Well, good evening. Thank you for joining us once again for this annual meeting presenting our results with the LVMH management team. So for the results, you'll have received the press release. I'm sure it was circulated earlier. The results for the year are good, because we've achieved an excellent performance in terms of revenue.
We're nearing €30,000,000,000 profit from recurring operations, which is the indicator followed by analysts for the first time is above €6,000,000,000 Net profit is also up. And it's important to note that the performance in terms of cash generation is good, because our gearing remains below 20% in spite of the acquisition this year of Loro Piana. Well, might you say generally growth is faster. I'm expecting that question. So why has growth been of only 8%, which is pretty good and the results slightly less?
Three reasons. First reason, the global economic climate and this will come as a surprise to no one. A number of high growth countries have slowed a little on the one hand. Furthermore, China has taken a number of measures that were implemented during the course of the year such that the consumption of luxury or rather high end products has been slowed slightly. In some areas that was not the case.
A bit more in Wines and Spirits. You'll have seen that a number of Wines and Spirits companies have presented their results. And we've seen that cognac sales have been hit with Mr. Navarre. We're fortunate in being very responsive.
So bottles that weren't sold in China were sold elsewhere. But it did nevertheless impact the momentum somewhat. So generally speaking, slightly less growth and dynamism in a few emerging markets. 2nd reason, the currency impact in 2013 currencies had a negative impact on business, whereas in previous years it was a reverse. Currency impact was negative because the dollar declined.
The number of currencies declined. The euro remained very strong. And in Japan, the yen lost 25%. In a year that's considerable. So even if some of our brands during the course of the year were able to catch up through price increases the 25% it cannot be retrieved overnight.
So that did weigh. A few currencies in Latin America as you've seen are suffering from the strong euro and the relative decline versus the dollar. So that's the second factor. 3rd factor that is more specific to the group we've decided and I explained this at the time of the shareholders meeting to continue at Louis Vuitton, a growth strategy, but a more reasonable growth strategy in which the portion of products that are iconic of Louis Vuitton with the monogram canvas, of course, continues to be the spearhead of Louis Vuitton. But we no longer wish to have too strong a growth.
And we're developing a whole series of products, thanks to the creation of Louis Vuitton and the new teams who've joined Louis Vuitton. At Louis Vuitton, we have a new designer who's just arrived whose first collection will be presented on the 5th March, which is very talented and it's actually fully suited and aligned with the Louis Vuitton style. We also have a new management team. I won't go back on the reasons why we had to replace the management team. This was essentially due to a health problem with the previous Chief Executive.
So these changes have led us to focus on a whole series of leather goods. Delphine, who arrived at Dior, is following that very closely and we've in place some fantastic products. But the problem is when you have great products, well, you have to produce them. And when they're very successful and sell, well, we can't keep pace with demand. That's the situation in which we find ourselves.
But of course, that's not an unhappy problem. The problem isn't to have unbridled growth with all these products. But it does put us in a situation as compared to what we were doing 2 or 3 years ago over 10% growth. We're slightly below the 10% growth mark. Interesting to see as you'll have noted in the figures that profitability of Fashion and Leather Goods is slightly below.
It's not because of Rivieton whose profitability has remained unchanged. It's quite exceptional. And I can take questions on that later. So the companies, the major event in 2013 was the acquisition of Lauro Piano, a great brand. The acquisition was closed in December, so it'll be it'll appear in the figures for 2014.
It's an iconic brand manufacturing exceptional products with unique textiles, cashmere. It's absolutely outstanding and has great potential. This company was acquired and the Laurent Pianna family remains shareholder with us 20%. It's a family business. Antoine Arnaud is now the Chief Executive of this company and we will continue its expansion in 2014 with exactly the same mindset that is the best, the finest products in terms of the materials with a timeless very appreciated style yielding interesting results because revenues for the stores per square meter is increasing and is quite exceptional at the start of this year.
Just returning to the highlights of 2013, the various business segments. Wines and Spirits delivered an excellent performance. Strong demand for prestige cuvettes in champagne. You'll have seen the Dom Perignon bottle designed by Jeff Koons. This these are now sculptures, collectors items and investors investments.
I don't know if there are any left, but I'm sure that in a few years' time the Jeff Koons sculpture that contains a Dom Perignon bottle will probably be in a museum and will have appreciated considerably. Cognac another fine year buoyed by the U. S. Market because we had to return to a number of products. And in China, the Classium vintage continues to sell well with the same value creation strategy.
Fashion and Leather Goods, I mentioned Louis Vuitton. The other companies are growing strongly requiring a lot of investment
this year, which may
account for a slowdown in profitability in this portion of activities. Fendi is extending its network in terms of quality. It's been focusing its offering towards the sought after products such as the Peekaboo Celine, great growth. Thanks to Phoebe and its team. Berluti, we've invested considerably.
