H1, and so we had this effect mostly in H2.

That made a big difference, well, to profitability, even though we had 18% growth in profit. And indeed, the profit is significantly up in H2, 10%, not including the consolidation of Dior and in spite of this very heavy negative currency effect in H2.

So we were able to compensate for that even though the effects are clearly there. Now then, financial income.

Now here, there are a few paradoxes because debt was up but financial cost was down. Now that is to do partly to the interest rates [ because it's impacting ] foreign FX because within that line, you have some mark-to-market effects on hybrid products which made the difference between 2016 and 2017, and so that explains the reduction, the derived cost -- well, it was over-proportioned -- over-dimensioned last year.

This time it -- I mean, in effect, the proportion of foreign currency hedges more than halved. It's pretty difficult to account for this, but it's -- it was unexpected it that it was -- is going to be less than half.

As of next year, we'll have IFRS 9 standard and we'll be able to have a more legible, more understandable presentation of the ineffective portion of foreign currency hedges. The other lines do not call for special comments.

Regarding the financial structure, it hasn't changed much [indiscernible], we had 44% of the whole assets in total equity. We have undrawn credit lines, which enable us to [ save ] any financial requirements.

Regarding the cash flow and the free cash flow, we find that it's up almost EUR 800 million compared to last year. We have, of course, cash from operations.

The working capital requirements, even though growth was high, that remained stable. There was investment, and that also was stable compared to last year in spite of growth in revenue.

That meant we're able to generate more free cash flow, but also we were able to have very significant variations in the debt levels. And we can see this in the next slide.

Significant -- I mean, went from EUR 3.2 billion to EUR 7.2 billion, about EUR 3.3 billion to EUR 7.2 billion. So EUR 3.9 billion increase, now you can work it out as follows as we did -- I mean, we have money coming in, money going out, coming in as well as sending out.

We had acquisitions, EUR 7 million; EUR 2.1 million in dividends, so EUR 9.1 million. And then we had in [ resources ], EUR 4.7 million in cash flow and EUR 500 million in monetary variations.

There's adjustments, currency effect, that brought in EUR 500 million. So all in all, on one side, you had upwards of EUR 9.1 billion in money spent and EUR 5.2 billion coming in.

So the difference is EUR 3.9 billion and that accounts for the change in the debt levels, and that means the gearing is 24% on the right side of the balance and it is pretty close to numbers we had recently. Looking at dividends.

We are suggesting a dividend up 25% to EUR 5 per share, and an interim payment of EUR 1.6 was paid out in December. This increase of 25% is to be compared to a 29% increase in the net profit.

But the purpose here is to reallocate to shareholders through dividends about half of net cash with free cash flow and profits. You have EUR 5 million -- EUR 5 billion on both sides and so we can return that money to our shareholders.

This is discipline we try to abide by every year. Thank you.

Well, ladies and gentlemen, we're now available to take your questions, please.

Antoine Belge, HSBC. Three questions.

You mentioned as a small caveat, the euro was $1.25 today. I did the math, so it would be an impact of 5% negative on 2018 revenue.

I understand the hedges remain good, but never had a negative impact in terms of operating profit. One way of offsetting that is, perhaps, to increase prices.

Notably, at Vuitton, do you believe there's some pricing power there? But for 2, 3 years, luxury brands are trying to attain -- maintain certain global standardization in the past.

You've only increased prices in the dollar area. This time if you do it, we're now going to rephase the [ gap ].

Will that be an across-the-board increase, therefore? Second question, you mentioned the need to preserve a degree of scarcity effect on luxury brands.

You launched [ by ] Le Bon Marché, the vingt-quatre sévres site. We saw that Richemont acquired the Yoox Net-a-Porter.

What's the group strategy, both for its own sites and in terms of this multi-brand site that you've launched? And third question, just to return to smaller margins in Wines & Spirits.

It's a phasing issue, but the margin's down in the year even though the top line was good. Is that something that is just a one-off for this year?

Or is it underlying trend that the cost of doing business is increasing in Wines & Spirits?

Yes, you're right. The profit margin was slightly down, 50 basis points.

That's not that much. It's mostly a currency effect and indeed the phasing of expenses, which occurred at a time when there was less growth in revenues.

It's never very pleasant -- it's never a very pleasant situation. And so there was an effect in H2, but it's not really that significant.

