LVMH Moët Hennessy - Louis Vuitton, Société Européenne

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

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

And for this, I refer you to the safe harbor statement including on Slide 2 of this presentation. Let's now move on today's topic, the first half figures.

After a brief discussion on the first half highlights, Chris Hollis, group's Head of Investor Relations, will cover the main developments of our different business groups, and I shall then comment on the main figures. And after this, both Chris and I will be available for your questions.

The press release is available on our website, lvmh.com, as well as the slides for today's presentation and the interim financial report. Moving to the first slide of the presentation, I would say that the first half of 2018 was excellent.

We shall go into some details, but the main points to bear in mind should be, in my view, a very solid financial performance with sales increasing 10% and current operating profit 28%, a very strong contribution to both revenues and profit for -- from all our main businesses and all main geographies showing strong advances with the U.S., Asia and Japan growing double digit. I will now turn to Chris, who is going to review the main developments within our various business groups.

Chris?

Thanks, Jean-Jacques. As always, I'll start with the Wines & Spirits.

This is Slide 6. In the first half of the year, this group delivered a 7% increase in organic revenue growth.

On a reported basis, excluding a negative 8% currency impact, revenue was EUR 2.271 billion, down just slightly from the same period in 2017. Breaking this down, Champagne and Wines saw a 3% rise in organic revenue growth and negative 7% currency impact, resulting in reported revenue of EUR 903 million; while Cognac and Spirits delivered 9% organic revenue growth and a negative 8% currency impact for reported revenue of EUR 1.368 billion.

Profit from recurring operations for Wines & Spirits rose 7%, reaching EUR 726 million, of which EUR 197 million was generated by Champagne and Wines and EUR 520 million (sic) [ EUR 529 million ] from Cognac and Spirits. Looking at the drivers behind the numbers on a geographic basis compared to the 2017 first half.

This business group demonstrated strong momentum in China and made good progress in the U.S. and Europe despite supply constraints.

In Champagne and Wines, champagne volumes were down 1% in the period. The group benefited from new launches such as Veuve Clicquot's new Rosé champagne to celebrate the bicentenary of its first mixed rosé as well as the success of its prestige cuvées: Dom Pérignon, Ruinart and Krug.

Europe and Japan delivered solid growth, while the U.S. was impacted by a delay in shipments at the end of the period.

The Estates & Wines business performance benefited from the positive impact of price increases. And in Cognac and Spirits, Hennessy's -- Hennessy volumes grew 3%.

In the U.S., growth continued slightly better than we had expected in spite of tight supply. While shipment paused after the Chinese New Year to reduce the slight excess of inventory, China, too, delivered a particularly strong first half for Hennessy.

Depletions in both the U.S. and China are healthy for Hennessy.

And finally, Glenmorangie, we're pleased the business has rebounded following the destocking in Asia last year. Looking to the second half at Slide 8.

The goal is, of course, to ensure the best value creation in the context of tight supply. The focus across the business group is on product innovation and finding new ways to consume with the support of innovative marketing and digital advertising while enhancing the desirability of the brands notably at their point of sale.

We're also building production facilities for selected brands such as Hennessy in light of high demand and in order to support future growth. And finally, we're continuing to integrate our newer brands in the way that is LVMH's hallmark, maintaining their autonomy and supporting their growth.

These brands include Woodinville Whiskey, Tequila Volcán de Mi Tierra and the exceptional, Colgin Cellars. Turning now to our Fashion & Leather Goods brands, starting on Slide 10.

A great start to the year, as you will see, with a 15% rise in organic revenue growth. After a positive 17% structural impact from the integration of Christian Dior Couture and a negative 7% currency impact, reported growth increased 25% to reach EUR 8.594 billion in the first half.

I'll point out that excluding the full consolidation of Rimowa H1 sales in Q2, the business group would have grown in line with Q1 on an organic basis. Finally, this top line growth more than flowed through to the bottom line, with profit from recurring operations rising 27% to EUR 2.775 billion.

As this strong growth suggests, there were several highlights in the first half. Geographically, there was strong growth in Asia and the U.S.

and solid progress in Europe. Louis Vuitton's excellent performance reflects its creative momentum, combining modernity and tradition that defines this iconic brand.

And indeed, its iconic designs remain successful, while its new lines are also being very well received, in particular the women's collection which had its show, the Fondation Maeght in Saint-Paul de Vence. In addition, Virgil Abloh has received an exceptional welcome and substantial media coverage for his first runway show at Louis Vuitton -- as Louis Vuitton's Men's Creative Director.

Christian Dior Couture was also, as I noted earlier, a strong performer with growth across product categories. Kim Jones was named Creative Director for Dior's Men's, and his first selection was also very well received.

Fendi's success continues with the strength in the first half of its ready-to-wear and menswear collections. Loro Piana, whose focus was on premium Womenswear, was a strong performer in Asia.

Hedi Slimane joined Céline, another big announcement that received positive attention from the fashion community. And the brand's current line of leather goods continues to perform well.

Marc Jacobs' restructuring continues, and progress is being made with new products garnering success such as the very popular Snapshot bag. And Rimowa's focus remained on the quality of its distribution network.

While on the product front early this year, they unveiled a very successful collaboration with Supreme. And finally, growth continued at Kenzo, Loewe, Berluti and also Givenchy, whose wedding gown for the now Duchess of Sussex gained high visibility.

Looking ahead to the balance of the year. As always, the top priority is continuing the creative momentum of Louis Vuitton to deliver innovation across product categories.

Some emblematic stores will undergo some interesting transformations, and there are plans to increase production capacity in response to demand. For Christian Dior Couture, the focus is on delivering products that reflect and celebrate its unique savoir-faire.

Fendi will open up its first store in Spain in Barcelona. At Céline, Hedi Slimane's first highly anticipated runway show is scheduled for September.

Now Givenchy is expanding its presence in Dubai Mall, while Kenzo is opening in Las Vegas and Florence and taking over its distribution in China. In short, across the board, this business group is focused on supporting the creative talent behind our brands and investing to support the brands' growth, including through enhanced communication with a digital focus.