This is a company that's gone from manufacturing the finest shoes for men in the world to a complete men's style company with a new designer investments in that. All these brands are gaining strength and we're very confident as to their development. Marc Jacobs, a very fine brand. Let me say that Marc Jacobs, the designer has left Vuitton and is now focusing on this brand that he'll be developing separately and exclusively, so that we can consider its flotation in the near future just to give you some figures and to wet the appetite of investors of analysts, I believe that in the group's accounts this company is valued at a few €100,000,000 if that because we started from scratch. We started from scratch at the end of the 1990s.
And today, it generates about $1,000,000,000 in revenue. Let me take the example of another business that we sold a little too soon. That can happen, Michael Kors. And since we promised Marc Jacobs and the future managers of Marc Jacobs to have an IPO. They looked at what Michael Kors did.
And today Michael Kors said much to everyone's surprise is worth $15,000,000,000 And the stock market, if we can do something along those lines or even half that, I'm sure everyone will be happy. It's an objective. I'm not saying we'll get there. We'll see. Perfumes and cosmetics, well that worked very well.
Very strong innovation. Christian Dior has managed with his perfumes. J'adore today is far and away leader in a number of markets notably France and today is one of the world's leading perfumes. And the objective for Dior and for Jadore is to become the world's number 1. We'll get there.
We can't be far from achieving that. There are a few competitors no names mentioned, but we have overtaken them globally. And then a whole series of successful products in terms of lipstick and we've just launched at Sephora, a teen skin makeup that's working selling very well. Lapitrade Noir from Guerlain is also a big success. Orquidez Imperial is continuing to grow strongly an opening of the iconic Champs Elysees St.
With a great restaurant in the basement run by Guy Martin. I recommend it and it's open at lunchtime and in the evening including on Sundays, because it can open on Sunday and even on Sunday evening whereas next door at Sephora we had to shut the store on Sundays. It's very irritating, but that's the way things are. Everyone was willing to work in that store. All the staff were willing to work from 9 to midnight, they were paid they were going to be paid 25% more and driven home by taxi.
And the unions outside Sephora managed tried to do their we tried our utmost to stop that, but they were able to go to court and get us to close the store in the evening. So we're of course appealing that. We're losing some of the revenues. There were 60 people who were employed in the evening. So of course we're going to keep them on.
We're not going to let staff go for that reason. But it's very strange to have to arrive at that situation. And customers who are buying on the Champs Elysees and I don't know what they'll do, they'll go and shop in London or elsewhere. That's all very regrettable. Furthermore, in perfumes and cosmetics, in a duration this year of the new research and development center at Saint Jean Bres, 500 researchers in this very modern state of the art building to strengthen our expertise, our know how and it's off to a very good start.
Watches and Jewelry strategy is continuing there. Good success achieved by Bulgari this year. Good increase growth in jewelry, success of the collection presented by Carla Bruni called Cerre Panti. It's a great success. We're unable to produce enough items, new collection that's just been launched, the new design concept that's going to be tested in the United States.
And in the Place Vendome and we're going to develop all that. So we're very confident. And furthermore, something that's key in this business, we're trying to manage the watchmaking as well as jewelry know how with a new manufacturing plant in Switzerland for TAG Heuer. So good progression. Selective retailing also performed well.
The figures are somewhat distorted here because we won a concession in Hong Kong. So these are figures to be added. We've just opened the concession in 2013. It's off to a good start. It's always less profitable to begin with.
So that's impacting DFS, but it offers great potential. And Chinese visitors are buying less in China. But when they're in Hong Kong or Macau, they continue to buy and to increase their visits. When you see in Macau all the casinos that have been built, some of which that are listed on the stock markets these sales are growing strongly. Sephora performance continues to be quite remarkable.
We're gaining market share in all markets. In the United States, we'll become the leading distributor of perfumes and cosmetics in the United States, which is a remarkable performance because at the end of the 1990s when we started in the United States people were saying you might as well close the store because it will never be a success and it's profitable. Furthermore, Sephora is launching a whole series of exclusive brands sold only in its network of stores Marc Jacobs for example the new cosmetics makeup line that are a big success. So that was for 2013. Looking ahead to 20 14, I won't read out everything that's on the slide, but we'll continue to implement the same strategy.
It's there's nothing new, but in terms of strategy, we're continuing with a lot of product innovation. The most important thing here, which really explains why we're so confident or at least reasonably confident as regards 2014, it's the group's ability to attract high level teams to motivate them and to retain them. I was with the President of a leading French school, who was telling me how keen his students were to join LVMH. And this group for a number of years has had an active human resources policy. And in the top slot of groups that business school students wish to work for.
And that's why LVMH is succeeding in a somewhat more challenging environment. And whatever the business climate, we manage to grow, thanks to highly motivated, highly competent teams that are fully invested in their business, in their stores, in recruitment. I won't go into more detail because I'm sure you'll have questions in due course. And I'll hand over now to Jean Jacques Guerny, our CFO for the figures because I'm sure that's what you're most interested in.
