Ladies and gentlemen, welcome to the First Half twenty fourteen Results Call. I now hand over to Mr. Roger Guoni. Sir, please go ahead.
Thank you. Ladies and gentlemen, good afternoon, and welcome to this conference call. I am Georges Guillen, the Chief Financial Officer of the MH Group. Before I begin, I must remind you that certain information to be discussed on today's call is forward looking and is subject to important risks and uncertainties that could cause results to differ materially. For these, I refer you to the Safe Harbor statement including included in our press release.
Let's now move to today's topic, 1st half figures. I shall cover the first part with most significant numbers, and Chris Horleys, Group's Head of Investor Relations, will cover the main developments of our different business groups. After this, both Chris and I will be available for your questions. The press release is available on our website as well as the slides for today's presentations and the interim financial reports. So let's move to Slide 2, and I shall start with revenue for the first half.
As you may see, we ended the semester with most of our business groups in the positive territory. You will note that published growth is lower than organic growth despite a roughly 2% positive perimeter impact stemming from the first time consolidation of Loro Kiana. We suffered an adverse currency impact of about 4% with a 4% drop in the dollar and an 11% drop in the yen. Chris will comment main business groups in more details, but the main points to be reminded are as follows. First of all, Wine and Spirit had a somewhat difficult semester due to heavy destocking in the cognac business in China and despite a good level of activity in the U.
S. Fashion and Leather is up 4% in organic terms with a heavy impact from Japan, which we shall discuss in a moment. Perfume and cosmetic is up 6% in organic terms, beating most, if not all, markets' performances in its main geographies. Watch and Jewelry is a bit under pressure in the first half, particularly with regards to the watch component of the business. And finally, Selective Distribution is showing a very strong performance with a 9% growth in organic terms.
Let's move to Slide 3, where you can see a comparison between 1st and second quarter in terms of organic growth. The key points you have in mind is that anticipated purchases ahead of the VAT increase in Japan boosted sales in the Q1. This added about 2 points to Q1 organic growth, as we discussed before, while Q2 was affected by about 1 point by the logical decrease in the Japanese business after the VAT increased implementation in early April. If you take this out, our organic growth despite differences division by division was essentially stable in Q1 and Q2. Let's now move to Slide 4, which shows the geographic breakdown of revenues.
Europe and Asia, including Japan, account for roughly onethree each, while the U. S. Is one quarter no major change on this chart in the first half of the year. Moving to Slide 5. You may see the organic evolution of sales in our main geographies.
You'll see the impact of the Japanese VAT increase, which I mentioned before, with +32 percent in Q1 and minus 11% in Q2. Yet overall, Japan grew 11% in the first half. Other geographies showed similar growth in between Q1 and Q2. Europe is essentially stable, while Asia is impacted by the weakness of the Wine and Spirit business in this region. U.
S. Is showing mid single digit growth with a slight improvement in quarter 2. Let's now move to the next slide where you may see our simplified profit and loss account for the period. Main comments are as follow. We already discussed revenues, which is growing 3%.
Gross margin was quite stable at 65.5 percent of sales against 65.8 percent of sales in the same period of last year. Operating expenses grew a bit faster than sales. Excluding currency impact and the first time consolidation of Flora Cana, selling expenses grew about 9%, marketing 6% and admin expenses 4%. Profit from recurring operations is down 5% but up 2% excluding currency and perimeter impact, which I'll discuss this in a moment. Other operating income and charges are negative by €49,000,000 reflecting mostly amortization and depreciation of intangibles at a level which is not entirely different from last year's.
I shall discuss financial charges in a separate slide in a minute, but no major difference compared to last year. Same comment for income taxes with tax rate being stable at around 30.5%. As a result, group's net share of group's shares of net profit is down 4%. Let's now look at the profit from recurring operation, which is broken down by business groups on Slide 7. Wine and Spirits had a difficult first half, as I told you, with minus 15% in profit from recurring operations.
This is obviously the consequence of the 7% drop in sales in euro terms. Chris will discuss in more detail this in a moment. Fashion and Leather ended the semester more or less flat, penalized by negative currency impact and a complete strategic reshuffle at Marc Jacobs. To be noted that LV margin was stable in the first half of the year. Perfume and Cosmetics shows a 2% increase in profit from recurring operations, in line with sales in Europe.
Watches and Jewelry was affected by the softness of the watch business and the production and distribution reorganization currently being implemented at TAG Heuer. Otherwise, the rest of the business was quite strong. Finally, with Selective Distribution, we had a very solid first half at Sephora, but DFS margin suffered a significant adverse impact stemming from both product mix and rising occupancy costs in airports. Let's move to Slide 8 and a word on the reasons for the change in profit from recurring operations. You are familiar with this chart.
What you can see is that the perimeter impact of €47,000,000 on Royal Kiana helped the profit by about 2%, while currencies had a negative impact of almost 9%. Excluding both these items, organic growth in profit would have been around +2 percent. Let's now turn to Slide 9 and the analysis of the net financial charge. A few points to mention. The cost of debt is slightly down despite a 25% rise in average debt The cost The cost of hedging was a bit lower than last year and should hopefully represent about 1 half of the total year's amount.
