Good morning, ladies and gentlemen. Thank you for having accepted this invitation this morning to attend the presentation of the financial performance of LVMH. This is a pretty easy exercise because this was an excellent year for LVMH in 2010. We have broken a number of records. CHF20 1,000,000,000 in revenue.
It's the first time 20 10 is the first time where the current profit from current operation is more than €4,000,000,000, €3,000,000,000 in net profit, and it's the first time that we have more than €3,000,000,000 in cash flow. So it is an exceptional year, an outstanding year indeed, remarkable figures. And I should like to pay tribute to all the teams represented here who made it possible to make to achieve such a remarkable performance in each of the business areas of the group. I'll say a few words about the business. I shall not dwell too long on the figures because after all, the figures themselves are nothing but the consequence of the excellent quality of our products, our excellent strategy.
But of course, it is they are a direct reflection of the strategy we have conducted for the past few years for the development and promotion of fine quality products around the globe. But there are several business areas, so I propose to go through them quickly. All the performances in the business areas are remarkable, starting, of course, with Wines and Spirits. Wines and Spirits achieved a remarkable year in 2010. There were some remarkable events and innovations.
For instance, several vintage years of Dom Perignon. Dom Perignon, of course, is Louis 14th, champagne and something rather unusual. Dom Perignon produced a number of vintage years. And so champagne wines or high quality liquor have generated the finest growth. And in fact, they were the most on demand in the markets, which means that in this business, like in others, in fact, we find ourselves in a situation where supply and availability becomes short.
And you may remember that back in 2,009, all the papers said that it was the it's a crisis it's the champagne crisis. Mr. Navarre would come and see me and say, We have all this inventory. What shall we do with all the bottles? But we decided then that the crisis wouldn't last very long.
And the some of our competitors that were dumping their stock, well, we felt that we shouldn't do that. We should take the opposite do the opposite. We decided to buy more. And in fact, we didn't go far enough. We didn't buy enough.
And now with the recovery, the resumption of the market, we find ourselves short. But champagne is not the only one. There were 2 remarkable vintages for Cheval Blanc and Yquem. You might think that Cheval Blanc 2,009, that was an outstanding year. The new the 2,009 bottles were sold at to the tune of €600 a bottle.
I remember in 1998 Cheval Blanc, I mean, the price for a new bottle of a bottle of new Cheval Blanc was €60 back in 1998, which goes to show the incredible growth in quality and value for these great wines. Likewise, it came very much in demand in Asia. And even though Sauternes is a rather sweet wine, nonetheless, we find that our Asian customers, especially our Chinese customers, are becoming more refined in their taste. And even though this is an acquired taste, we find that there's more and more demand for Chateau Y Cuem Yquem in Asia. Likewise, Cognac.
Cognac also has achieved outstanding performances. Cognac, of course, the for the oldest Cognac, We are again in short supply, but we are in a position where we think we can meet demand, especially in 2011. And of course, we have a fine retail network, indeed one of the finest in the world. We work with DIAGEO, which of course is the 1st distiller of wines of spirits in the world. And we using that network, this gives us a tremendous competitive advantage in the environment, especially in emerging markets.
And Mr. Navas' team has beefed up its sales forces precisely in these countries, especially in Asia, in view of the fast development of demand in such markets as Southeast Asia, China and even Japan. Even Japan, which is now is making new headway in champagne. Now then fashion and leather fashion and leather is, of course, the Louis Vuitton brand. The brand Louis Vuitton of course is going from strength to strength.
It's a great company and building on its achievements. It produces fine products, but also its business model is unique. It is the one company in the world that distributes all its products in its own shops. No other luxury company has this elite strategy that enables Louis Vuitton to be in direct contact with its customers. That means that we don't have to do sales, and that is rather unique.
We're the only ones, but that is the main feature of Louis Vuitton. We never have discounts, never sales. And of course, we have a very specific policy in terms of in allocation of stores. For instance, we'd never have duty free shops in airports unlike many other brands in the luxury sector. So we have a it is a policy while it's an elite policy, a quality policy that rests with that lies upon a very strong demand, and that demand has kept growing.
And like champagne, where we run out of bottles for leather goods, we run out of leather makers. And of course, the problem is in order to have a cobbler or a leather craftsman, we need to train them, and it takes time. And last year, we hired 18,000 people, 4,000 jobs were created. So even not only is this business profitable, but it is socially productive because we create jobs, and we certainly create jobs in France. In France, of course, we share part of the social responsibility for the welfare of the country, and we have to remember that 70% of our products are exported around the world.
And so this is a significant part of our revenue. But back to our capacity issue, it takes time to train craftsmen, leather craftsmen and others. And while we train people, we find that demand is growing faster than we can keep up with. And sometimes, we find ourselves in a position where we supply simply doesn't meet demand. And there were times that we had to keep shorter opening hours.
We opened new workshops. There's one in the drum. Mr. Carcel can tell you about that in a minute. So we are trying to increase our production capacity slowly but surely.
But of course, our objective is to still ensure that the quality of our products remains second to none, especially for leather goods, but also the hamper and bag business and then all these things that have made our reputation outstanding around the world. And we have a presence in new areas. We have opened a new shop in London. And of course, there are not many Louis Vuitton shops around the world, but we try to have 1 in each of the capitals. The one in London is outstanding because it is unique in its style.
