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. I'm the CFO of the LVMH Group.

Before I begin, I must remind you that certain information to be discussed on today's call is forward-looking and is subject to important risks and uncertainties that could cause results to differ materially. For these, I refer you to the safe harbor statement including -- included in our press release.

Let's now move to 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.

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 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 2020 was complicated, but shows LVMH's resilience in a very adverse environment. We shall go into some details, but the main points, in my view, to bear in mind should be, on the negative side, the impact of the global health crisis in all geographies and our businesses.

I do not think we have ever seen such a perfectly negative alignment of planets against us. More specifically, and without getting into details, we have to face closure of most of our physical stores, the lack of purchase, I should say, the destocking from our wholesale clients and an almost complete stop of travel retail-related activities.

On the positive side, I will mention the resilience of our main brands, the strength of our online businesses, the strength of the underlying demand in China despite a very tough Q1. And more importantly, the successful emphasis we put on the health and safety of our employees and customers, our top priority in this unheard of environment.

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

Thanks, Jean-Jacques. Nice to have you in the same room once again.

We'll now go into a deeper dive into the business groups, starting, as always, with Wines & Spirits where you can see the key figures on Slide 6. Revenue was down 20% in the first half, owing largely to a decline in consumption, but we are seeing some bright spots that I will discuss in a moment.

Organic revenue was down 23% after taking into account a positive 2% perimeter effect due to the consolidation of Château d'Esclans at the beginning of the year and a positive 1% currency impact. Total revenue reached EUR 1.99 billion.

Champagne and Wines' published revenue for the first half was EUR 754 million, a decline of 21% compared to the same period last year. Organic revenue declined 26% after taking into account a 5% perimeter effect from the consolidation of Château d'Esclans, which is the high end of rosé that the group acquired at the end of last year, and there was no currency effect.

For Cognac and Spirits, published revenue was EUR 1.23 billion in the first half, a 19% decline compared to the same period last year or 20% on an organic basis after taking into account a positive 1% currency impact. Profit from recurring operations in this group was EUR 551 million, a decline of 29% versus the year ago first half.

Breaking that down, Champagne and Wines contributed EUR 103 million and Cognac and Spirits, EUR 448 million. The theme for the first half on Slide 7 is essentially a decline in volumes, offset by recent gradual improvement, notably for energy.

As you can see here, limited consumption, mainly restaurants and nightclubs, was the principal reason for the 30% decline in champagne volumes. We have not, however, let this temporary trend impact our commitment to bringing newness to the market.

We recently introduced prestige cuvées from Dom Pérignon and Krug. And as I mentioned, the results of this group now includes Château d'Esclans, a high-end rosé acquired at the end of last year.

We also acquired Château du Galoupet, another high-end rosé, strengthening Moët Hennessy's position in the growing market for these wines. There are some positive trends at Hennessy, ones that I would like to note.

While a decline in consumption is a reality for cognac as well reflected in the 15% decrease in volumes, we did see a rebound of revenue when China reopened in the second quarter as well as strong resilience in the U.S. market, in particular for Hennessy VS, both encouraging trends that we will be -- we will monitor.

I would like also to note an initiative that Hennessy introduced called Unfinished Business to provide support for small family businesses that are owned by African Americans, Hispanics and Asians, the communities that are being hit hardest in the U.S. by COVID-19.

This initiative will help these businesses to manage their urgent financial challenges. Lastly, for this slide, I would note that both Glenmorangie and Ardbeg received 12 prestigious International awards between them, including Master Distiller of the Year.

Bill Lumsden, Glenmorangie and Ardbeg received Distillery of the Year. Looking to the second half, this is now Slide 8, of the year for this business group.

Our focus is on maintaining our value-creation strategy while navigating through uncertain conditions, particularly relating to the hotels and events activities. This means that product innovation continues, and we are adapting to new trends in consumption.

We are also focusing on continuing to increase online sales through strategic marketing initiatives. We'll also make some targeted investments in key high-potential markets.

At the same time, we'll continue to be particularly attentive to rigorously managing costs and controlling inventories. This business group also remains focused on numerous environmental sustainability initiatives undertaken by our brands in areas ranging from sustainable agriculture to packaging and distribution and other areas in between.

Turning now to our Fashion & Leather Goods brands, starting on Slide 11 -- 10. Revenue was EUR 7.99 billion in this group, a decline of 23% or 24% on an organic rate.

This is after a 1% positive currency effect. Profit from recurring operations fell 46% to EUR 1.77 billion.

These results reflect the very good resilience of our major brands, as Jean-Jacques was mentioning, despite the closure of operations and stores globally for several months. During this time, there was a strong increase in online sales, thanks to our dedicated customers.

Innovation and excitement are driving force in maintaining and increasing the desirability of brands. Louis Vuitton is, of course, a foremost example.

The Maison introduced new versions of both iconic products as well as new collections. These and other products were highlighted through enhanced digital customer relations and marketing activities.

And I should note that Louis Vuitton opened an impressive Maison in Osaka Midosuji in Japan. Christian Dior gained market share in all regions.

Dior too continues to drive its appeal through reimagining its most emblematic product, even as it introduces new ones. The brand received very positive reviews in response to its recent online women's and men's shows.

It too is focused on increasing digital activities, and I encourage you to listen to their podcast, Dior Talks, which features fascinating people from within and outside of the brand. Fendi introduced California Sky, an edited collection featuring the creative vision of Joshua Vides, a conceptual artist, well-known for his black and white sketched designs.

