Ladies and gentlemen, it's my pleasure to welcome you here for the presentation of LVMH Group 2018 annual results. I'm especially pleased to be welcoming you here because once again, the results are quite good. We've broken several records. It's my pleasure to announce this. You already have the figures. Revenue of over EUR 46 billion.
Operating profit from operations going above the EUR 10. The profit from recurring operations going above the EUR 10 billion mark. Net profit is EUR 6.34 billion, up 18%. Available cash flow, EUR 5.4 billion, 16%. Debt going down by 23%.
This excellent performance is thanks to several different factors, the main one being effectiveness of our teams. I'd very much like to congratulate them. Many of them are here. I'd like to greet them and congratulate them because this is thanks to their daily work.
They've worked very hard, and we know that we combine quality, creativity. People come up with some amazing original ideas, bringing often bringing us towards some unexpected novelties very often.
The organization has been very tight, so the products that come from these very interesting ideas are then distributed worldwide in the most highly organized fashion possible thanks to all of this.
Furthermore, in 2018, we benefited from a global market, global economy that were buoyant. The economy was positive in all the regions where we have points of sale. This very buoyant economy, well, the question is, will this continue for years to come? It's been buoyant for a fair few years now.
Currently, since the 2008 crisis, the economy has been doing well, but supported often by various phenomena such as low interest rates, sometimes negative interest rates. There's been available cash, quite abundant available liquidities worldwide. The question is whether this will continue indefinitely.
Obviously, no. When will there be a turnaround? That's the big question. I think, as I've already said, as I said last year, we need to expect that at some point there's going to be an economic crisis.
Not to try to slow down investors in any way, but I'm just saying that we are being cautious. We know that nothing goes on forever, and we know that this economic cycle won't go on forever either. Nevertheless, I can say that 2019 has gotten off to a good start.
I won't give you the specific figures for January, but January is also looking very good. My view regarding the arrival of a recession, which will happen at some point, probably due to a hike in interest rates. You've already seen in the U.S., since interest rates went up, things got a little bit more difficult.
Listed companies, stock prices, maybe a little bit less extravagant than previously. That trend will come to Europe at some point. I don't think right away. I think 2019 the overall environment should remain buoyant. Necessarily in 2020 or 2021, there will be a similar phenomenon to what we're seeing today in the United States.
That being said, the long-term view, which been the success of LVMH, the reason this group's been successful for 20 years, we've seen across the board increases in people's purchasing power and our customers' living standards. That's going to continue. For the medium term, therefore, we can continue to be very optimistic.
I am. This is also why I continue investing in this group, and I very much believe in its prospects. The environment, the economy was buoyant in 2018. I just talked you through some of the results. Growth in business is well-balanced in all of our markets. If we take a little bit more of a detailed look at the various business areas, all of them have been very successful in 2018. Let's start with wines and spirits.
Wines and spirits, we'd observe here in 2018, harvests were excellent. Very good potential for supply. Champagnes and wines grow especially thanks to price increases. We also observe very good growth in the most exceptional qualities and the most expensive ones. Cognac, Hennessy's success has been quite exceptional.
Very soon, Hennessy may well be the number 1 spirits brand in the world. It's second ranking currently. That's just because of supply inventory constraints that we're not number 1 yet. It's very interesting to see that the brand is now developing well in all continents, not in France, because the French don't drink that much cognac. In Asia, in China specifically, in the U.S., Hennessy is wildly successful. I won't go into detail. Other brands, other group spirits brands looking good as well.
Just to mention some of our exceptional wines, d'Yquem, Cheval Blanc, Côte de Diamant. All of them have been top-rated. All of them have a great deal of potential. We're seeing a lot of consumption, great taste for top wines, vintage wines growing worldwide, so we can be quite confident. To move on to fashion and leather goods.
We can say that performance of our flagship brand, Louis Vuitton, is exceptional. As always been the case, I can say we've gone well beyond EUR 10 billion in sales in 2018. This isn't just a target. The target, the objective in our business is quality, is desirability. That's the objective we set our sights on at Louis Vuitton, Dior, and the other houses. It's not a target regarding revenue. Revenue and profits are a knock-on effect, a consequence of this.
We could probably generate even greater revenue. We always endeavor to be the most desired brand in the world. For instance, at Vuitton, as you know, we never organize discounted sales. We don't sell Vuitton products through outlets in discount malls worldwide. We could do that.
That would be very successful. We've never wanted to do that. At Vuitton, thanks to the Vuitton teams, thanks to the exceptional designers we have, Nicolas Ghesquière for women's collections, and now Virgil Abloh, who just came on board this year, 2018, for men's collections.