Turning to Perfumes & Cosmetics, beginning on Slide 14. For the first half of the year, organic revenue rose an impressive 16%, including a negative 8% currency effect.

This translated to an 8% rise in reported -- on a reported basis to EUR 2.877 billion. And the top line again more than flowed through to the bottom line.

Profit from recurring operations rose 25% in this business group, reaching EUR 364 million in the first half of the year. This is an all-time high from a margin point of view.

A good performance from all brands with notable strength in Asia. Breaking this down a bit, Parfums Christian Dior was -- has great momentum around the world.

Its iconic perfumes such as J'adore and Miss Dior, remain a consumer draw, and Sauvage Eau de Parfum has been immensely successful. Rouge Dior was rolled out internationally after a strong launch, and Dior Backstage is off to a promising start.

Finally, the Dior skincare line, Prestige, has seen strong growth, notably in Asia. At Guerlain, the standouts included Rouge G lipstick, a big hit; as well as the recently launched Mon Guerlain Eau de Parfum Florale; and the skincare line, Abeille Royale, which has been very successful.

Benefit has seen ongoing strength in its brand's mascara lines, and its launch of the mascara BADgal BANG! has been a great success.

Givenchy's lipsticks are performing well as its -- as is its Prisme Libre line. Fresh's skincare lines, Rose and Black Tea, remain highly sought out, notably in Asia.

And there is good progress on the way at Acqua di Parma, driven by its new lines, Colonia Pura and Blu Mediterraneo and its new communication campaign. Finally, one of our newest additions, Maison Francis Kurkdjian, continues to grow opening its first boutique in the U.S.

in Miami. Looking at it, the group is focused on its prudent strategy of introducing a consistent flow of innovation and creativity to drive the ongoing appeal of our outstanding brands and product lines.

At Parfums Christian Dior, there'll be a new women's fragrance launched with wildly admired Jennifer Lawrence as its muse. The brand will also continue its successful rollout of Dior Backstage.

Other launches in the second half include Guerlain's skin serum, Double R Abeille Royale, and a new women's fragrance at Givenchy with the actress Rooney Mara as its muse. Kenzo will roll out its Kenzo World line in China.

And lastly, but certainly not least, Fenty Beauty by Rihanna celebrates its first anniversary after an outstanding year, with more excitement to come as the product range is expanded. Now turning to Slide 18, Watches & Jewelry.

We saw very good momentum in this business group in the first half with 16% revenue growth on an organic basis and after a negative 8% currency impact, an 8% increase in reported revenue to reach very close to EUR 2 billion. Profit from recurring operations rose an outstanding 46%, reaching EUR 342 million.

We're pleased that the growth in this business is driven by the strong performance of Jewelry and growth in Watches, led by the main iconic lines, reflecting the ongoing strength and appeal of our brands. On the Jewelry side, Bvlgari is moving from strength to strength, gaining share in key markets around the world.

Its iconic lines such as Serpenti and B.Zero1 remained strong performance -- performers in drawing customers who are also taking well in the new lines. For example, there has been an excellent response to the new high jewelry collection, Wild Pop.

With respect to Watches, at TAG Heuer, there was a very good response to the new models unveiled at Baselworld, Calibre -- Carrera Calibre Heuer 02 Tourbillon and Monaco Bamford. The brand also opened stores in New York on Fifth Avenue and in Tokyo.

Hublot continues its solid growth, notably in the U.S. and China, driven by 3 main pillars: Classic Fusion, Big Bang and Spirit of Big Bang.

You may also have noticed the great visibility it received as Official Timekeeper of the FIFA World Cup, albeit not quite as much as the country that won. Finally, at Chaumet, the Liens and the Joséphine lines are continuing to perform well.

And the new high jewelry collection, Les Mondes de Chaumet, is off to a good start. Looking ahead across the business group, the focus remains on enhancing the quality and productivity of the distribution model of each of its brands.

Additionally, across the board, the brands will continue to be supported by strong marketing with a focus on digital. As far as specific highlights for the second half, Bvlgari will open up a new store in Hong Kong, further strengthening its position in Asia and reiterating its place as the magnificent and contemporary Roman high jewelry master of colored stones.

If you're in Tokyo, I encourage you to visit the exhibit of Chaumet's beautiful history, which opened at the end of June until mid-September. Its Ginza store will also -- will benefit from its recent renovation in the second half.

And at Zenith, the Defy line, which had a successful launch, will be rolled out internationally. Now moving to the final business, Group Selective Retailing, Slide 22.

Organic revenue growth was a very good 9%, or in fact, 15%, if you exclude the impact of the termination of the Hong Kong International Airport concessions. On a reported basis, after taking into account a negative 8% currency impact, revenue rose 1%, reaching EUR 6.325 billion.

This group saw a 39% rise in profit from recurring operations to EUR 612 million. Results in this business group can be summed up by saying continued good momentum at Sephora and a strong rebound of profitability at DFS.

Adding some more detail to that, Sephora had growth in revenue and market share gains in all key regions with continued increases in online sales. Its stores also continued to perform very well, and Sephora remains focused on expanding and renovating its store network.

They recently reopened their store at the Saint-Lazare train station here in Paris. I encourage you to go and visit it.

At DFS, sales have risen substantially in Hong Kong, Macao and Japan with the increase in tourist flows. The recently opened T Galleria in Cambodia and Venice has gotten off to a very good start as has the reopened T Galleria in Sydney.

As I mentioned, profitability is much stronger in this business after the termination of the loss-making hedge at Hong Kong International Airport concessions. Le Bon Marché continued to cultivate its uniqueness and the exclusivity of its product offering, including exciting changes to the store, so that's another Marché destination.

As you know, they launched their online platform last year, vingt-cinq Sèvres or 24 Sèvres. It is progressing well, and they have recently added jewelry to the platform.

Looking to the second half of the year, Sephora is, as always, focused on innovation in products and services that cannot be found elsewhere. Renovation of the retail network will also continue.

