Good evening, ladies and gentlemen. I'm delighted to welcome you for this Full year Results Meeting for 2017, of course, to answer your questions as per usual regarding the business development, et cetera. 2017, once again, I would say, has been a record year. At the risk of being somewhat tiring in my presentation, let's recognize things. The results are there. Revenues up 13% over EUR 42 billion. Profit from recurring operations up 18% at over EUR 8 billion. Group share of net profit up 29%, topping the EUR 5 billion mark. As to the financial position, free cash flow close to EUR 5 billion, and we have a gearing in spite of the acquisition of Christian Dior Couture that has remained at 24%.
Now, why such an increase in earnings and such results? There are two explanations, I believe. First of all, a buoyant global market, a favorable outlook that really boosted the sales of all our brands. Secondly, it's the ability for our brands to bring to market highly creative, desirable products that have all met with remarkable success. I'd like to congratulate the teams who are, some of whom are present here, to thank them for delivering these 2017 results, where it needs to be said that not everything was easy, particularly in terms of manufacturing and production with the constraints always generated by an acceleration on the sales front. Now, if we look at all geographies, growth was good across all regions.
What's quite remarkable, very strong growth in the U.S., where the market continues to be very buoyant. China is back. For two years now, Chinese markets become very dynamic, and this global business trend is continuing into this year. It's a little too early to make any forecasts, but we don't make any forecasts. It's always a bit hazardous. Early January is really confirming the trend seen at the end of last year, 2017. If we now move into the various segments, one by one . Wines and spirits had a great year with a very sharp increase in revenue and volumes, but a strong limitation of possibilities given to manufacturing. Yet we've invested in November.
Some of you were traveled with us to Cognac to see the opening, the inauguration of the Couronne bottling plant that's ultra-modern and now has a capacity of some two million cases per year. That's gonna be boosted with a second line to four. It's not enough to meet demand. In certain countries, we're not able to service all our customers, notably with VS in the Unite States, where we are particularly constrained at the present time. Now, the success of Hennessy, as it happens, is truly remarkable. In the global market, it's far and away the leader.
I don't know if you're fully familiar with the position of this brand, it's interesting to note that as compared to its direct competitor, the number two brand, that I won't mention, I don't wanna be unkind to any competitor. Hennessy is 4 x bigger in volumes. The number two is 4 x smaller. That really does illustrate the difference between a brand such as this and its various competitors. We've made great strides across regions of the world, particularly in the Unite States. China has confirmed progress, it's a market where the biggest difficulty at the present time is supply, the ability to find the raw materials to manufacture and deliver more bottles.
In Champagne, the success is equally spectacular with nevertheless some manufacturing constraints because the climate this year wasn't great. Production constraints there again. We that we of course depend on. The prestige cuvées had a great success in 2017. The Dom Pérignon P2 of 1998 vintage that met with great success and already sold out. A few acquisitions in wine and spirits, so Colgin Cellars in the United States. The very prestigious Napa Valley wine that is sold directly for the most part to end users. These customers buy a few bottles a year, and everything is sold when the products are delivered.
We also acquired a small, don't know if we can call it a startup, but it's a modest-sized company that manufactures American whiskey in the Unite States. There again, offers good potential. In 2017, we launched tequila with a Mexican partner. You see that an important bottle was sold this week that's meeting with strong demand across the Atlantic. There we're quite well-positioned with this brand. It's a brand that's just getting started with us. If we now move to Fashion and Leather Goods. Well, fashion continues to go from success to success, starting with Louis Vuitton, the world's greatest brand that this year has grown. Our ambition is not to move too fast, even if we are going very fast.
Our ambition as we say with the managers of this company, is to remain at the head of desirability for the next 10 years and beyond. We of course must be wary of two striking and divisive fashion trends, whose disbenefit is to impact the image. We seek to combine modernity with timelessness, and I think we've succeeded pretty well. Conferring on this timelessness, the extraordinary quality of Vuitton products, an aspect that is sometimes surprising, ultra-contemporary. What we did with Jeff Koons in the Masters line, where Jeff Koons used his creative talent, so that some of our products resemble some of his works.
I'm sure that you've seen the Leonardo da Vinci paintings that he twisted with his own hand, so to speak. Those of Van Gogh and Monet met with considerable success. With men's products too, cooperation with a U.S. brand that some of you probably known that's very sought after by young people, Supreme. That was a big success. Everything was sold out in two weeks, and we had to shut down a few pop-ups where we'd launched the products owing to a lack of products. There were too many people waiting to enter the stores, and that might have created some difficulties for the public. Highly creative products.
Big success of the ready-to-wear line with a wonderful fashion show in Kyoto, the Croisière line that is meeting with considerable success. Two major exhibitions this year for Louis Vuitton, one in Korea and Seoul, another in New York, an exhibition that was held here for the first time at the Grand Palais that was very successful. There we showcased the history of the house since the middle of the 19th century with the first trunks and those of the latest creations by Nicolas Ghesquière. The high point was the opening mid-September of the Vendôme house of Louis Vuitton, which is possibly the finest, most refined luxury fashion store in the world that's very successful, visited by all aficionados of luxury products coming to Paris.