In fact, it was a sensation in London and indeed outside because you have visitors from around the world who come to London to visit the London the Vuitton House in London. And they try and get you have tourists that simply go there to have their picture taken in front of the Vuitton shop on Bond Street. You have as many people taking their having their pictures taken in front of Louis Vuitton shop as they are in front of Big Ben, which goes to show the incredible fame that we enjoy, but also the unique quality of Louis Vuitton. The thing is this is the only place where you can buy a Louis Vuitton item. You cannot if you want a Louis Vuitton item, you have to go to the shop.
You can't pick it up at the airport or something. And the extreme refinement of that shop is a reflection, of course, of the unique quality of Louis Vuitton. And apart from the outstanding performance of Louis Vuitton, we also have to point to the performance of other brands in leather goods. Fendi, start with, was able to produce and to generate a number of new leather items. And some of these items are subject to waiting lists around the world, in particular, the peekaboo model.
Peekaboo, as you know, is a rather remarkable product. It's made in Italy in Fendi's own workshops. And there again, Fendi achieved fine performances in 2010. And it is worth pointing out that a number of smaller brands were able to follow suit. It took time.
I have to recognize this, but the strategy we have with Mr. Husserl, that strategy has enabled that business to pick up in a remarkable way. I'll just give you one example. Celine, Celine now, thanks to the artist who was appointed as Head of Design of Celine 2 years ago, that woman was able to impose a very modern style, something very youthful, very much in demand with our international customers. She was able to create merchandise that were accessories to the clothing itself.
And so now the revenue is growing dramatically, and it still shows a huge potential. Filo, this designer was named was elected best designer in England by the organization that gives these awards. Likewise, Marc Jacobs was named Best American Designer in 2010, And the other brands are growing as well, but I won't get into the detail of everything. You could do this during the Q and A. Then perfumes, again, this was perfumes and cosmetics, this was another outstanding year, again, because of the fine quality historical quality of its products.
You know that Miss Dior was launched by Mr. Dior in 1947 when he started. So this was the first couturier who started the perfume at the same time as his fashion store. And that has continued ever since. And of course, Miss Dior is still very popular today.
And in fact, we will have a new advertising campaign on this fine perfume with Nathalie Portman. And of course, Mr. Dior was at the head of his company in a remarkable way between 1947 and 1957. He died in 1957, but he started 1947, and it was his anniversary here. He was born in on 21 January, 1905.
We celebrated this the anniversary of his birthday in this very room. But he was only head of his own shop of his company for 10 years, and that has become the finest couture shop in the world. And his successor, John Cariano, taking the same or following the same aesthetic codes, used created Jador. And I say the same aesthetic code because in his creation, Mr. Dior Luc used amphoras, the Greek amphoras and this emblematic form or the pattern or design of Dior was taken out by John Galliano in his J'adore.
And for the first time in 2010, J'adore is number 1 on the French market. Was this has had never happened before. And so it's the best selling perfume. It was in 2010, the best selling perfume in France. You can see on the picture now that cosmetics and things like lipstick also did extremely well.
And building on historical records and achievements, Guerlain built on its past achievements with the Shalimar and Orquidez Imperial, its face cream, which is most remarkable. And indeed, it has met with a resounding success around the world, obviously, outside our borders. So perfumes and cosmetics generated a remarkable or showed a remarkable performance in 2010. Watches and Jewelry, again, the financial performance are, of course, outstanding. It should be pointed out that products are still gaining in quality.
And the strategy we've been conducting with the watches and jewelry has been to focus on our brands and improve these brands in terms of supply because one of the difficulties in the watch business is to have an effective supply chain. So with Hublot, Hublot, of course, is a brand is a rather remarkable brand that was very successfully developed by Mr. Bizer, who sells high quality products. And of course, these products will be manufactured in our own workshops. Now Hublot's distribution strategy is right on the market, is highly selective and has just opened a shop on Place Vendome.
It is a superb shop, and others will follow suit around the world. The next in line will be open shortly on Madison Avenue in New York. Tag Heuer celebrated its 150th birthday. It's a great brand. Again, our concern is to ensure supply from our own workshops.
So of course, we are always concerned with adequate supply, but TAG Heuer has many iconic products. Mr. Pascal has been able to point to fine shops around the world. TAG Heuer, of course, is one of the leading brands in the U. S, but it's still behind in China.
So there's huge potential in China to develop the brand on the Chinese market because needless to say, that brand came a bit late in the day in China. The other brands in the group, Chaumet, in particular, were very successful indeed in 2010. Chaumet has its fine jewelry workshops on Place Vendome above its shop right next to the Chaumet parlor where Frederic Chopin died. So this is again a fine company manufacturing watches and jewelry. Moving on to selective retailing.
Now that again enjoyed an outstanding year. DFS. DFS is a rather unique company. It finds itself at the heart of sales for or to Chinese tourists. DFS is in a single is in a rather unique position.
It distributes all the luxury brands of the world, LVMH's brand, but also that of our competitors. And so if you go to a luxury mall a DFS shop in a luxury mall, you find all the brands. So you have, of course, brands that are intended for high end customers. But you have there this is the crossroads of all Chinese visitors. And last week, I was in Macau.
Macau may sound like an exotic destination. Some of you may be familiar, but when you are in Macau, it is quite remarkable to see that there are more visitors to Macau than they are in Las Vegas. And DFS has the largest luxury shopping mall of Macau, and it tracks all the visitors that go to Macau. And DFS' sales are growing dramatically. And so this accounts for the high revenue you can see on the slide.