Sephora will also continue to open its smaller studio locations designed for urban areas in the U.S. which have been well received and around the world continue their ongoing work to enhance their loyalty programs and integrate their retail and digital experiences in order to make a true omnichannel offering which -- for which Sephora has always been a leader.

At DFS, the team is focused on completing the renovation of its flagship stores on Canton Road in Hong Kong and at the San Francisco Airport. They're also working on further development of their customer relations program and related digital marketing.

Finally, at Le Bon Marché, they will open their renovated children's department in the second half. And shortly after the summer holidays here in Europe, there will be an exhibit in the store dedicated to the magnificent city of Los Angeles.

With that, I'll turn the call over to Jean-Jacques.

Thank you, Chris. So I shall start the key figures review with revenues for the first half of the year, as shown on Slide 26.

As you may see, we ended the semester with most of our business groups in double-digit growth. Published growth was a bit lower than organic growth due to an 8% negative currency impact, offset by a 6% perimeter impact with the consolidation of Dior Couture.

Chris commented already on the main business groups in detail, but the main points are, in my view, that Wines & Spirits is showing a positive organic growth of 7% despite heavy constraints on volume. Fashion & Leather is up 15% with very strong Louis Vuitton but also a strong contribution from most of the brands.

Perfumes & Cosmetics is up 16% in organic terms, outperforming its peers in most geographies. Wine and -- Watches & Jewelry, showing a very solid 16% growth as well.

And Selective Distribution is up 9% but, as Chris said, 15% is restated from the termination of the Hong Kong Airport concession. Let's move to Slide 27, where you can see a comparison between first and second quarters in terms of organic growth.

You will notice a slowdown in Wines & Spirits due to a slight inventory excess in cognac that were absorbed during Q2, while the decrease in growth of Fashion & Leather is only apparent and due to a technical consolidation impact at Rimowa. Let's now move to Slide 28, which shows the geographic breakdown of revenues in euro.

Only worth noting that Asia gained 2 percentage points, now above 30% of total group sales. Moving to Slide 29.

You will obviously note that the group's performance was strong, I would say, across the board: very strong growth in Japan, mostly based on strong local consumption; a very solid growth in the U.S., above 10%; and a very strong performance in Asia despite Wines & Spirit absorbing a few excess inventories, as I said. Let's now move to the next slide, where you may see our simplified profit-and-loss account for the period.

Main comments are the following: we already discussed revenues. Gross margin increased significantly by 210 basis points to 67.2%.

Marketing and selling expenses are up 8%, while admin expenses rose 13%. Overall operating costs rose 8% in euro and 7%, excluding currency fluctuations and Dior consolidation.

So profit from recurring operations is up 28% at EUR 4.6 billion. I will comment later on currency and perimeter impact.

Other operating income and charges are negative by EUR 70 million, reflecting mostly amortization and depreciation of intangibles. Financial charges are about flat compared to last year, and I will comment in a separate slide in a minute.

Worth reminding that we implemented IFRS 9 for the first time in H1, and 2017 financial charge has been restated accordingly. The group's income tax is significantly down compared to last year at around 27.7% of pretax income.

And finally, the group's share in net profit is up 41%. Let's now look at the profit from recurring operations which is broken down by business groups on Slide 31.

Wines & Spirits with flat sales in euro had a strong first half with a 7% increase in operating profit. Fashion & Leather ended the semester also on a very high note with plus 27% and a slight improvement in margins.

Perfumes & Cosmetics showed a 25% increase in its profits from recurring operation. Watches & Jewelry profit from -- current operating profit was at 46% in H1 with an outstanding performance from Bvlgari.

And finally, very strong numbers in Selective Distribution with a 39% increase in current operating profit. As Chris said, this partly comes from discontinuation of loss-making Hong Kong concessions, but the business was very strong across the board, both at DFS and Sephora.

Having a look at the current operating profit on Slide 32 with the impact of currency fluctuations and acquisitions. The currency impact was a negative EUR 300 million, i.e., 8% of current operating profit, which happens not to be too dissimilar from the revenue impact, showing the strength of our hedging strategies.

The Dior acquisition contributed a positive EUR 150 million. Dior was acquired early July last year and will be in a comparison base from July onwards, as you might have expected.

Let's now turn to Slide 33 and the analysis of the net financial charge. The presentation is quite different from the years before due to the implementation of IFRS 9.

Basically, 3 main changes: the cost of debt reflects the total financial charge and not just the euro part of it as it was the case before; secondly, the cost of hedging reflects the cash cost of the strategies that we put in place; thirdly, the change in the value of available-for-sale assets is mark-to-market and appears in the profit-and-loss account. With this, a few points to mention.

The cost of debt is flat with the average debt being almost twice as high as it was in 2017 due to the Dior acquisition, so we benefited from a very strong drop in our average interest rates. The cost of hedging is about half of the yearly charge and is now quite predictable, I would say.

And like in 2017, we benefited from a strong pickup in the value of our available-for-sale assets. Moving on to Slide 34, where you may see the balance sheet structure.

I will not comment as there were no major change in the first half and the numbers are pretty close to where they were at the 31st of December. Turning to Slide 35, a few words on the cash flow statement.

First, net cash from operations is up EUR 1.1 billion or 32% but note [indiscernible] low current operating profit growth. Secondly, working capital requirements used about EUR 1.3 billion in cash, a bit more than last year.

And capital expenditures are up about EUR 200 million compared to last year. Overall, our free cash flow is up to EUR 2 billion; needless to say that this is a [indiscernible] level for us in the first half.

And a dividend of EUR 2 per share will be paid on December 6. I will finish with a comment on the group's net debt, which reached EUR 7.4 billion as at June 30, about EUR 200 million higher than at the end of last year.

This change comes mostly from the EUR 2 billion in free cash flow that I discussed before, net of a negative EUR 2.2 billion in dividends and various capital investments. The group's net debt as of the 30th of June represents 23% of the total shareholders' equity.

I would like to conclude this very brief overview of the activity with a few comments, highlighting the most important point for the near future. In a nutshell, I think we need to be both positive and cautious, positive because H1 showed the group's ability to convert strong demand conditions into outstanding financial results.