We've got a creative team, which is one of the top teams in the entire world. We've got the products team led brilliantly by Delphine, and we should underscore that. Develops products based on the designers' ideas, and they're all highly desirable products.
This is all orchestrated and coordinated worldwide through the stores that are all appropriate and distinctive stores. What we were saying with Michael, we're trying not to have one single model stores that are suited to each country, each location, each region, so that we're providing our customers with a distinctive feeling of diversity and similarity nonetheless when they go to a Vuitton store.
I'd mention also in passing that Louis Vuitton, to keep pace with demand, is hiring many craftsmen and women, building workshops in France, and for instance, in 2018, built a workshop in Florence. There are 4 further projects to be built in 2019. You realize to build and open workshops, you need to train employees. That's something that takes time. You can't do it overnight.
This is why when you want to obtain the best quality, you need to some degree, hold back growth because of your concern for quality. Therefore, Vuitton is booming, but we're controlling the growth. It's selective growth. Again, our target is first and foremost desirability.
We certainly have designers who create a great deal of buzz in the social networks and so forth. What we are targeting is quality, sustainability, timelessness of our products. It's a unique blend at Vuitton, modernity together with the history of this house, traveling and contemporary products and everything that we can create.
I could speak at length on this. To move on to Dior now. Their first year within LVMH, very satisfactory with excellent growth in all areas where Vuitton is established. For Vuitton. Oh, Vuitton, sorry. I wanted to make another point.
New stores, new points of sale, the ones that we're currently opening, I said they're distinctive. I'm thinking of 3 specifically that are different. Sydney, which will be quite original, then the location in Osaka currently being built. This will be a Louis Vuitton Maison. It's tremendous.
The easiest 1 for you to access, which will open this year, 1 in London, Bond Street. I've seen the work there, and I think it's going to be truly extraordinary. Dior. To mention Dior here as well.
We've got a woman products designer and a designer for men's products. Very successful, both of them. The products aren't yet all in the stores, but when they arrive there, they sell very quickly. They're selling very well.
Dior's growth rates are very good. Here as well, with Pietro, the objective is for the brand to be the most desired fashion and [Non-English Content] house in the world. We'll be talking about this further next year. We need to keep some things in store for you for future meetings. Other brands. Some highlights.
The arrival of a new designer, Hedi Slimane at Celine. At Celine, the first men's and women's runway, and a second men's runway show last week. Amazingly successful. Hedi Slimane, as I said, I mean, he's very much on the way to enable that brand to reach EUR 2 billion in revenue. Sidney Toledano in charge. I'm sure that will be successful. Here, we can't do things at a speed that would be too great either.
We've got new store, new design, new products. This takes time, but it's certainly on the right track. Commercial success is certainly with us for men's products that I especially look at. Young people in my family, we often have a hard time buying them because they've already been sold. Other brands.
There's also developing the Rimowa suitcases and Berluti. First fashion show last week. I think that the brand, very elitist for men's products, should very much benefit from their arrival. Perfumes and cosmetics now.
The star brand here as well is Dior. Excellent performance. You've got the iconic perfumes J'adore and Miss Dior. They continue their extraordinary growth. Sauvage, men's fragrance, 1 of the top men's fragrances in the entire world. The number 1 men's fragrance in France.
You may say France is small. Worldwide, we're at the very top. I believe within a year or 2, we'll see Sauvage, thanks to the efforts, commercial efforts of House of Dior and the amazing success of the fragrance itself, the scent, as well as its presentation, its image, and so forth. I believe we should be successful in getting to the very top worldwide.
Many successes. We're going to talk about the success of Dior's makeup. You're very aware of this. It's continuing. We're also developing very successfully skincare called Prestige. For the women here who like creams and these products, they can test this, and they'll see it's really excellent. Other brands, of course, there's Guerlain. Guerlain also doing beautifully in 2018 with a perfume called Mon Guerlain, which is developing very well.
A major success for lipstick, Rouge G. Slightly more expensive than your usual lipsticks. Slightly more expensive, but it's very interesting. Got a resilient case, little mirror inside, and it's in great demand. I won't go through all the other brands. Givenchy fragrances with L'Interdit. L'Interdit being very successful.
Incredible success with Rihanna and Fenty Beauty launched in 2017, 2018, reaching around EUR 500 million in sales. Starting from zero, we must really emphasize this. Instead of buying a business, some people would do that, buying EUR hundreds of millions. Here we started from zero. We've already reached almost EUR 500 million in revenue. This is thanks to Chris, who found this and managed to build it. We could speak at length about perfumes and cosmetics.
To move on now to watches and jewelry, we'd like to emphasize the somewhat surprising and remarkable success of Bulgari. Strong growth for Bulgari. Especially in jewelry, Bulgari with its basic line Serpenti. You're all familiar with the Bulgari Serpenti, B.zero1, and now Fioreve , recently launched and very successful. Watches.