That is for the FS Sephora as well. It was very successful in 2010. It gained market shares around the world. It produced specific brands or items under the Sephora brand. And there are sales on the Internet.
Sephora is the number 1 Internet perfume merchant on the in America. And that company is growing as well. We have acquired in 2010, we acquired the 1st Internet retail in Brazil through Sephora. And so Sephora has its shops in China. And now it is making inroads into Brazil where its business will be heading to will be directed at all emerging economies.
And so that's what we can say about our business, our various business areas and the performance achieved in 2010. But you might want to hear about the strategy that made it possible for us to achieve such a performance. Of course, the strategy hasn't named. It hasn't changed. It's and it has been the same for many years.
1st, internal growth, and that is our priority. By internal growth, we mean developing our brands, investing in our brands, investing in R and D, in developing new products, ensuring the high quality of our manufacturing processes, opening new stores and supporting the brand image. And that is our number one priority. Of course, we invest more behind those or in those brands that show the greatest potential or indeed that have achieved the greatest success already, there is Celine, there's LOVO as well. These are brands where we feel that all the conditions are met for a big success to occur.
And so this is where investors but we invest selectively with all the backing of the organization. And we always try and strike the right balance between the various geographical areas. We're well balanced. We have onethree in Asia, onethree in Europe and onethree in the U. S.
A. Decentralization also means that the group can develop more harmoniously because, of course, in our group, our organization is more like a constellation than the confederation. It is a group with satellites around the world, but all these satellites are independent. Of course, they also have well, of course, they have, as a pool of attraction, the main satellite, as it were, the flagship store. But having said that, they enjoy great freedom of action.
They can be extremely responsive and proactive. And that means that, of course, you will find specificities for each group, each brand, each business area. So internal growth, some external growth, but very selective with that because external growth, the purpose is to develop our own companies. And so we buy up smaller brands. We bought Saks in Brazil, for instance, and there are other such products that will that are expected.
Of course, you may hear you might know about the investment we made in Hermes. And I would like to point out that, that investment was a friendly and peaceful one. We are proposing to support the families, the shareholders in the group. I mean, I understand they were a bit surprised that we came in, but we ourselves were did not expect to become shareholders of Hermes. And circumstances meant that starting from a financial investment for technical reasons that were more or less imposed upon us, we had to turn that into an official stake in the company.
But now that we are shareholders, we are certainly peaceful as shareholders, but it doesn't mean we are passive. Peaceful doesn't passive. I mean, we will be active, but we won't be activists if you can catch that distinction. But regarding the position of the group as a whole, we have reasons to be optimistic. I think we have I mean, ever since 2010, we have entered a new economic cycle.
We have a resumption of growth. The forecast is a growth of 4% to 5%, about 4% in the U. S, slightly less for Europe, about 10% for China. So we are looking at growth. Again, in my vision is that, I mean, we're looking for we're looking to a 3 year cycle till 2012.
What comes after that is difficult to predict, and it could be, of course, due political events that we know. But outside buying that, the demand for high quality exclusive products, French products, that demand is bound to continue. And so we are very confident indeed. In fact, January has shown a business picking up since last year, at least speeded up compared to last year. So we have forecast.
We work out these forecasts internally even though we don't advertise this. But our figures are promising indeed. Now we're looking at responsible development, and that is the our fundamental attitude. We believe that we want to preserve jobs in this business, and so we are here to hire fine craftsmen. This company is very profitable.
It makes a lot of money. But this also is a company that can help the French economy along. We can hire craftsmen. We also need to hire people outside France. But the great and we believe we can make a big difference to the labor situation in this country.
We also have a very responsible policy in terms of the environment. Not for me to get into the details, but we've always been very much committed to protecting the environment, and we indeed have our own environmental charter. And as I said, we're very committed to that policy, a policy not just for protecting the environment. We also have a policy of diversity. We are concerned with preserving diversity in this organization, and we are fortunate to have many women in this group.
We have more women than we have men, and there may be better workers as well. We don't know. But there's certainly a number there policies are definitely directed in that way. And in fact, for many of the products, we need the female talent and intuition and often aesthetic female talent. This is how very much progress is made in our organization.
And indeed, many new products will be rolled out in 2011. It is not to me to give you all the details, but there will be major advertising campaigns. We will have a new Louis Vuitton shop in Shanghai, another one in Rome, but we shall remain selective because as I was saying earlier on, the figures, the financial performance is the consequence of all this because day in and day out, we focus on high quality products. We focus on the quality of our shops, the people who we try and ensure that our people are doing the best they can. And then, of course, the financial performance is the logical consequence.
And of course, then you get into financial intricacies. The other day, I mean, I get lost in this myself, and I took confidence in seeing that even our auditor had trouble finding his way through all these issues of foreign exchange, hedges and so on and so forth. But we have of course, we have a fine financial performance and our CFO is, of course, the master of all this. But other than that, I think I have to pay tribute to the fine performances delivered by our men and women working for the organization. We certainly expect 2011 to be as good a year as 2010, but our word of order is quality and selectivity.
This is our constant quest for quality on all levels of the organization in each of the business areas. That is what the success of our group is based upon. And I believe we are the one organization in the world that shows the finest potential in the universe of luxury goods. Thank you. Thank you so much.
I'll give the word to Mr. Guillenie, our CFO, who will give you these figures in detail.
Thank you. Good morning. So you know everything. So I'll tell you a bit about the rest, starting with the figures for the vintage that you have on the chart. As Mr.