That adds quite extraordinary to the renown of Louis Vuitton. Speaking of renown, There was actually a sun on the facade that illuminated the Place Vendôme because this building that, a listed building, was built by Mansart under Louis XIV. Inside, the Vuitton teams reconstructed a Louis XIV statue. It's from time to time quite amusing when it holds a Vuitton bag. I don't know if you visited it, but you're all invited and most welcome to visit this absolutely magnificent house. Another very important event for fashion and leather goods this year is the arrival of Christian Dior because we acquired the Maison de Couture Christian Dior that is now part of the LVMH group.
That obviously offers many advantages that allows us to have an even more unified strategy, both for couture and perfumes and cosmetics. It also means that we have a full unit for management. Mr. Toledano, who's headed up the company for a number of years, has now moved to the LVMH Group and will be directly in charge of all the brands of the fashion group. That is, all the brands outside Dior, Vuitton, and a few others, Fendi and, you know, Piana. The first acquisition, as you noted, is the arrival of a new creative director at Celine, and not just anybody, but one of the most well-known global superstars, Hedi Slimane. I'm sure with the arrival of this creative designer at this brand, that's already a big success.
We're not giving the figures in detail, but very close to EUR 1 billion in revenue. The objective with him is the next five years to achieve between two and three , possibly more. We want to make it one of the leading fashion brands in the world. I'm sure that with a design of his caliber and talent, and the group works well with him. We have long-standing ties with him. He launched Dior in the middle of the 2000s. We have all the assets to make this brand grow quite substantially. Just a word to add that Loro Piana has delivered a very fine increase, as well as Berluti that Antoine is in charge of.
These are more classic brands and an opportunity for us of high quality and attract more and more customers throughout the world. Perfumes and cosmetics. You can see the increase delivered, an increase and a like-for-like both organic growth of the order of 14%. That's worth noting. There are very few cosmetics and perfumes companies that deliver such growth levels. I see some of my competitors, I always respect my peers, but whose luxury cosmetics segment is up by 7% or 8%, have extraordinary reviews and saying, you know, "What's great increase?" We're at 14, which isn't bad either. That's due to the success of all our brands. Dior, to begin with, great success with its perfumes.
Sauvage men's fragrance, launched three years ago, is one of the leading global perfumes. This year, with the launch planned of the Eau de Parfum, the first men's perfume in the world. The J'Adore, which continues to make great strides, up with the leaders, Miss Dior. The Dior cosmetics products, notably the lipsticks that meeting with considerable success and growing strongly because Dior today in makeup is probably the world's number one brand. The Dior increase is impressive. Other brands are doing very well. Givenchy for makeup. Guerlain with the new perfume that we launched on quite surprising success that I'd like to mention, this year, is the launch of a makeup line founded with this wonderful actress, Rihanna, which is called Fenty Beauty.
Massive popularity of that product that is reaching figures of hundreds of millions in the first month of launch. Never seen before. We started from scratch in September for that. The objectives for 2018 are also very high. Here, let me stress for our investors here present that we launched this business where we have a majority stake in which of course the creator is associated. We started from zero. We didn't pay any investment. We see some of our respectable peers who buy businesses of EUR 200 million or EUR 300 million in cosmetics and pay over EUR 1 billion for them. We just need to stress in passing the difference in approaches compared to our strategy.
It's, let me add that we this year acquired a small perfumes business, Francis Kurkdjian, which is a great brand offering considerable potential. The watches and jewelry and then selective retailing. Wines and spirits I've already covered. Sorry, I was confusing watches and wines. Watches and jewelry, and then end with selective retailing. Watches and jewelry, good progress. The market is picking up slowly. Excellent increase in jewelry. Bulgari has gained market share. It's one of the brands growing the fastest in jewelry at the present time with iconic lines for Bulgari. We reopened the New York store on Fifth Avenue on the corner of 57th. That was opened at the end of the year, and that's getting off to a great start.
Let me just mention in passing, even if we don't give the detail of the figures, I don't know if I'm allowed to say this, Jean-Jacques, in terms of the operating profit of this, but we acquired it at the end of 2011. In 2017, the operating profit generated by Bulgari is 5 x the operating profit that we found when we bought the business. Everyone was saying at the time, "Well, you paid over the odds maybe," but when we see what the situation is today, it wasn't that expensive. It was a very good investment. That's just in passing. We also opened up Bulgari, a great workshop to meet demand and production requirements, so that's making good strides. Chaumet is also progressing well. We had a wonderful exhibition in the Forbidden City that I visited in China.
The sales in China are growing well. It's a small business with great potential. TAG Heuer Watch is very successful with a connected watch. Connected watch in the coming years is going to make great inroads, notably in terms of the technology. I'll tell you more about that at the next meeting. We'll be innovating quite a lot. Hublot, ditto, very creative as always with watches from the basic models, limited series, and a number of stores open. That's a good success. Moving to selective retailing. Let's start with Le Bon Marché. Excellent figure. It's not the biggest retailing operation, but posting the greatest increase amongst the department stores. Good profitability. We inaugurated La Grande Épicerie on the Rive Droite in the former Franck et Fils store that you may also have visited.