Toni will be able to show us his watch. This is the slimmest, thinnest watch in the world called Octo Finissimo. Got all the awards possible in watchmaking. Do take a look at it. It's truly magnificent.
It's difficult to make enough of them, they're so successful. Under watches, there's TAG Heuer with its classic products. Formula 1, Hublot by Jean-Claude Biver. He set it up and then sold it to us, continuing to track this. Hublot is a brand that's becoming ever more successful. The growth is quite amazing.
Becoming very successful as well in Asian markets. Lastly, Chaumet. Chaumet developing well. Chaumet is an exceptional brand. I believe it's the oldest French jewelry maker. Started back under Napoleon, Josephine being a client. They just did an amazing exhibition in Tokyo, very successful, so they're developing their sales well.
To complete my list of activities, I talk about selective retailing. First of all, Sephora. Sephora's success continues. Sephora gaining market shares thanks to the team that Chris put together for Sephora.
Our success is global. Sephora is currently the number 1 distributor of selective perfumes and cosmetics worldwide. Located throughout the world, including Asia, the Middle East, Europe, the U.S. Growth everywhere has been quite tremendous. Outlook is good. Sephora, especially in the U.S., is the number 1 internet seller for cosmetics.
This year in selective retailing, DFS has shown quite a substantial turnaround in profitability for 2 reasons. Firstly, an uptick in business in its stores in Asian markets. Furthermore, thanks to the closing of the Hong Kong airport concession. It was losing money. The contract hadn't been that well negotiated.
That's now been turned around. DFS in 2018 was very profitable. The outlook is very good. We're seeing a ramp up of Italian stores. In the near future, opening of the store in the Samaritaine in Paris. That'll be in 2020. Lastly, Le Bon Marché. It's probably the Paris department store that had the best growth rate in 2018. Before concluding, I'd like to say that all of this is very positive, giving us every reason to be proud.
All of our employees and all of our managers can be proud. I'd like to emphasize briefly 2 points. Firstly, all of us pay careful attention to the environment, to sustainable development. I'd also like to mention parenthetically that this has been a concern of ours for 25 years. We're the group that began environment activities probably the longest ago of all the CAC 40 companies.
We have a very active program. We try to make sure that a large proportion of our products are designed with the environment in mind. We make sure that we are the top standards worldwide. I won't go into detail, but we try to cut our greenhouse emissions. This year, we're doubling the carbon fund that we set up. We also are constantly striving to improve the environmental performance of our production sites and our stores.
Our programs carefully kept track of. I'd also say that it's received many international awards and been recognized by various organizations. The second point I'd like to mention to you during our meeting today, we have our managers and executive committee members, board of directors, and executives.
We're all very proud of this. It's our economic footprint. In 2018, in France, we hired around 13,500 people. You know, today there's sometimes criticism. People claim that capitalist groups in 2018 may not be doing the right thing. Well, we paid some EUR 1.2 billion in taxes in France last year. If it weren't as economically successful as we were, we wouldn't be able to pay taxes on that order.
France makes up under 10% of our sales, making up 50% of the taxes we pay worldwide, though. We have over 30,000 employees. I mentioned hiring a moment ago. We contribute to investments in France. Last year, we invested over EUR 1 billion in building industrial sites. I mentioned Vuitton. I've mentioned wine and spirits, cognac, champagne.
We've got hyper-modern cosmetics and perfume factories that we invest in. Another very important point, recruiting, hiring, something very important to us. Part of the process is training people. We train young people. We have a school called the Institut des Métiers d'Excellence.
We train people that are sometimes from difficult neighborhoods in Clichy-sous-Bois where we were recently. We hire young people who sometimes have seen failure at school. We hire these people.
We train them in our training institute with an opportunity, if they do well, of being hired by us subsequently in one of our companies. This has been very successful. The success rates are between 80% and 90% of young people. We can say that 500 apprentices and trainees have been trained through our institute. Last year, we invested EUR 40 million in this. I'd also mention we contribute to French cultural life.
Our success has been quite substantial. The Louis Vuitton Foundation has been very successful. One hundred and some million visitors last year. Since opening of the foundation, we've seen well more than 5 million visitors. In February, we're opening up a new exhibition.
I'd invite all of you to visit it with a collection, an impressionist collection, exceptional one coming from England. You've got Monets, Manets, Van Goghs. Quite something. To conclude, I'd like to say to you, as I indicated earlier, I am confident but cautious, so cautiously confident for 2019. We'll continue our policy of seeking innovation, striving for quality. These are the key components in our strategy and our group's values.