Arnott indicated, some records were broken or limits were crossed. Revenues topped €20,000,000,000 profits from recurring operations, €4,000,000,000 €3,000,000,000 in net profit, up 73%, and cash flow also tops the €3,000,000,000 mark. So just to go into greater detail, let's start with revenue growth for the year. Growth in euros, 19%, as you can see on the right hand side of the chart, assisted by a positive currency effect, 6% organic growth, up 13%. Let's look at the quarterly trend of this organic growth.
Not much change between 13% 15% for the quarters, whereas the basis of comparison for the previous year was quite changeable. You recall that the first half of 'nine saw an organic drop of 7%, minus 3% in the 3rd quarter and 3% in the 4th quarter. So the basis of comparison became increasingly demanding as the year progressed, and that didn't really impact our performance. You can also see that we're not speaking of catch up but of growth because we had negative organic growth of 4% in 'nine and up 13% in 2010. So it's genuine growth compared to a base that was impacted by the crisis, but we went well beyond the catch up of the crisis effect.
So revenue breakdown by geographic area, not much change. Mr. Arnaud stated the balance of the 3 thirds within the group. U. S, pretty stable.
Japan losing 1 page there, pretty flat Asia, up 2 points, 25 percent of the total and Europe's pretty flat, loses about 1 point. Next, the breakdown in local currency by geographic area of our revenues, with the exception of Japan rather separate, where demands remain sluggish for the past few years. U. S, Europe, up in double digits, had declined 1 single figures last year, a catch up, in fact, growth across the areas. And you can see that the Q4 performance, even if they were slightly down compared to the 1st 9 months, and nevertheless, extremely good, 12% in the U.
S, whereas you'll no doubt have questions on that. Wines and spirits made a very cautious landing to avoid inflating inventories in distribution. Asia on a pretty constant note, and Europe put in a performance close on double digits, very commendable in Q4. Turning now to the consolidated income statement. Let's review the main items.
So I won't return to revenues, 19% growth. Gross margin, 21% higher than revenues. Gross margin 63.8%, up 0.8% versus last year, reflecting a better efficiency of our operations. Marketing and selling, up 17%. In fact, that's 12% on a constant currency basis.
And within that, marketing expenses up 21%. They account for about 1 third in that. So up 21% on the like for like, whereas selling, that's stores, rentals, that was contained at about 8%, 9% excluding currency impact. General and admin expenses up 16%, that's 12 percent on a like for like currency basis. There are some nonrecurring effects last year with provision write backs, and this year, additional provisions in most of the operational entities to take account of the performance achieved, notably in terms of bonuses.
So we end up with growth that was, in fact, slower in the second half than it was in the first half as we'd indicated. So in total, this growth of expenses lower than the gross margin, it leads to a 21% increase. So the other of €151,000,000 that's down about last year. That's essentially amortization of intangibles as is the case for most of the years. So financial profit is changing considerably.
Impact the tax rate, 37%, slightly higher. Minorities up. That's fairly logic. Muertenci and DFS put in remarkable results, so growth in minorities and total increase of 71% of the profit at €3,000,000,000 €3,232,000,000, €745,000,000 of net profit. That's the unwinding of the Hermes equity swaps.
Apart from that transaction, the profit would have increased by 33% for the full year. Turning now to the analysis. As you saw, just revenues by business group. On this summary chart, everything is in double digits. That's the main take home message.
Growth across geographic areas and shared by all business sectors, also in profit from recurring operations, strong growth of our business. Group's growth, it is higher than in revenue in euros. We saw that at European level. There was an operational driver in each division, watches and jewelry that have doubled profit and selective retailing revenues up 19%, boosting profits by 38%, remarkable performance in those two areas. The traditional chart on the currency impact on our revenues, the conversion of our results abroad and the change in the in our hedging policy, you see that it was positive there again.
In fact, very positive, EUR 370,000,000 We had EUR 120,000,000 in the first half, EUR 250,000,000 in the second half. And you can see that growth is split, twothree, onethree, but with operational improvements, that's the profit from the business and the impact measured here rather mechanically of the currency impact. Turning now to financial income. As you can see, changed considerably. Four items here just to see our way clear.
Cost of financial debt, of net debt, has declined from €190,000,000 to €150,000,000 That's the impact of the drop in the rates and average cost of debt. We were impacted, as were many companies, by the fact that the cash that we accumulated and the assets of our balance sheet doesn't generate much interest, and that prevents financial income to decline as much as net debt did foreign exchange hedges. The cost has doubled, not that we spent more than last year, but it's an accounting booking of this cost that's rather complicated, as I indicated. Every time. Last year, I said it would increase.
It has increased, so I can say that it will decline next year. The recurring cost in cash of foreign currency hedges is of the order of €65,000,000 €70,000,000 It's a figure we never have. We always have more or less. It's one of these accounting quotes. So results pertaining to current and noncurrent available for sale financial assets, that's essentially linked to the unwinding of the equity swap on Hermes, highlighting a profit of the order of €1,000,000,000 These transactions have an accounting reflection, which as I see it, is not fully economic.
We have an accounting profit of an unrealized operation because we don't plan to sell the Hermes sales and booked at a share price of 175,500,000 which is very different from that of the current share price. So these accounting principles were applied. Whatever their financial impact, that seems to me somewhat different. The rest, without any particular comment. On the group's financial structure, not much change compared to last year.
