Good evening, ladies and gentlemen. I'm delighted to welcome you for this full year results meeting for 2017. And then, of course, to answer your questions as usual regarding the business development, etcetera. So 2017, once again, I would say, has been a record year. So at the risk of being somewhat tiring in my presentation, but let's recognize things, the results are there.
Revenues up 13% over EUR 42,000,000,000 profit from recurring operations up 18% at over EUR 8,000,000,000 Group share of net profit, up 29%, topping the EUR 5,000,000,000 mark as to the financial position. Free cash flow close to EUR 5,000,000,000 and we have a gearing in spite of the acquisition of Christian D'arcouture of that has remained at 24%. Now why such an increase in earnings and such results? There are 2 explanations, I believe. 1st of all, a buoyant global market, a favorable outlook that really boosted the sales of all our brands.
And secondly, it's the ability for our brands to bring to market highly creative desirable products that have all met with remarkable success. And 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 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 United States where the market continues to be very buoyant. China is back 2 years now.
Chinese market's 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. But early January is really confirming the trend seen at the end of last year, 2017. If we now move into the various segments 1 by 1, 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.
And yet, we've invested we've invested in November. Some of you traveled with us to cognac to see the opening, the inauguration of the Pont Neuf Bottling plant that's ultra modern and now has a capacity of some 2,000,000 cases per year, and that's going to be boosted with a second line to 24,000,000. But it's not enough to meet demand. And in certain countries, we're not able to service all our customers, notably with Versus in the United States, where we are particularly constrained at the present time. Now the success of HENSI, 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, but it's interesting to note that as compared to its direct competitor, the number 2 brand, that I won't mention. I don't want to be unkind to any competitor. But Henzi is 4x bigger in volumes. The number 2 is 4x smaller.
That really does illustrate difference between a brand such as this and its various competitors. So we've made great strides across regions of the world, particularly in the United States. China has confirmed progress. And so 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.
So production constraints there again that we, of course, depend on. The Prestige Cuvees had a great success in 2017. The Dom Perignon P2 of 1998 vintage that met with great success and already sold out. A few acquisitions in wine and spirits, Latif Colgan in the United States, the very prestigious Napa Valley wine that is sold directly for the most part to end users. And these customers buy a few bottles a year and everything is sold when the products are delivered.
We also acquired a small I don't know if we can call it a startup, but it's a modest size company that manufactures American Whiskey in the United States. And there again, offers good potential. And 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, and 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. And we, of course, must be wary of 2 striking and divisive fashion trends whose this benefit is to impact the image.
We seek to combine modernity with timelessness. And I think we've succeeded pretty well in conferring on this timelessness, the extraordinary quality of Vuitton products, an aspect that is contemporary, what we did with Jeff Koons and the master, contemporary, what we did with Jeff Koons and the master line, where Jeff Koons used his creative talent so that some of our products resemble some of his works. And 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 and with men's products to cooperation with the 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 2 weeks, and we had to shut down a few pop ups where we'd launched the products owing to a lack of products and there were too many people waiting to enter the stores and that might have created some difficulties for the public. So highly creative products, big success of the ready to wear line with a wonderful fashion show in Kyoto, the Croisier line that is meeting with considerable success. 2 major exhibitions this year for Louis Vuitton, 1 in Korea and Seoul, another 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 tranche and those of the latest creations by Nicolas Ghesquay.
The high point was the opening mid September of the Vondorme 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 and adds quite extraordinary to the renown of Louis Vuitton. Speaking of renown, up until a few there was actually a sun on the facade that illuminated the Place Vendome because this building that's a listed building was built by Montard under Louis 14. And inside the Vuitton teams, we constructed a Louis Vuitton Louis the 14 statue and it's time to time quite amusing when it holds a Vuitton bag. I don't know if you've visited it, but you're 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 Gille 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. Tulledando, who's headed up 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 Pernod. 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, Eddy Sli Mahenden, and I'm sure, with the arrival of this creative designer of this brand, it's already a big success.
We're not giving the figures in detail, but very close to EUR 1,000,000,000 in revenue. The objective with him is the next 5 years to achieve between 23, possibly more. We want to make it one of the leading fashion brands in the world. I'm sure that with the design of his caliber and talent and the group works well with him, we have long standing ties with him. He launched Dioron at Dior in the middle of the year 2000.