Moving along to Loro Piana too opened a store in Japan in the Ginza district. Celine had a warm welcome for its Triomphe line while Loewe's new addition of Paula's Ibiza collection, designed by Jonathan Anderson, also performed well.

And at Givenchy, the brand introduced Matthew M. Williams as its new artistic director, who will present his first collection in October.

As we look to the second half of the year, our brand strategy is to continue to center on introducing new and innovative products and creating highly compelling stores and online experiences. You will certainly see this from Louis Vuitton as well as Christian Dior, which have had -- which have an active period with the launch of Air Dior, a new limited edition capsule collection of sneakers and the opening of a new store on rue Saint Honoré here in Paris and the continued travels of the exhibit Christian Dior, Couturier Du Rêve, which is the Designer of Dreams, which opens to the public tomorrow in Shanghai.

If you've not seen it, I encourage you to watch a video Dior posted on YouTube to allow people to enjoy behind-the-scenes view. At Fendi, the brand continues to focus on its Roman heritage as its inspiration.

And for the other brands, you will continue to see them demonstrate their creativity in order to be best positioned for the gradual return to normal. On Slide 14, for the first half of the year -- you'll see that for the first half of the year, revenue fell to EUR 2.3 billion for the Perfumes & Cosmetics business group, a decline of 29%.

Organic fell -- sales fell by the same amount, and this business group reported a loss of EUR 30 million. In the face of significant destocking by perfumes, cosmetics retailers across the board, the LVMH brands showed resilience with a long-term vision.

Our brands did not want to participate in the parallel distribution channels or gray market that seem to expand in the period. To go into detail by brand, Parfums Christian Dior, the innovation engine rolls on with the launch -- recent launch of Miss Dior Rose N'Roses and new Dior Homme as well as Rouge Trafalgar in the Maison Christian Dior collection.

And Dior released a breakthrough in skincare products with Dior Prestige and Capture Totale Super Potent. At Guerlain, the skincare products, Abeille Royale and Orchidée Impériale continue to be a driver for this brand, which is seeing a good recovery in China as well as notable online sales.

Fenty Beauty continues to sell out in all regions where it is sold. The skincare brands, the Fresh and Ole Henriksen, are both performing very strongly despite the current environment.

And we've seen solid business development for Acqua di Parma and Maison Francis Kurkdjian. In addition to focusing on the business, our Perfumes & Cosmetics colleagues quickly mobilized to manufacture hydroalcoholic gel for hospitals as the pandemic began its global spread.

By now, you've picked up on the theme across our business groups, including Perfumes & Cosmetics. Our top priority in the second half is maintaining the innovation and creativity that sets our brand apart in spite of a difficult environment and to ensure we are well positioned to continue to gain greater market share as the recovery takes hold.

Parfum Christian Dior will continue to focus on both its iconic and new products, many of which are inspired by the Couture collection as well as the brands roots in Grasse. Innovation will be evident across categories, and we expect development of the Dior Prestige and Capture lines, in particular.

There will be -- also be an ongoing focus on strengthening the brand's digital and e-commerce presence and capabilities. Guerlain will open new concept stores that will reflect the luxury behind this historic brand.

Following the promising start of Irrésistible Givenchy, the rollout will continue in the second half. Fresh will open up concept stores in China with new services.

And lastly, Parfums Loewe will launch a home fragrance line developed in collaboration with Jonathan Anderson. On Slide 18, you can see now, turning to Watches & Jewelry.

This business group too was impacted by destocking across retailers. Revenue in the first half fell 38% to EUR 1.3 billion.

On an organic basis, it was a 39% decline after a 1% positive currency effect. This business group reported a loss of EUR 17 million in the period.

In addition to destocking at retailers, we are seeing an encouraging rebound in China. To give some specifics, Bvlgari recovered strongly in China in the second quarter.

Its new B.Zero1 Rocks collection were well received in both Asia and the U.S. Like many others across this group, this brand too is focused on rapidly expanding its e-commerce business.

I'd also like to note that last month, Bvlgari created the Virus Free Fund, a program to support research being done to find cures for different types of viruses at Oxford University in U.K. and Rome's Lazzaro Spallanzani National Institute for Infectious Diseases.

TAG Heuer had a highly successful launch of the third generation of its connected watch and opened a new e-commerce website. Hublot also enhanced its online sales capabilities through its site, hublot.com.

I should also note that Hublot started to celebrate its 40th anniversary with a time to reflect campaign in May and opened Ginza Hublot Tower in Tokyo. Chaumet opened its historical store location in Place Vendôme and continue to grow its retail business in China.

Slide 20, we look at the outlook. Here, this group looks to the second half.

Its foremost objective is achieving market share gains. The brands are working to achieve this through launching innovations that will enable them to take advantage of the gradual recovery and maintaining investment to support the introduction of new products and enhancing digital offerings.

To give some highlights of what's ahead, Bvlgari will soon launch the high-end jewelry collection, Barocko, and rollout of B.Zero1 Rock in all regions. TAG Heuer will celebrate its 60th anniversary with the launch of some limited editions, and Hublot will introduce new Big Bang models with innovations, including a connected model.

Additionally, Hublot as well as Chaumet and Fred will focus on strengthening their store networks within China. Now moving on to Slide 22, which is the final business group, Selective Retailing.

Revenue in this business declined 32% to EUR 4.84 billion. And organic -- on an organic basis, sales were down 33% after a 1% currency -- positive currency impact.

The loss in this business was EUR 308 million. The results of this business group reflect both market share gains at Sephora despite extensive store closures and, on the other hand, the impact of the suspension of travel globally on DFS.