Equity is up 49% of the total balance against €46,000,000,000 18,000,000,000 The rest is pretty much unchanged. We managed, in particular, to keep a lid on inventories. That's linked to currency impacts, not so much to inventories constitute as such. As to the rest, not much change in the balance sheet structure over last year. On cash flow, €3,000,000,000 mark reached.
That's cause for satisfaction. You can see the cash flow from operation after payment of interests and tax is €3,800,000,000 Need in working capital requirements, €247,000,000 having generated €91,000,000 last year. Last year at a time of crisis, it wasn't abnormal to generate working capital requirements. This year, with a recovery, it's a little more surprising, and that denotes the high quality of the work put in there. I'm not sure that, that performance will be reproducible in 2011.
Our inventories will increase and our receivables will increase to drive growth. But in 2010, we put in quite a remarkable performance in that respect. And then investments have increased, reaching close to €1,000,000,000 That's our resolve to invest selectively. Available cash flow of €3,000,000,000 Net debt, as you can see in light blue, has declined just under €3,000,000,000 We have €2,700,000,000 at the end of this year in spite of a cash impact of Hermes operations of the order of €1,700,000,000 in spite of the buyback of the Samaritan minorities that cost us about €180,000,000 So on the strength of our cash flow, we were able to reduce the debt, which is 15% of equity, one of the lowest levels that the group has ever recorded. Lastly, the dividend, which is the consequence of a number of these changes.
We'll be proposing to the AGM to approve dividend up 27% at €2.10 An interim dividend was paid in December of €0.70 We see an average annual growth over the past 5 years incorporating the crisis period. That's 13%. And let me end briefly with this chart that I can't resist showing you, which shows the share price performance over the past 3 years, years of crisis, which include the crisis period. You'd all see that in blue, LVMH, and in gray is the CAC 40 index. This speaks for itself.
Right, ladies and gentlemen. And now if you like you can put questions to us, Please introduce yourselves before putting your questions. Thank you. Antoine Beige. Hello.
Antoine Beige from HSBC. I have, in fact, three questions. Number 1, regarding on the profit from recurring operations in Wines and Spirits. You had a major growth, 13% organic growth, plus there were positive mix effects. And the question is, wouldn't you have expected even greater operating margin?
Or were they unusual events or high A and P investments? Second question referred to the Japanese market as being rather stagnant, but you're still in Q4, you have only minus 2% compared to minus 4% 6% in the previous months. Is this simply a basis for comparison? Or are you being more optimistic in 2011 to try and stop the decline in Japan? And then third question, Mr.
Anno mentioned about mentioned DFS and his appeal to Chinese tourists. Could you expect taking advantage of the growth in Chinese airports with duty pay rather than duty free shops. Christopher for Wines and Spirits. Well, we should confirm the fact that there were an improvement in the profit margin at Mueta NC, especially for cognac Hennessy, which accounts for a significant portion of our profits. It is also the case that champagne enjoyed significant growth.
And for the first time indeed in the history of champagne industry, after the first year after a crisis. Normally, you have to wait 3 or 4 years for a recovery, and this is quite remarkable. We have a recovery immediately in the following years. This is the first time we've seen this, and this is the first time we have a global crisis followed by such a dramatic development, not just growth, but also the market mix. There was some prestige vintage bottles were also enjoyed tremendous growth, although there's still some ways to go.
This meant that profit margins increased, but it will still take some time to get back to the historical levels. But that means implementing our long standing strategy. And let me point out that I am quite confident that we are the only ones who are able to maintain our prices, indeed, increase our prices at a time of crisis. This means that our brands are robust and this is part and parcel of our long term image. This is what will enable us to continue this high value strategy.
Regarding Japan, Mr. Carcel will have to say something, but I can tell you that the position in Japan hasn't been good for many years. It looks like it's stabilizing, but that's basically what's going on, isn't it? Well, the Japanese model is developing dramatically. What you have is because the yen is depreciating, you now are in a position to reach out to the middle class and indeed the younger portion of the population.
Because the euro went up and the yen went down, the prices went up in Japan. And so luxury goes up pretty much the same in Japan as they are around the world. That's one thing. The other thing is that our luxury retail is mostly in department stores. Department stores have been over investing and now we have shops that haven't got the wherewithal to improve their facilities.
And so you have a number of shops that are closing down, and a number of Mitsukushi shops are closing down in Japan and there are other shops that are next in line. And so in that context, the one tool that we do have is that for a number of years, Louis Vuitton, but not just Louis Vuitton, has been investing in freestanding stores. And now we have a 2 tier market. We have a high growth in our sales in our freestanding stores, but at the same time lower traffic in department stores, especially among the younger clientele who were our luxury customers a few years' work. So there's a sea change in Japan.
And it's interesting to see that China, a poor country, moving into China into luxury in number of years in a small number of years and Japan following almost the opposite trend. But I believe that a longer term quality trend is underway in Japan. And so give or take a few years, a few transition years, we have a strategic hope to believe or reason to believe that we will have much better figures than in the past.
So just to pick up on the point about DFS. I agree when you say that there's huge potential developing in airports and beyond airports in luxury centers. As you know, we're already present at Hainan Airport. That's a small beginning, and we're working hand in hand with the authority that runs the duty free market in China to see if there are profitable expansion opportunities. Further questions, yes?
Hello. I'm from Sanddren Pan's team, and I have three questions. Number 1, you said that there were satisfactory performances even for the small brands in fashion and leather such as Celine. And is this still a priority? Is your priority to refocus your brand portfolio around these brands in the future?