Finally, income on the financial investment portfolio was in line with last year. The bulk of this amount, as you know, is dividends received on our Hermes Shareholding. Moving on to Slide 10, where you can see the balance sheet structure. The structure of the balance sheet did not evolve much compared to 2013 year end. Total equity is in excess of 50% of the balance sheet, whilst inventories represent about 17% of the total.
Turning to Slide 11, a few words on the cash flow statement. 1st, net cash from operations before changes in working capital was down €68,000,000 I. E, minus 2% compared to last year's number. Working capital used about €1,270,000,000 in cash, about €250,000,000 more than last year. This comes mostly from an increase in inventories as well as a decrease in payable, which is normal at the end of the year but which magnitude was higher than it was last year.
Finally, capital expenditures are more or less in line with last year's number. I will finish this first part of the presentation with a comment on the group's net debt, which you can see on Slide 12. The level of net debt reached €6,500,000,000 about €1,100,000 higher than at the end of last year. As you well know, this increase is quite usual in the first half of the year when the payment of dividends to our shareholders and minority equity partners exceeds traditionally our net cash flow. The group's net debt at the end of June represents 23% of total shareholder equity.
I will now turn to Chris, who is going to review the main developments within our various business groups. Chris?
Thank you, Jean Marc. Now I'll turn to a discussion on our business groups, beginning with Wines and Spirits on Slide 14. This business, as you will know, was impacted negatively by both the destocking by distributors in China following the anti extravaganza measures being taken there and by the impact of the strong euro. Consequently, this group saw a 1% decrease in organic revenue growth. On a reported basis, taking into account the negative currency impact, revenues were reported down at 7% at 1.677 €1,000,000,000 compared to €1,795,000,000 in the year ago first half.
Looking at the 2 main categories in the first half of twenty fourteen, champagne and wines organic revenue growth revenue grew by 6%, but after a negative 6% currency impact reported revenue fell only slightly to €723,000,000 compared to the first half of twenty thirteen. For cognac and spirits, organic revenue declined 7% and after a 4% negative currency impacted reported revenue was €954,000,000 compared to 1,000,000,000.68 €1,000,000,000 in the year ago period. Profit from recurring operations for this business group declined 15% to €161,000,000 for the first half of this year. Breaking this down, champagne and wine stood at €150 This latter reduction was primarily This latter reduction was primarily due to the negative mix impact resulting from the current destocking of cognac in China. So let me discuss the trends we're seeing that were behind this group's performance.
In the Champagnes business, volumes rose by 3% with price and mix being very similar. During the first half, in particular, the Prestige Cuvees continued their solid development. And on a geographic basis, the group saw performance both good performance both in Asia and in the U. S. For wine specifically, the solid momentum underway at Chandon was offset by the negative effects of the depreciation of the Argentina peso and a more limited contribution of some high end French wines due to a different phasing of shipments.
Moving on to cognac, volumes in this business declined by 1%. As we've seen in the Q3, the good momentum continued in the U. S, in particular for the Versus in China continued destocking by distributors of the VSOP, Ekso and Super Premium Konex as I mentioned continued to impact the business in the first half. Finally, among the group's other spirits, both Belvedere and Glenmorangie are seeing sustained growth. Looking to the second half of the year, the group is committed to continuing to enhance the image and the desirability of its wines and spirits brands.
This will be achieved through delivering ongoing product innovation in order to maintain the loyalty of existing customers and to attract new ones as well as through developing the brands in new markets and continuing to invest in highly compelling marketing and advertising. At the same time, the group is working to further develop production capacity in order to support the longer term growth potential of the brands. Taken together, this work will help the brands be in a good position when the destocking in China subsides, although this is expected to continue through the second half of the year. Now turning to our Fashion and Leather Goods brands. This group saw a 4% rise in organic revenue in the first half of twenty fourteen.
After taking into account a 7% structural impact essentially relating to the integration of Loro Piana and a negative 4% currency impact, reported revenue rose 7% to in excess of €5,000,000,000 Profit from recurring operations was about flat for the period year over year at 1.48 €7,000,000,000 It's clear that the strength of the euro has had a significant impact in the period. This also reflects continued investment being made to support the growth of brands with the highest potential in the group's portfolio. As Jean Jacques mentioned, Marc Jacobs is an example of a brand going through a strategic reshuffle. It is also important to note that the operating margin at Louis Vuitton remained stable in the first half of twenty fourteen. Turning now to the highlights of the Fashion and Leather Goods Group in the first half, that's slide 18.
I'll begin with Louis Vuitton where the brands enhanced focused on ensuring the highest quality in terms of products and the brand experience is achieving the desired results. In the first half of the year, it was clear that the brand is benefiting from a strong creative dynamic with its fantastic new designer Nicolas Ghesquiere and a number of new products driving excitement. This includes development in its leather lines, the successful launch of new models in its beloved Monogram collection and the very positive reaction to Nicolas Ghesquiere's first show, which was reported on in the media with enormous enthusiasm around the world. I'll now speak briefly about some of the developments of other group brands. Fendi saw significant growth in its leather lines leather goods lines due to the success of both its new Degelor bag and its iconic peekaboo and Solaria lines.