The entrepreneurial spirit will guide us. The young people we hire at LVMH can become true entrepreneurs, can shoulder genuine responsibility very early on in their careers. It's an enormous group. There are many opportunities in this group. Thanks to this, I believe we have the top people. We have top managers. These are managers that are interested in creativity. They're not just rational.
Of course, they need to be rational, clear managers, not just dreamers. Nonetheless, they have to be able to dream. They have to make their contribution to creativity, to innovation, which is part of our group, part of our real environment. We have a team of creative people.
Hedi Slimane, the various people I mentioned, Kim Jones, Virgil Abloh, Silvia Venturini , Claire Vivier, and others. These are the top people in the world. I think we have every confidence in 2019, which as I've said, has gotten off to a good start.
Again, watch out. We're not in charge of the global economy. At some point in the next three years, we will see a drop in the economy. I don't think it'll happen this year, but it will necessarily happen. Thank you very much. Now, Mr. Guiony will talk to you about some figures.
[Non-English Content] . Thank you. Good evening, everyone. As I usually do, we'll start with the revenue. That's not the easiest presentation, or at least the easiest slide on the presentation. On dark blue, you have organic growth of revenue per quarter. To make it even more interesting, we have half year, it becomes completely incomprehensible.
To make it simple, we were looking at anywhere between 10% and 11% throughout the year. H1 we were at 12%, H2, 10%, on the year as a whole, 11%. You may remember in terms of organic growth of the revenue, you also have to add 2% to account for the termination of the concessions in Hong Kong Airport that was ended this year, they were not restated in terms of a structure impact.
You have this lack of restatement. You have the structure impact in gray only in Q1, and that's because of the consolidation of Dior Couture that was consolidated as of July 1st, 2017. We had an effect in the 1st quarter, but not afterwards, so this is diluted afterwards. The currency effect, it is quite significant.
Like the structure impact in H1, -8% in currency effect. You may remember this, we have almost nothing in H2, only -1% in all in all, about 4% negative currency effect. We have EUR 46.8 billion in revenue in sales, which is a record. The breakdown is about the same as last year.
29% in Asia, 1 point more, 24% in the U.S., 1 point less, but it's mostly a currency effect again because the U.S. dollar was EUR 1.18 to the euro compared to EUR 1.12 the year before. Looking at the main regions, you can see that the growth was almost everywhere. U.S. plus 8%. We were looking at this.
We've been looking at that growth number for the past 10 years or so. Year-over-year, this is a region which enjoys a regular growth. Japan on 15%. That's pretty unusual. Last year was pretty good too, but not as good as this. Asia as a whole, not including Japan, 15%. That is slightly down because of the termination of Hong Kong, but otherwise it would be 22%. In Europe, plus 7%.
Good number because you have to remember, last year we had a 12% growth, a tough comparison basis. You can see that Q4 was in line with the rest of the growth, especially Asia and Europe. Slight decline in the U.S. That is because of our selective retailing activity.
Looking at the various businesses, let's look at organic growth numbers, the most significant, 11% overall, which we saw earlier on. Wines and spirits, good business, sales up 5%. As you know, this doesn't generate double-digit growth numbers because of course of the limitations we have in terms of volumes in the two main categories, champagne and cognac. Fashion and leather goods, a pretty good year, up 15%. Everything took part in that. You have Vuitton, but also Dior.
That of course stands to reason as it were. Very good performance. Perfumes and cosmetics up 14%. Also a significant number in cosmetics. Watches and jewelry up 12%. There again, that's a good performance. Selective retailing, we have to restate it for Hong Kong, about 6%.
We're looking at 6%, in fact it would be +12%. For our double-digit growth numbers, one is traditionally only single digit, and that is wines and spirits. We have to distinguish between the first 9 months and Q4. You saw that there was some slowdown in wines and spirits in Q4. Wines and spirits suffered because of the lack of availability of volumes.
We ran out of bottles, especially cognac in Q4 in the end of the year, hence a slightly slower growth in Q4. Not the case for fashion and leather goods. In fact, it picked up 3 additional percentage points in fashion and leather goods in Q4. Perfumes and cosmetics in line. Slight decline in watches and jewelry, and likewise in selective retailing, especially in the U.S., but the rest was looking good.
Looking at the income statement per se, you had the numbers just now. We went past the EUR 10 billion mark in profit from recurring operations, which is our main indicator. Sales up 10%. Gross margin now stands at 66%. It grew faster than revenue. If marketing and selling expenses, so marketing and sales, you have 5% for sales and 14% growth in marketing expenses.
You can see that we invested a lot in marketing behind our brands, which stands to reason in the present state of affairs. If you look at administrative expenses, we have expenses growing not as much as gross margin. Profit from recurring operations is up 20%. If you look at taxes, they are slightly down.
