Good evening. Thank you for joining us once again for this annual meeting presenting our results with the LVMH management team. 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 EUR 30 billion profit from recurring operations, which is the indicator followed by analysts for the first time is above EUR 6 billion. Net profit is also up, and it's important to note that the performance in terms of cash generation is good because gearing remains below 20% in spite of the acquisition this year of Loro Piana. Might you say, generally, growth is faster. I'm expecting that question. 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. Bottles that weren't sold in China were sold elsewhere, but it did nevertheless impact the momentum somewhat. Generally speaking, slightly less growth and dynamism in a few emerging markets. Second reason, the currency impact.
In 2013, currencies had a negative impact on business, whereas in previous years, it was the reverse. Currency impact was negative because the dollar declined, a number of currencies declined. The euro remained very strong, and in Japan, the yen lost 25% in a year. That's considerable. 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. 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. That's the second factor.
Third 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. 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. 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 of March. He's 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. These changes have led us to focus on a whole series of leather goods. Delphine arrived at Dior, is following that very closely, and we've put in place some fantastic products. 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. 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 two or three 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 Louis Vuitton, whose profitability has remained unchanged. It's quite exceptional, and I can take questions on that later. The companies, the major event in 2013 was the acquisition of Loro Piana, a great brand. The acquisition was closed in December, so 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 Loro Piana family remains a shareholder with us of 20%. It's a family business. Antoine Arnault 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 cuvées in Champagne. You'll have seen the Dom Pérignon bottle designed by Jeff Koons. These are now sculptures, collectors items and 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 Pérignon 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.
In China, the Classivm 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. Céline, 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 will be developing separately and exclusively so that we can consider its flotation in the near future. Just to give you some figures and to whet the appetite of investors, of analysts, I believe that in the group's accounts, this company is valued at a few hundred million EUR, if that, because we started from scratch. We started from scratch at the end of the '90s, and today it generates about $1 billion in revenue. Let me take the example of another business that we sold a little too soon. That can happen. Michael Kors. Since we promised Marc Jacobs and the future managers of Marc Jacobs to have an IPO, they looked at what Michael Kors did.
Today, Michael Kors, much to everyone's surprise, is worth EUR 15 billion in the stock market. If we can do something along those lines, or even half that, I am sure everyone will be happy. It is an objective. I am not saying we will get there. We will see. Perfumes and cosmetics. Well, that has 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. The objective for Dior and for J'adore is to become the world's number one. We will get there. We cannot be far from achieving that. There are a few competitors, no names mentioned, but we have overtaken them globally.
Then a whole series of successful products in terms of lipstick, and we have just launched at Sephora a Teint skin makeup that is selling very well. La Petite Robe Noire from Guerlain is also a big success. Orchidée Impériale is continuing to grow strongly. An opening of the iconic Champs-Élysées store with a great restaurant in the basement run by Guy Martin. I recommend it, and it is open at lunchtime and in the evening, including on Sunday. Because we can open on Sunday and even on Sunday evening, whereas next door at Sephora, we had to shut the store on Sundays. It is very irritating, but that is the way things are. Everyone was willing to work in that store. All the staff were willing to work from nine to midnight. They were going to be paid 25% more and driven home by taxi.
The unions outside Sephora managed, tried to do. 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 are, of course, appealing that. We are losing some of the revenues. There were 60 people who were employed in the evenings. Of course, we are going to keep them on. We are not going to let staff go for that reason, but it is very strange to have to arrive at that situation. Customers who were buying on the Champs-Élysées, and I do not know what they will do. They will go and shop in London or elsewhere. That is all very regrettable. Furthermore, in perfumes and cosmetics, inauguration this year of the new research and development center at Saint-Jean-de-Braye.
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 their good success achieved by Bulgari this year. Good increase growth in jewelry. Success of the collection presented by Carla Bruni called Serpenti. It's a great success. We're unable to produce enough items. New collection that's just been launched, a new design concept that's going to be tested in the United States and in the Place Vendôme, and we're going to develop all that. We're very confident. 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. 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 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. 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 90s, when we started in the United States, people were saying, "You might as well close the store because it will never be a success." 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. That was for 2013. Looking ahead to 2014, 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. 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. That's why LVMH is succeeding in a somewhat more challenging environment. On 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. I'll hand over now to Jean-Jacques Guiony, our Chief Financial Officer, for the figures, because I'm sure that's what you're most interested in.