Celine continued its wonderful strength since CB Filo's arrival several years ago with particular strong growth in its leather lines and shoes and the integration of Loro Piana has gone exceptionally smoothly and we look forward to further building on the strength of this iconic Italian brand. And at Belluti, the positive momentum continues, driven by exciting advertising and marketing to highlight the extraordinarily crafted products and new flagship stores, which opened to great buzz in Milan and New York. As we look ahead, please see Slide 19. There are very compelling initiatives underway to continue the momentum across the group's Fashion and Leather and Goods brands. And Louis Vuitton work will continue to further the qualitative development of the brand, including the introduction of new leather products, enhancing existing stores and opening select new ones.
In addition to this Nicolas Ghesquiere's new collections will be available for purchase in the second half. At Fendi, a new flagship store with a similar concept to those in Paris and London will open on Madison Avenue in New York City. This is expected to draw significant attention. Loewe will hold the 1st show of its women's collection designed by J. W.
Anderson, which is highly anticipated in the fashion community. Givenchy will expand its retail network with new store locations in Miami and Asia. And I should also mention that beginning in September, Philippe Fortunato will assume the CEO role of Givenchy after having served most working to take that business to its next level of success around the world. Turning back to the slide, Kenzo will continue to enhance its ready to wear collections with bags and accessories. And finally, Loro Piana will continue its measured pace of targeted boutique openings.
Moving on now to perfumes and cosmetics, Slide 20. For the first half of the year, organic revenue rose 6 percent after a negative 4% currency impact is translated into a 2% rise in reported revenue of 1.839 €1,000,000,000 Profit from recurring operations in this business group rose 2% in line with published revenue and reached €204,000,000 Now I'll expand on the brand performance behind the numbers. I'll begin with Passon Castillo, which continues to build on its strengths on a global basis. Notably, in the first half of this year, the brand has seen further market share gains for its exceptional fragrances J'Adore, Miss Dior and Dior Homme. At the same time, the Dior Addict makeup line is performing exceptionally well and the Prestige skincare line is also a strong performer.
Growth at Guerlain over the 1st 6 months of the year was driven by the worldwide success of its skincare line Abbe Royale. The first half also saw the launch of its new fragrance L'homme Ideal. At Kenzo, its flower in the air delivered good performance in the first half. The benefit their innovative eyeliner, their reel has been very well received. Finally, fresh continues to deliver strong growth in the U.
S. And exceptional growth in Asia where it continues its expansion. As to the outlook for the second half of the year in the Perfins Cosmetics Group, see slide 22. In short, the group's goal is to bolster the success of brands and gain greater share in key markets through maintaining investment both in exciting product innovation and attention catching marketing and advertising. At Pathfinder Syndior, the focus is on supporting the continued success of Dior Addict and the launch of a new highly compelling communication program for Jador.
And in terms of highlights in the second half for the other brands, Gerdau will benefit from the opening of a new production site for skincare and makeup at Sharp to support ongoing innovation and growth as well as the rollout of they'll also see the rollout of the fragrance from Lidial launched in the first half. Givenchy will launch a new women's fragrance, DALLE DIVIN and Fresh Benefit and Make Up Forever will each open new boutiques in key markets. We now move to Watches and Jewelry. Please see slide 23. In this group, organic revenue grew by 3% on a reported basis and after taking into account a negative 4 percent currency impact, revenue was down 1% to €1,266,000,000 in the first half of this year.
In short, solid progress in the group's jewelry brands' own stores was offset by cautious purchasing from multi brand watch retailers given the uncertain economic environment. Profit from recurring operations was down 31% in this group at €107,000,000 for the first half of the year. This decline reflects most significantly an impact from the strength of the euro as well as the softness in the watches business. In addition, investments in communication and the production reorganization being implemented at Tag Heya should support the near and longer term growth of the brands. Now to give more some more color on these numbers.
Jewelry brands generally achieve solid progress in their own stores, which helped to offset cautious purchasing among multi brand watch retailers, as I mentioned earlier. In terms of other highlights, C Group's brand saw success with their new watches above the world during the spring. Bvlgari saw good momentum in the first half during which the brand celebrated its 130th anniversary with events and media around the world and it delivered particularly strong progress in its jewelry lines. A TAG innovation continues to reign supreme, which coupled with enhanced communication reflects the brand's strategy to further develop its clientele in order to fuel continued growth over the long term. Over the first half across the brand, the group continues to make investments designed to optimize and enhance communication in order to drive awareness and excitement about innovative new products.
As we move into the second half of the year, the focus will continue as the group works to strengthen the image of its brands and further develop the iconic designs and products for which they're well known. Among other exciting initiatives, they will include launching numerous new products at Bvlgari. In terms of distribution, the group will continue to expand the own store network of its brands while being increasingly selective about its multi brand store partners. Now moving on to our last business group, let's look at the selective retailing business on slide 26. This business group saw a 9% increase in organic revenue, which is particularly notable in that it came on top of a very robust rise of 19% in the first half of twenty thirteen.