You have the depreciation of intangible assets. If you look at the financial performance, I do have a slide about this, and I can give you more details. If you look at income tax. It was up in absolute numbers, but slightly down as a percentage of profit before tax. It's about 26% now, it was about 27% last year.
The lower rate is to do with lower corporate income tax in the U.S., and of course, it doesn't make as much a difference as for France, but still a significant portion. That meant that we had slightly lower income tax rate.
The group share of net profit is up 18% at EUR 6.3 billion, another record. If you look at profit from recurring operations, wines and spirits had a profitable development, +1%, +5%. If you look at euros, you had an improvement in the margin, especially in cognac, which, I mean, Philippe Schaus will confirm this, but we had an improvement in 2018.
Fashion and leather goods, profits up 21%, slightly to do with structural, in fact, because we consolidated Dior Couture in H1, and that was not present the previous year. For the rest, it's actual growth. You can see that revenues were up also, and so were profits. Likewise, perfumes and cosmetics, again, profits grew faster than revenue.
Sorry, watches and jewelry, remarkable growth, almost 40%, mostly to do with TAG Heuer, but also Bulgari. Well, they contribute more than TAG Heuer actually, but both are involved. Then it's really selective retailing. Retailing, DFS had a splendid performance, and that's why profits were up 30% in that department. Now, there were a number of other effects.
As I said, the structure impact, the consolidation in H1 of Dior Couture bringing in EUR 151 million. That was not last year. The currency effect is significant at almost EUR 440 million. It's been a long time since we had such a negative effect. The rest is growth that was brought by operations, almost EUR 2 billion.
That is why we have this 21% increase in profits from recurring operations. If you look at the financial income, now there are, well, IFRS 9 created some upheaval. I will not get into the delights of all these new changes. For once, I'm not going to complain about the lack of legibility of the financial income statement, because now it's more legible.
In fact, we have 3 items, the cost of net financial debt, and what we call frais financiers in French. Even though the debt is slightly down, with the acquisition of debt, we have the rate is down almost 50 basis points, and hence financial expenses. Well, interest expenses were down, now we have included all the financial expenses, not just interest expenses.
You have the currency derivatives. Here we're looking at the cost of currency derivatives. Whenever we use a derivative, and whenever it comes to term, we have 60% of the cost of that derivative in our P&L. We have the cost, and that cost remains stable from 1 year to the next. Whereas previously, we had completely incomprehensible variations, now it's stable, and this is in line.
This is the actual cost of our hedging instruments. You have the net gains and losses relating to available-for-sale assets. We have a portfolio of about EUR 1 billion. We have actual financial investments, which, whose value may vary with the underlyings. It was up EUR 260 million last year.
It came down in 2010 to the tune of EUR 108 million. It's not a loss, by the way. It's the value that is down compared to the high point that was reached on December 31, 2018. Now there will be some volatility in the financial performance, which is due to changes in the value of the portfolio, and that causes a variation in the net financial expense, which was EUR 59 and now EUR 388 million.
If you look at the financial structure, you can see that almost half in equity. Debt is down, nothing worth mentioning here. If you look at the available cash flow, and that is a significant indicator for our operations, significantly up EUR 756 million.
You have three items there. First, cash flow, cash from operations, sorry, net cash from operations on more than EUR 2 billion. Working capital requirements increased, that's an additional expense to the tune of EUR 573 million, mostly to do with our inventories, which were up because of our operations. You have operating investment also up. We have a record level, EUR 3 billion.
There's some property there, but other investments after this, and of course, we reach a huge free cash flow, and yet we invested considerably in capital expenditure, almost EUR 4, upwards of EUR 4 billion, and yet we were able to generate a record free cash flow. Net debt and free cash flow, the free cash flow is EUR 5.4 billion.
Now you have the dividends about EUR 3 billion last year, paid out last year. Two other items, EUR 800 million in shares buyback and other operations. Debt was down by EUR 1.6 billion. Debt went from EUR 7.1 billion last year to EUR 5.5 billion at the end of 2018, thanks, of course, mostly to the cash flow, but also the other items I listed.
The gearing, debt to equity, about 16%, and that you have to admit is pretty low. Now, dividend finally. In view of the good performance, we will be proposing a dividend of EUR 6, up 20%. There was an interim dividend of EUR 2, so the balance EUR 4 will be paid on 29 April, if memory serves.
One point is dividend is up 14% over the five past years. Thank you for your attention. Well, ladies and gentlemen, the time has come for you to put questions if you have any. Please identify yourselves, even though I recognize some of the faces here.