It's certainly not significant, it won't change our strategy to address the margin issue.

Regarding the Internet, the website that you mentioned, well, first of all, the bulk of our Internet sales currently take place on the brand's sites, in particular, Vuitton, Sephora. As regards the 24 Sévres website, the best comparison I could give would be Le Bon Marché.

We have within the group Le Bon Marché that sells most of the luxury brands. That is viewed as a luxury store where we're multi-brand de facto.

So 24 Sèvres is a reflection of that situation at Le Bon Marché. You only have very high-end brands.

And so that 24 Sèvres site will follow the same policy, will be a site where you'll find these brands on the market. So there's absolutely no contradiction in terms of having both.

As to the monetary fluctuations, we've always sought to offset unfavorable monetary fluctuations through significant increases, or at least well-adjusted price increases in the countries concerned. It's one of the great strengths of a group such as ours as compared to the aircraft manufacturers, for example, who sell their products with competitors that are expressed in dollars.

When the dollar slides, we see the results. We can vary prices, and that's what we do to adjust in one direction or the other depending on currency fluctuation.

So -- well, I can't reveal that beforehand what the group's pricing strategy is, but it's very likely that at Vuitton, in particular, we adjust the prices, take kind of those currency fluctuations were they to become too significant. Next question, please?

Thomas Chauvet from Citi. I had three questions about -- 2 on Vuitton and 1 on DFS.

On Vuitton, question number one. This was an outstanding year, double-digit growth, beyond that of the industry as a whole, mostly driven by volumes.

You added EUR 1 billion in revenue. That is quite significant for a brand that size.

Mr. Arnault, by the past, you -- and indeed today, you indicated that it was sometimes best to moderate growth, especially when it's driven by volumes.

Now leaving aside the decision about price increases, what is your approach on the growth at Louis Vuitton? What would be the advisable strategy rather than pushing volumes?

Now you have a slowdown in new store openings on Vuitton, and -- well, good discipline on the cost of doing business, so at least it means that, at the end, you have, all in all, a relatively low-profit margin. But what can you do to keep the profit margin for Louis Vuitton at a constant level?

And then DFS had 2 rather challenging years in terms of profitability. You have, of course, the Hong Kong airport.

You pulled out of that contract in November. What's the objective for operating profit for that business?

And what are you going to do to make it happen?

Well, on Vuitton, Michael could perhaps answer this, but I can tell you that with regards to the Vuitton growth rate, we don't have an objective, we don't have a target, just that we're trying to meet demand, which is growing ever stronger. As I said, we could have generated far more revenue.

We didn't do that for several reasons, one of them being the manufacturing capacity, but also the fact that when we have too much demand on a given product, then we'd rather ensure diversity. And what's growing very well in Vuitton?

The most high-end products. And so I think that when you go to the Place Vendôme store, for example, you'll see products that are high-quality products, of high-end jewelry that are very successful in 2017 and which in part account for the increase in revenue at Vuitton.

The leather goods and the exotic skins, leather products that are very successful, ready-to-wear that wasn't very much developed previously, that's growing, becoming more high-end, and so the focus is on that in a number of stores. Well, at the end of the day, it's true that for a number of years now, with Michael, we've decided to no longer really to embark on a race for stores, but rather reduce the number, and the result that's very favorable of that is that it boosts sales per store.

I mean, we can increase the size of individual stores and also invest in a number of stores that is not increasing or even being reduced, and all that's very favorable for Vuitton. So that the profitability that we don't disclose remains pretty good, as you can imagine.

Michael, perhaps, you could -- you may wish to add something on that?

No.

No? I really, truly reflected the strategy?

And DFS?

Regarding DFS, the objective is to return to double-digit profitability. That was the case back in the past.

And so we want to do -- to get there as quickly as possible. We may not be able to achieve this, this year because we have invested in new galleries in Cambodia and Macau.

But we will -- we'll be close to that this year, in any case.

It's John Guy from MainFirst. 3 questions, please.

The first with regards to the Dior [ one ] -- the Dior [ one ] integration with Christian Dior Couture. Jean-Jacques, I believe that D&A as a percentage of sales is pretty high for the Dior Couture business at the moment, around 8% to 9% is being considerable investment.