DFS confirmed recovery of sales, with a recovery in travel. We had a problem with DFS that's now behind us at Hong Kong Airport for contract reasons. It wasn't profitable. That's now been closed. DFS was profitable overall in 2017, will be even more profitable in 2018. Of course, the big success as every year is Sephora that continues to post double-digit growth, gaining market shares, far and away, the number one retailing operation for perfumes in the United States, physical and online. Very dynamic, very innovative teams. Very good digital expansion for that. We acquired the business of internet sales in South-East Asia that's growing well. Luxola, and quite sustained growth in China. All lights are green.
In closing, let me remind you that in 2017, we integrated for the first time Rimowa, a company that manages manufactures the finest luggage in Germany and has great potential because if you look at the growth planned in air travel over the next 10 years, strong increase. Just look at the number of aircraft being sold. Air travel set to grow strongly. We have, with Rimowa, a company with great potential that will expand. Let me just end this presentation of the various business segments by saying a word, just a word on the Louis Vuitton Foundation. That's not a profit center, so it's perhaps less of interest to shareholders, but it's a great success.
I'm sure that a number of you visited the exhibitions that were held at the Fondation Louis Vuitton this year, in particular that was held at the beginning of 2017, that exhibition of the Shchukin collection from Russia, an exhibition that had the greatest success of all the art shows ever presented in Paris with over 1.3 million visitors in four months, so that's an astounding success. There's currently an exhibition of the works of The Museum of Modern Art from New York. That's also very successful. We have a great many plans, and let me mention that the Shchukin exhibition for which we took a risk, but given how popular it was, didn't cost the foundation any money.
Just mention that to you as investors to give you a quantitative item of information about an area where we're really more to fantasize rather than to look at the figures. For 2018, well, I'll say the same thing as for 2017, in fact, with just a slight qualification. Today, the world is in a quite surprising economic situation. Interest rates close to zero or close to negative since the CFO is particularly outstanding. He gets us to borrow at negative rates, so people pay us to borrow. That's sheer folly. Let's take full advantage of it since we can do it. Interest rates are at lowest ever. Money is awash. All the bankers beating a path to our door to lend us money.
When you put money in a business, I mean, you have to put it in a bank. You have to pay the bank so that it can look after your money. I mean, it's just amazing. Asset prices are reaching stratospheric levels, equities or physical assets, a period of total unreal unreality. There hasn't been a crisis for 10 years. I'm personally convinced that over the next five years, I can't say when, but there'll be a crisis, so we have to be cautious. That's why I say that for 2018, I'm confident, but one needs to be cautious. A crisis will happen. Will it be the explosion of a bubble? Maybe. Maybe bubbles are forming. Cryptocurrencies, is that going to end in a bubble? Don't know.
I mean, all the analyses on this, some think it's great, others don't understand it. Some say it's sheer folly. We don't know. There's money going into that. Not huge sums at this stage, but it can inflate. There are also geopolitical risks that are considerable, Middle East, Iran, Korea, maybe. Something can happen on the geopolitical front. That's why I believe we need to be cautious. But I'm confident for our business in the medium term because the development that accounts for the increase in our client base, customer base, that is, increased living standards in most countries, be it developed countries such as the United States or developing countries. We don't call them developing countries, but Asian countries, China or others, that's set to continue. As I said, for travel, all that's set to continue.
We'll continue to have a market that's in growing, there can be ups and downs. When will they happen? There'll be shocks with an additional factor this year on the currency front. You see the euro has risen. It's always difficult to make forecasts. It may continue to rise a little. Maybe the dollar will weaken. All that's difficult to predict. Be that as it may today, the exchange rate for us is rather negative as compared to what it was last year. That's just a slight caveat as to compared to 2017. I'm very confident as to all the products we'll be launching. We have a whole range of extraordinary products that we're going to launch.
We're increasing our investments in digital technology, but we need to be prudent there so as not to want to sell at all costs and try and be strong on the digital front where we go out and sell at all costs. We mustn't really trivialize our products. I mean, Louis Vuitton is the only brand in the world that never does any sales. The only brand never does sales. Certain other brands don't, but they have 20%, 30% of revenue sold in outlets. We don't do that. We don't have a single store in which our products are sold at knockdown prices, be it in our own stores or outlets. We're very attentive to that. We could significantly boost revenue.
Of course, we could sell on the internet and all possible channels, but we don't do that, and I think we're right. Here, I'm not gonna give you a long presentation on the group's value, quality, creativity, spirit of enterprise. I think that given the success of the group, we have the ability to attract the best talents, the best young graduates. That's thanks to human resources. They always seek to find the best. It's not always easy, but we try and attract. The best designers, we have enough proof of that this week. With that, we will increase still further our sales across the luxury market in 2018. Now over to our CFO, who will give you the details of the financials.
Merci. Thank you. You have behind me the smiles of Chris Hollis, who discovered the numbers for 2017. Good results indeed, starting with the revenue, and this is probably the most difficult chart in this presentation. First, you have organic growth in dark blue, light blue, the currency effect, and in gray, the structure impact, which was significant in 2017. Organic growth was stable around the average, the annual average, about 12% every quarter. We have added H1 in nine months, but we run about 12%, and indeed, we have 11% in Q4. In terms of currency effect in light blue, the year had its ups and downs.