Hello. Well, I'm not sure it's the figures you're after, but I'll try and keep you interested all the same. Let's start by revenue with the right hand side of this slide. As Mr. Arnaud said, we're just below €30,000,000,000 up 4% at €21,150.
We have 8% in organic growth and I'll tell you more about this in the more detailed analysis and a negative effect of 4% from foreign exchange. And you know that in previous years it was the other way around. In any case, there are quite a few numbers on this slide. But the first thing to note is that organic growth in dark blue is stable quarter on quarter 7%, 9%, 8%, 8%, so no major change there in the way in which we have been growing. However, the foreign exchange factor has deteriorated minus 3% at the beginning of the year minus 2% and then minus 6% and again minus 6%.
So it has had an effect on profit. This was a challenging year in this respect. If you look at the breakdown of sales, you can see that the this pie chart hasn't changed much. You have Japan. You have the effect of course of the degradation of the Japanese yen which explains why Japan only has 7% of the sales.
The rest hasn't changed that much. More relevantly, if you look at organic growth that is in foreign exchange, If you look at the various regions, our growth is 9% in the U. S. In dollar terms, which is pretty good because it's a 4th year running where we have a double digit growth this we're getting close to double digit this year. And this is driven by all sorts of thing cosmetics for our own brands or through Sephora.
So that did extremely well in 2013. Wines and Spirits, especially Cognac did well as well. So a number of growth engines were involved in the United States. In Japan, the numbers are good at least in yen because organic growth there is up 10%. This also reflects paradoxically the drop in the Japanese yen because a significant portion of the business is done through Japan Japanese tourists.
There's less of that this year, but then there's been more domestic purchases in Japan. And so even though well, Japanese economy has picked up a bit and that may account for that. In Asia as a whole, not including Japan, Asia has enjoyed extremely good growth and it's of course a significant portion of our growth up 13%, even though that number is also to do with the concessions in the Hong Kong Airport not included in our scope, but which do contribute to our revenue overall revenue. In Europe, no miracle there, but then again it's not a disaster either. If you have steady growth even at 2% or 3%, it's perfectly honorable for Europe.
Now if we look again at this 8% organic growth on a business by business basis, we look only at organic growth here, You can see except for selective retailing everybody is doing about 5% or 6% in growth. Admittedly for Wines and Spirits, up 6%, but also Fashion and another good 5%, Perfume and Cosmetics 7th watches and jewelry slightly below, but not significantly. But selective retailing has enjoyed remarkable performance. But of course, this is to do also with the concessions at Hong Kong Airport. But even without that, you still stand at about 12%.
So selective retailing certainly fared extremely well with double digit growth. Likewise, if you look at the last quarter for Q4, you find that Q4 was pretty good. There was a stepping up of growth not in Wines and Spirits and you may have questions about that, but there was significant destocking that was voluntarily performed in China for cognac. We had too much stock there. And of course but the rest of well, the market as a whole stood well, but we decided to reduce sales voluntarily in the Q4 in China and sell the cognac elsewhere.
But the other areas are doing well 7% in fashion and leather compared to 5% or 3% in other months of the year. Around the world, by the way, Asia, the United States and even Europe, likewise for Perfumes and Cosmetics, Asian driven growth. Japan and Asia drew drove growth in cosmetics and perfumes. Watches and Jewelry did extremely well at the end of the year 6%, whereas it was only 1% in H1. And Selective Retailing, you have 13%, but that's only you have to look at the concessions in Hong Kong that was only in the last part of the year.
So if you look at 13% for Q4 compared to 17% for the rest of the year was a technical difference because precisely of this Hong Kong situation. If you look at gross margin that has grown faster than revenue up 5% compared to 4% per revenue. So we stand at a record level almost the record level of the group. Marketing and selling expenses up 7%. So it would be on a constant exchange rate basis, it would be 10%.
If you look at selling expenses, that is the cost of our retailing network, our own shops or the other shops and if you leave out there for the Hong Kong and foreign exchange effect, you would be at only 3%. Likewise, general G and A would be 6% without the foreign exchange effect. So the profit stands at upwards of €6,000,000,000 up 2%. And if you leave out Hong Kong, which at the beginning of the concession actually drew us down, you see that profit from recurring operations would be about 6% as opposed to 2%. Operating profit is well, operating income and expenses is down.
We have mostly depreciation of intangible assets. So that's where we have less this year than last year. That's sorry that was for net financial income. Income tax no comments this. They're actually we're slightly down only 31% compared to last year.
It is paradoxical that we should be paying less tax this year than last year. This is because we have recognized a number of deferred tax assets and so that meant that the income tax was less. Minority interest is up because of the improved performance of MuetNC And so the net income stands at €3,436,000,000 slightly above last year, 0.4%. Now let's look at the profits by business group. Wine and Spirits is significant.