After taking into account a negative 5% currency impact, reported revenue rose 4% to €4,382,000,000 in the 1st 6 months of 2014. Profit from recurring operations in this business group declined 3 percent to €398,000,000 while Sephora's first half was solid. DFS's margin was impacted by product mix and rising occupancy costs in airports. It follows ongoing investment in the marketing expansion and renovation of several of its airport concessions. Looking at the businesses in more detail on slide 27, I'll start with DFS.
During the first half, this business benefited from the continued growth of tourism among Asian clientele, although this was somewhat offset by the impact of the weak yen on Japanese travelers, particularly the Galleria in Macau with strong performance. Profitability at DFS was however impacted by costs associated with the expansion and renovation as the several airport concessions as I mentioned all of which are very well worthwhile longer term investments. Finally, DFS, I should note that the rollout of the Tea Galleria brand and visual identity is going very well and continues apace. Turning now to Sephora. This business continues to be a star delivering market share gains in all key regions.
In particular, Sephora saw excellent momentum in North America, Asia and the Middle East. The driver of this performance continues to be Sephora's proven expertise with respect to mastering new cosmetic trends and offering the clientele highly innovative exciting brands and products. In the first half
of the year, this included
the global rollout of 2 exclusive brands, Marc Jacobs and Fulminar X for nails. And as in the past Sephora's online business continues to deliver rapid growth. Finally, I'll discuss the outlook for selected retailing. At DFS, the focus will be on continuing to strengthen its leadership in the Asian market. This will include renovating the Changi Airport concession in Singapore, which was recently renewed.
DFS will also start to deploy its loyalty program, loyalty and launch a multimedia, multichannel advertising and marketing program to drive the excitement. At Sephora, ongoing growth is a theme. Consistent with it, Sephora will continue to renovate its existing store network as its exciting store experience is key to its highly successful consumer approach. But also work to expand into new markets including Indonesia and others. And finally Sephora will continue to focus on innovation in digital and mobile technologies where it's well established where it is a well established leader in the retail sector.
With all of that, I will now turn the call back to Jean Jacques for a brief wrap up before we take your questions.
Thank you, Chris. I will finish this first part of the presentation with a brief overview of the activity and a few comments on H1 performance, highlighting the most significant points. 1st and foremost, I would like to stress the negative impact of currencies, which had negative impact of 9% on our operating profit. Secondly, most of our markets are experiencing modest growth, which reinforces the previous point on currency impact. Implementing measures to offset negative currencies is not that simple when end demand is showing some sluggishness.
Finally, I would also like to mention some geographies like the Middle East or North America where we see a good momentum. Asia seems to be a bit under pressure, but if one eliminates the punctual cornea situation in China, organic growth is in line with last year's March. What about the rest of the year? We highlight a few points from the last chart of the presentation. Always difficult, obviously, to make forecasts, but I shall give you some points which we view as important.
First, and again, currencies, what can I add to what I've already said? Secondly, cognac, where we expect the Chinese situation to normalize later this year, which will make visible the strong advances of Hennessy throughout the world, particularly in the U. S. And the ex China Asia. Certainly, we feel our product line is strong for the second half and combined with innovative marketing initiatives, they should support the business.
So that is basically all we wanted to say, and we shall now open the Q and A session. Thank you.
We have the first question from Thomas Chauvet from Citigroup. Please go ahead.
Good evening, Jean Jacques and Chris. Three questions, please. The first one on Fashion and Leather. If we exclude Japan, the growth was about +2 in the second quarter versus something like +6x Japan in the first. Can you perhaps comment on what happened in the various region, U.
S, Europe, Asia? And perhaps comment on the second half? I know you've got quite a few product launches. Secondly, on cognac, one of your competitor recently estimated that depletions for the category in China improved to single digit negative in the Q2 with the modern on trade up slightly. Can you explain what the situation was in Q2 at Hennessy?
When do you expect depletion to recover and ultimately your shipments to China to return to positive growth? And lastly, on the Chinese clientele of Vuitton in April, Jean Jacques, you mentioned that there was an improvement in domestic demand in Mainland China, resilience in Chinese tourist demand elsewhere. Can you tell us what trends you've seen at home and abroad in Q2? And also whether the crackdown on gifting is still in year 2 affecting you? Thank you.
Okay. Thank you, Thomas. So starting with Fashion and Leather and your question about what happened in the other regions than Japan. I would say that the U. S.
Was a bit better than the Q1 of the year. Europe was more or less in line, while Asia as a whole decreased quite significantly its growth level. Second question on cognac. Depletions, I quite agree with the comment. I mean, what we see on depletions is low single digit negative.
And as you suggested, in some segments of the market, particularly the modern on trade, we see some very significant improvement and some strong double digit growth. So a very contrasted situation, but as far as sellouts or depletions are concerned, we see a very marked improvement compared to last year. One point to bear in mind is that this growth rate depends very much on the assessment of what the depletions were last year. It's not that easy. We had a few surprises there.