We had a positive contribution of the currency effect in the first half, it was negative to the tune of 5% in the second half of the year. The structure impact, which was limited in H1, there was Rimowa coming in and then Donna Karan going out, but this became more significant to the tune of about 6% in H2 with the consolidation of Dior Couture starting in July of 2017. If you look at the revenue in geographical distribution, we gone 1.2 in Asia. We lost the point in the U.S., not that the U.S. had a bad year, but you have a currency effect there.
Speaking of which, the breakdown of sales by geographical area is, you can see on the right-hand side that all countries, all regions had double-digit growth, except for the U.S. Well, it did have a double-digit growth. I mentioned this in June. There was the termination of the contract we had in the first half of the year, with Grand Marnier. That cost us 1 point. If you restate the numbers, we would have 10% in the U.S., 11% in Japan, 12% in Japan. That was a good surprise. You have in Japan, tourists returning to Japan. They had stayed away in 2016, there's also domestic customers, that was new.
Asia, not including Japan, had significant growth, 17%. Indeed, China within that is even higher than that. What you have to remember that a number of markets that had, recovered, including Hong Kong and Macau, have, indeed continued that recovery with, again, double digit growth. Finally, Europe, 10% growth. We're looking again at a significant growth. In Europe, just as in Asia, you have a slowdown of growth in Q4. This is mostly, a basis of comparison effect because if you look over two years, the growth rates are essentially the same, in fact higher.
The basis of comparison was tougher in Q4 2016, and that is why the growth rate for the last part of 2017 was not quite as good, but nothing significant there. If you look at the various business groups, and Mr. Arnault mentioned this in terms of quality, but let's put numbers to that in the various businesses. You can see that everybody had double-digit growth. Of course, the main indicator is organic growth. Everybody had double-digit growth except for wines and spirits, only 7%. Again, for wines and spirits, you can't have double-digit growth that easily because there are supply issues, there are technical issues. 7% or 8% growth is sustainable, but double-digit growth wouldn't be sustainable.
Good growth, organic growth in wines and spirits. Champagne and wines as well, as well as cognac and spirits are sharing in that growth. Everybody else has double digits. Fashion and leather goods, superb year, up 13% in organic growth. Perfumes and cosmetics, as Mr. Arnault said, up 14%. Likewise, watches and jewelry, 12%, slightly above the benchmark, at least on the market. Selective retailing did extremely well as well. There's a number which I usually comment. I used to say Sephora was doing well, DFS not so good. Now Sephora is doing well, and DFS even better now 2017 was an outstanding year, and well, let's hope that 2017, 2018 will be even better once the Hong Kong airport is out of the radar.
If you look at the same issue on the last two quarters to put growth in perspective, you find that for wines and spirits, for reasons of availability and supply, the second half of the year was a bit weaker. Organic growth was five compared to 10% in the first half. Less growth because of its intrinsic challenges. Fashion and leather goods remained extremely high in all activities, including fashion and leather goods. Q4 in 2016 was up significantly, so the basis of comparison was much higher, especially in Q3 and especially Q4.
The fact that there's a slight slowdown in growth in Q3 and Q4 in fashion and leather goods is not significant. Perfume and cosmetics, we find in fact that H2 had a higher growth than H1. Likewise for watches and jewelry. The Selective retailing, Sephora had double-digit growth throughout the year. DFS had a slow start of the year and made tremendous headway in the second half of the year. You can see this stepping up in numbers in Q3 and Q4. Now, let's move on to the income statement. It is not for me to repeat, revenue up 13%, gross margin at 13% is stable in terms of sales percentage of sales, still up 13%.
If you look at profits, you have a structure effect, marketing expenses were up 12%, not including structure impact and currency effects. Selling expenses were up 9%. Regarding the G&A, we're looking at 7% increase. Now, these are the numbers, operating costs are less than marketing expenses. Profit from recurring operations was up 18% over the year, as was pointed out. I'll return to this, looking at the various businesses. Other operating income and expenses, there's an increase to EUR 180. We had gained from the DK disposal last year. We don't have this time. Don't have this time this year around, so higher charges, higher expenses.
The profit, you have financial expenses that moved a lot. It's difficult to understand. I'll go through that. Income taxes also increased in absolute numbers. In terms of %, they're done. We actually gained 2-2.5 percentage points less than last year. There was lots of movements in 2017. We had the reimbursement of the 3% tax. We had an exceptional additional tax. We had lower taxes in the U.S. and on deferred tax assets, there are a number of details. All in all, netted out meant that we had a 2% decrease, or 2% point decrease in the % of taxes, even though the absolute numbers are up.
Net profit before minority interest up 29%, the group share of net profit is upwards of EUR 5 billion for the first time, up 29%. That's a historic record. Unlike the previous record in 2014, where we had an exceptional profit because of the Hermès affair. Now, apart from the taxes, there's nothing else that there's no exceptional event. Regarding the profit from recurring operations, we have Watches first at 4% in line with the revenue. Not as good as in H1, I mean, in terms of phasing. We had less growth in H2, it was also in the distribution of expenses, especially for promotions and advertising.
We had more expenses in H2 than at the time when growth was less. The growth overall was less good in H2, even though overall for the year was pretty good at up 4%. The Fashion Leather Goods, something of an outstanding performance, up 27%. Even not including structure impact, you can see that Couture brought in about 6%, so we would have about 20% even without that. Significant contribution there. Good performance also of perfumes and cosmetics and watches and jewelry. We're looking at growth sign in line with the growth in sales, in revenue. Likewise for Selective Retailing, H2 had growth in profit, significantly higher than growth in revenue, which was not the case in H1.