We have every all the assets to make this brand grow quite substantially. Just a word to add that L'Oreal Piana has delivered a very fine increase as well as Berluti that Antoine is in charge. And these are more classic brands and an opportunity for us at high quality and attract more and more customers throughout the world. Next, perfumes and cosmetics. You can see the increase delivered an increase in a like for like 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 this Luxury Cosmetics segment is up by 7% or 8%, have extraordinary
I have extraordinary
reviews in saying what's great increase, we're at 14%, which isn't bad either. And that's due to the success of all our brands Dior to begin with, great success with its perfumes. Sauvage men's fragrance launched 3 years ago as one of the leading global perfumes in this year with the launch planned of the Eau de Parfums, the first men's perfume in the world, the J'adore, which continues to make great strides up with the leaders, the Dior cosmetics products, notably the lipsticks that are meeting with considerable success and growing strongly because Dior today in Medicorpe is probably the world's number one brand. So the Dior increase is impressive. Other brands are doing very well, Givenchy for makeup, Guerlain with the new perfume that we launched and quite surprising success that I'd like to mention this year is the launch of a makeup line found with this wonderful actress, Rihanna, which is called Fenty Beauty.
Massive popularity of that product that is reaching, I think, as of 100 of millions in the 1st month of launch, never seen before. We started from scratch in September for that. And so the objectives for 2018 are also very high. Yes, let me stress for our investors here, Presence, that we launched this business where we have a majority stake in which, of course, the creator is associated. We started from 0.
We didn't pay any investment. We see some of our respectable peers who buy businesses of EUR 200,000,000 or EUR 300,000,000 in cosmetics and pay over EUR 1,000,000,000 for them. We just need to stress in passing the difference in approach as compared to our strategy. So let me add that we, this year, acquired a small perfumes business, Francis Courgen, which is a great brand offering considerable potential. The watches and jewelry and then selective retailing.
Wines and Spirits, I've already covered. Sorry, that was confusing, Watches and Wines. So Watches and Jewelry, and I'll end with selective retailing. Watches and Jewelry, good progress. The market is picking up slowly.
Excellent increase in jewelry. Bvlgari has gained market share. It's one of the brands growing the fastest in jewelry at the present time with iconic lines for Bvlgari. 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 Boudera is 5 times the operating profit that we found when we bought the business. So 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 at Bilderie, a great workshop to meet demand and production requirements. So that's making good strides. Chome 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, But 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.
So that's a good success. Moving to Selective Retailing. Let's start with Le Bon Marche. Well, excellent figure. It's not the biggest retailing operation, but posting the great distinct increase amongst the department stores, good profitability.
We inaugurated La Grande Epicerie on the Riv Duarte in the form of Franc Epicerie stores 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. So, DFS was profitable overall in 2017.
We'll be even more profitable in 2018. And of course, the big success as every year is Sephora that continues to post double digit growth. Gaming market share is far and away the number one retailing operation for perfumes in the United States, physical and online, very dynamic, very innovative teams. So very good digital expansion for that. We acquired a business of Internet sales in Southeast Asia that's growing well, Luxula and quite sustained growth in China.
And so all rights are green. In closing, let me remind you that in 2017, we integrated for the first time Riemova, 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. So air travel is set to grow strongly. We have with Remova, 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 exhibitions that were held at the Louis Vuitton Foundation this year, in particular, that was held at the beginning of 2017, that exhibition of the Stukhin collection from Russia, an exhibition that had the greatest success of all the art shows ever presented in Paris with over 1,300,000 visitors in 4 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 great many plans. And let me mention that the Stukhin exhibition for which we took a risk, but given how popular it was, it didn't cost the foundation any money. So 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. So for 2018, well, I'll say the same thing as for 2017, in fact, with just a slight qualification that today, the world is in a quite surprising economic situation.
Interest rates close to 0 or close negative since the CFO is particularly outstanding. He gets us to borrow at negative rates. So people pay us to borrow that sheer folly. Let's take full advantage of it since we can do it. Interest rates 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 unreality.
There hasn't been a crisis for 10 years. I'm personally convinced that over the next 5 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 falling. 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 sheer folly, we don't know, but there's money going into that. Not huge sums at this stage, but it can inflate. But also, geopolitical risks that are considerable, Middle East, Iran, Korea, maybe. So 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, but 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. So it's difficult to make forecasts. It may continue to rise a little.
Maybe the dollar will weaken. So 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. So that's just a slight caveat as to compared to 2017. But I'm very confident that all the products will be launched. 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 must 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 a 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 in all possible channels, but we don't do that. And I think we're right.