The overall improvement is up 2%. But let's look at Wines and Spirits. Compared to the euro sales, Wines and Spirits, you're looking at 20%. If you have it was 20%, only 13% for if you take into account the foreign exchange effect. So a 1% improvement in our sales generated a 9% improvement in profits.
For Fashion and Leather Goods, there the margin is down even though the revenue is up. It's not to do with Louis Vuitton because the profit margin was stable in 2013, but we did have capital expenditure both for our retail network and the image of our brands. So that has brought profits down. This investment is costly, but necessary to improve our image and make our brands attractive. Perfumes and Cosmetics, some pressure on the top line because sales were up 3%, profits up 2%.
Goodyear for Watches and Jewelry. Sales were down 2% in euros. The operating profit is up 12%. So that's a significant difference Significant improvement of the margin attributable largely to Bulgaria. Selective retailing was slightly down compared to the growth in sales, but this is distorted by the Hong Kong airport.
If you take that out, sales were up 7% and profit up 9%. So again, the profit margin was better and that accounts for the 2% overall improvement in profits from recurring operations. The foreign exchange effect, we were used to positive effects. Well, this time is not is the other way around. We were getting used to that in H1.
We had about €60,000,000 in the positive currency impact. But over the year, the complex situation has brought about an overall negative currency impact. So if you look at the effects on sales, on profits and our hedging policies, all this has combined. Well, the first two effects were negative because we have negative effects of the currency impact and the hedging effects was positive, but was not enough to compensate for sales in our subsidiaries and conversion of their profits. Something about financial income.
We have to get into some detail because it is a complex situation there. If you look at the cost of net financial debt that was down. Debt was down. The interest rates were down. So all in all, our debt cost us €100,000,000 in financial expenditure.
The ineffective portion of foreign currency that increased significantly. At every meeting I said that this is an unpredictable item on our accounts difficult to analyze. The charge tripled, but economically the amount that we spent for hedging about €105,000,000 was the same as the previous year. So we can expect that next year we will have that item down. The net gains to do with financial instruments and other financial assets.
We have Hermes. Hermes had brought in about 120,000,000 euros in dividends, but that was a one off dividend. It did not reoccur in 2013 and that is why this item is down compared to last year and that accounts for most of the variation in the net financial income. Something about the financial structure, it is sound. You can see that we have €27,000,000,000 in total equity.
No need to emphasize that. And then we can move on to cash flow. And well, this is really cash flow as opposed to cash variation. Cash flow was up 249 €1,000,000 before variations in working capital. So it is better than the profit from recurring operations.
So this is a positive development. Likewise in working capital requirements, well, we did consume €617,000,000 during growth. You need to have more stock and therefore debts fees payable to our customers. But the overall effect is up almost €200,000,000 and investment is about the same as last year €1,700,000,000 So free cash flow is almost up 100%, up 20% compared to last year. Now on this next slide, you have the results of all this.
Looking at well, the net debt is up €1,000,000,000 from €4,200,000,000 to €5,300,000,000 So how did that come about? Well, to make it simple, but you do have the details in the financial documents, €3,000,000,000 in cash flow, €2,300,000,000 in financial investment mostly lower Kiana and €1,700,000,000 in cash out for dividends. And so debt was up €1,000,000,000 roughly €1,100,000,000 But the main thing is that debt at end 2013 accounts for 19% of equity. So Gearing is perfectly comfortable with debt to equity ratio. Let me just finish with dividend.
What we are suggesting is an increase a 7% increase in dividend, EUR 1.90 for dividend because there was EUR 1.2 already paid out in June in December. So all in all, EUR 3.10,000,000 up 7% compared to last year. And over 5 years, it's a 14% annual growth, which is of course most attractive. This is where I had to say thank you for your attention.
Ladies and gentlemen, we're available to take your questions. Kindly state your name before asking your question. Thank you. Good afternoon. I'm from Exane BNP Paribas.
A question on the brands of fashion and leather goods. You seem to be investing considerably. If you were to prioritize the brands aside from Vuitton that could make a significant contribution in terms of your operating profit. What would your hierarchy be? On another point, you mentioned the strengthening of wines and spirits.
That was the first point for 2014. Could you perhaps give us some additional color on the programs on that front? And lastly, Hermes, what's the situation regarding your stake in the brand? Thank you. Well, the to give you a hierarchy for the brands, I mean, is rather difficult and arbitrary.
I mean, why would I prefer the profit potential of Celine as compared to Fendi? I mean, that's rather difficult. I believe that each of the brands offers fine potential. Their size are different, some smaller than others. Celine is getting bigger.
Givenchy is growing fast. Fendi is already a major brand. We're redirecting it and investing. Berluti has great potential. It's a small company.
We're investing considerably. So since we have not decided to give the details company by company, otherwise it would take us forever. I won't do that exercise. I see none that has no potential. To say that the potential will be revealed very soon, no that would be presumptuous.