Bonsoir.
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. Arnault said, we're just below EUR 30 billion, up 4% at EUR 29,150 million. We have 8% in organic growth, I'll tell you more about this in the more detailed analysis, a negative effect of 4% from foreign exchange. 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, 7.988%, so no major change there in the way in which we have been growing.
However, the foreign exchange factor has deteriorated, -3% at the beginning of the year, -2%, then -6%, and again, -6%. 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 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 the fourth year running where we have a double-digit growth.
We're getting close to double-digit this year, this is driven by all sorts of things. Cosmetics for our own brands or through Sephora. That did extremely well in 2013. Wines and spirits, especially Cognac, did well as well. 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 Japanese tourists. There's less of that this year, there's been more domestic purchases in Japan. 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 overall revenue. In Europe, no miracle there, then again, it's not a disaster either. If you have steady growth, even at 2% or 3%, it's perfectly honorable for Europe. 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's doing about 5% or 6% in growth. Admittedly, for wines and spirits, up 6%, also fashion and leather goods, 5%, perfume and cosmetics, 7%. Watches and jewelry, slightly below, not significantly.
Selective retailing has enjoyed remarkable performance. Of course, this is to do also with the concessions at Hong Kong Airport. Even without that, you still stand at about 12%. 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, You may have questions about that, there was significant de-stocking that was voluntarily performed in China for cognac. We had too much stock there. The market as a whole stood well, We decided to reduce sales voluntarily in the fourth quarter in China and sell the cognac elsewhere. 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 U.S., and even Europe. Likewise for perfumes and cosmetics, Asian-driven growth, Japan and Asia 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. In selective retailing, you have 13%, You have to look at the concessions in Hong Kong. That was only in the last part of the year. 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% for revenue. We stand at a record level, almost the record level of the group. Marketing and selling expenses up 7%.
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, If you leave out there for the Hong Kong and the foreign exchange effect, you would be at only 3%. Likewise, G&A would be 6% without the foreign exchange effect. The profit stands at upwards of EUR 6 billion, up 2%. If you leave out Hong Kong, which at the beginning of the concession actually drew us down, you see that profit for recurring operations would be about 6% as opposed to 2%. Operating income and expenses is down, we had mostly depreciation of intangible assets. That's where we have less this year than last year. Sorry, that was for a net financial income. Income tax, no comments.
We're slightly down, turning 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. That meant that the income tax was less. Minority interest is up because of the improved performance of Moët Hennessy. The net income stands at EUR 3.436 billion, slightly above last year, 0.4%. Let's look at the profits by business group. Wines and spirits is significant. The overall improvement is up 2%. Let's look at wines and spirits compared to the EUR sales. Wines and spirits, you're looking at 20%. It was 20%, only 13% if you take into account the foreign exchange effect. A 1% improvement in our sales generated a 9% improvement in profits.
For fashion and leather goods, the margin is down, even though the revenue is up. It's not to do with Vuitton because the profit margin was stable in 2013. We did have capital expenditure both for our retail network and the image of our brands. 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%. Good year for watches and jewelry. Sales were down 2% in EUR. The operating profit is up 12%. That's a significant difference. Significant improvement of the margin attributable largely to Bulgari. Selective retailing was slightly down compared to the growth in sales. This is distorted by the Hong Kong airport. If you take that out, sales were up 7% and profit up 9%.
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. This time is the other way around. We were getting used to that in H1. We had about EUR 60 million in positive currency impact. Over the year, the complex situation has brought about an overall negative currency impact. If you look at the effects on sales, on profits and our hedging policies, all this has combined. The first two effects were negative because we have negative effects of the currency impact, and the hedging effects was positive. It 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, interest rates were down. All in all, our debt cost us EUR 100 million 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 trebled. Economically, the amount that we spent for hedging, about EUR 105 million, was the same as the previous year. We could expect that next year we will have that item down. The net gains to do with financial instruments and other financial assets. We have Hermès. Hermès had brought in about EUR 120 million in dividends. That was a one-off dividend.