Good evening. My name is Antoine Belge, HSBC. I have three questions. Number 1, on Fashion and Leather Goods, this number 17% in Q4. In 2015, 2016, there was a slowdown and there was almost a complete Well, there was a warning and correction in Asia, also because of the value of the RMB. Now the RMB is still low, and yet this division seems to defy gravity. What accounts for this positive development in the present context?
Second, you announced the acquisition of Belmond. Is this an opportunistic investment, or are you really looking at a new business, luxury hospitality? The last question for Philippe Schaus, and who followed Navarre. This year there was modest growth in volumes. I understand that, of course, compared to previous harvests, you didn't have that much.
Are you trying to create more of a premium situation, and allowing a greater role for price and mix to make a difference compared to previous years? On Fashion and Leather Goods, what we can see in the numbers is a consequence of what I was saying earlier, the fact that our products are becoming more desirable, and they are in greater and greater demand.
You can see that the market now, the Asian market, and particularly the Chinese market, is very buoyant indeed. Growth in China has accelerated in Q4 compared to the previous quarters. The beginning of this year is the same. That accounts for this performance.
Plus, of course, there is only so much we can manufacture, and so we can't go much faster than that. There would be a little point in going faster anyway. It makes more sense to develop new products and new ideas. At least that's what I think. Now, the Belmond shares, you asked whether there was an opportunistic investment.
Well, of course it is an opportunistic. It was a great opportunity. You have beautiful hotels. Of course, opportunity makes Well, not the thief. Opportunity makes for business. We can build on this. We can build on this. Let's first visit all the hotels, about 30 of them. That will take us time. It's, there are worse things in life than staying in these luxury hotels. Wines and spirits, maybe, Mr. Guiony?
The answer is yes. Volume is limited, especially for champagne. Not the case for cognac. Cognac is down maybe 3%, that is in line with what we have with cognac. Champagne's slightly down, you have the mixed effect, but it's also because the Mercier brand was significantly down in volumes because we have high-quality grapes in Mercier, which we could not put to use with Mercier, with the Mercier brand. We decided to use it for other brands. We have a negative volume effect, but a positive mix effect.
If you look at the difference between the volume effect and organic growth, you have a like 5 points difference compared to 2 or 3 points usually. You have the fact that, well, we have a new strategy here looking at value rather than volumes. Other questions?
Good evening. Edouard Aubin from Morgan Stanley. On Fashion and Leather Goods, again, if you look at the numbers for H1, the operational leverage, not including Dior, you had an improvement of 300 basis points in margin compared to 50 basis points in H2. On Sephora, you said there was a slowdown in the U.S. Also the U.S. media are mentioning JCPenney may be going bankrupt, and they have hundreds of Sephora shops. Should that happen, what would be the effect on Sephora?
On the first point, it's a technical point, but let me say this, the numbers are misleading. If you look at the growth in profits from operating recurring operations in H1 and H2, and you remove the structure impact in H1, there's not much of a difference, but there's a big difference in sales in Europe because there was a negative currency effect in H1, and we don't have it in H2.
The hedging policies offsets the currency effects in terms of profitability. We had good profitability, and we had almost the same growth in profitability with almost the same organic growth, but not the same currency effect in H2. It's not a difference in the operating leverage. It's the difference is we have an effective currency policy in H2, in H1, but there was no currency effect in H2, so no need for currency policy.
The question in the U.S., well, says Mr. Arnault, the performance in the U.S. last year were outstanding. Fair enough. Q4 was slightly down compared to previous quarters for two reasons. Number 1, most of the promotions took place in H1, less so in H2. At the end of the year, if you look, well, there was less business in malls in America. That's just one quarter, and that cannot allow us to draw conclusions for the long term. In fact, the year has gotten off to a rather good start in the U.S.
Yes, JCPenney. I don't know if they'll go under. What I can say is that in the U.S., when a company goes under Chapter 11, it's still a running, a going concern. We have points of sales. These are malls that will draw in customers, and they will keep buying Sephora products. JCPenney may go under a new management. That may well be the case, but that will not have any effect on Sephora. Yes, ma'am.
Zuzanna Pusz from Berenberg. I have three questions, please. First of all, on trends by nationality in the quarter, you've mentioned that there was some acceleration in China, it would be maybe interesting to hear how the Chinese consumer progressed globally.
Also specifically on the U.S. consumer, because I think some of the comms in the sector have been mentioning perhaps some slowdown because of the weaker consumer sentiment in the U.S. It would be interesting to hear if you've also seen this globally. Second question, there was something recently mentioned in the press, it could be wrong, of course, about LVMH potentially launching a new fashion brand with Rihanna.
Now, that obviously follows the success you had with Fenty Beauty, is this just an opportunistic move because of the success of the beauty brand, or is this maybe some sort of a new business model you may be testing going forward? Finally on selective retailing. I mean, you have mentioned some of the issues that impacted perhaps Sephora in the U.S., generally, there was some slowdown in Q4. Would it be specifically related to Sephora, was there also anything happening at DFS? Thank you.