Here, I'm not going to 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.
And the best designers. We have not proof of that this week. So 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.
Thank you. You have behind me the smile of Alexis Michander, who discovered the numbers for 2017. So good results indeed, starting with 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 is significant in which was significant in 2017. Organic growth was stable around the average the annual average about 12% every quarter.
And we have added H1 9 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, but then it was negative to the tune of 5% in the second half of the year. And then the structure impact, which was limited in H1, there was Removac coming in and Tennecar 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've 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.
So speaking of which and 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 had mentioned this in June. There was the discontinuity but the determination of the contract we had in the first half of the year with Grand Marnier.
So that cost us one point. But if you restate the numbers, we would have 10% in the U. S, 11% in Japan, 12% in Japan. So that was a good surprise. You have in Japan tourists returning to Japan.
They had stayed away in 2016, but there's also domestic customers. And so that was new. Asia, not including Japan, had significant growth, 17%. And indeed, China within that is even higher than that. And so 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.
And then finally, Europe, 10% growth, we're looking again at growth. And in Europe, just as in Asia, you have slowdown of growth in Q4. This is mostly a basis of comparison effect because if you look over 2 years, the growth rates are essentially the same, in fact, higher. So 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. Now if you look at the various business groups, and Mr.
Arnaud 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. So everybody had double digit growth except for Wines and Spirits at 27%. But again, for Wines and Spirits, you can't have double digit growth that easily because there are supply issues, there are technical issues. And so 7% or 8% growth is sustainable, but double digit growth wouldn't be sustainable.
So good growth, organic growth in wine and spirits, champagnes and wines as well as cognac and spirits are sharing in that growth. And everybody else has doubled the fashion and leather goods superb year, up 13% in organic growth. Perfumes and Cosmetics, as Mr. Arnold said, up 14%. Likewise, Watches and Jewelry, 12%, slightly above the benchmark, at least on the market.
And then selective retailing did extremely well as well. And there's a number which I usually comment. I used to say Sephora was doing well, DFS not so good, but now Sephora is doing well and DFS even better now. 2017 was an outstanding year, and 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 5% compared to 10% in the first half. So 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 Q3 and especially Q4. And so the fact that there's a slight slowdown in growth in Q3 and Q4 and why 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. And Selective Retailing Sephora had double digit growth throughout the year, but DFS had a slow start of the year and made tremendous headway in the second half of the year. And 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, but revenue up 13%, gross margin at 13% is stable in terms of sales percentage of sales, but still up 13%.
If you look at profits, well, you have a structural effect, but marketing expenses that were up 12%, not including structural impact and currency effects, selling expenses were up 9%. Regarding the G and A, we're looking at 7% increase. Now these are the numbers, but operating costs are less than marketing expenses. And so profit from recurring operations was up 18% over the year as was pointed out, but I'll return to this looking at the various businesses. Other operating income and expenses, there's an increase to €180,000,000 We had gain from the DK disposal last year.
We don't have this time we don't have this time this year around, so higher charges, higher expenses. The profit, well, 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.
However, in terms of percentage of that done, we actually gained 2 to 2.5 percentage points less than last year. There was lots of movements in 20 17. We had the reimbursement of the 2% tax. We had an exceptional additional tax. We had lower taxes in the U.
S. And on deferred tax assets, we well, there are a number of details. But all in all, netted out meant that we had a 2% decrease or 2% point decrease in the percentage
of
taxes even though the absolute numbers are up. Net profit before minority interest up 29%, and the group share of net profit is upwards of €5,000,000,000 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 Hermes affair. Now apart from the taxes, there's nothing else that there's no exceptional event. Regarding the profit from recurring operations, we have was at 4%, in line with revenue, not as good as in H1.
In terms of phasing, we had less growth in H2, but it was also the distribution of expenses, especially for promotions and advertising, we had more expenses in H2 than in H1 at a time when growth was less. So the growth, all in all, was less good in H2, even though overall for the year was pretty good at up 4%, the Fashion has a good 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. So a significant contribution there.
Good performance also in perfumes and cosmetics. And watches and jewelry, we're looking at growth in line with the growth in sales, in revenue. Likewise, for Selective Redealing, H2 had growth in profits, significantly higher than growth in revenue, which was not the case in H1. So there was a rebalancing of growth of revenue and profit and which merged and Selective Retailing 10% is pretty good, much higher than the growth in revenue. All in all, 18% as was mentioned.