There was a rebalancing of growth of revenue and profit and which merged. Selective Retailing, 10% is pretty good, much higher than the growth in revenue. All in all, 18%, as was mentioned at increase in profit from recurring operations. This is a breakdown of various sources, so you have organic growth. Even though this doesn't mean much, but still the structure impact, we're looking at Dior Couture and Rimowa in the second half of the year. For Dior Couture, EUR 287 million in contribution. The currency effect is significantly heavy. EUR 243 million is a lot of money here. For the currency effect, it was slightly positive in H1.
We had this effect mostly in H2. That made a big difference, well, to profitability, even though we had 18% growth in profit. Indeed, the profit is significantly up in H2, 10%, not including the consolidation of Dior and in spite of this very heavy negative currency effect in H2. We were able to compensate for that, even though the effects are clearly there. Financial income. Here there are a few paradoxes because debt was up, but financial cost was down. That is to do partly to the interest rates, but there's some technical effects because within that line you have some mark-to-market effects on hybrid products which made a difference between 2016 and 2017.
That explains the reduction, the derived cost, well, it was over-proportioned, over-dimensioned last year. This time, it, I mean, the ineffective portion of foreign currency hedges more than halved. It's pretty difficult to account for this, but it was unexpected that it was gonna be less than half. As of next year, we'll have IFRS 9 standard, and we'll be able to have a more legible, more understandable presentation of the ineffective portion of foreign currency hedges. The other lines do not call for special comments. Regarding the financial structure, it hasn't changed much. Let's point out that we have 44% of our of the whole assets in total equity. We have undrawn credit lines which enable us to face any financial requirement.
Regarding the cashflow and the free cashflow, we find that it's up almost EUR 800 million compared to last year. We have, of course, cash from operations. The working capital requirements, even though growth was high, that remained stable. There was investment, that also was stable compared to last year in spite of growth in revenue. That meant we were able to generate more free cashflow. Also, we were able to have significant variations in the debt levels, and we can see this in the next slide. Significant, I mean, we went from EUR 3.2 billion-EUR 7.2 billion, about EUR 3.3 billion-EUR 7.2 billion, so EUR 3.9 billion increase. You can work it out as follows.
As we did, I mean, we have money coming in, money going out. Coming in, we're spending out. We had acquisitions, EUR 7 billion, EUR 2.1 billion in dividends, so EUR 9.1 billion. We had in Resources EUR 4.7 billion in cashflow, EUR 500 million in monetary variations, various adjustments, currency effects. That brought in EUR 500 million. All in on one side, you had upwards of EUR 9.1 billion in money spent and EUR 5.2 billion coming in. The difference is EUR 3.9 billion, and that accounts for the change in the debt levels. That means the gearing is 24% on the right side of the balance. It is pretty close to numbers we had recently.
Looking at dividends, we are suggesting a dividend up 25% to EUR 5 per share. An interim payment of EUR 1.6 was paid out in December. This increase is 25%, is to be compared to 29% increase in the net profit. The purpose here is to reallocate to shareholders through dividends about half of net cash, free cash flow, and profits. You have EUR 5 billion on both sides, we can return that money to our shareholders. This is discipline we try to abide by every year. Thank you.
Well, ladies and gentlemen, we're now available to take your questions, please.
Good evening, HSBC. three questions. You mentioned there's a small caveat, the euro, though, is EUR 1.25 today. I did the math. That would be an impact of 5% negative on 2018 revenue. I understand the hedges remain good, never had a negative impact in terms of operating profit. One way of offsetting that is perhaps to increase prices, notably of Vuitton. Do you believe that there's some pricing power there that for two, three years luxury brands are trying to obtain, maintain certain global standardization? In the past, you've only increased prices in the dollar area. This time, if you do it, we're now going to rephase the gap. Would that be an across-the-board increase, therefore?
Second question, you mentioned the need to preserve a degree of scarcity effect on luxury brands. You launched the 24 Sèvres site. We saw that Richemont acquired Yoox Net-a-Porter. What's the group's strategy both for its own sites and in terms of its multi-brand site that you've launched? Third question, just to return to smaller margins in wines and spirits, a phasing issue, but the margins down in the year, even though the top line was good. Is that something that is just a one-off for this year, or is it an underlying trend that the cost of doing business is increasing in wines and spirits?
Yes, you're right. The profit margin was slightly down 50 basis points, but not that much. It's mostly a currency effect. Indeed, the phasing of expenses which occurred at the time when there was less growth in revenue. It's never very pleasant, it's never a very pleasant situation. There was an effect in H2, but it's not really that significant, and certainly not significant. We, we won't change our strategy to address the margin issue.
Regarding the internet and the website that you mentioned, well, I think that first of all, the bulk of our internet sales currently take place on the brand's sites, particular Vuitton, Sephora. As regards the 24 Sèvres site, the best comparison I could give would be Le Bon Marché. We have within the group, Le Bon Marché, that sells most of the luxury brands that is viewed as a luxury store, where we're multi-brand de facto. 24 Sèvres is the reflection of that situation. At Le Bon Marché, you only have very high-end brands. The 24 Sèvres site will follow the same policy, will be a site where you'll find the finest brands on the market. There's absolutely no contradiction in terms in having both.