To delve into this a bit, Sephora saw market share gains in key countries. This was driven in large measure by a very strong increase in online sales and the Sephora hybrid store digital experience.

Sephora recently held a Virtual Sephora Day in China, a successful digital event with a strong impact on beauty trends. And Sephora too is product innovation focused.

It's launched Size Up mascara for the Sephora collection in the first half. Moving on to DFS.

It experienced a significant decline in activity due to extensive disruption of international travel and store closures. Against this backdrop, the DFS team is focused on tightly controlling costs in this uncertain environment.

It is also working to enhance its digital communication with customers to lay the groundwork for the recovery. On Slide 24, Sephora looks to the balance of 2020, the team's focus is on further strengthening its digital leadership with the introduction of new exciting services.

It will also accelerate the development of Sephora Collection skincare products as well as other new products and personalized services. Cost reduction is a core of DFS' work at the current moment.

At the same time, the gradual reopening of its downtown stores in Venice, Macau and Hong Kong will allow it to welcome back tourists when they return and offer them omnichannel alternatives. Finally, excitement and fun at Le Bon Marché continues.

The beginning of the fall, they will feature an exhibit dedicated to Belgium. Finally from me, Slide 25, a brief comment on some of the nonfinancial topics, which have always been equally important.

Firstly, a multitude of initiatives to support the combat against COVID-19 have been undertaken, both -- and you've heard some of these before, both at the major level and a group level. We were one of the first groups to react to the global health crisis by adopting -- adapting our production facilities to enable the manufacture of hydroalcoholic gels or masks.

We helped with the sourcing and logistics of getting essential equipment to hospitals and health care providers and additionally provided some financial support to most of them and certain key suppliers. Secondly, we remind you that we are a diversified and decentralized group with over 75 Maisons in more than 5 different activities, more than 160,000 employees with around 180 different nationalities in more than 70 countries.

The talent at LVMH, derived from this diversity of profiles, is a unique factor and helps us both our creativity and our competitivity. We are strongly committed to nurturing this diversity, ensuring inclusion and condemning every form of discrimination.

We have a long-term vision and therefore, passing on and developing a savoir-faire, fitting well in the communities where we work, looking after our employees' safety and well-being become essential to the sustainability of our business model. Finally, we've had an environmental department since 1992 and worked since then on protecting the environment and its biodiversity, ensuring the preservation and enhancement of our key natural raw materials, improving the transparency and the traceability of our supply chains.

LIFE 2020, which is LVMH's initiative for the environment, LIFE 2020 set out some clear group objectives in 4 main areas, which appear on the slide, and we're reporting those at the end of the year as well as announcing our new ambitions for the future. These are topics which, as I've said, have always been important to the group.

We have made advances year-on-year towards internal goals at a brand and at a group level, and we will continue to set more ambitious goals in the future. We have concentrated on making progress in the past, we will start to communicate more about these initiatives in the future.

Now I'll pass it back to Jean-Jacques.

Thank you, Chris. Let's now discuss H1 2020 figures in more details, and I shall start the review with revenues for the first half of the year, as shown on Slide 27.

As you may see, we ended the semester with a 27% drop in our revenues. All businesses are negative with a particular impact on travel retail-intensive businesses, such as jewelry and distribution and, notably, DFS.

Wines & Spirits and Fashion & Leather were a bit better than the average while currencies for once were sort of non-events for the first half. Let's move to Slide 28 where you can see a comparison between the first and second quarters in terms of organic growth.

The second quarter was affected by most of the store closures outside China, and it is no surprise that the quarter was down 38% in organic terms, twice as much as in Q1. Most businesses registered a 20%, 25% worsening in their variation rate in Q2 compared to Q1.

Let's now move quickly to Slide 29, which shows a geographic breakdown of revenues in euros. Despite the swings in most businesses and geographies, the relative share of each regions remained quite stable and does not warrant a specific comment.

Moving to Slide 30. You will obviously note that the group's geographical performance was contrasted, to say the least.

Europe, Japan and the U.S., to a lesser extent, fell from roughly 10% drop in Q1 to a 40% to 50% drop in Q2 while reverse trend was observed in Asia with Q2 being significantly better than Q1 by about 20 points. Let's now move to the next slide where -- 31, where you may see this -- our simplified P&L account for the period.

The main comments are as follows. We already obviously discussed revenues with minus 27%.

Gross margin decreased by -- in basis point by 430 basis points. Half of the drop is due to depreciation of unsold products during H1, and the other half reflects the impact of under absorption of fixed costs in manufacturing activities.

Marketing and selling are down 18% in organic terms while admin is down 8% also in organic terms. Overall, operating costs decreased 16% on a constant currency and perimeter basis, reflecting the group's efforts to contain costs in an adverse environment.

Profit from recurring operations is down 68% at EUR 1.671 billion. Other operating income and charges are negative by EUR 154 million, reflecting mostly amortization and depreciation of intangibles.

Financial charges are much higher than last year due to the impact of the mark-to-market on our financial investment portfolio, I will comment on this in a separate slide in a minute. The group's income tax rate is around 48%, 20% above last year.

I'm sure you will have plenty of questions on this number, and I will be happy to answer, so I will not comment further. At this stage, just bear in mind that the full year tax rate should be around 34% of taxable income, which, without being a yield, is a much more acceptable number, while the fall -- which -- with a fall in minority interest, the group's share of net profit is EUR 522 million.

Let's turn to Slide 32. You can see on that chart the monthly change in our operating expenses -- global operating expenses in order to illustrate our cost reduction efforts.