As that scales down and -- how quickly do you think it's likely that we can reach a 20% margin within the Dior Couture business, given the fact that margins are already at the mid-teens level? My second question is around project Thelios, your JV with Marcolin.

I think you are due to launch either with Céline, I think, this month, and then looking to scale the investments. If I think about the initial JV investments of around EUR 50 million, EUR 25 million or so in equity financing, that seems like a relatively low number to start with.

I think Kering's eyewear venture is at least EUR 80 million invested and then some distribution costs and manufacturing costs with their Safilo JV. So what kind of investments will you put into eyewear over the mid to long term?

And how scalable is that business? And my third question, on free cash flow.

Phenomenal achievements in 2017, up 20%, just under EUR 5 billion. Is this the peak?

How do we keep going from here?

Regarding Dior's profit margin, that was an excellent question. We -- the same question was asked when we purchased Bvlgari and we had the same objective, how long are you going -- how long is it going to be before you reach the 20% mark?

We didn't give an answer but we got there, and I think the same thing will happen with Dior Couture. On Thelios, this is -- there was, indeed, a EUR 25 million initial investment.

This is a small operation that we're looking at doubling the value of the investments that this -- we're looking at several years, 4, 5 years, and we should start getting a return on that investment. We don't have to do the same as those who invest a lot, too much.

Luca Solca from BNP Paribas. I do understand this answer regarding single-brand digital sales in China.

Most of the traffic is to do with multi-brand business that's doable between Tencent and [ Juoba ] -- and Alibaba, beg your pardon. Can you give us -- tell us more about the strategy in China?

Between Tencent and Alibaba seem to be most of the sales. Apparently, the luxury brands are getting momentum in China.

Does this mean you have with a lot of cash flow gives -- does this give you new opportunities in the future in Asia? And then, you've addressed a number of issues.

You had Donna Karan, you had DFS, you had a number of loose ends. What about Marc Jacobs?

Where do we stand now?

On Marc Jacobs, we are doing significant work. What you can note is that the -- we're working on products and we're getting results.

And so our own retail, which is limited as Marc Jacobs, that is the retail part of Marc Jacobs, is doing well. The challenging thing, and that is always the case when you're redressing a business, is to convince the wholesale retailers, especially stores in the U.S., to join in and recognize that it is worth their while as much it is worth our while.

But things are improving in terms of orders. We're still -- we haven't reached breakeven yet.

We're some ways from that. But we have some improvement.

This is the first time I'm saying this. If you had asked last year or the year before, I would not have answered in the same way.

I'm not saying that we've reached the point where we want to be, but we have some promising signs. A word on digital sales in China.

That's a very strongly expanding market. Our strategy is to favor our own sites and the experience that must be luxurious for the customer.

Even if we're online, that's what we're trying to implement is through the existence of a more structured panorama with marketplace offers that are more world gardens. We're running a few tests on a few brands with still full control of the offers, the price, proportionality, et cetera, to see whether traffic is yielding results.

Sephora has its own site, which is far and away the leading sales site, but also a small site on Tmall. That's really just for brand awareness with a more restricted offer that's bringing in results that we're measuring.

Well, as for M&A, you won't be surprised if I don't give you the targets, if there are any, that is. But prices are very high.

For M&A, I would tend to wait for the next crisis. Everything collapses, that's when it becomes attractive.

And generally, that's when people don't want to buy anything. Everybody wants to buy everything, so the sky is the limit.

There may will be some unfortunate results.

Edouard Aubin from Morgan Stanley. Could you say anything about the tax reform in the U.S.

and what the effect will be on LVMH in the future? On Dior, what difference does it make in operational terms once this was integrated into the group?

And number three, online sales, you -- last year, you mentioned somewhere like EUR 2 billion in online revenues in 2016. What's the order of magnitude in 2017?

Regarding the U.S. tax reform, what you have to see is that we only have portions of the tax reform that have been [ divorced ] by the tax administration [ committee ], the income tax rate and repatriation tax.

The rest has not been finalized, so we have to address this with caution. Regarding the rates -- tax rates, while the income tax rate is down or will be down 13%, we're looking at 10% to 15% of our taxable income in the U.S., so you can do the math.

We will make a big difference. To start this sort of situation, well, we have deferred tax assets.