As to the monetary fluctuations, we've always sought to offset unfavorable monetary fluctuations through significant increases or at least well-adjusted price increases in the countries concerned. It's one of the great strengths of a group such as ours as compared to aircraft manufacturers, for example, who sell their products with competitors that are expressed in dollars. When the dollar slides, we see the result, we can vary prices, and that's what we do to adjust in one direction or the other, depending on currency fluctuations. But I can't reveal that beforehand, what are the group's pricing strategy is, but it's very likely that at Vuitton in particular, we adjust the prices, take account of those currency fluctuations, were that to become too significant.
Next question, please.
Bonsoir, Thomas. Good evening, Thomas Chauvet from Citi. I have three questions, about two on Vuitton and one on DFS. On Vuitton, question number one, this was an outstanding near double-digit growth beyond that of the industry as a whole, mostly driven by volumes. You added EUR 1 billion in revenue. That is quite significant for a brand that size. Mr. Arnault, by the past, indeed today, you indicated that it was sometimes best to moderate growth, especially when it's driven by volumes. Now, leaving aside the decision about price increases, what is your approach on the growth of Louis Vuitton? Should you, what would be the advisable strategy rather than pushing volume?
Now you have a slowdown in new store openings on Vuitton and a good discipline on the cost of doing business. It means that at the end, you have all in all a relatively low profit margin. What can you do to keep the profit margin for Louis Vuitton at a constant level? DFS had two rather challenging years in terms of profitability. You have, of course, the Hong Kong airport. You pulled out of that contract in November. What's the objective for operating profit for that business, and what are you going to do to make it happen?
Well, on Vuitton, Michael could perhaps answer this, but I can tell you that as regards the Vuitton growth rate, we don't have an objective. We don't have a target, just that we try and meet demand, which is growing ever stronger. As I said, we could have generated far more revenue. We didn't do that for several reasons, one of them being the manufacturing capacity, but also the fact that when we have too much demand on a given product, then we rather ensure diversity. What's growing very well at Vuitton are the most high-end products.
I think that when you go to the Place Vendôme store, for example, you'll see products that are high-quality products of high-end jewelry that are very successful in 2017, and which in part account for the increase in revenue at Vuitton. The leather goods and exotic skins, leather products that are very successful, ready-to-wear that wasn't very much developed previously, that's growing, becoming more high-end. The focus is on that in a number of stores. Well, at the end of the day, it's true that for a number of years now with Michael, we've decided to no longer to embark on a race for stores, but rather reduce the number. The result that's very favorable of that is that it boosts sales per store. It means that we can increase the size of individual stores.
Invest in a number of stores that is not increasing or even being reduced, all that's very favorable for Vuitton. The profitability that we don't disclose remains pretty good, as you can imagine. Michael, perhaps you could, you may wish to add something on that.
No.
No?
I really truly reflected the strategy. The first. DFS. Concern, DFS. Regarding DFS, the objective is to return to double-digit profitability. That was the case back in the past. We want to do to get there as quickly as possible. We may not be able to achieve this year because we have, we have invested in new galleries in Venice, Cambodia and Macau. But we will be close to that this year in any case.
Yes. Thank you. Good evening. It's John Guy from MainFirst. Three questions, please. The first with regards to the Dior One Integration with Christian Dior Couture. Jean-Jacques, I believe that D&A as a percentage of sales is pretty high for the Dior Couture business at the moment, around 8%-9%. There's been considerable investment. As that scales down, how quickly do you think it's likely that we can reach a 20% margin within the Dior Couture business, given the fact that margins are already at a mid-teens level? My second question is around Project Thelios, your JV with Marcolin.
I think you are due to launch eyewear with Celine, I think this month, and then looking to scale the investments. If I think about the initial JV investments of around EUR 50 million, EUR 25 million or so in equity financing, that seems like a relatively low number to start with. I think Kering's eyewear venture is at least EUR 80 million invested and then some distribution costs and manufacturing costs with their Safilo JV. What kind of investments will you put into eyewear over the mid to long term, and how scalable is that business? My third question on free cash flow, phenomenal achievement in 2017, up 20%, just under EUR 5 billion. Is this the peak? How do we keep going from here? Thank you.
Good call. Regarding Dior's profit margin, that was an excellent question. The same question was asked when we purchased Bulgari, and we had the same objective. How long is it gonna be before you reach the 20% mark? We didn't give an answer, but we got there, and I think the same thing will happen with Dior Couture. On Thelios, there was indeed a EUR 25 million initial investment. This is a small operation, but we're looking at doubling the value of the investment. This we're looking at several years, four or five years. We should start getting a return on that investment. We don't have to do the same as those we invest a lot, too much.
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Luca Solca from BNP Paribas. I do understand this answer regarding single brand digital sales. In China, most of the traffic is to do with multi-brand business. There's a duel between Tencent and Taobao. Alibaba, beg your pardon. Can you tell us more about the strategy in China? Between Tencent and Alibaba seem to be most of the sales. Apparently, the luxury brands are gaining momentum in China. Does this give you new opportunities in the future in Asia? Then you've addressed a number of issues. You had Donna Karan, you had DFS, you had a number of loose ends. What about Marc Jacobs? Where do we stand now?