As you remember, OpEx comprise selling, administrative and marketing expenses, and they were down 16% in organic terms in the first half of the year. The chart shows that such drop was not uniform and took place mostly during the second part of the semester.

On a quarterly basis, OpEx were down only 2% in Q1, but a more significant 29% drop in Q2. This shows the magnitude of the effort and the fact that even if it took us some weeks to put together a meaningful OpEx reduction program, we were able to react quite swiftly to a very adverse situation.

Let's now look at the profit from recurring operations, which is broken down by business groups on Slide 33. Wines & Spirits was our most resilient division with minus 29%, not so far from the drop in sales.

Fashion & Leather was a bit under pressure with minus 46%, but overall profit reached the significant level of EUR 1.8 billion. Perfumes & Cosmetics showed a small loss despite a resilient and positive performance from the French houses and, chiefly, Dior.

Watches & Jewelry was also a small loss with probably less discrepancies between winning and losing brands than in Perfumes & Cosmetics. But the small brands were obviously a drag to the overall performance of Watches & Jewelry.

And finally, very, very tough numbers in Selective Distribution with a EUR 300 million loss. Such a large loss comes from a combination of the impact of the health crisis on revenues and lower level of margins compared to other divisions.

Another look at current operating profit on Slide 34. As you can see, both currencies and structure had a very small impact on our profits and are not really worth of further comments.

So I will turn to Slide 35 and the analysis of the net financial expense. A few points to mention.

First of all, the cost of debt, the cost of hedging strategies and the financial cost of lease under IFRS 16 are quite stable compared to last year. The market value of financial portfolio decreased by EUR 136 million after increasing by about EUR 100 million altogether in 2019.

As you will probably remember, we have opted for mark-to-market accounting for our financial asset portfolio, so this item shows market fluctuations of latent capital gain and not actual profit and losses. Moving to Slide 36 where you may see the balance sheet structure.

The main comment is related to the issuance of debt ahead of the Tiffany acquisition currently invested into cash instruments. Otherwise, the balance sheet structure is very close to what it was last year.

Turning to Slide 37, a few words on the cash flow statements. The drop in the cash flow from operations reflects a drop in operating profit, adjusted for noncash items, mostly inventory and intangible depreciations.

Taxes were very penalizing as cash taxes, unlike P&L ones, was largely based on 2019 profit. In other words, we paid in the first half of this year taxes based on last year's profits.

H2 should be way better and less penalizing. Capital expenditures are flat at EUR 1.4 billion.

On the face of it, this is somewhat disappointing as we are cutting seriously into CapEx, but the curves came reasonably late in the semester. Actually, CapEx were up 20% in Q1, but down 20% in Q2.

So we still feel our CapEx for the year should be around 20% less than last year and 40% less than our initial budget. I will finish with -- on these numbers with a comment on the group's net debt, which reached EUR 8.2 billion as at June 30, about EUR 2 billion higher than at the end of last year.

This change comes mostly from the EUR 1.7 billion negative free cash flow that I already commented, and I will just point out that no dividends were paid during this period as we approved dividend on the 30th of June and the payment date was the 9th of July. I would like to conclude this brief overview of the activity with a few comments highlighting the most important points of this semester, in my view.

First, I would like to stress the quality of the work done by the teams in a very difficult environment, to say the least. Despite store and factories closures, we have been able to generate close to EUR 20 billion in sales and EUR 2 billion in operating profit.

Frankly, even with benefit of hindsight, this is impressive given the magnitude of the shock. Secondly, our top brands have not disappointed, all profitable, less revenue drops than peers' outstanding margins, market share gains, well positioned to become stronger in the crisis, which is exactly what leaders should do.

Thirdly, the outlook gets certainly better or, should I say, gets progressively back to normal. We are optimistic and confident, although there are 2 things we should not forget in order to be able to react quickly to any change in the environment.

First, the resolution of the sanitary crisis lacks visibility, and we cannot rule out further difficulties here and there. And two, the travel retail business is and will be suffering for a number of months and quarters before it comes back to normal.

So this is all we wanted to highlight. And operator, could you please open the line for questions?

And Chris and I are at your disposal. Thank you.

Jean-Jacques and Chris, so 2 questions from me, please. So one on operating deleverage and then one on trading.

So operating deleverage, which was, I guess, one of the surprise of the statement tonight is. Jean-Jacques, you mentioned that the benefit of some of your cost control initiatives only start to bear fruits in the -- mostly in the second quarter.

So should we assume that the magnitude of the operating deleverage in the second half should be sensibly lower than the 2.5x kind of posted in H1? And if you could please give us a little bit of color on the main deltas between H1 and H2 in terms of rents and personnel expense and A&P.

And my second question relates to trading. You just mentioned that you're, I guess, cautiously optimistic about the future.

So to what extent recovery has continued so far in Q3? And that could we have a scenario in which sales could turn positive by the end of the year despite the disruption in travel retail that you just mentioned and assuming no second wave in terms of COVID?

Thank you, Edouard. I'm very disappointed by your questions because I thought we have been much more transparent than usual on costs and share in Q1 and Q2.

But apparently, it's not enough, and we should be getting into some more details. Anyway, so operating deleverage, which is your first question, the short answer is I don't really know because we don't look at this.

I mean we have a business which is undergoing a period of major complexities, and we have to manage it to make sure that we do the best of -- in between reacting in the short term and making sure that in the medium term, we are able to benefit from the recovery, which is due to happen. So in terms of deleverage, we don't monitor, particularly on a group-wide basis, the type of ratio that you were mentioning.