It did not reoccur in 2013, 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 EUR 27 billion in total equity. No need to emphasize that. Then we can move on to cash flow. Well, this is really cash flow as opposed to cash variation. Cash flow was up EUR 249 million before variations in working capital, so it is better than the profit from recurring operations. This is a positive development. Likewise, in working capital requirements, we did consume EUR 617 million during growth. You need to have more stock and therefore debts visible, payable to our customers. The overall effect is up almost EUR 200 million and investment is about the same as last year at EUR 1.7.
Free cash flow is almost up EUR 500 million, up 20% compared to last year. On this next slide, you have the results of all this. Looking at the net debt is up EUR 1 billion from EUR 4.2 billion-EUR 5.3 billion. How did that come about? To make it simple, but you do have the details in the financial documents, EUR 3 billion in cash flow, EUR 2.3 billion in financial investment, mostly Loro Piana and EUR 1.7 billion in cash out for dividends. Debt was up EUR 1 billion, roughly EUR 1.1 billion. The main thing is that debt at end 2013 accounts for 19% of equity. Gearing is perfectly comfortable with debt to equity ratio. Let me just finish with dividend. What we are suggesting is a 7% increase in dividend, EUR 1.90 for dividend because there was EUR 1.2 already paid out in December.
All in all, EUR 3.10, up 7% compared to last year. Over five years, it's a 14% annual growth, which is of course most attractive. This is what 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. Bonjour. Luca Solca of Exane BNP Paribas. 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? Lastly, Hermès. What's the situation regarding your stake in the brand? Thank you.
Well, to give you a hierarchy for the brands, I mean, is rather difficult and arbitrary. Why would I prefer the profit potential of Celine as compared to Fendi? 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. Since we have not decided to give the detail 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. 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. Today, it's a great business where we achieved excellent results in terms of growth, excellent products. We did go through a rather slow period, and now it's working very well. With all these brands, we need to find a right balance between the brand, design, and its management. We need a designer that fits with the brand, and we need a manager who's really fully imbued with the brand, in synergy with it.
It's as I was explaining this morning to the leader of a major school, even if you're 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, 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, a 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. In Asia, we're opening new markets. New opportunities as to China, as Mr. Arnault 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. Let me end on a strength that's remarkable at Moët Hennessy. We have management team in place for a number of years now. Moët Hennessy and Chandon, they know their business. They've been in the company for at least five years. That's a big advantage when we compare ourselves with some of our peers.
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. Your final point, part of your question was on Hermès. 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, I'm sure that things will work out one day in the next 20 years. One never knows. Next question, please.
Louis?
[Louis Boissel].
Antoine Belge from HSBC. I have three questions. Number one, you said that amongst the three reasons why growth was slightly less this year was partly the situation in China and the political situation and the changes in the government cabinet reshuffles. Do you think this is a long-lasting situation that might change consumption patterns? Might there be a difference between luxury watches and jewelry as opposed to wines and spirits? On Louis Vuitton and fashion and leather goods, you saw that sales took off in Q4. I remember that Jean-Jacques Guiony in the third quarter, 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? Does that account for this rebounding growth, or is it simply because of better targeting of your sales?
Regarding the sales, could we have a breakdown between wines and spirits and fashion leather goods for the EUR 139 million effects? If you look at 2014, the hedging that you have for the JPY in 2013 stood at about 105. The slot level is less than that. What hedges have you planned for 2014, and what would the negative effects in H1 be? Maybe Jean-Jacques can give us details about that.
Tony, about China. China, it's pretty difficult to arrive at a long-term outlook, for 2014, we can say that the effects of this new sales campaign will continue. Initially, we could see the effects that started with the Chinese New Year. Week on week, we monitor developments. We have positive signals coming in, it's a bit early days now.