It's not that easy to assess exactly what was depleted last year and the level of inventory in the system. But assuming our analysis is good and we expect it to be accurate now, we are in low single digit decrease in depletions. Obviously, it will take a little bit of a while for sell in numbers to coincide with these sell out numbers. We as you know, we exceeded by a fairly large extent the amount of sell out last year. I mean, our sell in was significantly higher than our sellout numbers last year, hence a buildup in inventories, and we have to reduce these inventories.
This is currently being implemented, explaining why the numbers are what they are in H1 of this year in cognac, but we it's not over yet, and we expect the move to unfold again in the second half of the year. And it will not be before Q4 and probably the end of Q4 that the situation will fully normalize. The Chinese clientele, yes, we were not optimistic, but we saw better numbers for Q1. Unfortunately, as far as Vuitton, and it's true for some other brands as well, we saw a little bit of decline both domestically and with tourists in the second half of the in the second quarter of the year. So we haven't seen the same level of business in the Q2 of the year.
Altogether, the Chinese clientele is still mid single digit in the first half of the year, but it's a lower number than what we had at the end of Q1.
Thank you.
The next question from Antoine Bege from HSBC. Please go ahead.
Yes. Hi, it's Antoine Bege at HSBC. Three questions. First of all, to follow-up on the previous question. I think if you look at Fashion and Lever alone, the growth went from 9% to 0%.
So if you assume that Japan was having an impact of around 3%, can you explain maybe what is the other sort of 3%? I think you mentioned China being softer. Some of your competitors mentioned a softness in Hong Kong, especially since May. So what's the situation in Hong Kong for Vuitton and also by the way for maybe DFS? 2nd question is on the margin side within Fashion and Leather.
I think you said Louis Vuitton flat margin. Is it at constant ForEx? Or is it also including the quite significant FX impact? And maybe could you say a word on the evolution of the margin of the other brands? And by other brands, I mean, also leaving aside obviously the integration of L'Oreal Piana?
And finally, I was a bit surprised by the big decline in the watch division EBIT. I understand the FX impact. Maybe could you quantify what the FX impact on maybe other factors? And moreover, do you expect this to improve in the second half?
Thank you, Antoine, for your three questions. So on Fashion and Leather, you pointed out rightly that Hong Kong is a bit difficult. We've seen a very strong Q1 in Hong Kong. And since then, particularly after May, the level of business for various reasons, some of them being connected with a little bit of political unrest there. We've seen the level of business slowing down markedly.
So Hong Kong explains also why Asia has been slowing down in Q2 compared to Q1. It's also a little bit the case for Macau and for the rest of Asia, with the notable exception of Korea, which has been quite strong. But Singapore, for instance, following the disappearance of the Malaysian Airlines aircraft, has proven very soft. As we understand, some tourists are reluctant throughout the region, we've seen So it's throughout the region, we've seen some weakness in fashion and leather. And the FS was no exception to that, and we've seen some slowdown.
I mean, DFS was close to double digit growth in Hong Kong in Q1 and was a few single digit points up in Q2. So also a slowdown at the FX in Hong Kong in Q2. As far as margins are concerned with Vuitton, it's euro margins. We have the same increase and some change in sales and operating profit. So it's not excluding ForEx.
As far as watches and jewelry decline is concerned, yes, you mentioned FX, which has a negative impact. I think it's about €35,000,000 or €40,000,000 impact on the division, which is much smaller in terms of profit than the rest of the than the other divisions. So obviously, the impact was quite dramatic for Watches and Drury. We also had some one off restructuring costs that had all year connected with reorganization of production lines for about €15,000,000 to €20,000,000 So we are talking about significant adverse impact, which explains why the operating profit for the division is down about 30%. Okay.
Maybe to just I also
asked about the other fashion and other brands. And maybe just a follow-up on Hong Kong. Obviously, I mean, you mentioned that the slowdown started only in May. So I guess July was probably on the same vein. And do you expect this to be a short term phenomenon or that after a while, either the Chinese tourists will be traveling elsewhere?
Or what's your first analysis of this trend that I understand is quite recent?
Well, it's quite the short answer is I don't know. To give you a little bit more color on this, it's not that easy to analyze. I mean, what we see is actually traffic increasing, but the level of business done with 1 single client being lower than what it was. So basically, what we see is a change in the qualitative change in the business we do. So more people in the stores were buying less.
It's exactly the opposite from what we saw last year following the implementation of the new regulations regarding travel from China. So it's quite unexpected. We were not we didn't think that type of trend would happen. And we need probably some more a little bit more time to really understand what's going on. Is there a next question?
We have a next question from Mario Kartali from Bernstein. Please go ahead.
Hello, Jean Jacques. Hello, Grace. Two questions for me. The first one is about Marc Jacobs. You told about a strong investment in Marc Jacobs.
What are the plan of the company on that brand and what are the targets that you have in mind also because you have approved one of your most experienced manager the helm of the company quite recently. The second one is about Louis Vuitton. You mentioned new models in leather goods lines for the next month. If you can give us a bit more visibility regarding these new product launches? And which impact do you think they will have on the face of return?
Thank you.
