[Foreign language] Good evening, ladies and gentlemen. I'm delighted to welcome you to this presentation of the half year results. I believe you received the reports, which Jean-Jacques Guiony passed around. I believe everybody got a copy of the report, you got the figures. I imagine that comments are unnecessary because figures speak for themselves. I'll say a few words just to provide some comments on the figures. This was an outstanding half year because overall growth was 16%, encompassing all our business areas. We had a double-digit growth in all business areas. In fact, we have profit from recurring operations up 33% and 20% for the operating margin. How can you account for such remarkable growth?
Here, I would like to pay tribute to all the teams that were involved in this half year's hard work because, of course, the figures are all very well, but they are the result of lots of work by motivated teams, but also creative artists and a fine production unit. We have to remember that these units are located in France. Most of them, and in view of the growing figures, we are extending capacity. Gradually, we are expanding our workshops. This is sustained and intense work.
We of course, this is guided by creation, creativity, but that is carried by a global market, which is quite different from last year because this year, we are enjoying resumed growth. Therefore, business is buoyant, especially in a number of Asian countries but also in the United States and indeed in some European countries, as, at least as far as we are concerned. We should also point out that this performance reflects the specificity of our group because in this industry, very few groups can boast the same kind of success in their product line. At LVMH, we have a well-established strategy.
We are very discriminating in choosing and determining our products, and that this is what makes us unique in the luxury industry. Of course, referring to cashflow again is excellent, so that the debt-to-equity ratio is down to 20%. Of course, we are down from the highest historical levels we had in previous years. Of course, this is all looking very good. You might ask whether this good performance in H1 will be repeated in H2. Well, of course, I'm not about to give you a verdict on that. We have to remain cautious. What I can tell you is that the trend in July has been very much the same as in the first six months of the year.
One has to remain cautious because, of course, the global economic outlook is uncertain. We know that there have been a number of hiccups over the past few years. We do not know whether exchange rates will fluctuate. There is a high amount of volatility on the exchange markets. Having said all that, we are fairly confident on H2, and we believe that the success of our products and because our products, of course, have very unique qualities that attract a high-end clientele, we have reason to believe that business will be buoyant as well. Indeed, we gained market shares in all business areas.
Now, in 2010, we shall pursue, well, in the second half of the year, the same cost control policies, that has enabled us to improve profit as a ratio to revenue. We are also pursuing CapEx. We are investing both in distribution and production. Of course, our geographic distribution is aimed at the most promising countries. In particular, we have opened a number of shops for our brands, including Louis Vuitton itself, very successfully indeed. We've started two new outlets in China, and we shall continue very selectively to expand our distribution network. Now, we'll have a number of products to be launched in the second half of the year.
Of course, the one challenge we do have, and indeed, this is, well, to some extent, a waiting list situation for many of our goods because Demand is greater than supply. At least for certain products, our production capacity simply doesn't match demand. Of course, it's an enviable challenge, I would say, but at the same time, it does mean that we have to work out our production timetable more effectively if supply is to meet demand. Now that's the general outlook, and I'll ask Jean-Jacques Guiony to look at the figures more closely.
[Foreign language] Thank you. Good evening. I'll begin with revenues. Revenues up 16% in EUR, organic growth 14%. There was a favorable exchange currency impact of 2%. You'll see how that developed during the quarter. Organic growth by business segment. Wines & Spirits put in a remarkable performance, up 18%. A slight slowdown in the second half. Some destocking. Christophe will return to that later if there are questions on that. Destocking effect was particularly marked in the first half, organic growth of 16% in the second quarter, that's a favorable trend. Fashion & Leather Goods, 14%. A marked improvement, a marked acceleration, should I say, in Q2.
Worth noting that Fashion & Leather Goods same time last year was already up, growth on growth, which isn't the case across the board. Very good performance of Perfumes & Cosmetics, up 10% organic. Watches & Jewelry that experienced an early challenging beginning of the year in 2009 are up sharply, 24%. Selective retailing, which was also up last year at the same period, is adding growth to growth. Very respectable performance, up 13%. Overall, our top-line growth that is indeed very interesting. Let's stay with the top line. You have the breakdown here of group, total group growth between the two quarters and the summary of the first half. You see in dark blue that organic growth of the group was pretty consistent across quarters, up 13% Q1, 15% Q2.