This being said, you've noticed that we had a sharp drop in cost in Q2. Part of it is what we -- initiatives that we took.

And frankly, it was difficult to take initiatives in Q1 due to the fact that most of the impact in Q1 became evident only in the second part of March. So it was a short period to react, and I'm not so unhappy that we were able to react in the second part of March and the following months to generate such a drop in cost.

Obviously, part of it comes from variable costs into the P&L, and it's not that easy to sort of sort out what comes from our initiatives and what comes from natural decrease in cost. All the initiatives we have taken will continue, not all of them, but a bunch of them will continue to bear fruits in the future.

What I can say is that we expect to keep the cost base under control for how long as we think that the business is -- sees some pressure from the global environment and from the situation. So we don't intend to relinquish our efforts to be -- to control the cost base.

On your second question on trading, obviously, you're asking about July and what we expect for the rest of the year, which are 2 things I absolutely do not intend to comment. As far as July, it's easier.

I don't have the numbers, so I can't tell you. What I can tell you is that as far as the end of Q2 was concerned, we saw a significant improvement in the trend, although some areas, we are still under some significant constraints in terms of store openings.

It's a case in Asia, it's a case in the U.S., less so in Europe despite that, the month of June, which I will not comment into further details. That's for your followers on question that will ask me how much it was.

The month of June was significantly better, and July will certainly see some improvements compared to June. For the rest of the year, I mentioned what I had to say.

We see month after month the situation coming back to a more normalized state, and we expect this to continue. We read the press, we listen to the radio.

We also hear that some countries are experiencing some difficulties in containing the virus. This could cause some measures that could have a negative impact on the business.

The travel retail is heavily dependent on long-haul flights, which are unlikely to resume there -- to resume anytime soon. So the business will still be under some pressure.

This being said, we -- as far as local client base -- and you will probably have further questions on this, as far as local client bases are concerned, we see a lot of improvement and progressively, the business coming back to normal. Will it be a sort of regular and leaner return to normal?

I don't really know and I cannot comment.

It's Antoine Belge, HSBC. Three questions.

First of all -- and I know it's going to be difficult after your sort of warning. But with regards to the sort of more recent trends, would it be fair to say that some of your brands, maybe LV and Dior, were not far maybe in terms of being flattish for the Chinese cluster overall?

Or do you think that maybe after a period of revenge buying, things are a bit normalizing in China and also maybe the U.S. being the -- a positive surprise?

Second question relates to the gross margin. I think that that's maybe what consensus miss is that 400 basis points at the group level of deterioration while some businesses didn't look as being too much at risk in terms of depreciation.

So which were the division the most penalized? And would you say that you took quite a harsh assumption in terms of your auditors in terms of assessing the provision?

And the third question is I think you mentioned that currencies were a nonevent in H1. Looking at today's $1.18 euro-dollar rate, maybe if you could help us with your sort of hedging rate and when you think that you will be hit by that if the euro-dollar stays at that level.

Thank you, Antoine, for your 3 questions. You're absolutely right.

I mean the first question, I am unlikely to answer. Moreover, I think that the question on the Chinese cluster is, in my view, by and large, quite irrelevant.

Given the magnitude of the pressure on the offshore business, that cannot be seriously expected to be offset on the domestic market in such a short period of time. I mean repatriation is a theme that we've been discussing many times.

It is taking place. It has been taking place for some time.

But it wasn't expected to take place in such a dramatic way in a short period of time. So it's -- that's why the question, the global cluster for Chinese, in my view, is not particularly relevant in the -- in this environment.

This being said, when we look at the business in China, it's obviously doing well, particularly for Dior and Vuitton, but not only we mentioned at the end of Q1 that some weeks, we were in excess of 100% growth for these brands and for some others as well. It's still the case.

On average, the division in China is doing more than 65% growth in Q2. So a very good offset in China for the rest of the business, which is suffering.

For Asia as a whole, the Fashion & Leather business is flattish in Q2. So it's a pretty good achievement, in my view, with Dior being positive and Vuitton being flattish as well.

Obviously, as far as Europe is concerned, the business with the Chinese clients is under some pressure due to the lack of travel and, therefore, travel retail. But one cannot expect reasonably or seriously this business not to be under pressure under such circumstances.

So that's where we are. I think we are progressing well, particularly in Asia.

If I may comment overall, the situation with the main brands, with Dior and Vuitton, we are also very pleased with the recovery in the U.S. and in Japan.

We had obviously tough numbers in April and May when most of the networks were closed, but the recovery that took place in June is very pleasing for both brands, Vuitton being flattish in these 2 areas and Dior being quite positive. So I think this is very encouraging for the future.

So that's your first question on the main trends and the Chinese trend for the main brands. The second question on gross margin and particularly depreciation, yes, obviously, we have taken a fairly cautious view as to depreciation.

We also have to bear in mind that some products were made available into stores at the end of February as they normally do. This is a spring/summer season when products become available in stores.

And it was not -- from a sell-out viewpoint, it was not ideal, I mean as we closed most of the stores immediately thereafter. So for some products that are not permanent, there is no other choice but to depreciate such items.

So it's a fairly conservative view but also realistic view at the same time. I mentioned in Q1 that we could extend the length of the spring and summer season, which we have done.

But obviously, this is not sufficient to ensure a proper sell-out of product that missed more or less 100% of their full price season. So that's the main explanation for the gross margin.

Otherwise, I mean we have some businesses where the -- we do manufacture inside. And therefore, we suffered some lack of absorption of fixed costs.