That's one question. I was pleased to see that you noted that exchange effects are foreign exchange effects are rather complicated. The exchange effects was significant this year. There's an assumption that exchange rates will remain the same this year. But do you have any comments as to your expectations this year in terms of exchange rates?
And about Hermes, you said that you would be an active shareholder. Is this to say that you might cooperate on some issues with Hermes, for instance, advertising campaigns or such like?
Surely.
So first of all, on the fashion brands, the smaller fashion brands that I mentioned in my introduction, well, some of them are developing very successfully and there's no plans for additional disposals. I mean, we have a strategy that's very well tailored to each of them that I cited. Of course, success is there. And so we're going to continue to build around these brands on currencies. Well, it would be very imprudent in my view to make a forecast on that front because it always varies in a direction that is contrary to the prediction of the best forecast.
Unfortunately, it's one of those uncertainties where our means of action is very limited. Even as is our case, we received the great the leading specialist with Mr. Guillenie. We see them frequently and we see them a year later. And generally, they've got things hugely wrong.
So we need to adopt a humble attitude in that respect. Any other questions on Hermes? Otherwise, I'll answer your question. But are there anyone else like to ask a question about Hermes? And then we'll perhaps just group them together.
I'm sure that there are probably several questions on that. Pierre
Perignon, Financial Operations. I would like to know, Mr. Arnaud, at the next general annual meeting of Hermes on 30th May, would you ask the end of the voting rights of those shares held by the family that were not recognized by the AMF, even though there was an appeal placed to that end by the same family.
Further questions on the matter? Pierre
Lou Germain, Le Revenu. I have a question. Do you consider Hermes to be a competitor of Louis Vuitton as a brand? Odile Bellacudair, nouvelle Observatory. Can you tell us what is your stake in Hermes, 20% or more?
And the second question, if Hermes puts out this holding, the floating will be less and if the share becomes less speculative, is there a threshold below which you do not propose to remain to keep your stake in the company? [SPEAKER CARLOS GOMES DA SILVA:]
So on the Hermes question, what needs to be said is that, first of all, for the reasons that I outlined earlier, we're very pleased to be a shareholder of this very fine company that once again in a very peaceful manner. In other words, we wish to support the family shareholders that we wish to support the management. Nevertheless, you would not believe me if I were to say that we will remain peaceful. So I believe we can establish If conditions improve in relationship with the family and management, we can build constructive relations whilst, of course, remaining outside the management of this very fine company. We can provide them with a certain number of advantages both at the strategic and operational levels if they so wish without any other counterparties and our presence as a shareholder to the tune of our current shareholding.
And we believe that cooperation is one thing, but our concern in this company and one of the reasons why whereas we had not planned, in fact, we decided to become a shareholder of this company, is to ensure its sustainability, its durability in its current system of operation. You asked me is Hermes a competitor of Louis Vuitton? It's a competitor of Louis Vuitton in as much as Dior is a competitor of Louis Vuitton or Celine for Chanel, but we are all in the right places throughout the world. So it's competition that is fruitful for all participants. I'm often told often that Hermes' culture is different to that of Louis Vuitton.
Well, that's true. But do you prefer Hermes or do you prefer Louis Vuitton? Do you prefer Proust or Stendal? I think we can prefer 1 or the other, but we're bound to recognize that both are great talents. And in that respect, we tend to position ourselves as the play ad collection that is that we respect culture and talent.
And of course, we can make them live in harmony, but we're not interested in popular novels. We're really just interested in good, great authors. And this demonstrates that all these components that are part of the LVMH group have enhanced their originality and the quality of their products in their belonging to the group. Remember what was said when we took a stake in ECHEM that it was going to be a disaster in the offing of this wine that is still the finest wine in the world, that we were going to, what, produce T shirts and other horrendous things. I mean nothing has happened.
I mean Echem, since Echem, which is an iconic wine, joined the group, the quality of the products have improved still further, and it remains the most mythical wine in the world. Competition, yes, but fruitful competition, different cultures. But I believe that LVMH can be the can guarantee the long term respect of a culture such as Hermes, and that's the objective we've set ourselves. So the level of shareholding is still around 20%. We haven't bought any shares since the last statement.
I don't wish to give systematic details regarding our shareholders since you're putting the question and that we're gathered here exceptionally, I give you the figure. So as to add a scoop to the meeting, if that's indeed a scoop, we don't plan to exit from the company. We're there positively and peacefully. And I hope that this very constructive and beneficial for the long term of the company that this attitude will be recognized by the current shareholders and its management. That's my wish.
And don't count on us to be aggressive or anything else. Further questions?
Daniela Fernandez da Costa from Valor Economico Brazilian Economic Paper. I have a question on Brazil. And number 1, I would like to know what is the share of Brazil in your VMH's sale. Is Brazil a priority region in the development of LVMH? More specifically, looking at brands, can you tell us where Sephora will open its first shop?
I mean, it's already got a website. And as to Louis Vuitton, will there be new shops in Brazil? And then are there other brands in the group that propose to move to Brazil?
Well, Brazil is a great country. It's in full expansion. It's a country that we know well. It's not always an easy country for our brands because custom duties are very high. As you know, there's a considerable price difference in a whole series of products between the U.
S. And Brazil. We're interested in this country. We already have Vuitton Dior stores and now Sephora. So for Sephora, since Tony is following their market.
Yes, I was in Brazil last week, and we're working to open the store in 2012. Between Sao Paulo and Rio. I mean, that's the focus there for the moment.
Sephora.