If tax -- if the rates are down, well, the assets are worth less, so we have the positive effect of the income tax. But in France, you have the opposite phenomenon.

So the overall result is a bit more complicated, but all in all, we're looking at 10% to 15% of the -- of our profits in the group is taxable in U.S. with the tax rate down 13%.

Regarding digital sales and -- well, we're looking at about EUR 3 billion this year. We're up more than 30%.

Regarding the Dior deal, what terms, just in terms of the way it functions, well, it's easier to get Dior Couture to operate within LVMH. For example, in terms of shared operations with Perfumes & Cosmetics, there's strong synergy between couture and cosmetics.

There's no problem, it's the same account, the same company, shared operations, shared common exhibitions, et cetera. And it's easier to transfer -- manage it from one company within LVMH rather than to remove them from LVMH.

To put them outside and say you're going to come back was more complicated. First application.

The CEO of Fendi becomes the CEO of Dior Couture and the CEO of Dior Couture becomes the CEO of fashion group, so that's being implemented. Having said that, Christian Dior Couture works very well so we're not going to change radically and upend the whole operations.

It's a business that runs very well.

From JPMorgan, I have a few questions. The first on Fashion & Leather Goods.

You said that there was a clear polarization of companies this year. Generally, LVMH seeks to have significant market share gains when times are tough.

Here, times have been favorable. You gained market share, so I was wondering if you could share with us what you think's changed in the cycle such that there is so many market share gains while you're in a very buoyant, promising market.

It's my first question. Second, just curious to know what you think of the watches segment, excluding connected watches.

You seem a very upbeat on connected watches, but what do you think of more traditional watches. And the growth rate has been spectacular, but weaker of late.

Next question on WCR. What can we expect at WCR?

That was flat this year in spite of very high growth rates in sales. What can we expect in '18 and '19?

The tax run, if I could return my last question, the tax impact we had this year was exceptional, if I understand. What can we expect by way of guidance for the tax rate in '18, '19, taking account the U.S.

and France?

There are two technical points in working capital requirements. One reason why WCR did not increase much this year was also because in Wines & Spirits, we had a supply challenge, so it's not all bad news.

The -- when they -- the harvest was less, well that means that there's less product produced and so less money needs to go out. There's some effect on inventory, but WCR will go up if revenue goes up.

It's quite normal that it should remain stable, but if we have 13% increase in revenue, not including the Dior effect, which has no effect on the WCR, but you could expect WCR to go up again. Now regarding the income tax rate, you can work it out like we did, but we're looking at something like 40% of our profit is in France and about 15% -- slightly under 15% in the U.S.

So we know what we expect in both countries, France and the U.S. You know what the numbers are, so you can work, do the math, as I said.

But experience shows that in tax methods, there are always surprises even though in France the present government is credibly saying that there would be less, lower income tax rate. But for big companies, it went from 34% to 44%.

So there are surprises there.

On the watch, what I can say, two words. I mean, we had 2 or 3 challenging years.

We -- well, before that, we were losing track of, well, the value concept. But, of course, customers can find [ that varying fare ] regarding not just the value of the watch, but also the quality of the product.

Asian customers, up until 4 or 5 years ago, used to purchase, sort of, anonymous products. But now the customer doesn't want to have the same watch as their father.

They want to have something with a stronger personality. There's also a retail effect.

We had the slow of -- well, the line of retail for watches made things a bit challenging for us for watches. We have a nice [indiscernible] from Hublot, which has always enjoyed profitable growth.

This was just-in-time policies. We had the scarcity policies.

We had a well-controlled growth strategy. Well, we didn't make any breakthroughs on the Asian markets, but now it's bearing fruit.

We're getting customers there because they are -- the market there is ready for that, and also American, the retail channels are also changing. So not everything is settled yet.

On market shares, we're gaining market share, but I think that if business gets tougher, gains would be even higher. At least that's the objective.

Mario Ortelli of Bernstein. Three questions, if I may.

The first one is for digital. You highlight how digital can be important and a great opportunity for your brand in Fashion & Leather Goods and for Sephora.

How much do you expect that in the mid-term, the profitability of these 2 business can increase thanks to digital? And which part of your current operating investment are for building out of the digital structure?

And how much do you think will evolve over time? The second one is about the distribution.