On question number one, if you look at this, these transnational effects, we could spend quite some time, but I'll try and keep it simple. A, we do not see that on all brands. Only on the main retail brands do we have any trends, especially for Vuitton and Dior.
If you look at Chinese customers at Vuitton, we saw no major changes between Q3 and Q4. I said that in Q3 that we were in line more or less in the trend of previous months, there was sustained business with our Chinese customers in Q4 in Vuitton, more so in mainland China, less so in the more touristic regions. This is standard likewise for Dior, no special comments there.
Regarding American consumers, at Vuitton in particular, there was an excellent performance throughout the year. There was no slowdown whatsoever at the end of the year. In fact, there was no slowdown in the U.S. You know that, you have American consumers in the U.S. You don't have many tourists, whereas, well, Chinese customers buy around the world, but not in the U.S., and the performance was excellent throughout the year, and likewise for Dior.
No special comment there. Now, regarding Rihanna, what I can tell you is she is an, well, an outstanding singer, isn't she? I love her in terms of her artwork. Of course, on makeup, well, fair enough. With Christopher de Lapuente and Sephora, she made a big success of Fenty.
We could, we could pursue the concept of developing something with Rihanna, but nothing is firm as things stand now. On last question. Antonio Belloni will, yes, on DFS, the performance was good in Q4, but it may be slightly less good. It started off with a bang, of course, the comparison basis was favorable, and the price differential was favorable. Performance remained good in Q4, and part of the slowdown came from there.
[Non-English Content].
Hello. I'm a journalist from the Chinese press. I have 2 questions.
Yes.
The Chinese market. Earlier you mentioned the Chinese market continues to do well, and there's been a speed up in Q4. Could we get a vague idea as to the specific figures for the market last year? A 2 question. Have we observed new trends among young generation of Chinese consumers, such as online purchasing? Do you think that may have an impact on the LVMH group strategy in China? Thank you.
Well, good day. We don't comment on the specific figures. We don't give specifics. You see the trends. We know that Chinese customers are very important in China and outside of China. Major customers, often, customers of different product categories. They're the main contributors to market growth and brand growth.
Pertaining to new trends, of course, yes, Chinese customers are buying more and more. In a few years' time, they've become basically the most sophisticated customers. There's a lot of online purchasing.
There's no other country where you have so many online payments. Services can be provided online, WeChat being used. Our media investments migrate to digital media, though we seek to maintain part of image and communication and marketing in other media.
Certainly, in China, we follow the customers where they go, and the customers always have their phone in hand and use their phones. We keep pace with them. We try to be proactive, and we know that things are changing very quickly.
[Non-English Content] Mélanie Flouquet. Hello, I'm from JPMorgan. I have three questions. Firstly, sorry to come back to the speed up in Q4 for fashion and leather. If we look at nationality, you say same trends in China and the U.S. What speed it up in terms of strict nationality or brand?
Could you help us better understand exactly what took place in Q4? Other groups didn't see such growth and momentum in Q4. Another question. Could you share with us amount of sales and profitability for Bulgari today, and your intentions for this beautiful project, especially vis-à-vis the leader today, having fully caught up with Van Cleef, more than caught up? The third question, cost flexibility.
I see marketing costs grew by 14% this year. That's quite a substantial increase. I would like to understand, as you see it, is this a cost that's growing structurally, or were there a lot of other variables? Do you think things may slow down in the next 3 to 4 years?
First of all, in Q4, difficult to delve into detail to talk about all the products. We can just say it's a general phenomenon. I said earlier, in our group, we have wonderful teams, highly creative. We've got designers that are coming up with ever more desirable innovations.
Toward the end of the year, you had various things coming together, leading to a boost in purchasing. Basically, in all of our brands, growth rates were very strong. For the main brands, of course, Vuitton and Dior in fashion and other goods. That was your question.
Also a lot of impact from online sales that were quite buoyant also. Bulgari, we don't give the specific figures. It's one of the number 1 brands in jewelry worldwide. I don't know if it'll become the number 1 brand one day. Time will tell. We can certainly set our sights high. Profitability, compared to when we bought the company, has multiplied by what? By 5 or 6, increased 5 - 6-fold.
It's a company that still has a great deal of potential. Marketing costs. Marketing costs, we say they're neither fixed nor variable, they're discretionary. The year shows us that very well. It was a good year.
You saw this in every respect. We made lots of investments in our brands. I'm sure you remember that in years that weren't quite as good, fairly quickly, we were able to cut those costs. We have to view these costs, it's like a tap, like a faucet you open and close. Here, things, the environment, lent itself to marketing investments. Are there further questions?