Currency impact, it was negative in the Q1. As you see, it's positive by 7% in the second. Growth in euros is of course far higher in Q2. The geographic breakdown of revenue by region. Drop in Japan, increase in Asia, and this balance, three-thirds, between the three major continents, which is one of the group's strengths, as you know. More interesting, the change of revenue by region, by local currency. You see that the U.S. remain on a sustained level of business, 20% for the first quarter, plus up 18% for the first half. A double-digit growth for the first half. Things looking very good. Japan, figures less good, even if we saw they're not satisfactory. We're still at -6% on a par for both quarters.
Asia remains very good, up 21%. Consistent across the two quarters, driven by China, which is up 27%, but also by other countries, Macau, Hong Kong or Korea to a lesser extent. It's a pleasant surprise. Well, not really a surprise because the number was at that level at the first half. Up 11% for Europe. Europe is viewed as the laggard in the economic situation. Double-digit growth in Europe. We're pleased with that. Turning now to the summarized income statement. I won't return to sales that I've already discussed. Gross margin up 19% for sales up 16%. Improved gross margin, 64.9% gross margin. Selling and admin expenses, growing not as fast as revenue. You may have questions on that. Number effects in terms of selling expenses.
Clearly, it's the effect of the increase in the size of networks and also our increased spend in advertising behind our brands. For admin expenses, there are a number of complicated effects that I won't detail here, but if you have questions, I'll take those later. This lag between the increase in the gross margin and the selling and admin expenses leaded to an improvement in our profit from recurring operations, up 33% over the period. Other income and expenses down sharply over last year and are essentially the intangible depreciation. The operating profit is up 40%. Earlier-late on the financial income, not much change there. Tax, 28.9% pre-tax income. Slightly better than last year. Minority interest like increase there at DFS and Moët Hennessy, the minority interest there have increased.
In total, net profit up 53%, which is quite remarkable and exceeds for the first, the time for a first half, tops the EUR 1 billion mark, without any specific positive one-off exceptionals to account for that. A word on the profit from recurring operations by business group. Very good performance, as you can see on the right-hand column. Everyone's posting double digits, but higher than those in euro sales. The operating margin by business is up over the first half. Good performance by Wines & Spirits, in spite of a way of accounting for the harvest, which is very unfavorable as Champagne yields are down. Good results for Fashion & Leather Goods, up Perfumes & Cosmetics putting an extraordinary result, up 50%.
I'm not sure we'll be able to repeat that performance in the second half. There are some phasing issues there between the two halves of ad spending in particular. One of course must savor the moment. The Watches & Jewelry more than doubled. We're talking three-figure increase, more than doubled their result. Good performance by TAG Heuer. Excellent performance by Zenith in those figures. Beginning to reap the benefits of the efforts put in over a year ago. Very good performance by selective retailing, up 36%. Whereas revenue increased only by 15% give or take. That's a very remarkable figure. In total, 33% increase in the profit from recurring operations. A word on the currencies. Here it's generally negative. Here it's positive. Here, that's very useful.
EUR 116 million + currency impact over the first half. Not much of a dollar impact because the dollar but on average over the half remained stable at around 1.33 over the same period last year. On average, it's pretty much flat. Essentially on the Yen and secondary currencies that we generated those impacts to the tune of 8% of the profit from recurring operations. A word on the net financial expense. The first line of course, cost of net financial debt sharply down. The debt, average debt over the half is sharply down. Financial expense is down. Interest rates also down. Second reason to bring down the cost of net financial debt. It could have dropped more. At least the cost could have decreased further.
As with many companies, we're up to a certain rigidity of our gross debt that increase that declines according to the maturities. That leads to an increase in cash. In today's market conditions, it's more or less impossible to obtain significant return on cash. A sizable part of our cash doesn't yield very much. Of course, we can't contend with that. We're going to use that cash to buy back debt and to reduce that gap that is affecting our financial expense. Ineffective portion of currency hedge. Cost of our hedges is an unpredictable item, as you know. It increases hugely for those interested in the technicalities of the thing. The dollar has increased substantially over the half. The value of currency hedges, or at least the time value of currency hedges, has reduced sharply.
All the currency hedges have moved outside the currency. There we booked a significant hedge portion of this cost in the P&L, which accounts for the increase in this number. The other items are not particularly significant. Re-prompt no specific comment. A word on the balance sheet. A solid financial structure. Nothing new. It's very robust. Just a word that struck me in preparing these slides is that equity accounts for over half the balance sheet. That's a strength, a sign of the balance sheets. We increase in inventories. We'll return to that. Of course, there was a currency effect. We increased our equity during the during the half, but nothing exceptional apart from that. A word on cash flow.