As you know, last year, there was increased purchases in China, purchases were made abroad. There was the anti-corruption campaign, also people wanted more transparency on price advantage between various positions. We compared mainland China with Macau, Singapore, Hong Kong, and Europe. Regarding the high-end prices, of course, there was more effect on the high-end prices on the high-end products, and it's true that watches and jewelry, especially with the broader watches, that did significantly better than other products. By contrast, cosmetics, of course, that slowed down, the unit price is less. That's the reason why the advertising campaign didn't cover cosmetics, but rather watches and jewelry. The other effects on wines and spirits, we find that restaurants and other areas might had slowed down their purchases, there will be growth, if less so this year.
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, people nowadays say that. We had a discussion with experts early on. People were saying, "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, more so in South America, Argentina. 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. 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. We have a strong trend, and the real issue is to know whether the industrial countries will be able to keep growing. The U.S. 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. 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, between Q3 and Q4, there was no sudden change. It's not as if products we're not able to produce in Q3, we're able to do in Q4. It was continuous. The EUR 103 million in negative foreign exchange. In wines and spirits, there was no negative currency impact. We had good hedging, and that covered all the primary and secondary currency effects. The EUR 100 or so million was mostly on the fashion and leather goods with Louis Vuitton, and the remaining on the other businesses. For the hedging, you said that JPY in 2013, that's of course, past history. In 2014, we've got about 75% cover for the JPY, about JPY 120, JPY 129, which is a significant margin compared to the present days. For the USD, about 1.31 to the USD. That, again, leaves room for maneuver.
For foreign exchange, I cannot make predictions. If you tell me what the exchange it will be, I can tell you what the impact will be. 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. Even that might not be enough.
Question from J.P. Morgan. I have four questions, if I may. The first on wines and spirits, what is 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? 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, I understood from what you said. Third point on other brands and investments that will weigh on the profitability for fashion and leather goods this year, what you anticipate for 2014, 2015, can we expect sustained CapEx and at the expense of what brand? Plainly in 2013, CapEx remained flat, so something was reallocated. My fourth question, what is the growth in the total Chinese consumer if we include tourism for Louis Vuitton 2013?
Thanks.
Mr. Navarre will speak to inventory levels.
Yes. Thank you. Inventories, this is something that we've been really keeping a close eye on. First thing, inventories are at a very healthy level across territories, notably in the U.S. 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. Overall, everything's under control, 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. Our 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. All markets, the mainland and the tourist markets, that is. Next question, please.
Good evening. Loïc Morvan from Bryan, Garnier & Co . What is the weight of China in overall revenue? That's question number 1. The second question, the new regulations regarding travel restrictions for Chinese nationals since October, has this had an effect on DFS and other brands since in October and 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 DFS 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 and 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. I could just come back for a point of clarification. I could understand in your EBIT, the line others 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 can tell you what happened, but not really as compared to your expectations. Fair number of pluses and minuses. Lot of things in that others. Holding costs, re-billings 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 as a cost, 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, a fair number of profits booked on that occasion. The result was slightly down in 2013. 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. Arnault, with regards to 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 three 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?
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? 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.
I will answer the questions. All right. Well, regarding space growth at Louis Vuitton, I can confirm that the idea is not to develop in the second rate or fourth rate cities in China. We do want to keep our presence in China in iconic areas. Space growth was about 8% or 9% in 2013 compared to 2012. It will level off to 4% or 5% over the next three or four years because, as you pointed out, we have decided to reallocate CapEx for Louis Vuitton towards renovation and refurbishment rather than opening new stores. Will this new capital allocation generate more free cash flow compared to this year? Well, this business has a significant potential, it should generate not just profit from recurring operations, but cash flow as well. There's no reason why that should be negative.
Regarding our objective for 2014, what I would say is this, I know that they may be disappointing, we are not changing strategies. 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. It's very exciting to look for new products, earlier you mentioned Louis Vuitton, we have at Louis Vuitton a whole series of new products. We have a new designer. This in itself is a major event for 2014. The fact that we will have new collections with a new designer at Vuitton and somebody with huge potential, that is exactly in line with the Vuitton spirit of creative or audacity with extreme refinement. You talk about challenges and opportunities. This is on the opportunity side of the sheet.