Also, thanks to the opportunity of digital, nowadays, brands can reach the customer all around the world. Will you encourage other brands in your portfolio to follow what is doing Louis Vuitton, 100% of distribution in-house and no markdowns?

The first brands that I got in mind are Dior or, for example, Loro Piana. The third question is about experiential luxury.

So far as your group has tried to increase the experience with the purchasing process of many of your products, you have done some investment on building up a proper experiential business like the Bvlgari hotel that you mentioned before. Can we expect that in mid-term, you will make big bet on experiential luxury, maybe acquiring business in hospitality or further developing your current asset in experiential luxury?

On the first question, let me say this. It is true that we have -- well, profitability in the digital sales and it is gaining ground, but it is true that the service level, the convenience expected by the customers means that we'll need to invest considerably in the online services, and we've seen this in other more developed markets.

We have to be cautious. We want to be where the customers are.

We want to serve our customers as best we can. And the new generations except -- expect to be well served and yet they want to be able to purchase the items sometimes online, but we have no typical strategy to improve profitability only, thanks to the online business.

There's just something -- this is a portion of the market which is bound to increase significantly with higher expectations coming from customers. As regards, what you call, the vertical strategy of Vuitton, which is true, the only brand in the world that totally controls its distribution, that never does sales on websites, just only sales on its own sites.

Obviously, this strategy is tremendous, it's great for the brand awareness, for the image of the brand. And it generates better profitability because we avoid ending up with products that are sold by third parties at different prices, that are sold at knockdown prices as happens when a brand begins to sell with wholesale outlets, retailers who sell directly.

So as regards the underlying aspect, it's probably the -- the best-and-only strategy can't be applied to all brands because these brands, when they are smaller, when they are already distributed, it's very difficult to backtrack. But it's a strategy that the group uses as the best strategy.

And so in terms of general policy, of course, we'd like to apply it as much as possible, especially for the strongest brands. You mentioned Dior.

I think Dior, gradually, in fact, with Mr. Toledano, we're exiting wholesale sales to have a business model that is a far closer to Louis Vuitton.

And it's extremely positive because it avoids the brand from being knocked down. I mean, we're trying to remove from these outlets, outlets outside the big cities where you find products, I mean, sold at Avenue Montaigne, yet knockdown prices.

And that's very bad for the brand image. A lot of people go to these stores, and in that way people are exposed to, sort of, deterioration of the brand.

We're very careful about that. And so this strategy, this vertical strategy, I think that, gradually, for the strongest brands, we will seek to apply it as we're doing very successfully at Vuitton.

On experiential luxury, you mentioned the Bvlgari hotels, but you forgot Le Cheval Blanc hotels. I invite you to experience the Cheval Blanc hotels.

They're probably even better than the Bvlgari hotels. It's very interesting to do that because it's something where we can really bring to bear the sense of luxury of the group, and that's indeed why it's successful because this small -- this very small hotel chain.

We don't want to acquire the AccorHotels or anything like that. That's out of the question.

But this small chain of hotels, there are now 4 or 5. We're developing it gradually.

It's viewed as the best hotels in the rankings, amongst the 2 top hotel chains in the world. I mean, 2019, we'll be opening one that we invite you to visit at La Samaritaine.

And in fact, I was there this morning, and I'll tell you it's going to be great. We're going to have a hotel that will have the finest views of Paris with the largest private pool in a Paris hotel and service levels comparable to the Cheval Blanc hotels that exist, and are, for the most part, always, always full throughout the world.

And when it's well-managed, it's quite profitable. We can't develop that too fast.

You have to be in the best location when you arrive somewhere and have the best service, not have it too big. And so there's not such a development potential as we have at Dior on Vuitton, but it's very compatible with the rest of the activities.

Any other questions? If not, we can now move to sample from the group products.

One last question over there.

[indiscernible] from Venture Capital. I have a question for Mr.

Guiony question regarding currency hedges. Can you tell us what are the -- what you expect in terms of currency exchanges -- hedges for dollars and yen in terms of percentage and how much you propose to spend on that?

On dollar, we're looking at $1.14 for 80% of the budgets for every additional day. We are a bit concerned on the business, but we're always happy with potential profits on yen.

We're looking at, also, 80%, and I think it's -- we're hedging at JPY 123 for the yen. So that is, again, a significant gap with the present rate.

All right. Well, thank you very much.