And Sephora will be opening a store what? We're going to open a Sephora store in 2012, in 2012. But we should open several and contribute to the huge growth in Brazil. We'll also be selling quite a few Brazilian products in these. Yes, at the Saks store, we launched a care line developed by Giselle Bugden for the Saks location.
And the Brazilian public will see a very fine mix of international products that will bring in products that already exist. Concerning Driton, where we're already established, we have further plans. Mr. Casa, would you like to say a word about our plans for Sao Paulo?
Zilcom, well, in Brazil, like in many other countries, our strategy is rather to broaden our existing retail network rather than opening new points of sales. So both in Rio and Sao Paulo, we propose to expand the existing shops, Guitemi and the other as well. So we can see that there's a significant up speeding up of business in Brazil, but the import duties are high. And sometimes, it takes a long time to get our products out of customs. And that means that many of our Brazilian customers buy outside Brazil.
But we have many Brazilian customers, not just in Brazil, but in the U. S. And in Europe. And it's a shame not to have them in Brazil itself. So it's a lost opportunity, but still we're investing there both in Rio and Sao Paulo.
And in 2 years' time, the places will be unrecognizable. Sure. Emmanuel Brie Devarin from Societe Generale Bank. And I have three questions. Number 1, on Louis Vuitton, I can't I understand that half the profit is generated by Louis Vuitton.
Maybe Mr. Carcel can tell us about the outlook for the brand in 2011 apart from Brazil. Are there other countries where you propose to open new shops? Last year, you said that the priority was less to open new stores, but rather to expanding existing stores and improve service in the existing stores. So could we have details as to the number of stores?
You've decided apparently not to give us numbers on that. The second question about Sephora. Would like to know where you stand with your Russian partner. I believe you had a possibility of acquiring a greater stake in that Russian company. And also in Mexico, I believe that Sephora Sephora U.
S. Was the company that issued statements but not the Sephora headquarters? And then the last question, you don't have to give us a name, but are there other equities to our contracts in other listed companies in the business where in the business areas where you are present. We don't want names exactly, but is it the sort of thing that you're going to do again?
So as regards plans, I can only confirm what we said last year and what I just said as regards Brazil. We plan I mean, we really cover the globe quite successfully. In many countries, we don't need to have additional detailed coverage. So we want to increase the size, the service, the service, the luxury, the emotion generated by our stores in countries where our presence, Mr. Arnott mentioned Rome.
We're going to triple, quadruple the face facility in Rome, taking over Spatio Etois, which was the oldest cinema in Rome. We're going to rebuild a smaller cinema that will be open to customers with special screenings there. In Singapore, we're going to open the first Rivito Island because in Marina Bay, we have the opportunity of taking one of the artificial islands in front of the casino and the marina. That will be a magical location. And then of course, Place Vendome will be opening up at the end of the year with the first jewelry workshop that will be in the same building on the top floor will allow customers to view how the jewels are made and how they are progressing.
And of course, we're going to double the size of the can store. We're going to triple the store in Munich, triple its size. All our plans, not just in Asia but across the leading cities of the world, we want to offer increasingly luxurious premises to our customers. Mr. Arnaud mentioned Newmont Street, which, customers.
Mr. Arnaud mentioned New Bond Street, which doubled the revenue generated at New Bond Street but radically changed the luxury perception of the brand. So we're prepared to invest more in terms of quality than in quantity. There'll be fewer than 10 new store openings this year.
Regarding Sephora, I can tell you this. In Russia, we have a partner who runs the business extremely well. We are very happy with the partnership. He's done a very fine job, highly qualitative job, and we have we're perfectly happy to go on working with this partner in the same way. With Mexico, we have a joint venture with AXO.
And so we have our own business plan, and we propose to open 2 stores in 2 shopping malls in Mexico City by years. And regarding the strategy in general, of course, we are we still are seeking out new pillar countries where we have less than 20%, and we're trying to reach that level, Italy, Spain, Turkey, Canada. And then there are new countries like Singapore. Singapore, we opened last year. We will be opening Malaysia in a month or 2.
And then you have Mexico and other such countries.
No more equity swaps. Well, equity swaps are proposals that were put to us by banks. I mean, you're a banker. It's a little too sophisticated for us. I mean, at the outset, I didn't know we're an equity swap.
I mean, Mr. Guioni masters that very well. But I think that all that's going to change. So for the timing, let's keep things simple.
I'm Lutz Mayer from the Financial Times Germany. I have several questions for Mr. Arnaud. You said that you were in short supply for certain items, in particular champagne, leather goods and in jewelry, I believe. But well, how can you meet the demand then if you are in short supply?
Is if supply is too short, because could that hamper growth in the leather goods business? Because you said it takes time to build new workshops, to train new people. So in the meantime, what do you do to stall demand? Do you have sort of subcontractor or something? In champagne, I believe I read in the papers that you had an interest in Remy Cointreau champagne branch for the supply of grapes.
Is that right? And what's the other way to meet the supply shortage?
The production? Well, to resolve production problems, there's no other solution than to gradually increase capacity. Capacity of the Louis Vuitton workshops by hiring craftsmen in existing workshops, which is what we're doing, by attempting to ask certain suppliers, subcontractors also to increase their capacity, but that's not always easier because we control them very closely. And in Champagne, likewise, to increase the number of bottles sold, we must boost our wine growing capacity. So we're seeking additional capacity for buying land and production manufacturing contracts, everything that's available.