Our sales and profit for the first half of 2018 were equivalent to the full year numbers we showed in 2010. Most of our markets are well oriented as H1 numbers show.

The U.S. are doing very well with ongoing double-digit growth.

Japan, I would say, is pleasingly strong, and Asia is moving from -- really from strength to strength. Same comment on our business groups.

The engine is firing on all cylinders, and only capacity constraints and willingness to preserve brand exclusivity prevents us from growing faster. This said, I would like to point out a few elements that would advocate for some cautions for the months to come.

First and foremost, currencies. The current level of the U.S.

dollar, significantly above its rough level earlier this year, is by no means granted for the rest of the year. I will also point out the volatility of the renminbi, which has sometimes been a source of disruption for the businesses in the past.

Secondly, the comparison base is very demanding in the second half, and we shall not benefit from the consolidation impact of Dior Couture that we have had over the last 2 semesters. And finally, I can only mention risks connected to the higher tariffs throughout the world.

Although the luxury industry is not in the front line on this, such a risk would certainly bear some negative consequences for us. For these various reasons, I think that despite the strengths of the business, the current trends cannot realistically be extrapolated to the second half of the year.

This is all we wanted to say. Operator, could you open the line for questions, please?

Yes. Jean-Jacques and Chris, can you hear me?

Yes.

Yes, yes.

So just 2 questions for me, one on the Chinese demand and then one on Watches & Jewelry. So as you know, there is quite a bit of nervousness in the investor community regarding potential slowdown in Chinese demand.

So in the past few weeks, have you seen any weakness in demand, either in Mainland China or with Chinese nationals around the world? That would be question one.

Because when we look at the performance in Asia, ex Japan, there's a bit of a slowdown on a 1-tier basis in the second quarter as the first quarter. And my second question is related to Watches & Jewelry.

So I guess on the negative, there was also a bit of a slowdown in terms of top line in Q2 versus Q1, even if you adjust for the most difficult -- more difficult comp. So I was just wondering if it was mostly due to watches into the top line.

And in terms of profitability, so you had a blowout first half in -- for the division. I think recently you've guided towards a medium-term objective of 25% EBIT margin from Bvlgari.

Could we already achieve this figure as early as 2018 basically?

Thank you, Edouard. So Chinese demand in recent weeks, I will comment only on Q1 versus Q2 and obviously, on the brands where we can measure it with some accuracy.

The answer is no. If you take Louis Vuitton's Chinese demand in Q1 and Q2, we had a slight improvement in Q2 compared to Q1.

So we cannot really mention any slowing down in Chinese demand. And for the other businesses, obviously, it's less accurate, but I think the same trend applies.

So the threats that we discussed are there, but I don't think they have materialized yet in any way. On Watches & Jewelry, you mentioned a slowdown, I mean, from 20% to 12%, so it's between Q1 and Q2.

So it's not too bad as a slowdown. It's mostly connected with Watches and with TAG Heuer, which remains positive, nevertheless, for the semester.

As far as Bvlgari is concerned, I don't know exactly where you got the objective of 25% because the objective I mentioned a few times was 20%, which we reached last year. So it's probably time to set new objectives, but we haven't done it yet, so I will not comment.

Thank you.

Our question is just regarding the China jewelry import tax drops. What are your thoughts on how that may impact competition within the country as well as tourist inflows, if you have any initial thoughts there?

And then our second question was about your continued strategy regarding your online platform. How are you thinking about digital innovation within the brands such as Vuitton and buy online, pick up store -- in store versus platform innovation and where you may want to proceed in terms of embracing that?

You have some really best-of-class digital innovation at Sephora, but different brands are at different points in that interest and development. So would love your thoughts about long-term strategy with customer engagement there.

Thank you. So the duties on China, obviously, we will reflect and we have already reflected into selling prices in China the impact of lower duties.

This being said, particularly in Jewelry, the price range is much narrower in Jewelry than it is in other businesses given the price point we are selling at. So basically, we try to adjust price ranges that will not cause clients to move from one country to another.

So we don't expect a major impact of all this -- on where the business takes place, so it shouldn't have any meaningful impact on this. As far as digital innovation is concerned, I think there are different situations within the group.

You mentioned Sephora, where a big chunk of the business takes place in -- on the digital platform. For -- particularly for Fashion & Leather business, we -- I think we discussed that a few times over this course already, we mostly view the digital strategy as a complement to the online -- the brick-and-mortar strategy.

Basically, what people want is get information online and do the shopping off-line. That's the behavior of most customers.

I'm not saying that digital will not end up taking a share of the global business, but we don't expect this share to be a major one. But we are pretty sure that what the clients want is get digital and brick-and-mortar experience at the same time, and I will not develop further because we are getting into the various digital strategies of the brand, which I cannot really elaborate on.

But basically, that's what we have in mind, allowing people to start their journey with a brand on the digital network, on the website and continue it in the store and maybe end it up again on the web with things like home delivery and experience being further developed when -- after the purchase in the store. So in a very summary format, that's what we have in mind.

Okay. And just lastly, on Sephora, you've had really great, continued progress there.

We've been seeing some changes in the market with respect to cosmetics versus skincare and some consumer shifts given some pretty tough compares on contouring and the color palettes. Do you have any thoughts regarding your pursuit of product innovation there and how pricing versus units may manifest as you merchandise with consumer preferences?

You're talking about Sephora or about brands? Because it's mostly -- as far as Sephora is concerned...

Sephora.

I mean, it's mostly picking up. The trends you mentioned are absolutely the right ones and important, particularly in the U.S.

market. And the question for us is to adapt to this.

I think one of the key elements in this is that the price points in skincare that these new brands or these new expression of the brands show is not dissimilar to what we have in makeup. That's why, actually, the innovation is gathering speed, and the response from the customer base is strong.

So we have to adapt to that, but we have done it makeup in the past. And no doubt, Sephora will be a leading force in this new skincare trends in the U.S.

and probably throughout the world in the future.