Of course, Louis Vuitton is not the only brand. We have about 60-odd brands. Well, of course, the question is of a general nature, 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. Of course, the fact that we brought that in was a significant capital expenditure, it weighs on our profit. We can bring a lot to the image. We can do a lot with that company. We can develop that company. We can make the most of their exceptional knowhow for high quality, high-end cashmere products, this is something that we can draw on for our other brands. They have a remarkable knowhow also in running their stores.
I believe if you do your shopping at Loro Piana, it's probably not very cheap, but very beautiful. 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. Mr. Tolédano can confirm this because on Saturday when we came together to look at Dior products, and we went to Loro Piana next door to do our own shopping because the service is so superb. This is exactly the sort of thing we want to invest in, but 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. That's an example, and I have many other such examples, but that is not the purpose of this session.
That was on the opportunity side of the sheet. On the challenging side of the sheet, well, there are challenges everywhere, aren't there? There are geopolitical risks. You don't know what's going to happen next. We mentioned this earlier on. The Chinese and the Japanese are rattling sabers, and it might get out of hand, well, probably not, but we don't know. The Middle East is getting out of hand there. We don't know whether the situation will eventually calm down, whether this will make for a more conducive business environment or not. We do not know the economic policy of the American Fed. They have decided to get their foot off the gas. We hope they don't put the brakes on too quickly because, of course, that might jeopardize growth. These are challenges, but of course, these sorts of challenges are outside our direct control.
We have to be prepared for everything. There will be economic crises in the coming years. That is inevitable. 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 financial position is very sound indeed. When the affairs of the world or the overall economic climate is in trouble, well, we tend to weather the storm better than our competitors. 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 7:05.
Paul, it's already 7:05 A.M.
It'll be a quick one. I'm from Oddo. Could you give us an update on watches and jewelry, Bulgari, 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. For the past two years, profitability has grown strongly, particularly last year. I think Mr. Arnault is well satisfied with. I did pay rather a lot for the company. It was paid a high price, it was worth a lot, a fine brand. It was expensive at the time, it's far less expensive today. I can't go into details, unfortunately. It's true that last year, performance profitability was very encouraging. Things have really changed there's the base is there to move to strong profitability. The famous 20% that you often ask for obviously is something we haven't yet reached, that's achievable going forward.
Okay. Are there any further questions?
Are there any further questions? Yes.
Mario Taliano, Sanford C. 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? If possible, if you can give us an idea of what store openings we have to expect. The second one is on your M&A strategy. What M&A strategy should we expect from LVMH in the next years?
Regarding Bulgari, our strategy is to be very discriminating in the opening of new stores. In 2014, there are two significant stores that will be open in Asia. That will make a big difference. The other brands also are discriminating. Watchmakers have a pure sales strategy, but in the past, they have invested in single-brand shops, and we will continue to open new shops. Well, even for watches, we can open new stores. There will be a Hublot shop in New York on Fifth Avenue. Yes. We have, on the Champs-Élysées, a new store for Capucines on Fifth Avenue last year as well for TAG Heuer. TAG and Hublot will continue their strategy in terms of new stores. For the M&A strategy, there is no strategy. We are not proactive. We are only reactive. We have no ambitions to buy new businesses.
We are very pleased with the businesses we do have, and they have good potential. Should anything attractive, that was the case for Loro Piana, we can afford to do this, but in and of itself, it is not an objective. That was an opportunity that just happened to be there that we could not turn down. Right now, we have nothing specific in mind. I believe that is it. Sorry, please.
Good afternoon. It is 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? 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. 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. It's not in all countries, but where we are present it's 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, 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. 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 end, 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 reach. 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. I have three questions, one on the profit margin of fashion and leather goods. Vuitton was stable. The other brands, for the past two years, they've had a dilutive effect already in 2012, and the fact that you took the Donna Karan jean 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? A few words about the strategy in China. How many Sephora shops do you have in China? Are they profitable at all? Have you revisited your long-term objectives?
Finally, for the leather bags in Louis Vuitton, I think in 2012, it was about one-third of sales and 20% in volume. 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, at times it is difficult to see exactly where we're going. 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, double digits in the U.S., good growth in Europe, good progression in China. We have 150 Sephora stores in China, almost 30 new stores every year, we are profitable. We are breaking even in China now. All right. Thank you, ladies and gentlemen, and enjoy the evening.