It's particularly true in Vuitton and Wine & Spirit and other -- some other businesses. Currencies on H2.

Well, the hedging is obviously fully in place for H2. As far as the dollar is concerned, the average rate is around $1.12, so it's a pretty good number compared to yesterday's or today's quote for the dollar.

And even for 2021, we have already hedged about 2/3 of the year at $1.11. So the hedging strategies if the dollar continues to weaken will be delivering what they are supposed to deliver in this environment.

Just maybe a clarification to make sure I understood. So what you said about the U.S.

LV flattish and Dior positive, is that for the month of June, not the quarter, I guess?

Yes. No, it's not, unfortunately.

I wish it were the quarter, but it was the month of June.

I had a question about the approval process by antitrust authority of the Tiffany acquisition. I wonder if you could tell us where you stand on that process.

And then there was announcements in the media that the U.S. is looking at specific duty increases that relate also to some of the categories that you trade with.

I wonder if you calculated the possible impact if these duties are not called off by the end of the year, I seem to understand. Thirdly, there seems to be a focused effort by Chinese authorities to try and crystallize the gains in repatriated luxury spend.

We saw major changes in duty-free regulations in China. I wonder how you look at that, specifically when it comes to potentially adjusting the mix of your retail network between Europe and Asia.

You said in the first quarter that it's very early days to potentially think about capital allocation changes and that you're managing the business with an open mind but more of a short-term focus. I wonder how your thinking is evolving on this front.

Thank you, Luca. I think you'll be a bit disappointed by the answer.

So let's start with antitrust filings. They're underway.

There are still a number of them, about half a dozen where we are still expecting the answers. This process have been obviously slowed down by the lockdown as anything else.

So it was supposed -- we were expecting most of the authorizations to be given in the course of the summer maybe, but we don't really know. Some of them will take a little bit longer due to the delays connected with the sanitary -- the health situation.

So we don't really know. And this process are not particularly visible from the outside.

It's not that the authorities are not telling us, "We shall be giving you the go-ahead or -- in 20 days." That's not the way it works.

They are asking questions, we are responding. And at some point, we get the go-ahead.

So before we get it, it's very hard to know when it will come. So things are moving forward.

That's the only thing I can say. We are being asked questions.

We are responding expeditiously. But I don't really know when all the go-aheads will be given.

On the duties increase, it's been going on for a while. I mean we've been talking about that for a year now.

Some are materializing in a fairly -- have been materializing in a nonsignificant way for us. Some are pending, some are threatened.

It's very difficult to make any assessment. Obviously, we can make some -- we calculate some financial impact, but we -- the likelihood of this being implemented is totally unknown at this point in time.

So I really cannot -- it wouldn't be serious for me to give you any impact without knowing whether they will be implemented or not. It's a likelihood, that's right, but it's not the first time that something likely doesn't happen at the end of the day.

Thirdly, on repatriation and what you call crystallization of the repatriation benefit, yes, it's true that the Chinese authorities are trying to keep their people and their business at home, which I think is understandable. What it means in terms of capital allocation, as you recall, I said in April that it was probably too early to say.

3 months later, it's still too early to say. I mean this type of trend is not something you can decide in 10 minutes.

I mean we have to think about it, assess the consequences, if any. And for the time being, it's way too early to say.

The trends that we see are much tougher than what could result from the simple repatriation of business by the Chinese authorities. People are not shopping abroad because they don't travel abroad.

It's as simple as that, and not because the Chinese government is willing to repatriate or is willing to -- is waiting to favor the repatriation of the business in Mainland China. So it's not a good point of view to discuss what could happen and what we should be doing, particularly in terms of capital allocation in the future.

So give us a few quarters to reassess the situation.

You've done a really good job managing a lot of the expenses. Around the modeling of marketing and selling expenses, what should we see going forward?

What's within your control in terms of containing that or contracting and/or growing it relative to the top line? Was also curious if we should anticipate additional inventory write-downs going forward.

And then finally, Watches & Jewelry has been a tougher category relative to others. Does that have any relationship to your long-term views of the Tiffany brand and the iconic nature of what's available long term with Tiffany synergies?

Thank you, Oliver. Listen, the first question, I find it very difficult to answer.

I mean I gave you some numbers on Q1 and Q2 so that you can have some form of relationship between the drop in costs and the drop in revenues. The higher the drop in revenues, the higher the drop in costs not only due to variable costs, but also because we take tougher measures to reduce the cost base.

There is not such thing as a formula that would tell you given the amount of the drop or the increase in sales what would be the drop or the increase in costs. And this depends very much on the global environment and the global trends.

So I find it very difficult to answer on your question. And I wish I had the answer basically because it will simplify my job when it comes to budgeting the second part of the year.

Second question on inventory write-down. Obviously, we cannot rule out further inventory write-downs.

But as I mentioned before, the bulk of it comes from seasonal product that were put into stores in end of February and couldn't be sold because of the lockdown and the closures of most of the stores thereafter. This situation is, frankly, unfortunate and quite unique.

Although the traffic has not resumed to its previous level, we still have a decent level of traffic in our stores now. And we -- and obviously, we have adopted what we call the open to buy, which is the amount of merchandise we put into a store to the expected level of demand, which is not something we could do in February just because we had past orders 6 months before at a time when COVID-19 was not even heard of.

So obviously, the situation is entirely different. And we definitely expect the impact of inventory write-downs to be much, much lower in the second half than it was in the first half.