Increase in profits 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, Dior Couture, euros 287,000,000 in contribution. The currency effect is significantly heavy, euros 243,000,000 is a lot of money here. We're looking at a significant impact in terms of for the currency effect, it was slightly positive in H1. And so we had this effect mostly in H2 that made a big difference well to profitability even though we had 18% growth in profit.
And 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. So we were able to compensate for that even though the effects are clearly there. Now then financial income. Now here, there are a few paradoxes because debt was up, but financial cost was down. Now 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 2017.
And so 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 going to 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 the whole assets in total equity. We have undrawn credit lines, which enable us to face any financial requirement. Regarding the cash flow and the free cash flow, we find that it's up almost €800,000,000 compared to last year.
We have, of course, cash from operations. The working capital requirements, even though growth was high, that remains stable. There was investment, and that also was stable compared to last year in spite of growth in revenue. That meant we were able to generate more free cash flow, but also we were able to had significant variations in the debt levels, and we can see this in the next slide. Significant I mean, we went from €3,200,000,000 to €7,200,000,000 about €3,300,000,000 to €7,200,000,000 so EUR 3,900,000,000 increase.
Now you can work it out as follows. As we did I mean, we have money coming in, money going out, coming in. We're standing out. We had acquisitions, €7,000,000 €2,100,000 in dividends, so €9,100,000 And then we had in resources €4,700,000 in cash flow and €500,000,000 in monetary variations, various adjustments, currency effects, that brought in €500,000,000 So all in one side, you had upwards of €9,100,000,000 in money spent and €5,200,000 coming in. So the difference is €3,900,000,000 and that accounts for the change in the debt levels, and that means the gearing is 24% on the right side of the balance, and it is pretty close to numbers we had recently.
Looking at dividends, we are suggesting a dividend up 25% to 5 euros per share, and interim payment of €1,600,000 was paid out in December. This increase is 25% is to be compared to a 29% increase in the net profit. But the purpose here is to reallocate to shareholders through dividends about half of net cash free cash flow and profits. You have €5,000,000,000 on both sides. And so we can return that money to our shareholders.
This is discipline we try to buy every year. Thank you.
Good evening. HSBC 3 questions. You mentioned there's a small caveat. The euro, though, was 1.20 5% today. I did the math.
That would be an impact of 5% negative on 2018 revenue. I understand the hedges remain good, but never had a negative impact in terms of operating profit. One way of offsetting that is perhaps to increase prices, notably at Vuitton, do you believe that there's some pricing power there that for 2, 3 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? Some question. You mentioned the need to preserve degree of scarcity effect on Luxury Brands. You launched by Le Bon Marche, the Van Cat Cite site. We saw that Richemont acquired Luxe Net A Porter.
What's the group strategy both for its own sites and in terms of its multi brand site that you launched? And third, question just to return to smaller margins in Wines and Spirits, a phasing issue, but the margin is 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. It's not very much. It's mostly a currency effect and indeed the phasing of expenses, which occurred at the time when there was less growth in revenue. So it's never very pleasant it's never a very pleasant situation.
And so there was an effect in H2, but it's not really that significant. It's certainly not significant. It won't change our strategy to address the margin issue.
With regards to the Internet and the website that you mentioned, well, I think first of all, the bulk of our Internet sales currently take place on the brand's sites, particular Vuitton, Sephora. As regards the 24 Sevres side, the best comparison I could give would be Le Bon Marche. We have within the group Le Bon Marche that sells most of the luxury brands that is viewed as a luxury store where we're multi brand de facto. So 24th February is the reflection of that situation. At the Bon Marche, you only have very high end brands.
And so the 24 Sevres site will follow the same policy. It will be a site where you'll find the finest brands on the market. So there's absolutely no contradiction in terms of 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.
And when the dollar slides, we see the result. We can vary prices, and that's what we do to adjust in one direction the group's pricing strategy is, but it's very likely that at Vuitton in particular, we adjust the prices, take kind of those currency fluctuations whether they become too significant. Next question, please.
Thomas Chaudet from Citi. I have 3 questions about 2 on Vuitton and 1 on DFS. On Vuitton, question number 1, this was an outstanding near double digit growth beyond that of the industry as a whole, mostly driven by volumes. You added €1,000,000,000 in revenue. That is quite significant for a brand that size.