Cash from operations, as Mr. Arnault said, is a cause of satisfaction for the first half. During the half, we generated cash before changes in working capital of EUR 1.1 billion. Last year, over the full year, we generated over EUR 2 billion. If I recall well, in 2008, I believe we generated EUR 1.350 billion. Over a single half, we generated almost as much as during the full year, 2008. That's a commendable, remarkable performance indeed, attributable to various levels. Of course, cash from operations, which of course reflects the operating results that we saw earlier. Also change in working capital requirements. We're able to contain those, notably inventories.
Last year, let's not forget that we suffered from a number of non-recurring items, such as the new Economy Modernization Law, which brought down the supplier debt. Wasn't the case this year. Operating investments, slightly up, below what we had in the first half of 2008. That's up quite logically with the upturn over the full half. Free cash flow sharply up and in absolute terms, very considerable. On the basis of the cash flow analysis, we considered that our dividend and interim dividend policy wasn't fully adapted. Our interim dividend is about 20% of the total. We looked at CAC 40 companies that pay out interim dividends. Aren't many, but it's of the order of 40%-45% of the total.
In order to rebalance the cash flow of the year, not this one, but the net cash flow after payment of the dividend, we elected to double the interim dividend to move from EUR 0.35 to EUR 0.70 per share, which will lighten the dividend burden in the first half and increase it in the second half and will redress the balance over the year. This of course, doubling of the interim dividend is not necessarily significant of the final dividend number that we'll announce next year. Of course, we'll seek to reflect in the dividend trend, the development of our business. On net financial debt, this is a non-typical chart that we wanted to illustrate over several years. Generally, net debt at 30th of June is higher than that at 31st of December for reasons I just stated.
Payment of the balance of the dividend that is greater than that of the interim dividend. We used up more cash during the first half. It was the case this year. Given the cash flow that you saw earlier, debt at the 30th of June is lower than that at 31st. EUR 2 billion, 565, Mr. Arnault said, gearing at 16%, which is a relatively low level. That's what I wanted to say about the results. Over to Toni. Thank you.
[Foreign language] Good evening. Let us look at all the business areas. I will give you an overview, my colleagues can take specific questions. Let us start with Wines & Spirits, and we have this playful sleeve presentation of the Hennessy cognacs. The sales, the revenue in this department were up 18% in organic growth, the profit from recurring operations were up 35%, as Jean-Jacques pointed out. A good performance in all areas, the U.S. and Europe, about 20%. Asia, which held out beautifully in 2009, is still up 9%. The market shows signs of recovery after de-stocking in 2009. Our brands have a consistent pricing policy.
They have their premium positioning, but of course, we have worked on advertising as well to maintain our prices. Champagne volumes are up 23% with a good development, good advance on the high prestige vintages. The cognac volumes are up 16%, thanks to dynamic Asian markets, but also the successful launch of Hennessy Black in the United States. For the second part of the year, our brand portfolio is in a good position to take advantage of the recovery. Our strategy is to focus our efforts on the great classics, Dom Pérignon, Veuve Clicquot Yellow Label, but also innovation programs at Hennessy, Glenmorangie and Belvedere, which got good response from the customers, and we are rolling out new marketing efforts to secure new market shares.
This is the new advertising campaign for Louis Vuitton to move on to fashion and leather. The revenue in this business is up 14% in organic growth. The profits from recurring operations are up 28%. All regions are growing rapidly except for Japan. As Mr. Arnault pointed out, Louis Vuitton has been able to confirm its amazing, its powerful appeal on this period. All the business areas are contributing to this growth, from leather goods to shoes and indeed ready-to-wear. Our dealers network has extended to 451 stores. We opened two shops in Shanghai, and we inaugurated the house in New Bond Street.
For the other brands, we have good recovery for Fendi, thanks to the Peekaboo line and profitability is up and all other brands in their specific stores, in boutiques are doing well. This is the London boutique, this shows the brand's ability to combine its roots with modernity, with a modern look. For the second half of the year, Louis Vuitton is looking at a dynamic plan to launch new products, in particular, looking at a new product line for leather goods in supple leather. We also are looking at new territories, we will start the Tanneries de la Comète leather workshop, which will improve both the production and quality.