Watches & Jewelry, you mentioned that the numbers are taking a bigger toll on the current situation and the rest of the group, which is true. I would say that the main reason for this is that this business, and particularly Bvlgari, is exposed to the travel retail business to the Chinese customer base to start with and to the travel retail businesses in Asia and Italy -- and in Italy and to an extent in France, to a large extent.

So it's also the case in Hong Kong and Macau. So this business suffered particularly from the current situation.

This doesn't translate into any different thoughts on Tiffany. Tiffany is a different business, much more domestic land-based oriented.

So it has a very different approach to its customers. I will not elaborate and get into details.

The topic is not to discuss, if any, now. But we don't think the impact we see on the travel retail portion of the Bvlgari business would be exactly the same on Tiffany in any way.

So it has no particular -- we don't have a particular consequence to draw from the current situation.

The last question, Jean-Jacques, what's really helpful is there's been a digital step change in a lot of the growth rates we're seeing and even the accelerated investment in the digital and the CRM as well as supply chain at Tiffany & Co. What do you see ahead with digital innovation and what your customer wants, especially as millionaires become younger and other players like Amazon and Farfetch really make strides with innovation digitally?

Well, I think the most interesting trend over the last 6 months has been, in my view, the emergence of e-commerce as opposed to e-retail. E-commerce has always been -- particularly in luxury, is relatively small portion of the business.

And a lot of people commented that in the future, e-retail, i.e., third-party distribution of product, would take the largest share of the digital business. I'm not fully sure of that.

I mean when I see the amount of business that we've been able to generate in the last 6 months in -- on our e-commerce platform, I think there is a future for these platforms to generate a significant amount of the global sales and to be a real engine on distribution channel alongside the brick-and-mortar. Don't take me wrong.

I mean the brick-and-mortar will remain dominant, and we expect it to remain so. But the e-commerce channel, provided that we can fuel them with sufficient amount of product, which has proven difficult in the past years, will be as well a very interesting way of approaching some clients and distributing products.

A couple of questions. A couple of quick follow-up questions.

Jean-Jacques, people are talking a lot about tourism and tourist spend, and it's very difficult to know when travel will normalize and return. But have you talked about or could you share how big...

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We lost you. Sorry, we lost you for a few seconds.

So my first question is on tourism. Everyone's...

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I'm afraid we cannot really -- we can't hear anything. So...

Two questions from me, please. The first one on pricing.

Could you touch -- what's been the pricing at LV? What have you done with Dior?

And what are the plans for Hennessy? And the second question would be on the businesses more exposed to wholesale and where you commented about destocking.

How do you see this going into the second half?

Thank you, Marion. So on pricing, there was a global -- on the LV, there was a global price increase of roughly 5% that was implemented, if I'm not mistaken, late June or early July.

As far as Dior is concerned, there was no such thing as a global price increase, but some adjustments have been -- have taken place on specific products, particularly best sellers. And as far as Hennessy is concerned, there was more or less across the board in between 3% and 4%, if I'm not mistaken, price increase that took place in between March and April, and there won't be anything else.

I mean, as you know, we implement price increase at -- in Wine & Spirit around the end of the first quarter, early second quarter. As far as destocking is concerned, the situation is very, very diverse.

If I start with Wine & Spirit, we have a pretty healthy stock situation as we speak. Particularly in the U.S., we've seen demand -- it's a little bit the exception in the global picture.

We've seen demand picking up very sharply in Q2 in the U.S. And we depleted -- I mean our distributors depleted a lot of inventories.

So we've seen the level of inventories expressed in number of days going down by half, more or less. It was 50 days, it's 25 days now.

So the situation is, at the same time, healthy because we don't have excess inventories, but there could be a paradox that we find it hard to fuel the growth for V.S in the U.S. in the months to come, although we are quite optimistic that we should be able to deliver a large amount of V.S in the next few months.

China, the situation is healthy. There is no stocking -- no destocking.

So we are at stable level of stock. So as we saw in the first half of the year, we expect sell-in and sell-out to be of the same magnitude.

As far as champagne is concerned, we have no particular worries. The inventories are higher than what they are for cognac, particularly in the U.S.

But all in all, I mean this is not worrisome in any way. With regards to cosmetics, we've seen a lot of destocking from our traditional customers in the first half of the year.

So this has been a big drag on the business in the first half, although more so that we decide to avoid as much as we could or as much as we know parallel trade, which have been up in a meaningful way. In the first half of the year, a lot of deals were done, but we decided not to participate into that to avoid the long-term impact on the brand equity.

So we -- therefore, we were unable to offset the impact of destocking in the traditional retailers. Hence, the stock situation is probably reasonably healthy.

Probably more stocks in watches, the sell-out have not been spectacular. The sell-in have not been spectacular either, I would say.

So watches are probably the category where -- within the group where the level of inventories are the highest and likely to have a little bit of impact in H2. But the main demand for watches is not particularly visible as we speak.

Okay. And would you mind a word on Sephora versus DFS?

Well, Sephora, obviously, is not subject to the same impacts from travel retail. It's mostly an addition of domestic businesses and therefore, has been -- is doing okay when stores are opened and less so when stores are closed.

I'm stating the obvious, but that's the reality. The encouraging point is that we've seen significant offset from -- with online, particularly in the U.S.

and Europe, online offsetting part -- a significant part of the lost business in brick-and-mortar, and that's very encouraging. And it shows that when investment in online distribution have been done a while ago, which is the case for Sephora, I mean this pays off particularly in difficult times.

Just a couple of quick follow-ups from me, please. I wondered if, Jean-Jacques, you could tell us a little bit more about digital.