But I'm sure that we will get there for each of these brands. And very interestingly, it's already the case for some of them, but it can take time. If you take the example of Celine, I believe Celine was acquired in 1987 you see. So today, it's in great business where we achieved excellent result in terms of growth, excellent products. But we did go through a rather slow period and now it's working very well.
So with all these brands, we need to find a right balance between the brand design and its manager management. We need a designer that fits with the brand and we need a manager who's really fully imbued with the brand and synergy with it. It's as I was explaining this morning to the leader a major school. Even if you win very strong in maths, of course, it's a different part of the brain that you need to design products that appeal to the public. Now on Wines and Spirits, perhaps Mr.
Navarre could give us the details on Wines and Spirits. Yes. Thank you. Well, what we can say is that we have a strategy that remains unchanged for many years and we will continue to implement it. It's fully focused on brand building, improving their image of value creation strategy.
We see clearly the profitability of each of our brands. We were discussing the outlook for 2014 if we go around the world very rapidly, the U. S. Very buoyant. We ended the year well.
We're off to a good start this year, very confident for North America. Latin America aside for a few ForEx changes in Argentina, we're very confident a continent that's great that we're discovering. Africa growing strongly. We look at the geographies. Growth rates are very enviable as compared to Europe and Asia.
We're opening new markets. So new opportunities as to China as Mr. Arnott said. We reacted very swiftly and we're ending up in China. Things are moving.
We're creating a market for champagne. That's a new opportunity. We have a small but powerful portfolio. And let me end on a strength that's remarkable at MuiTennessee. We have management team in place for a number of years now.
MuiTennessee and Chandon, they know their business. So they've been in the company for at least 5 years. That's a big advantage when we compare ourselves with some of our peers. So I believe it will be a year during which we'll continue to build on the efforts for our brands with new territories and that's very exciting. So your final point part of your question was on Hermes.
You have before you a happy shareholder who's happy with the performance of the company and supports its management. I simply regret that the reverse is not quite the case, but I'm sure that things will work out one day in the next 20 years. One never knows. Next question please.
Antoine Beyers from HSBC. I have three questions. Number 1, you said that amongst the three reasons why growth was slightly less this year was partly the situation in China and the situations, the political situation and the changes in the government re cabinet reshuffled. Do you think this is a long lasting luxury watches and jewelry as opposed to wines and spirits. Now on Louis Vuitton and fashions and leather goods, you saw that sales took off in Q4.
Remember that Jean Jacques Guillenie in the 3rd at Q3 said that high end products were doing well, but it was difficult to find adequate supply, especially for leather goods. Has the situation improved at all? And does that account for this new this rebounding growth? Or is it simply because of better targeting of your sales? And regarding the sales, could we have a breakdown between Wines and Spirits and Fashion and Other Goods for the €139,000,000 effect?
And if you look at 2014, the 1,000,000 effect. And if you look at 2014, the hedging that you have for the yen in 2013 stood at about €105,000,000 percent. The slot level is less than that. So what hedges have you planned for 2014? And what would the effects be the negative effects in H1?
Maybe Jean Jacques can give us details about that. Well, Tony about China. Well, China it's pretty difficult to arrive at long term outlook. But for 2014, we can say that the effects of this new sales campaign will continue initially. Well, we could see the effects that started with the Chinese New Year.
Week on week, we monitor developments. We have positive signals coming in, but it's a bit early days now. As we as you know, last year, there was
increased purchases
in China, but then purchases were made abroad. There was the anti corruption campaign and also people wanted more transparency on price advantage between various positions. So we compared Mainland China with Macau, Singapore, Hong Kong and Europe. Regarding the high end prices, of course, the effects of well, there was more effect on the high end prices or the high end products. And it's true that watches and jewelry, especially with the brother watches that did significantly better than other products, because by contrast cosmetics of course that well that slowed down, but the unit price is less.
So we didn't that's the reason why the advertising campaign didn't cover cosmetics, but rather watches and jewelry. The other effects on Wines and Spirits, I mean, we find that restaurants and other areas might had slowed down their purchases, but there will be growth but less so this year. Well, nonetheless, China is a huge growth engine in terms of economic growth. If you compare economic growth in China with the rest of the world, I mean people nowadays say that I mean we had a discussion with experts early on. People were saying, well, the developed world will take over growth and take over from the emerging economies.
That is something of an exaggeration. Emerging economies, of course, you have ups and downs. And in China, you had well and more so in South America, Argentina. But the growth potential for emerging economies is quite significant and significantly higher than here. What we're looking at now is the 10 or 15 year outlook, of course, And this might be more interested in the immediate future in 2014.
But for us, we are looking at the 10 or 15 year potential. And I think we have reason to be confident. There may be ups and downs. There could be economic or geopolitical upheavals, but we have a strong trend. And the real issue is whether the industrial countries will be able to keep growing.