Mr. Arnaud, by the past, you 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 Credit Or should you what would be the advisable strategy rather than pushing volumes? Now you have a slowdown in new store openings on Vuitton and well, a good discipline on the cost of doing business, so it means that at the end, you have, all in all, a relatively low profit margin. But what can you do to keep the profit margin for the digital at a constant level?
And then DFS had 2 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 Vuit or Michael could perhaps answer this. But I can tell you that as regards to 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 rather ensure diversity.
And what's growing very well at Vuitton are the most high end products. And so I think that when you go to the Place Vendome 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 Drittan. 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. And so 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 really to embark kind of 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 and also invest in a number of stores that is not increasing or even being reduced and all that's very favorable for Vuitton. So 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, I really truly reflected the strategy and DFS.
Constant DFS.
Regarding DFS, the objective is to return to double digit profitability. That was the case back in the past. And so we want to do to get there as quickly as possible. We may not be able to achieve this this year because we have invested in new galleries in Venice, Cambodia or Macau, but we will be close to that this year in any case.
Yes. So thank you. Good evening. It's Jean Guy from MainFirst. Three questions, please.
The first with regards to the D01 integration with Christian Dior Couture. Jean Jacques, I believe that D and A as a percentage of sales is pretty high for the Dior Couture business at the moment, around 8% to 9% has been considerable investment. As that scales down and how quickly do you think it's likely that we can reach a 20% margin within the Duocorture business, given the fact that margins are already at a mid teens level. My second question is around Project Cellios, your JV with Marc Ola. 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 €50,000,000 €25,000,000 or so in equity financing,
That seems like
a relatively low number to start with. I think Kering's Eyewear Venture is at least €80,000,000 invested and then some distribution costs and manufacturing costs with this Safilo JV. So what kind of investments will you put into Eyewear over the mid- to long term? And how scalable is that business? And my third question on free cash flow, phenomenal achievements in 20 17, up 20%, just under EUR 5,000,000,000.
Is this the peak? How do
we keep going from here? Thank you.
Regarding Dior's profit margin, that was an excellent question. The same question was asked when we purchased Bulgaria, and we had the same objective of how long are you going how long is it going to 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 Telios, this is there was indeed a €25,000,000 initial investment.
This is a small operation that we're looking at doubling the value of the investment. But this we're looking at several years, 4, 5 years, and we should start getting a return on that investment. We don't have to do the same as those who invest a lot, too much. Cathal Khan 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 doable between Saint Tents and Zuobah and Alibaba, I beg your pardon. Can you tell us more about the strategy in China Between Sensen and Alibaba seem to be most of the sales. Apparently, the luxury brands are getting momentum in China. Does this mean you have with lots of cash forgets does this give you new opportunities in the future in Asia?
And 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're doing significant work. What you can note is that the we're working on products and we're getting results. And so our own retail, which is limited as Marc Jacobs, it 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. But things are improving in terms of orders. We still we haven't reached breakeven yet with 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 strongly 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, etcetera, to see whether traffic is yielding results. Cetra 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 and A, you won't be surprised if I don't give you the targets, if there are any that is, but prices are very high. For M and A, I would tend to wait for the next prices. Everything collapses.
That's when it becomes attractive. And generally, that's when people don't want to buy anything. Everybody wants to buy everything, so the sky is the limit. It may well be some unfortunate results.
Edouard Robain 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 does it make in operational terms once this was integrated into the group?
And number 3, online sales, you last year, you mentioned something like €2,000,000,000 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 divorced by the tax administration, including the income tax rate and repatriation tax.
The rest has not been finalized. So we have to adjust this with caution. Regarding the rates tax rate, while the income tax rate is down or will be down 13%, We're looking at 10% to 15% of our taxable income in the U. S, so you can do the math. We will make a big difference.
To start the sort of situation where we have deferred tax assets. If tax if the rates are down, well, the assets are worth less. So we have the positive effect of the income tax. But in France, you have the opposite phenomenon. So the overall result is a bit more complicated.
But all in all, we're looking at 10% to 15% of our profits in the group is taxable in the U. S. With the tax rate down 13%. Regarding digital sales, and well, we're looking at about €3,000,000,000 this year. We are up more than 30%.
Regarding the Dior deal, what changes in terms of the way it functions, where it's easier to get Dior Couture to operate within LVMH, for example, in terms of shared operations with perfumes and cosmetics, there's strong synergy between Couture and cosmetics. There's no problem. It's the same accounts, the same company, shared operations, shared common exhibitions, etcetera, and it's easier to transfer managers from one company with an 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 Fendig becomes CEO of Dior Couture and the CEO of Dior Couture becomes the CEO of Fashion Group.