On Marc Jacobs, we are doing significant work. What you can note is that we're working on products, and we're getting results. Our own retail, which is limited at Marc Jacobs, that is the retail part of Marc Jacobs, is doing well. The challenging thing, and that is always the case when you're redressing a business, it's to convince the wholesale retail, especially stores in the U.S., to join in and recognize that it is worth their while as much as it is worth our while. Things are improving in terms of orders.
We still haven't reached breakeven yet. We've some ways from that, but we have some improvement, and this is the first time I'm saying this. If you had asked last year or the year before, I would not have answered in the same way. I'm not saying that we've reached the point where we want to be, but we have some promising signs.
A word on digital sales in China, that's a very strong expanding market. Our strategy is to favor our own sites and the experience that must be luxurious for the customer, even if we're online. That's what we're trying to implement. It's true that the existence of a more structured panorama with marketplace offers that are more walled gardens. We're running a few tests on a few brands with still full control of the offer, the price, proportionality, et cetera, to see whether traffic is yielding results. Sephora has its own site, which is far and away the leading sales site, but also a small site on Tmall that's really just for brand awareness with a more restricted offer that's bringing in results that we're measuring.
Well, as for M&A, you won't be surprised if I don't give you the targets if there are any, that is. Prices are very high. For M&A, I would tend to wait. The next crisis, everything collapses, that's when it becomes attractive. Generally, that's when people don't wanna buy anything. Everybody wants to buy everything, the sky's the limit, and it may well be some unfortunate results.
[Non-English content] Edouard Aubin from Morgan Stanley. Could you say anything about the tax reform in the U.S. and what the effect will be on LVMH in the future? On Dior, what difference did it make in operational terms once this was integrated into the group? Number three, online sales, you last year you mentioned something like EUR 2 billion in online revenues in 2016. What's the order of magnitude in 2017?
Regarding the U.S. tax reform, what you have to see is that we only have portions of the tax reform that have been divulged by the tax administration, including the income tax rate and repatriation tax. The rest has not been finalized. We have to address this with caution.
Regarding the rates, tax rates, while the income tax rate is down, or will be down 13%, we're looking at 10%-15% of our taxable income in the U.S. You can do the math. It will make a big difference to start this sort of situation. We have deferred deferred tax assets. If the rates are down, the assets are worth less. We have the positive effects of the of the income tax. In France you have the opposite phenomenon, the overall result is a bit more complicated. All in all, we're looking at 10%-15% of the of our profits in the group is taxable in the U.S. with a tax rate down 13%. Regarding digital sales, we're looking at about EUR 3 billion this year. We are up more than 30%.
Regarding the Dior deal, what changes in terms of the way it functions, why it's easier to get Dior Couture to operate within LVMH, for example, in terms of shared operations with perfumes and cosmetics? You know, there's strong synergy between couture and cosmetics here. There's no problem. It's the same accounts, the same company, shared operations, shared common exhibitions, et cetera, and it's easier to transfer managers from one company within LVMH rather than to remove them from LVMH to put them outside and say, "You're going to come back." It was more complicated. First application, the CEO of Fendi becomes CEO of Dior Couture, and the CEO of Dior Couture becomes the CEO of the fashion group. That's being implemented. Having said that, Christian Dior Couture works very well. We're not going to change radically and upend the whole operation. It's a business that runs very well.
From JP Morgan, I have a few questions. The first on fashion and leather goods. As said, there was clear polarization of companies this year. Generally, LVMH seeks to have significant market share gains when times are tough. Here times have been favorable. You've gained market share. I was wondering if you could share with us what you think's changed in this cycle, such that there are so many market share gains by you in a very buoyant, promising market? That's my first question. Second, I was curious to know what you think of the watches segments, excluding connected watches.
You seem very upbeat on connected watches, but what do you think of more traditional watches and their growth rate? It's been spectacular but weaker of late. Next question on WCR. What can we expect at WCR that was flat this year in spite of very high growth rates in sales? What can we expect in 2018 and 2019? On the tax front, if I could return my last question, the tax impact we had this year was exceptional if I understand. What can we expect by way of guidance for the tax rate in 2018 and 2019, taking into account the U.S. and France? Thank you.
On the two technical points, and working capital requirements, one reason why WCR did not increase much this year was also because in wine and spirits we had a supply challenge. It's not all bad news. The when the harvest was less, well, it means that there's less product produced, less money needs to go out. There's some effect on inventory, WCR will go up if revenue goes up. It's quite normal that it should remain stable. If we have 13% increase in revenue, not including the geo effect, which has no effect on the WCR, you could expect WCR to go up again.
Regarding the income tax rate, you can work it out like we did, we're looking at something like 40% of our profit is in France and about 15, slightly under 15 in the U.S. We know what we expect in both countries, France and the U.S. You know what the numbers are, you can do the math, as I said. Experience shows that in tax matters, there are always surprises. Even though in France, the present government is credibly saying that it would be less, a lower income tax rate. For big companies, it went from 34 %- 44%. There are surprises there. On the watches, I can say two words. I mean, we had two to three challenging years.