The United States seems to be on the way to recovery, but we don't know about Europe or Western Europe. Regarding the question on Louis Vuitton, you asked about leather goods and whether the supplies were too low. It is true. We find it difficult to keep up with demand. We have waiting lists that are growing longer and longer.
So we find it difficult to keep up with demand. It's true that there's a shortage of raw materials, but there's also a situation that our workshops and our craftsmen need to be trained and the workshops need to grow in size to accommodate greater output and we can't do this just overnight by flicking a switch. Regarding foreign exchange and by the way, there was between Q3 and Q4, there was no sudden change. It's not as if products were not able to produce in Q3, we were able to do in Q4. It was continuous.
The €103,000,000 in negative foreign exchange. In 1 sense, there was no negative currency impact. We had good hedging and that covered all the primary and secondary currency effects. There was the €100,000,000 or so was mostly on Fashion and LADIGO GUZ with Vuitton and the few and the remaining on the other businesses. For the hedging, you said that yen in 2013, well, that's of course past history, but in 2014 we've got about 75 percent cover for the yen about €120,000,000 €129,000 which is a significant margin compared to the present space and for the dollar about $1.31 to the dollar and that again leaves room for maneuver.
For foreign exchange, I well, I cannot make predictions. If you tell me what the exchange it will be, then I can tell you what the impact will be. But we'll see as it goes on. But as you know, the hedging effect is not enough to cover the primary and secondary impacts I mentioned. So even that might not be enough.
Question from JPMorgan. I have 4 questions if I may. The first on Wines and Spirits. What's the situation regarding inventory levels? Do you think they're at a sound level?
Will there still be some pressure during the first half of this year? And on the acceleration in Q4, up 7% on Fashion and Leather Goods, can you confirm? I understand that Louis Vuitton was not affected by that acceleration. It was the other brands from I understood from what you said. 3rd point on other brands and investments that will weigh on the profitability for Fashion and Leather Goods this year.
What do you anticipate for 2014, 2015? Can we expect sustained CapEx? And at the expense of what brand because plainly in 2013 CapEx remained flat, so something was reallocated? My fourth question, what's the growth in the total Chinese consumer if we include tourism for Louis Vuitton in 2013? Thanks.
Mr. Navin will speak to inventory levels. Yes. Thank you. So inventories, this is something that we've been really keeping a close eye on.
First thing, inventories at a very healthy level across territories, notably in the United States where they're particularly low, which is a good thing. On China, as Jean Jacques said inventories are fully under control. The first quarter there'll be a slight difference between sell in and sell out. Sell ins are slightly lower than last year, but the sell out is expected to come out positive. So overall everything's under control and I would say at a very healthy level.
On the other points, Fashion and Leather Goods Q4, there was an acceleration because Q3 was up 3.2% both for Vuitton as well as the other brands. CapEx for next year, we expect that they should be on a par. It's always difficult to assess at the start of the year. So budgets tend to come in around February, but we expect it to be about the same level as last year in terms of investments. It's true that in 2013 there were a number of trade offs in the CapEx far less in real estate that allowed some of our brands Sephora, but also Vuitton to continue to invest Fendi, Berluti to continue to invest in order to expand midterm as we mentioned earlier.
The Chinese consumer at Vuitton is up on a like for like basis 5% versus last year. So all markets, the mainland and the tourist markets that is. Next question please.
Good evening. Luc Morvan from Garnier. What is the weight of China in overall revenue? That's question number 1. And the second question, the new regulations regarding travel restrictions for Chinese nationals since October, has this has an effect on DFS and other brands since in October November.
Revenue China accounts for about 8% and Greater China depending on whether you include Taiwan or not, but we include Macau and Hong Kong. And of course, depending on the brand you may include Taiwan or not, but it's 15% without Taiwan, 17% including Taiwan. Regarding the new travel restrictions for Chinese nationals, the effects on the FS were rather minor. It's only a few shops in Hong Kong, Singapore and Australia that were affected. The effects in terms of traffic was rather high in October November, less so in December.
There were more effects in traffic, but less effects in sales because the people who traveled less were people who were spending less anyway. Further questions, yes? Sorry. Well, okay. The lady first.
Yes. If I could just come back for a point of clarification. So I could understand in your EBIT the line other seems to have improved sharply versus what was expected in the second half. I can't tell you why it improved as compared to what you expected. I mean, I can tell you what happened, but not really as compared to your expectations.
Fair number of pluses and minuses, a lot of things in that others, holding costs, rebillings of some of these holding costs, the results of Royal Van Lent, some real estate operations, the holding costs slightly down and the holding in net Tesa costs, so that's slightly down. Royal Van Lent that doesn't have regular earnings, because when you sell ships for your own account, you book it in the year of sales, but not in advance when there are vessels that are built for an account of sales for own account, fair number of profits booked on that occasion. So the and the result was slightly down in 2013. So it's the net of those two items that accounts for the changes of the Others line.