I don't know if you can tell us about the overall size of digital sales for the group. I'd love a year-on-year growth number as well.

But also within the Fashion & Leather component, if there's anything that you can tell us about the increase, even if it's a percentage of sales rather than the absolute number? And then just in terms of the OpEx point for the second half, obviously, very hard to give us any idea given the lack of visibility.

But can you just tell us about how the team are adjusting, particularly on marketing spend, the most variable item, and how you think about that over the next kind of 6, 12 months? Because presumably, you need to increase it as people are coming back to the stores and the sales environment normalizes.

But where you are in the thought process for the next few months?

Thank you, Louise. On the digital numbers, which you're asking, I have them.

I don't want to mention that. Well, what I can say is that they are probably too good to be mentioned.

What I mean by that is that, obviously, these numbers are also a function of the fact that stores were closed for a number of weeks. So there is no way such numbers could be extrapolated for the rest of the year.

So we've seen a big surge in the share of the digital business in the first half of the year. Not only is digital business has increased sharply, but the rest of the business, as you've noticed, is also on the way down.

So both generated an increase in the percentage of the digital. But going forward, I mean this is not the kind of number we can count on.

So it's exactly the same with the growth rate. So I don't think it's really worth mentioning.

Although from a pure qualitative viewpoint, as I said, we are very pleased with the business we have done on the digital front, particularly in Sephora and in Fashion & Leather and, to a lesser extent, in Perfumes & Cosmetics. So it has enabled us to offset part of the lost business in regular distribution channels.

So this is encouraging for the future, but as I said, cannot be extrapolated. Your second question, marketing, how we should look at it going forward.

I think we have the ability to match our marketing spend with the level of business. So yes, we shall have to reinvest into marketing, although we haven't stopped entirely.

What we have stopped basically is investing into marketing when it was totally useless. Take the example, for instance, of outdoor publishing, nobody was outside for a number of weeks.

So what's the point in advertising outdoor at this point in time? This is the kind of thing we have cut to reflect the real situation of the economy and what people are really doing in these complicated times.

So going forward, we think we have the ability to adjust the level of marketing spend to the level of the business. In other words, the business should fund the marketing and not the other way around.

So if what you'll hear is a big discrepancy with a big surge in marketing ahead of the recovery of the business, it is unlikely to happen. We will control the marketing alongside the development of the top line.

And one last one from me. If -- I think you talked about the U.S.

and Japan, Jean-Jacques, just in terms of the month of June. I think you said it was flattish for Vuitton for both regions.

Is that correct? Or was it just the U.S.?

Yes. That's what I said, positive for Dior and flattish for Vuitton in both regions.

I have 2 questions, please. In terms of the OpEx, if I look at it from a perspective of nonrecurring charges, so to speak, other than the inventory write-down that you've already mentioned, but were there any exceptional store impairments?

I see a little bit of increase on the other expense line, but were there anything there to highlight in the first half already? Or anything that should be taken account into the second half?

And the second question is in terms of your employee base and the cost structure, is there anything to highlight here or that you plan to do? I think there might be some streamlining related to Sephora and JCPenney partnership in the U.S., for example, but anything more in Fashion & Leather Goods?

And also regarding to this, am I right in thinking that there were little government support, if that's the right term, in half 1, so nothing that should reverse in the second half?

Thank you. So your first question on exceptionals within OpEx, there were not that many.

I mean nothing I could think of. I mean there are pluses and minuses at all times, but nothing really significant to be reported.

The second point about the employee costs and what we could do in H2. If what you're referring to is layoff plans and massive cost reduction and that type of thing, it's not at all what we have in mind.

I mean we've been able to adjust our cost base in the first half of the year without doing anything massive and keeping our human capital intact. And we think it's quite important, and we will continue to do so.

So there is no such thing as massive reduction in headcount. There could be some adjustments here and there, but nothing particularly significant.

But overall, we intend to continue to invest in our people in the same way as we invest in our brands or as we invest in our stores. As I said before, this business is under a particularly complicated situation, but it will not last forever.

I mean, at some point, the economy will recover from the current situation and will generate a much higher level of business. And it would be stupid on our side to adjust too much, be it the capital base, the human base or even to streamline too much some brands because when things recover, we want to be in good shape to benefit from that.

So there is no such plans being contemplated.

That's clear and that's very helpful. And can I just clarify that were there any government support that you adopted or took part of in the first half?

Well, we took -- it was done on a case-by-case basis. Some situations where really it was impossible for us to keep our employees active, we therefore had some government support.

But otherwise, I mean most -- in most of the cases, people were kept working and we were able to continue not business as usual, but a certain level of activity within most of our businesses. I will take one more question, if there is one.

Going back to Tiffany, I was wondering if you could tell us what are the geographies remaining for the discussions ongoing on antitrust. And then specifically on Europe, could you give us an update on the antitrust process in Europe?

Well, the answer to both questions is no. On the second one in Europe, the update is not -- I cannot give you any update because -- I mean I can tell you that we've been asked questions and we have answered and -- but it goes back and forth as it normally does.

I mean there is nothing particular to report. And at some point, the European authorities will be satisfied or not, we don't know, but they will issue some form of a statement.

Before that, it's impossible to give you any update or meaningful comment. It's going on.

That's it. And as far as other jurisdictions are concerned, as I said, there is a half dozen jurisdiction where we are still awaiting the green light, and we will report to you as we get them as we have done already.

Thank you, and thank you for attending this call, and I look forward to discussing with you Q3 numbers, obviously, in a more favorable environment from a health and safety crisis in October. Thank you and have a nice evening.