We, before that, we were losing track of the value concept. Of course, customers can find their bearings there regarding not just the value of the watch, but also the quality of the product. Asian customers, up until four-five years ago, used to purchase sort of anonymous products. Now, the customer doesn't want to have the same watch as their fathers. They want to have something with a stronger personality. There's also a retail effect. We had the slow flow of the line of retail for watches made things a bit challenging for us for watches.
We have a nice counter example for Hublot, which was always enjoyed profitable growth. This was a just-in-time policies. We had a scarcity policy. We had a well-controlled growth strategy. Well, we didn't make any breakthroughs on the Asian markets, but now it's bearing fruit. We're getting customers there because the market there is ready for that. Also American, the retail channels are also changing, so not everything is settled yet.
On the market shares, we're gaining market share. I think that if business gets tougher, gains will be even higher. At least that's the objective. Yeah.
Good afternoon, Mario Ortelli of Bernstein. Three questions, if I may. The first one is for digital. You highlight how digital can be important and a great opportunity for your brands in fashion and leather and for Sephora. How much do you expect that in the midterm, the profitability of these two businesses can increase thanks to digital? Which part of your current operating investment are for building up the digital structure, and how much you think will evolve over time? The second one is about distribution. Thanks to the opportunity of digital, nowadays brands can reach the customer all around the world. Will you encourage other brands in your portfolio to follow what is doing Louis Vuitton, 100% distribution in-house and no markdowns? The first brands that I've got in mind are Dior or, for example, Loro Piana.
The third question is about experiential luxury. So far, your group has tried to increase the experience with the purchasing process of many of your products. You have done some investment on building up a proper experiential business like that you mentioned before. Can we expect that in the midterm, you will make big bets on experiential luxury, maybe acquiring business in hospitality or further developing your current asset in experiential luxury? Thank you.
On the first question, let me say this. It is true that we have well, profitability in the digital sales, and it is gaining ground. It is true that the service level, the convenience expected by the customers means that we'll need to invest considerably in the online services, and we've seen this in other, more developed markets. We have to be cautious. We want to be there where the customers are. We want to serve our customers as best we can, and the new generations expect to be well-served. And yet they want to be able to purchase the item sometimes online. We have no Typical strategy to improve profitability only thanks to the online business. This is something, this is a portion of the market which is bound to increase significantly with higher expectations coming from customers.
As regards the, what you call the vertical strategy of Vuitton, which is truly the only brand in the world that totally controls its distribution, that never does sales and on websites, just adverts, just only sells on its own sites. This strategy is tremendous. It's great for the brand awareness, for the image of the brand, and it generates better profitability because we avoid ending up with products that are sold by third parties at different prices, that are sold at knockdown prices, as happens when a brand begins to sell with wholesale outlets, retailers who sell directly. As regards the underlying aspect, it's probably the best and only strategy.
Can't be applied to all brands because these brands, when they are smaller, when they are already distributed, it's very difficult to backtrack, but it's a strategy that the group uses as the best strategy. In terms of the general policy, of course, we'd like to apply it as much as possible, especially for the strongest brands. You mentioned Dior. I think that Dior gradually, and in fact, with Mr. Toledano, we're exiting whole-wholesale sales to have a business model that is far closer to Louis Vuitton. It's extremely positive because it avoids the brand from being knocked down. I mean, we try and remove from these outlets outside big cities where you find products, I mean, sold at Avenue Montaigne at knockdown prices. That's very bad for the brand image.
A lot of people go to these stores, and in that way, people are exposed to a sort of deterioration of the brand. We're very careful about that. This strategy, this vertical strategy, I think that gradually for the strongest brands, we will seek to apply it as we're doing very successfully at Vuitton. On experiential luxury, you mentioned the Bulgari Hotel, you've forgotten the Cheval Blanc Hotel. I invite you to experience the Cheval Blanc Hotels. They're probably even better than the Bulgari Hotels. It's very interesting to do that because it's something where we can really bring to bear the sense of luxury of the group, and that's indeed why it's successful, because this very small hotel chain, we don't want to acquire the Accor hotels or anything like that.
That's out of the question. This small chain of hotels, there are now four or five . We're developing it gradually. Is viewed as the best hotels in the rankings amongst the two top hotel chains in the world. In 2019, we'll be opening one that we invite you to visit at La Samaritaine. In fact, I was there this morning. I can tell you it's going to be great. We're going to have a hotel there that'll have the finest views over Paris with the largest private pool in a Paris hotel and service levels comparable to the Cheval Blanc hotels that exist, that for the most part, always full throughout the world. When it's well managed, it's quite profitable. We can't develop that too fast.
You have to be in the best location when you arrive somewhere and have the best service, not, have it too big. There's not such a development potential as we have at Dior on Vuitton, but it's very compatible with the rest of our activities. Any other questions? If not, we can now move to sample some of the group products.
One last question over there.
Good evening. [Marcos L.A.] from Venture Capital. Congratulations on this outstanding performance. I have a question for Mr. Guiony regarding currency hedges. Can you tell us what you expect in terms of currency hedges for dollars and yen in terms of percentage and how much you propose to spend on that?
On USD, we're looking at 114 for 80% of the budget for every additional day. We are a bit concerned on the business, but we're always happy with potential profits. On yen we're looking at also 80%. I think it's we're hedging on at 123 for yen. That is, again, a significant gap with the present rate. All right. Well, thank you very much.