Well, I'll be pretty short on the second part of the question. I mean, this is some of the developments we've already seen at the end of H1, particularly on advertising. You've seen the locket being introduced fairly recently. Some other developments will take place in the course of H2, which I cannot really elaborate on at this point in time. Importantly, you will also see the first results of Nicolas Jesquier creation that you've seen on the runway shows earlier on this year that will be in the stores.
So that's why we feel that our products pipeline should definitely help the business in the second half of the year. As far as Marc Jacobs is concerned, as you know, we have a lot of hopes for this company. We think this is a very well positioned brand in the contemporary segment, and we expect to develop it much further. This is the reason why Marc decided to devote 100% of his time to the to his brand. So this is a very important move.
And following this move, we have also, as you mentioned, appointed a new and experienced and talented manager at Marc Jacobs. Obviously, we need to make some revisions as to retail, wholesale and the product policy, which is currently being implemented and which is having some impact in the short term on profit. But definitely, we are doing that with in mind the medium- to long term development of the brand. So we shall probably be still a little bit under pressure for the 2nd part of the year as we are incurring larger costs on a few things and cutting some businesses here and there. So it has some impact on the profitability.
But definitely, this is with the objective in mind to really develop, in a large way, this very exciting business.
Excuse me, just one clarification. These are focused on the contemporary segment. Can be probably used also to relaunch Donna Karan, that is the same Sabita isleeping brand in your portfolio?
Well, it's also a very exciting brand. A brand we are not yet very we are not advanced enough to be able to make any announcement as of today, but we are working on this as well.
We have a question from John Gill from Berenberg. Please go ahead.
Yes. Good afternoon, Jean Jacques and Chris. A couple of questions for me, please. First of all, with regards to pricing at BBTON during the Q2, could you maybe talk through any significant or material pricing activity especially in Japan and also within Hong Kong and Mainland China? My second question is around Loro Piana and the development there that you've seen in the first half of the year.
I mean, if we're looking at the sales and EBIT development, am I sort of in the ballpark thinking that Lourpian has generated just over €360,000,000 in turnover and just over €60,000,000 in EBIT? And also finally with regards to the watches and jewelry category, with regards to the inventory position that you are seeing at the moment, I appreciate that it's always a little bit tougher for TAG to operate in some of the Asian markets. But with regards to infantry, especially in relation to Tag Heuer in the U. S. And also in Asia?
Could you just maybe make a few comments there as well? Thanks very much.
Okay. So on the pricing for LDE, thanks for your question first, John. On the pricing for LDE, we had regular price increases in Europe and in the U. S. Of about 3%.
I think it was in March, if I'm not mistaken. And of the Q1, we had an 11% increase in Japan 8% increase in Japan, sorry, in the same period and a little bit later in April in China of the the same magnitude. So that were the main price increases that we implemented throughout the first half at Vitol. On Orocana, well, the numbers are a bit different from the ones you mentioned. It's about €350,000,000 in
sorry, €330,000,000
in sales. And the operating profit was €47,000,000 or €48,000,000 You can get that from the various indications we made in the presentation. The all the perimeter impact comes from L'Oreal Piazza. Finally, on the watches and jewelry, the inventory situation. I think the inventory situation is a bit complex.
I mean, we it's not that in dollar terms, our retailers have too much inventories. The issue that they have is that they have too many slow movers. I mean, there are a few expensive products that were sold to them in the last few years that do not really sell and that are absorbing a significant portion of the money they have to take and devote to the purchase of TAG Heuer's product. With the consequence of retailers not buying fast movers, right, not buying products that sell well because they have too many products, too many slow movers. So we definitely have to take some action, which we are currently doing and we'll continue to do in H2 to correct the situation because we are in sort of paradox when some of our products would sell extremely well if the retailers had the money to buy them.
And in order for them to release the money to buy them, they have to get rid of some of the expensive models that they have on the shelves. So it's a little bit of a tricky situation that explains why the business has been under real pressure in the first part of the year, not only from a sales viewpoint, but obviously from a profitability viewpoint.
Okay, great. And do you have any idea or any sort of visibility at the moment as to when you think this is going to start to return? I mean, certainly, within a broader perspective in Asia, the export comps get a lot softer running through into the second half of the year. I was just wondering if you had any sort of visibility or any expectation as to when you think that that might change? And if I could just add sort of one final one.
With regards to I think a comment you made at the back end of last year, the development of some of the other fashion and leather brands, Fendi, Celine, etcetera, with some of the planned extensions in retail. The expectation in 2014 was that they would be effectively margin neutral. Is that what you still expect to see? Thanks.
Yes. The answer is yes on your last question. We see some developments at Sabine, Fendi, which are I mean, both are growing fast and with stable or slightly increasing margins, particularly at Fendi, which is not necessarily very visible due to positive one offs we had last year. But nevertheless, the developments are very favorable. Same thing with Kenzo and Givenchy.
So we have a few improvements there. Sorry, I missed your first question.
Turnaround in Asia? Sorry, turn around in Asia? No, the turnaround for watches, how
long it could take. It's a difficult question, obviously. It depends a little bit on the strength the underlying strengths in the market. As you well know, in the Asian part of the world is, in the watch business, showing some sluggishness. So obviously, the higher the growth, the quicker it's going to take.