So that's being implemented. Having said that, Christian Dior Couturier works very well. So we're not going to change radically and upend the whole operation. It's a business that runs very well. From JPMorgan, 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.
So I was wondering if you could share with us what you think has 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. 2nd, just 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 are more traditional watches and the growth rate has 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 2019? And 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 the way of guidance for the tax rate in 2018 2019 taking into account the U.
S. And France? Thank you.
On the 2 technical points and working capital requirements, one reason why WCR did not increase much this year was also because in Wines and Spirits, we had a supply challenge. So it's not all bad news. When the harvest was less, well, it means that there's less product produced and so less money needs to go out. There's some effect on inventory, but WCR will go up if revenue goes up. It's quite normal that it should remain stable.
But if we have 13% increase in revenue, not including the Dior effect, which has no effect on the WCR, but you could expect WCR to go up again. Now regarding the income tax rate, you can work it out like we did, but we're looking at something like 40% of our profit is in France and about 15% slightly under 15% in the U. S. So we know what we expect in both countries, France and the U. S.
You know what the numbers are, so you can work do the math, as I said. But experience shows that in tax matters, they always surprise us even though in France, the present government is credibly saying that it would be less lower income tax rate. But for big companies, it went from 34% to 44%. So there are surprises there. On the watches, I can say 2 words.
I mean, we had 2 or 3 challenging years. We well, before that, we were losing track of the value concept that, 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 4 or 5 years ago used to purchase sort of anonymous products. But now the customer doesn't want to have the same watch as fathers. They want to have something with a stronger personality.
There's also a retail effect. We had the slow flow of well, the line of retail for watches made things a bit challenging for us for watches. We have a nice current example for Hublot, which was always enjoyed profitable growth. This was just in time policies. We had a scarcity policy.
We had a well controlled growth strategy. We didn't make any breakthroughs on the Asian markets, but now it's very improved. We're getting customers there because they are the market there is ready for that. And also American, the retail channels are also changing. So not everything is settled yet.
I'll do next.
On the market shares, we're gaining market share. But I think that if the business gets tougher, gains will be even higher. At least that's the objective.
Mario Talley 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 near term, the profitability of these two business can increase, thanks to digital?
And 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. Also thanks to the opportunity of digital, nowadays brands can reach markdowns? The first brands that I've in house and no markdowns.
The first brands that I've got in mind are Dior or for example, L'Oreal 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 Ulther Jochen that you mentioned before. Can we expect that in mid term, 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 profitability in the digital sales, and it is gaining ground. But 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 yes, they want to be able to purchase their items sometimes online, but 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 ever just only sells on its own sites. Obviously, 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 3rd 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. So 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 back track, but it's a strategy that the group uses as the best strategy.
And so 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 that we've missed the Toledo Daimler. We're exiting wholesale sales to have a business model that is far closer to Louis Vuitton. And 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, you knock down prices. And 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.
And so 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 Bille D'Aure Hotel, but you've forgotten the Cheval Blanc Hotel. I invite you to experience the Cheval Blanc Hotels. They're probably even better than the Bvlgari 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 small, this very small hotel chain, we don't want to acquire the Accor Hotels or anything like that. That's out of the question. But this small chain of hotels, they're in that 4 or 5. We're developing it gradually. It's viewed as the best hotels in the rankings amongst the 2 top hotel chains in the world.
And in 2019, we'll be opening one that we invite you to visit at La Samaritan. And in fact, I was there this morning. I can tell you, it's going to be great. We're going to have a hotel that will have the finest views over Paris with the largest private pool in the Paris hotel and service levels comparable to the Cheval Blanc Hotels that exist that are, for the most part, always fold throughout the world. And 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. And so 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. Marcuse Arbeni from Venture Capital. Congratulations on this outstanding performance. I have a question for Mr. Griglioni regarding currency hedges.
Can you tell us what are the what you expect in terms of currency exchanges hedges for dollars and yen in terms of percentage and how much you propose to spend on that? On dollar, we're looking at 1.14 so 80% of the budgets for every additional day. We are a bit concerned on the business, but we're always happy with potential profit on yen. We're looking at also 80%. And I think it's hedging on at €123,000,000 for the yen.
So that is again a significant gap with the present rate. All right. Well, thank you very much.