Yes, one verification. I've got 3 quick ones, please.

Just, Chris, I think you mentioned during the call that, excluding Rimowa and the impact there, that Fashion & Leather would have been up 16% or similar to that of Q1. I just wanted to get that confirmed in terms of the organic growth in the second quarter, ex Rimowa.

My second question was just around Louis Vuitton and the pricing change or the cuts to, say, 3% to 5%, according to local press. We think that on the back of the change in import duties and VAT, you basically lowered prices between 1% and 3% and pass that on to the consumer.

What has been the Mainland Chinese sort of consumer reaction to that? And is that the right kind of price cut that we think you've made?

And I guess within the context of almost global price increases around 2% during the first quarter, I'm assuming that the value impact is still positive. And then just on Hennessy, in terms of capacity constraints, can you maybe just talk a little bit more about that?

You said that depletions are very healthy in the U.S. and Asia.

And one final one, sorry, just on Selective Retail and looking at DFS. Is it fair to say that the annualized benefit on the back of the Hong Kong concessions in the first half of the year was around -- or just above EUR 80 million?

Thank you, John. So ex Rimowa, I confirm what Chris said, obviously, that ex Rimowa, the Q1 number was 16% and second quarter were -- was at 17%, so on average, 16%.

The reason why we mentioned that ex Rimowa is not because we want to take out the performance of Rimowa, is that, as you remember, we had 2 quarters of Rimowa in the second quarter of last year. So Q1 this year, it was a perimeter impact.

So Rimowa was not included, this one, in the organic growth of the Fashion & Leather division of LVMH; whereas in Q2, it is included in the organic growth of the division, but with 2 quarters last year in Q2 and 1 quarter, as it is normal this year, hence a negative impact on the performance of the division. So if you take out Rimowa, to make it simple, 16%, Q1; 17%, Q2, so no slowdown.

As far as the LV pricing is concerned, in China, the impact is 4%. We reduced, more or less, all prices by 4% a few weeks ago to reflect, as you said, declared in some duties.

There was no obvious or noticeable reaction from the customer base. We did not announce it in advance, and we don't think it has a major impact, neither positive nor negative.

On Hong Kong International Airport and the impact on the division, the impact for the semester is about 70 -- if I'm not mistaken, $70 million.

USD 70 million, okay, great.

Oh, sorry. And I missed the question on Hennessy.

The divisions were extremely healthy in China. More or less same as Q1 in Q2, so we end up with more than 20% for both V.S.O.P and X.O depletions in the whole semester.

So it went very well. As far as the U.S.

is concerned, we are suffering more from lack of supply. So sell-in is limited.

As we discussed that before, the level of inventories within the trade in the U.S. is very low, within distributors in the U.S.

is very low. There is no way to compensate lack of sell-in by lowering stocks, so basically, we end up with depletions in the U.S.

being around mid-single digit, being at par with sell-in. So sell-in and sell-out in the U.S.

is more or less in line at 5%.

One question about what you think and how you see the development strategy for Vuitton? You said, Jean-Jacques, if I understood correctly, that the brand could grow faster, if it was not that you want to preserve exclusivity.

I think there's been an interesting intellectual debate in the industry in recent weeks about exclusivity versus inclusivity. I wonder where you stand on that.

And related to that, a question on Wines & Spirits. We're currently going through the expected inventory pressure that you had anticipated.

I wonder how you would update us on how this is evolving. And how you think the impact going forward is going to be?

And last but not least, I was interested in a comment, if you can, on the pressures, if I may call them that way, that the Chinese government is putting on realigning prices between Europe and China on the back of cutting the import duties. It seems that it's pretty severe, but I was wondering whether you had any comment on that.

Okay. How long do you have because these are pretty wide-reaching questions.

So your first question on LV and referring to exclusivity versus inclusivity. To be frank, I don't understand the debate.

I mean, for me, the exclusivity, you can be exclusive, you cannot be excluding. And there's a big difference between the 2.

And it seems to me that the debate is in between excluding and including. It's not at all what luxury brands altogether are doing.

When you look at Dior, which product range ranges from $20 for a lipstick to $35,000 for a crocodile bag, I mean, this is, by no means, excluding; everyone can get access to the brand. It doesn't mean that it is not exclusive for the product we are selling, but this is a different concept.

As far as I'm concerned, the strategy of Vuitton and all the luxury brands within the LVMH Group is actually striking a balance between desirability and accessibility. So I don't understand the debate, inclusive, exclusive.

But the debate, for me, is very much about making the brands accessible and at the same time, desirable. If we are very desirable and not accessible, we don't do any business.

And if we are too accessible, it has some impact on the desirability, and we end up not doing any business anymore. So it's really at all times striking a balance on that.

And what we try to do is really managing this balance, increasing the network, but not too much; making sure that we keep what makes the brands exclusive, in the case of Vuitton, no rebates; all the products are being sold within our own network, including perfume, which is a little bit counterintuitive when you look at the way perfumes are being distributed by the competition, et cetera. And you know the strategy of Vuitton, I will not get into some details.

But I think the point to bear in mind is really this question of accessibility versus desirability. And for us the key point is really desirability.

That's the key success to long-term growth of luxury brands, and particularly for Vuitton. So that's a short -- I am trying short answer to your first question.

On Wines & Spirits, the updates on cognac pressure. I've no particular update to make.

Any update will come when we get the results of the harvest in 2018, which will not be before mid-September. So we'll see whether we get a good harvest and whether we can expect some additional volumes that would a little bit alleviate the pressure we got from the last 2 harvests, which, as you remember, were not too good.

So I suggest that we discuss that when we discuss our Q3 numbers. And finally, the pressure from the Chinese government on reducing -- on aligning, actually, prices.

Well, we don't feel particular pressure from the Chinese government. I mean, the reason why we have decided to reflect into our selling price the cut in duties, is simply to be fair with the clients.

We get a benefit from lower duties. I don't think it would have been fair to keep it to ourselves.

And we pass it to the customers. So basically, it's neutral from a margin and P&L viewpoint, but it's fair vis-à-vis the client.