John Guy from Berenberg. A few questions please. First of all, Mr. Onno, with regards to your strategy on space growth for Louis Vuitton, you've made it clear in the past that you don't want to plant flags in Tier 3, 4, 5 cities in China. You want to retain exclusivity for the Louis Vuitton brand.
Could you please comment as to how you see space growth for the Louis Vuitton brand going out for the next 3 years in terms of new space, but also in terms of extensions and refurbishments, which is something that's been ongoing for the last few years. Also in terms of capital allocation to the Louis Vuitton brand, if we assume there are less store openings, can we assume that we're going to see similar levels of strong free cash flow generation over the course of the next few years as we've seen this year? And also in terms of my final question, in terms of what you see is the biggest opportunity in 2014 and what you think is the biggest challenge for the group? Thank you.
Right. Well, regarding space growth at Louis Vuitton, I can confirm that the idea is not to develop in the 2nd rate or 4th rate cities. In China, we do want to keep our presence in China in iconic areas. Growth or space growth was about 8% or 9% in 2013 compared to 2012. It will level off to 4% or 5% over the next 3 or 4 years because as you pointed out, we have decided to reallocate CapEx at Louis Vuitton towards renovation and refurbishment rather than opening new stores.
Now will this new capital allocation, will this generate more free cash flow compared to this year? Well, this business has significant potential. So it should generate not just profit from recurring operations, but cash flow as well. So there's no reason why that should be negative.
Small objective.
Regarding our objective for 2014, what I would say is this. And I know that they may be disappointing, but we are not changing strategies. We do not I mean, we will look at all items that may lead to improving our position, our market position, our brand image. That is our strategy. That is the underlying strategy.
Now it's very exciting to see and I mean to look for new products or and earlier you mentioned Louis Vuitton, but we have at Louis Vuitton a whole series of new products. We have a new designer. We and this in itself is a major event for 20 14. The fact that we will have new collections with a new designer at Vuitton and somebody with huge potential And that is exactly in line with the Vuitton spirit of creative or audacity with extreme refinement. I mean, you talk about challenges and opportunities.
This is on the opportunity side of the sheet. Now of course, Rivito is not the only brand. We have about 60 odd brands. You well, of course, the question is of a general nature, but it's everything on a case by case basis. How do you propose to promote our brands.
We want to look at Loro Piana. We want to develop that brand while remaining loyal to its brand image, its history. And of course, the fact that we brought that in was a significant capital expenditure, so it weighs on our profit, but we can bring a lot to the image. We can do a lot with that company. We can develop that company.
We can and we can make the most of their exceptional know how for high quality, high end cashmere products. And this is something that will that we can draw on for other brands. They have a remarkable know how also in running their stores. I mean, I believe well, if you do your shopping at Laurel, Canada, it's probably not very cheap, but very beautiful. And you'll see that the service there is absolutely outstanding.
I've never seen this anywhere else. And this was one of the very few brands outside the group where I myself in my personal capacity was a big customer. And Mr. Toledano can confirm this because on Saturday when we came together to look at the dual products And we went to Loro Parana next door to do our own shopping because it is the service is so superb that it is exactly the sort of thing we want to invest in, that we want to work with these people so as to really make the most of that incredible culture of service and disseminate it throughout the group. And that's an example and I have many, many other such examples, but that is not the purpose of this session.
So that was on the opportunity side of the sheet. On the challenging side of the sheet, well, there are challenges everywhere, aren't there? I mean, there are geopolitical risks. I mean, you don't know what's going to happen next. We mentioned this earlier on.
The Chinese and the Japanese are racking sabers and that might get out of hand. Well, probably not, if we don't know. The Middle East is getting out of hand there. We don't know whether the situation will eventually come down, whether this will make for a more conducive environment or not. We do not know the economic policy of the American Fed.
Now they are they have decided to getting their foot off the gas. We hope they don't put the brakes on too quickly because of course that might jeopardize growth. I mean these are challenges, but of course, these sorts of challenges are outside our direct control. But we have to be prepared for everything. There will be economic crises in the years.
That is inevitable, but we've been able to weather this. And as Warren Buffett says, that's where the best operations, the best opportunities lie during times of economic crisis. What we have to do is remain in a sound financial position. And of course, our position our financial position is very sound indeed. And so when the affairs of the world or the economic overall economic climate is in trouble where we tend to weather the storm better than our competitors.
I mean, I'm sorry this is sort of a general statement, but I'm afraid we can't be more specific than that. No further questions? Yes. Question there. It's already 705.
It'll be a quick one. I'm from ODDO. Could you give us an update on Watches and Jewelry, Bvlgari, good profitability? What can we expect? Do you have a midterm target for us?