I think that we will gradually succeed there in increasing, but we're rather limited by that difficulty. So the working capital requirement, as you've seen, has declined because we're reducing inventories. Further questions? [SPEAKER PIERRE ANDRE DE CHALENDAR:] I didn't hear that. [SPEAKER PIERRE
ANDRE DE CHALENDAR:] Remy CointARO,
yes, we looked at that, but no more.
In English, it's Will Hutchings from Goldman Sachs. Just a question on your capital expenditure plans for the group. I wonder if you could give us a bit of color about by division, by geography and by type in terms of store or production facilities, what where you stand in terms of your plans? And do you have a budgeted number for the group in total?
Well, capital investment in 2011 will increase, which is quite logical on the back of the economic recovery, as Mr. Arnott said, directed towards the most promising and the most effective brands. Yves Carsten mentioned that. We have quite a few plans in terms of stores, store extensions, fewer openings, but I mean quite a few. So in total, we'll continue to have an active policy supporting our brands through investment, be it in the networks We always speak of Vuitton, but we can also mention watches and jewelry, be it in production capacity.
Massa was mentioned for Vuitton earlier. So there will be ongoing support as has always been the case.
I had a couple of questions. First on perfumes and cosmetics, this is one division where there was less leverage there than elsewhere. I believe that last year, there were some technical effects last year. But what's but as a result, there's less growth, less this there than elsewhere. Regarding selective retailing, can you explain why there's such a difference in the performance between DFS and Sephora and especially as regarding profit margin?
And then you said you just said that you would support your brands both in terms of production and network retail network. I expect that in 2011, there will be you will be giving us more numbers in terms of revenue compared to 2010?
Ole, but firstly, for perfumes and cosmetics, you're right. We started the year rather prudently, and then we were encouraged by the growth. And we saw that income statement, there's positive leverage in terms of volume, gross margin, marketing and selling and administrative expenses. We have an A and P spending, which is 5% higher than last year. So we hope that, that will have an impact on growth in the coming year.
As regards selective retailing, well, it was a very good year with growth that was pretty evenly distributed. DFS achieved higher growth, but there was also a small rebound over 2,009. Sephora had a very good year in 2,009 and continuing to grow for operating margin. It's interesting to see that both Sephora and DFS and the Montmartier are putting in margins well above the 10% market. Miami Cruise Line is recovering, but it's not at that level.
Marc Bian, Raymond James. And I have three questions. 1 on Louis Vuitton and its network strategy, the fact that you propose to open a shop in the Seoul airport. Is this that you want to open a duty free store or you want to take advantage of the Japanese, Chinese traffic? Outside Louis Vuitton in leather goods and fashion, are there brands that are losing ground?
Has Fendi resumed renewed with its producers levels of 2 years ago? And what about scope effects?
Louis Vuitton from the outset, since we arrived at LVMH, has been selling duty free products in Korea. It's the only location in the world. It will continue to be the only location in the world and places where all the other brands are present but of pretty average quality. So we decided to discontinue all those stores that weren't sufficiently high from the qualitative standpoint and to come to regroup them in the finest, the largest, finest store at Incheon Airport. But Louis Vuitton's policy is never to be present in duty free areas.
And this that example is the example is a counter example, in fact, that confirms the rule. No duty free LVNV tons except for there, which it was there. It was there, unfortunately, I would add, when we arrived. And since then, we have not been able to change given the size of those locations and the impact of the market. But never duty free apart from that, never any duty free you'll never see any duty free soils anywhere else in the world.
What was the other question? And on the fashion brands, well, all the fashion brands, overall, positive. We won't go into the detail, but there's a considerable growth potential growth of the earnings in this section of the business that is now reaching quite a significant site. And Fendi has returned to the profit level of 2,008. Yes, Fendi is putting in a substantial profit.
And T4 and the one last question, and then I invite you to visit the Dior store that is next door, a small exhibition showing the creation of Mr. Dior since the outset and how Galliano continued in the footsteps of Mr. Dior there in the hall just next to this meeting room. Last question, please.
You noted that gearing is low to 15%. So what are you going to do with all that cash? Do you propose to make new acquisitions or share buybacks, increase dividend payout since you have so much cash on your hands? And then you noted that there's a difference in culture with Hermes. Can you give us can you tell us about that difference?
Regarding the capital, yes, we have a low gearing ratio. But might I say, I mean, that's a situation that we can live with and survive with for a number of years without worrying unduly about it. So without before thinking about using the cash, we need to be patient. We must wait for opportunities and see how they develop and initially to focus above all on investment in growing our businesses. When you mentioned culture in terms of Hermes, I believe I expressed myself.
I mentioned difference in culture between 1 luxury group and another. Obviously, Christian Dior's culture is different to that of Chanel's, which is different to that Hermes, which is different to that of Vuitton. I find it rather pointless to oppose cultures. I mean, it's like the example I took about writers. I mean, do you prefer Victor Hugo to Moliere?
I mean, they're very different writers. You can't compare them. There are 2 very great writers. Vuitton is an extraordinary brand that has a culture of travel of a trunk maker that was founded in the middle of the 19th century. Hermes is more geared to the manufacture, the production of saddles initially, developing leather goods from saddles, 2 very different universes, but universes that are equally respectable, that have a distinctive culture.
And what I believe is that LVMH in today's world is best placed to preserve the crucially important cultures for the futures of these companies. And now that we're a significant shareholder of Hermes, we can guarantee the preservation of their culture in the long term. Ladies and gentlemen, thank you. And I now