That's the first point. The second point, when you're talking about realigning prices in between China and the rest of the world, bear in mind that the currencies created the problem, but the currencies have solved the problem to a large extent.

Vuitton's prices, at some point, were 50% higher in China than they were in Paris. It's now only 25% or 26% higher or let's say, 30% higher.

So a big part of the reduction in the price gap has been done by the lowering U.S. dollar and lowering renminbi.

Antoine Belge at HSBC. Three questions.

First of all, Jean-Jacques, I think you mentioned the potential impact of the renminbi volatility. We've also seen Chinese equity market going down.

So what makes you comfortable that, excluding this year, a remake of 2015 when during the summer, we had what triggered the slowdown in Chinese consumption? Second question relates to Japan.

I think we've had several quarters of very strong growth in Japan. You mentioned local consumption.

What is it really driving this? Obviously, it must not be the millennials there because of the demographics.

So any color or any studies you've made on that strategy in Japan would be -- if you could share those with us. And finally, and could you elaborate a little bit on the margin changes in Fashion & Leather?

Maybe quantifying the FX impact on the margins, the dilution of the Dior integration and any big -- I don't know, any provisions on any branding restructure and there, also to give us the Louis Vuitton margin movement that is qualitatively?

Well, thank you, Antoine, for your 3 questions. It could be a quick way to answer them, which would be to say nothing, I don't know and no.

I will try to elaborate a little bit more, but in a nutshell, that's a little bit what I mean. So first of all, on the renminbi relativity and the comparison to 2015, while the only thing that makes me more comfortable for the time being is that the impact, I mean the magnitude of it, is far from what it was in 2015, both on the stock market and on the renminbi side.

So I don't know whether if we end up with the same volatility in the stock market and the renminbi that we had in 2015, we'll see the same consequences on the business, but we're not there yet and far from that. So for the time being, I cannot really comment, and we'll see if we get to that type, and which I don't hope we get to that type of volatility what happens.

Second question, the explanations on Japan growth. It's not that -- it's not an easy question because as you -- as we discussed before, I mean, this came a little bit as a surprise.

The Japanese local demand has been lackluster for almost -- more than 10 years. And all of a sudden, we got almost double-digit growth from domestic demand.

The touristic flows come on top of that. That have been very positive to the business.

So I'd rather have good numbers and no explanation than the other way round. But nevertheless, that's a little bit what it is.

It's hard to understand with as little hindsight as we have why is it taking place. But the only thing I would say that it's been going on for 6 or 7 quarters now, so it's what was nice numbers and now becoming a trend.

So let's hope it continues. And finally, your question on the Fashion & Leather division, which margin improved quite a bit.

Actually, the impact of Dior was negative. I mean, on average, the margins of Dior, which you can get from the numbers we gave you, particularly in the first half of the year, are much lower than the average.

So it has a negative impact on the division. The currency impact was neutral, like it was for the rest of the group.

So same impact bottom line and -- top line and bottom line, about negative 7%. And if you take out these 2 impacts, we ended up with a nice pickup in organic margin, for what it means.

We usually don't comment that, but in the current context, it probably makes more sense than it usually does. We had a nice pickup in organic margins.

So in all, a good semester. Vuitton was no exception to that, obviously, but Vuitton's margins improved.

As you don't know, margins for Vuitton, I don't think it is necessary to mention by how much they improved, but they did improve.

Okay. So let me just -- so in terms of the brands which are, I would say, doing less well, maybe not into many too details, but if we group them as a whole, I mean did their margin improve the LV brands compared to last year?

I think you mentioned that -- or Chris mentioned that Marc Jacobs was under restructuring?

Yes. But losing less money than they did last year.

I don't want to comment too much on Marc Jacobs because I don't want to create anticipations and, therefore, put pressure on the management. They have already enough to do so that I don't add up to their burden by creating anticipations.

But they lost -- the losses of Marc Jacobs were much lower than they were last year.

But wasn't that compensated maybe by more loss -- well, not losses but decreased profitability, for instance, at Rimowa or maybe other brands?

Yes. Rimowa is restructuring and made -- last year was still benefiting from the frantic expansion initiated by the previous management into wholesale that we kept this year.

So obviously, we have a negative impact, but nothing really dramatic. So all in all, I mean, all businesses improved their contribution -- their margins and their contribution to the global margins of the division.

Actually, I have 2 questions. The first one is, I know it's a bit early to see that, but have you been able to isolate Virgil Abloh effect on your ready-to-wear sales at Louis Vuitton, some excitement around it?

And the second one is regarding the trends in July. Have you seen anything worth mentioning to us to being a change in trend by geography or by category?

Thank you, Aurélie. I will disappoint you on both questions.

Actually, Virgil, frankly, is way too early. I mean, frankly, Virgil has been on runaway late June.

It's way too early. We don't have his creations into our stores yet.

So obviously, the image impact is very positive, and the buzz around his arrival at Vuitton has been tremendous. We are very pleased with that.

As far as the real business is concerned, it's obviously too early to say. And as far as the trends in July are concerned, I mean, the main reason why we report before the end of July, is that we don't have to comment on the July numbers because we don't know them.

So actually, that makes my answer a bit easy. We'll discuss that when we report our Q3 numbers.

Maybe we'll move to the next question.

Just 2 questions, please. The first one on the Watches & Jewelry division.

Can you maybe provide more details by region on the trend you had in H1 and the small slowdown in Q2? And my second question also on Bvlgari.

Can you also give a bit more details on the margin of the brand at the end of H1, if you can? And lastly, on the trend by type of customer at Louis Vuitton in H1 as well.

And you've mentioned an acceleration in Q2 versus Q1 from the Chinese. Maybe can you give more details for American or European?

So thank you, Hermine. On Watches & Jewelry by region, the only trend worth noting is really Europe slowing down a bit, but nothing really important.

It's mostly Asia that we were extremely high in and small. Actually, the business in Asia, as you know, is quite small, particularly for watches, but it's a bit bigger for jewelry.