It's quite stating the obvious. But it will be quite it will take, in my view, a few months and probably quarters to normalize the situation. We can be more optimistic in the U. S, where sellout is proving much stronger in the first half of the year than what it was in the last year.
That's fantastic. Thanks very much.
The next question is from Lucas Cola from Exane BNP. Please go ahead.
Yes. Hello, Jean Jacques, Lucrece. It's Lucas Colca from Exane BNP Paribas. I wonder if you could step back and then tell us how your ambition for organic growth normalized organic growth over the medium term in Fashion and Leather Goods stacks up against the 4% in the first half. Specifically, where do you assess you stand on the Louis Vuitton development, the new product and new style development and momentum has been strong.
Is there a similar pickup on the part of consumers? And in what geographies do you see that the new approach at Vuitton is working best or working worst according to the first half evidence that you have in hand? 2nd, I was wondering, I was sort of reading in between the lines that are settling ForEx pressure in an environment where demand is subdued through pricing is not necessarily an option. I wonder if you anticipate in the second half significant cost action to address the other side of the P and L. And thirdly, I saw that there were press reports about Sephora, which is developing very well, but apparently losing share in some developed markets in Western Europe, most notably France.
I wonder if you have any comments on market share trends, etcetera, and your future ambitions for this. Thank you.
Okay. Thank you, Luca. Well, you don't really expect me to answer the first question, do you? That is not something we normally share. And frankly, it's a quite difficult question.
I mean, our business is also a function of the end demand, and the end demand is what it is today. So it's quite difficult. One can be optimistic about the end demand improving in the future, particularly in Asia, where it is a little bit under pressure. And with product and marketing initiatives, we expect to be in a position to benefit from that. But the reality for the time being is that we don't see a major improvement in end demand.
As far as Vuitton is concerned, I mean, it's not a 2 month process. What we explained last year as to our product strategy and the introduction of soft leather line and the idea to improve the mix at Vuitton is taking some time. It's underway. We are solving product issues, production issues, 1 after the other. So it's working according to plan, I would say.
Again, end demand is not helping very much. I mean, definitely, the numbers would be better if end demand was stronger. I'm again stating the obvious. But as far as the reception to our new product lines is concerned, it's definitely going according to our plans. 3rd question on significant cost action in H2.
As you know, we are not great fans of slashing costs harshly and putting the various brands upside down. I mean, we are progressively curving the growth rate in costs, particularly in selling expenses, which is not done in 10 minutes as we take commitments to open stores way in advance of opening them. So it's happening. The only thing I can say that the growth in operating costs in the second half of the year, well, ex currency, will be lower than what it was in the 1st part of the year. Finally, your comments on Sephora.
I've seen the article. I mean, I don't really know what they are talking about. I mean, as far as prestige cosmetics is concerned, which is our business, we are not in the business of mass cosmetics. We are not in the business of pharmacies. So we don't know what it is about.
As far as prestige cosmetics are concerned, we are definitely gaining market share. We are the 1st in France with a market share which is higher than 30%, excluding exclusive products and the Sephora brand. So it means that our market share overall is even higher than that. We are pretty pleased with this market share, which is growing and has been growing year after year for many, many years now.
Thank you very much.
A question from Hermine De Bensmann from Raymond James. Please go ahead. Hi, good evening. I have three questions, please. The first one on fashion and leather goods.
On the 0% growth in Q2, can you maybe split between retail and wholesale growth? The second question is on Japan. On the minus 11% that we saw in Q2, can you also split month by month? And did you see a recovery in June? And finally, can you maybe update us on your hedging rate for the dollar and the yen?
Thank you. Okay.
So first question on retail wholesale, it's obviously ex Vuitton, which is 100 percent retail. So we our figures for were flattish to a bit negative, while our numbers for retail were close to mid single digit up. So they were not dramatic in either way. Japan, month month, so you see minus 11% for the quarter. Definitely, I mean, I don't have the numbers with me here, but it was minus 20 5% in April, minus 18% in May, something like that, and a better number in June.
Bear in mind, nevertheless, that as far as June is numbers for Vuitton in Japan in numbers for Vuitton in Japan in July 2013 in June 2013 were inflated by the announcement of the price increase. So this explains why the recovery in numbers in Japan in June is there, but maybe not as strong as it could be if we eliminate this price increase of last year. Finally, hedging. Hedging, we have a on the dollar, a 50% cover for 2015, which is at 1.37%. And for the yen, it's about the same percentage, 55% at 1.40%.
Percent. For 2014, more or less 100% of the position is hedged now at 1.32 percent for the dollar and 1 €127 for the yen.
Thank you very much. A question from Melanie Fouquet from JPMorgan. Please go ahead. Yes, good evening, sorry. I have three questions as well.
The first one is on retail in China. You mentioned that it had slowed down in Q2. I was wondering whether you could shed some light as to why this could be the case in your analysis because we are I think we're well aware of what's going on in Hong Kong, but China, I wasn't under the impression, has further deteriorated for so much of years. My second question is on LV margin. I'm pleasantly surprised that they are flat year on year, including currencies.