[Non-English Content]. Juliette Garnier . I'm a journalist for the Le Monde newspaper. I want to talk about online selling, e-commerce. Could you tell us the proportion of your online sales in fashion and leather goods? What are the conclusions you draw from the first months of operating the Dior shop in the U.S.? Another point, could you talk to us about your price policy in China, considering the drop in customs duties for products to China? Thank you.
I can talk about online sales, Group-wide, we booked EUR 3.7 billion, approximately EUR 3.7 billion online sales growth on the order of 27%-28% versus the previous year. I won't specify by brand, but by sector. Perfumes and cosmetics, as well as selective retailing, saw substantial growth in online selling.
Watches and jewelry, wines and spirits, less so, less growth. Although growth rates were fairly similar in most sectors. There was a second question about the Dior online store. It's starting up. We're learning a lot.
I believe it's the first part of the process, the learning curve. We had a surprise, the surprise of wonderful feedback, very wildly popular products. It's the beginning stages. We're very enthusiastic. We're expecting very substantial growth from Dior online, but we're in the initial stages.
There was a third question, was there? Yes, on the drop in custom duties in China. Michael will correct if I'm mistaken. We reduced prices by 4% in July, August to reflect that effect at Vuitton. I believe that was the case also in all the group brands.
[Non-English Content]. Thomas Chauvet, Société Générale. I'm from the Société Générale. I've got three questions. Firstly, IFRS 16, if the standard is implemented end of 2018, what would the gearing ratio be? When will you present your financials as per that standard? I suspect in H1. Second thing, price policy.
Vuitton and wines and spirits in 2018, will this be changing versus recent years? The U.K., what's the exposure of your revenues in the U.K.? Think about Brexit. Are you intending to increase inventories there? Have you calculated what duties will have to be paid in the event of there being no Brexit deal?
To answer the first question, IFRS 16, the impact will be equal to 0, of course, because nothing's happening. You just book differently the liabilities for rental. This debt will be on the order of EUR 11.01 billion, won't be in the group's financials. This change in accounting rules is just a question of accounting policy, and it's really absurd.
We're not gonna start changing both management indicators that we work with and motivate people in operations with, nor the financial ratios, just because there are some regulators that wanted some excitement and wanted to change the rules pertaining to these elements. This will have no impact whatsoever on our debt ratio.
As to implementation, mandatory as of 1 January 2019, we're accustomed to adhering to this type of dictate. The financials in 30 June will reflect IFRS 16. There'll be some presentational events, elements, so you won't be at a loss to figure this out and look at it in conjunction with what you're used to seeing, as well as the economic facts of this group.
These will be big changes to the rules that are really a question of a dogmatic approach. Pricing policy. The policy of prices on wine and spirits this year. Anything else? Any points on that? Continue the strategy. We continue with the value creation strategy, so continue increasing prices for champagnes and cognacs in various countries.
Since there's a limit to our supplies, it's just as well to be creating value either through the mix or the price. Part of the question regarding Brexit, I answered that. Our wines and spirits, we've added four months inventory to the U.K. so that we are ready for the worst-case scenario if there were difficulties with deliveries. Custom duties, I can't answer that particular point.
We have to realize the U.K. represents 4% of the group's revenue. Are there further questions?
I'm coming back. I have a question. I'm from the Le Monde. Bernard Arnault, we often hear that you could be working to try to benefit from problems in their corporate governance, and the arrival of Elliott in their share capital.
I don't want to disappoint you, I'll have to tell you, we have nothing to do with any of that. No one from our company knows Elliott, the activist investment fund. We have no contact with them. Secondly, my family has a friendly relationship with Alexandre Ricard. We would do nothing that would be problematic to him, in any difficulties he may be having with that investment fund.
Hello, I'm from the Italian Press Agency. I have some quick question. LVMH is a major investor in Italy. I'm wondering, are you concerned to see this sort of war going on between the French and Italian governments, specifically, Italy turning inward?
After all, we're the second trading partner of France. We take the long-term view. What happens in the short and medium term in international relations is something that, of course, we have no control over, and we try to not be involved at all in any of that to keep an eye on our long-term rationale. We can't think of politics, the various countries where we've been located.
Over the past 15 years, there have been shifts. I recall the rainbows coming to the government, and we continue going our road, continue investing, for instance, in Italy, continue hiring as we do in France. We continue investing and hiring. Our motivation is the long-term economic interests of this group and the interests of the countries where we're long-term investors, such as Italy. We would never step in.
We've not taken any account of political shifts, as I mentioned, that can be quite different and sometimes short-term in various regions of the world. We'll field one last question. If there's no last question, I would like to thank you.