We had a little bit of a slowdown there. But the leather, we have altogether, for the first half, is about 30%.

So it's really a very relative slowdown as we are still above 20%, significantly above 20% in Q2. So I find it hard to comment.

Otherwise, I mean, most geographies have shown more or less the same trend in Q1 and Q2. The margins on Bvlgari, the only thing I would say that they are above 20%, which was a little bit implicit from my answer -- my previous answer.

But I will not comment much further. On the trends on LV customers, Q1, Q2, I mentioned a slight improvement for Chinese in between Q1 and Q2.

We are around 20% growth, that there was a slight improvement there. As far as the U.S.

customers are concerned, it's the same. It's also around 20%.

And it's the same trend in Q1 and Q2. So no change there.

And for the Japanese, it's more or less the same, around 15% both in Q1 and Q2.

I've got 3 questions, please. The first one, a follow-up on Hennessy.

You had 3% volume growth in H1 and 5% in Q1, so that means about flat volumes in the second quarter. You said sell-in was up mid-single digit in the U.S., and still up double digit for the V.S.O.P and X.O in China.

So how does this add up to flat volumes? Sorry, if I misunderstood that point.

Secondly, on pricing. You talk about, in your last slide, monetary uncertainties.

When you look at your pricing architecture, are you satisfied about the Euro-China price gap after the weakening of the renminbi on the one hand and your price cut for 4% in China? And could you provide the latest hedging rates for dollar and yen next year?

And finally, Jean-Jacques, in your presentation, I looked back in H1 '17. The last slide refers to caution for the second half.

Now you're cautiously confident. So that looks a little bit better, although I wouldn't read too much between the lines.

You've been the CFO at LVMH for over a decade now. You've seen several rapid swings in demand.

Can you perhaps indicate whether you think something has changed in the group, at corporate level or at brand level, in the ability to cope today with the rapid slowdown in demand in terms of OpEx management, CapEx cut, et cetera?

Thank you, Thomas. There is no change in my H2 statement because basically what I do is I take last year's statement and I change 2017 into 2018.

And I'd say that is the same year after year.

But you were not confident in H1 last year; you were cautious. Now you're cautiously confident.

Well, exactly the same thing. So you should quote me on this.

I'm sure I said exactly the same thing. I will try to answer your various questions.

So on Hennessy on the volumes, the volume growth in Q1 and Q2 in the U.S. is more or less the same mid-single digit.

The big change is in China. I mentioned it a few times.

We had a little bit of inventory buildup in Q1 due to Chinese New Year when it is quite difficult to monitor exactly sell-in and sell-out, and we ended up with a little bit excess inventory within the wholesalers at the end of Q1, and we decided to absorb it throughout Q2. So sell-in in China in Q2 was notably smaller than sell-out.

So we had a big negative in -- quite a significant negative evolution in volumes of sell-in; whereas, sell-out, so depletions was still positive more or less what they were in Q1, which enabled us to absorb this excess inventory in 1 quarter, which is what we wanted to do. So obviously, the impact was on sell-in, not on -- not sell-out.

And that's a big change in -- if you remember, organic growth in Q1 for Hennessy was about -- for Cognac and Spirits was about 13%. And it's about 4%, 5% in Q2.

This comes mostly from this evolution of sell-in in China. The pricing architecture and particularly the situation in China, which is your second question, it's hard to comment at this point in time.

I mean, we obviously monitor the situation by the day. We look at it.

We are not at all willing to increase prices in China, obviously. We have just lowered them, as I discussed before, to reflect lower duties.

It is not to increase them tomorrow, unless something dramatic happens on the renminbi. So it's not the case yet, so we have no particular plans to change prices in China and anywhere, I would say, in the near future.

And there is no need to do so. The hedging next year is almost 65% of budget for both -- for the main currencies.

And the hedging rate is $1.23 for the dollar and JPY 131 for the yen. So we are quite off -- quite far off the current level for the dollar and more or less in line with the yen.

Sorry, I missed the last question was on...

No, you've answered it first.

Okay. Yes, the statement for H2.

No, there was a sub-question on how we would manage like OpEx in the context of slowing growth. First of all, we are not there yet, but I think we discussed that together a few times.

I mean, the lessons of the period 2012 to 2016 are well-learned. And I think we have the ability, particularly in the context when the number of stores for most of the brands is not growing fast, particularly for Vuitton, but all the other brands as well.

I think we have the ability to monitor more closely -- to control more closely operating expenses, and probably in a tighter way than we did in 2012.

Three, hopefully, quick questions for me. The first was on Rimowa.

Just with the focus on the brand elevation and tightening the wholesale sell-in, how much longer is it going to take the channel from here? And just helping us understand the drag to come from Rimowa in the second half.

Second question was on Dior. Some very strong progress on the margin there.

Are you updating your long-term ambition for the Dior margin? And the third question would be around Vuitton pricing.

You took a small 3% level price increase in Q1. Are you still open to the possibility of raising prices outside Mainland China in the second half?

I don't quite get your last question on LV pricing and the 3% increase, you mentioned, Fred?

Just saying following the small increase that you put through at the end of Q1, would you still be open to a second increase this year -- in the second half of this year?

Well, we didn't increase prices. Well, there have been -- the global slice impact at Vuitton for the first half is 1%.

So we didn't increase price or only marginally in some geographies in H1. We haven't increased prices anywhere, apart from marginal geographies in the last 3 or 4 years.

So -- and the global question about pricing at LV very much depends on currency fluctuations. As I said to -- in answering Thomas' question, we have no particular plans for the time being.

But we monitor the situation more by the day. So I can't tell you whether we will do something or not in the second half of the year.

It's too early to say, but with the current level of currencies, there is absolutely no need for action on our side. So on the Rimowa time line, we expect the business, on the comparison basis, to still comp negatively compared to last year in the second half.

We should compare positively in the next year. So it's a little bit early to assess the impact of this, but we'll be monitoring in the budget exercise of Rimowa for next year the impact of this.

So -- but we expect the cleaning up of the Rimowa business to end up by the end of 2018 as we announced. Your question on Dior margins and the update of our objectives.