So could you tell us what you've been doing maybe on the cost side that leads to that? And my first question is on the FX. Last year, you had taken on the Hong Kong concessions, which had a negative impact with the expected improvement this year. The first half is challenging. What should we expect for the remaining of the year?
Thank you very much.
Well, I wish I knew the answer to the first question. I mean, the growth rate of LV in China is lower in Q2 than it was in Q1. Frankly, it's quite difficult to explain. I mean, giving you precise explanations on a few percentage points lower or higher quarter after quarter is always a very challenging thing for me. I could provide you some sort of macro explanation such as anti extravaganza measures, impact and that type of thing, the overall climate for business, the risk of real estate prices and so on and so forth.
So I don't think this would convince you 100%. So frankly, we see a lower level of business. We understand that we are not the only one given the numbers that we have. And bear in mind that we are like for like more or less in China. We have not opened that many stores in the 1st part of the year.
On the LV margin, what have we done? We have done a few things. We have controlled in a very strict way the costs increase through for all the components, be it selling, marketing and admin. Margin improved gross margin improved a a little bit as well due to hedging gains, but also due to mix.
We had
a very strong Q1 in Japan. The bulk of the business in Japan is usually monogrammed, so it helped a little bit, not to a great extent, don't take me wrong, but it helped a little bit. So this is basically a combination of all these factors, which explain why the margins were flat at Vuitton. Finally, DFS. The airports business in Hong Kong recovered sharply in the 1st part of the year.
We are still losing a bit of money but a few 1,000,000 of dollars, so it's quite a good improvement. It's really the rest of the business where we had 2 big factors. 1 is that the category growing the fastest is by far watches where margins gross margins are on average 10 or 15 points lower than the rest of the business. Obviously, we have a very negative impact on gross margin stemming from the growth in watches. We have seen that in the past already, but not to the same magnitude.
And second thing, as you know, we have renewed a few important concessions in airports, namely Los Angeles, San Francisco, not to mention Hong Kong, but also Singapore. And obviously, at the beginning of the new concessions, the P and L is always a little bit under pressure. If not losing money, hardly making any profit, and this is impacting the P and L. The second point was definitely budgeted, while the first point is a little bit of a negative surprise for us in the first half.
So, Maria, as a follow-up, did you say that watches were the best performing? Is that what you said? Yes. How do you explain that in the context of what we're seeing in general in watches?
Well, it was particularly true in Q1. We saw a little bit of slowdown in Q2. But definitely, watches was the fastest growing category in the business mix of DFS.
Okay, perfect. Thank you very much. We have a question from Rogerio Fujimori from Credit Suisse. Please go ahead. Hi, thank you for taking my question.
Roger, could you comment on demand trends you saw in France in Q2 for LV and your main business? And also trends in other key European markets like Italy, U. K. And Germany would be appreciated. Thank you.
Thank you, Roger. Well, the luxury market for France is no exception to what's happening for France as a whole. I mean, it's basically well under the rest of Europe. We've seen stronger numbers for Spain, for Italy and then for the South of Europe. Obviously, we decreased sharply over the past few years, so it's more a recovery than pure growth.
Germany and the UK are doing okay, and France is a little bit under pressure. The domestic client base is not showing any growth. And we are also suffering from the fact that the Japanese customers, which used to be doing a large portion of the business, for instance, at the Avito, are dropping by again 20% or 25%. So this is exerting some pressure on the business. So overall, both on the domestic side and on the touristic side, we have experienced a little bit of pressure in France, which is overall down a few percentage points for the first half of the year.
And Jacques, is the business of the Chinese in France holding up well in Q2?
It's lower growth is lower than Q1, but it's holding up, yes.
Thank you very much. We have a question from Melanie Flouquet from JPMorgan. Please go ahead. Yes, sorry, it's me again. I was wondering whether you could talk a bit about the monogram, which clearly had done pretty well in quarter 1, seems to have had an impact in margins.
What do you expect in the second half? Because I was under the impression there were some launches still in the monogram coming up because of the 100 year anniversary. So are we going to see the elevations sort of more moving into next year just by virtue of the anniversary of the brand? Thank you.
Well, monogram did well, as you said, in Q1, but also in Q2, which was not surprising. It was expected, but it which is more significant in my view. We expected the Japanese business to boost monogram in Q1, but we didn't have the Japanese business in Q2. And despite that, monogram did well in Q2. This is mainly due to introduction of new products, the Metis, the Palace last year, the Montaigne this year.
All these products are doing very well, and we are quite hopeful for the rest of the year.
And so we shouldn't really expect a big shift in mix this year, right, given the success of Monogram since the beginning of the year?
Overall, we nevertheless get a faster growth and the larger share for laser products than we have for the Canvas product. So there will be a little bit of mix impact, but it is offset a little bit by the success of Monogram, which is definitely good news.
There is no more question for the moment.
Okay. So this ends the this conference call for the first half of the year. I have no particular closing remarks to make. We already sum up a little bit what we think about this semester and what type of outlook we may expect. I look forward to discussing with you Q3 numbers in October.
Thank you for attending the call.
Ladies and gentlemen, this concludes the conference call. Thank you all for your attending. You may now disconnect.