And do you have profit differences by region and between watches and jewelry? Well, of course, I can't be too specific. Bulgari is now very well integrated into LVMH. And for the past 2 years, profitability has grown strongly, particularly last year. And I think Mr.
Arnaud is well satisfied with what but I did pay rather a lot for the company. Yes, it was paid a high price, but it was worth a lot a fine brand. Yes, it was expensive at the time, but it's far less expensive today. But I can't go into details unfortunately, but it's true that last year performance profitability was very encouraging. Things have really changed there and the base is there to move to strong profitability.
The famous the 20 percent that you often ask for, obviously, is something we haven't yet reached, but that's achievable going forward.
Okay. Are there any further questions? Yes?
Mario Thalios from Bernstein. Another question on watches and jewelry. As the integration of Bulgari is completed as Mr. Trapani said, should we expect new store openings in the next years? And if possible, if you can give us an idea of what store openings we have to expect?
And the second one is on your M and A strategy. What M and A strategy should we expect from LVMH in the next years?
Regarding Bulgaria, we our strategy is to be very discriminating in the opening of new stores. In 2014, there are 2 significant stores that will be opened in Asia. That will make a big difference. The other brands also are discriminating. Watchmakers have a pure sales strategy, but they in the past they have invested in single brand shops and we will continue to open new shops.
Yes, well, even for watches, we can open new stores. There will be a Hublot shop in New York on Fifth Avenue. Yes, and we have on the Champs Elysees a new store for Capucine on Fifth Avenue last year as well for TAG Heuer. So well TAG and Hublot will continue their strategy in terms of new stores. For the M and A strategy, there is no strategy.
There is no strategy. We are not proactive. We're only reactive. We have no ambitions to buy new businesses. We're very pleased with the businesses we do have, and they have good potential.
Should anything attractive, I mean, that was the case with Loroquina. We can afford to do this. But in and of itself, it is not an objective. This is not I mean, that was an opportunity that just happened to be there that we cannot turn down. But right now, we have nothing specific in mind.
I believe that's it. Sorry, sorry please.
Good afternoon. It's William Hutchings from Goldman Sachs. Just a broader question about your digital strategy as a
group. How do
you see this evolving both in terms of how you market your brands across your group, but also e commerce? And related to that is as you start to slow down the pace of store expansion is this partly related to the potential you could see on e commerce and digital? Thank you.
It's a very interesting subject obviously. I would say that we are totally committed on all the brands to be present in the virtual world for what concerns connecting with the customer and communicating wherever the customer wants to communicate. Obviously, they are much more present there. So all of our brands need to build the same differentiation that we have built in brick and mortars and in conventional media in that space as well. When it comes to e commerce, that's a little bit different.
We have a huge business in terms of e commerce with Sephora, okay? It's not in all countries, but where we are present is strong growing and very profitable. We are experimenting on a smaller base with some other brands and learning in a major way. Today market wise in luxury, okay, e commerce it's only a small percentage whether it's 3%, 4% depending on the region. It's often very discounted.
That's not the model that we want to be involved with. And our idea is that e commerce can be very attractive if we can add the same emotion and make something special. If it's just a transaction, it's a lot less interesting. On the other hand, we'll need to be present in e commerce because the customer will want to shop in a different way in different places and we'll need to be there whether it's a service or a reach. So we are very committed to be present in the virtual world and leading.
I think all of our brands are doing that. We are a little bit more prudent in e commerce with the exception of Sephora.
Okay. Perhaps the last two questions.
Roger Trois. I have 3 questions. 1 on the profit margin of Fashion and Leather Goods. Vuitton was stable. The other brands for the past 2 years they've had a dilutive effect already in 2012.
And the fact that you took the Donekara gene license, will that mean that by 2014 the investments will have a neutral effect? Or do you expect that capital expenditure to have a negative effect on profit margin? About Sephora, we didn't say much, but can you compare sales between Europe and the U. S. On a comparable basis?
And a few words about the strategy in China. How many Sephora shops do you have in China? Are they profitable at all? And have revisited your long term objectives? And finally for the leather bags in Louis Vuitton, I think about in 2012 it was about 1 third of sales and 20% in volume.
Is has this changed much in 2013? Regarding profit margin in Fashion and Leather Goods, the effects of non Vuitton brands, the effect there is neutral. You cannot leave out good or indeed bad surprises brand by brand. We're looking here at a large number of brands. Not everything goes necessarily according to plan.
And so at times, it is difficult to see exactly where we're going. But overall, the effect should be, if not neutral, at least less than what it was in 2012 and possibly 2013. Regarding Sephora, we don't give you the details of revenue per square meter. Well, Sephora had a good quarter, a double digit growth in Q4, strong growth in Europe and well double digit in the U. S, good growth in Europe and good progression in China.
We have 150 Sephora stores in China, almost 30 new stores every year and we are profitable. We are breaking even in China now. All right. Thank you, ladies and gentlemen, and enjoy the evening.