As we didn't set any public objectives on this, I think the answer will be quick. We intend to improve the margins at Dior.

But for the time being, we don't intend to mention any objectives. As you know, there is a new management there.

It takes a little bit of time for them to assess there their priorities, and their new objectives. And once we have maybe clear, we'll update the market, but not before that.

I'm actually very positively surprised by the operational leverage delivered by quite a few of your divisions, so I wondered whether you could help me understand it better. In particular, Watches & Jewelry and Perfumes & Cosmetics are reaching new highs.

So should we consider this as a structural shift? Because Bvlgari and Dior, respectively, are now so big and have pretty decent margins that they're carrying the profitability higher or are there any exceptionals in there?

Regarding profitability as well, Wines & Spirits delivered a pretty nice profitability uplift, despite your comments for quarter 2 that saw China decelerating in cognac, which is a strategic decision clearly but should imply a negative mix. So I was wondering whether you could help me also understand why these margins are so much stronger than we had anticipated.

And then sorry, my last question is on the tax rate. What should we expect for the full year, given you've done so much better than expected also in H1?

Thank you, Melanie. The last question, a little bit higher than H1, but we try to monitor H1 because there is no such thing as H1 taxes per se.

We try to monitor H1 rate so that we end up not so far from the full year rate. So something like 28%, 28.5% should be acceptable for the full year.

On your question on operating leverage, and really the question about structural shifts versus exceptionals, well, it's quite a complex question for Watches & Jewelry and Perfumes & Cosmetics. For Perfumes & Cosmetics, I would just mention that last year, we had some negative exceptionals, particularly at Guerlain launching its -- some new lines of product and having a market -- a big marketing push, et cetera.

So with the comparison base in some businesses, particularly I mentioned Guerlain, but also Givenchy, was quite easy and on top of that, we did very well in the first half of this year. Obviously, Dior did also very well.

So is it a structural shift? Actually, it doesn't come from exceptional elements.

That's all I can say. Will we be able to replicate that in the coming quarters?

Well, we'll see. As you know, I'm not inclined to make a forecast and to put pressure on the various managements.

But at least, they delivered very well in these 2 divisions in the first half and the same comment applies to Watches & Jewelry. Still profitability at TAG Heuer below its historical level, but really, Bvlgari is doing very well and really moving from strength to strength, particularly from a margin viewpoint.

Your question -- same question on Wines & Spirits. There is a specific element in Wines & Spirits, which is a currency impact, which was negative on sales, but flat on operating income.

The hedging policy was particularly strong for Wines & Spirits. Also, we had a very technical factor of the currency impact on elimination of profits in stock.

I mean it's [ 7 15 ] so I will not elaborate on this right now, because it's a bit technical. But basically, bear in mind that when we have huge currency fluctuations, as it was the case in the first half of the year compared to last year in the dollar zone, we end up -- given the fact that they are pretty significant inventories in the system, we end up delaying the impact of currency one way or the other.

And this is what happened. So we benefited from stronger currencies than we actually had in the first half of the year from a margin viewpoint.

In a nutshell, that's what happened. So the strength in margin comes mostly from currency -- specific currency situation, which we don't find elsewhere in the group.

Is there any other question, one last, maybe?

Okay. Maybe the last 2.

I'll take the last 2. Thank you.

Jean-Jacques, 2 quick questions. Just a follow-up on margins.

Your gross margin in the half was up more than 200 bps to 67%, while your OpEx to sales was down a bit, despite marketing to sales going up a bit. So could you talk a little bit about the key drivers behind the significant improvement at the gross margin level?

And is 67% a sustainable level going forward? I appreciate you just mentioned the technical factors in Wines & Spirits.

And the second question is about Fashion & Leather. Should we expect any change in contribution from physical retail space in the second half for LV and non-LV brands, given your plans in e-commerce?

Thank you. So your first question on margins.

I would say that on gross margin, the improvement comes 1/3 from currency, another 1/3 -- another 2/3 from operating leverage, excluding currency. And there is also a slight positive impact from Dior, but less than the other factors.

Obviously, the currency impact is not repeatable. I mean it comes from the fact that we had huge currency hedging gains that offset the cost base.

Once it's normalized, we won't have -- maybe we'll have higher sales, but less negative impact on costs. So in terms of margin, this has a negative impact.

So I wouldn't say that all of the gross margin impact is repeatable. A big chunk of it is structural.

Part of it is linked to currencies. And as far as the structural part of it is concerned, it obviously comes from the operating leverage.

I mean, when we grow the business ex currency, 12% on average for the quarter -- for the first half, obviously, it grows faster than costs, be it costs within the gross margins or costs below the gross margins. So that explains the increase in global margins for the group.

Is it sustainable? I don't know.

I mean, it depends very much on the operating leverage, which by itself, is a function of the level of growth. So -- and the second question was, sorry?

The store base.

The store base at Fashion & Leather. Well, it depends very much on the brands, but the emphasis is mostly on embellishing and improving the existing store base as opposed to keeping up the number of stores.

So the strategy, we have described at Vuitton many times, applies to many brands within the Fashion & Leather. Obviously, there are some exceptions to that, particularly for small brands that have like -- that have been wholesale-oriented for many years, like Kenzo.

But otherwise, I mean, the emphasis is mostly on improving as opposed to expanding.

Sure, sure. My question is just more like directionally, if we should expect any change in the magnitude of contribution from physical retail space in Fashion & Leather in the second half compared to the first half and last year?

No, I don't think we expect a dramatic change between the retail and the e-commerce is what you're referring to, right?

Yes. I think it's more like the contribution from retail space expansion in terms of the qualitative development, but that was my question.

But the expansion in square meters is under strict constraints, particularly at Vuitton. I mean, for the last 3 or 4 years, we have not really increased the number of square meters.

It doesn't mean that we are talking about the same square meters, but overall, the number has not increased.

Okay. So thank you very much.

I look forward to discussing with you in October our Q3 numbers. Have a nice evening.

Thank you.