Fendi is also innovating with new product lines, and Marc Jacobs is expanding or is speeding up its world expansion. We remain selective in terms of costs and CapEx throughout the group. Perfumes & Cosmetics revenue is up 10% in organic growth. Profit from recurring operations, 50%. Revenue is climbing steeply in the U.S. and Asia with the combined effect of stock replenishment and a small recovery in resumption in final demand. Parfums Christian Dior has performed outstandingly with its unique position in the universe of couture and developed its classic lines.
We have good advertising with Miss Dior Chérie and Eau Sauvage, and we are developing this new cosmetic line, Capture Totale One Essential, which combines high effectiveness and technology. Now, good performances as well for the French brands, Guerlain, Givenchy, with innovations at the end of 2009 turning into a real success. Benefit and Make Up For Ever are growing rapidly as well and proving to be very profitable worldwide. For the second half of 2010, we are looking at new market shares through a sustained innovation and a new investment in advertising. Of course, the priority is on Parfums Christian Dior, looking at lipstick, Rouge Dior. Internationally, we will be rolling out Eau Sauvage and a new figure for Miss Dior Chérie.
The other brands also are producing novelties. We have an anti-aging cosmetic for Guerlain. We are expanding the Play product line at Givenchy. New fragrances at Fendi and Pucci. The charismatic charm of Steve McQueen and the presence of Hublot in football have enhanced our image for Watches & Jewelry. Revenue is up 24%, profits from recurring operations 145%. Revenue is up in all regions, mostly in the U.S. and in Asia. Regarding watches, we have the double bound effect of restocking for our retailers, but also an upturn in demand from our final end users, mostly in specific boutiques. The innovation programs looking at the emblematic lines of Maison were also very successful.
We have the chronographer by El Primero and the rings by Joséphine by Chaumet, very successful. You have them up on the screen. Likewise, we worked on cost-cutting and were able to improve operating profitability. Now, our ambassadors are very much involved in our work here. You have Leonardo DiCaprio working in our watchmaking workshop. Now, for the second half of the year, we propose to strengthen our market shares. Restocking has been taken care of, and now the engine for growth was shown at Baselworld. We were looking mostly at the high-potential markets, including China, where we have some ways to go.
TAG Heuer has been celebrating its 150th anniversary, its 150th birthday, should I say, with advertising looking at its involvement in automotive, in motorsports. 2010 is also a year where our watch brands will be speeding up their industrial integration. The Nyon plant for Hublot watches is integrating high-end expertise in the watchmaking industry. Then we have selective brands for single brands to improve visibility in some of our key cities, such as New York, Singapore, and Paris. Our selective retailing, we have our organic growth is 13%. Profit from recurring operations 30, up 36%. Revenue outstanding throughout, especially in Asia, partly for particularly dynamic in Asia.
DFS is growing remarkably with the Chinese clientele. We have Galleria Macau, which is a truly successful operation. Our flagship store at the Hong Kong Sun Plaza is expanding and pursuing its renovation. In the short term, we have maybe less results to show for in Abu Dhabi and Mumbai, but these are very promising in the long term. We also have fast development for Sephora in a number of regions, in particular in China, but also in the Middle East, where we have good visibility for Sephora. Also internet sales, which are taking up a very powerful market because we also work hard on maintaining customer relationships.
In the same concept, we are developing, we have decided to take a majority stake in Sack's in Brazil, which is an opportunity to pursue, to develop the brand, and we have as many as 1,000 shops open in the first half of 2010. The beautiful glass ceilings of the glass roof, I beg your pardon, of Marché Rive Gauche's show our effort to develop the identity of Bon Marché. That will be developed with the Homme Balthazar men's department there. DFS, I beg your pardon, is also extending its services to Chinese travelers. In particular, we will complete the second Galleria in Macau, City of Dreams. Also, we have to continue our cost-cutting policies.
This was providential last year, and we will continue improve profitability next year. Now, of course, for Sephora, our priority is to expand our market shares, to expand also our network of shops and boutiques. We are also looking at new territories with high potential to improve our global leadership. We're working in developing those items that make us unique, make Sephora unique. A strategic investment has been decided to have online sales, producing technological support but also expanding our presence in Europe. Thank you.
[Foreign language] Well, ladies and gentlemen, we're now open to take your questions. Are there any questions, please? Yes, if you kindly state your name and affiliation before putting your question.
[Foreign language]
Yes, good evening. Antoine Belge, HSBC. Three questions. Firstly, Mr. Arnault, you mentioned waiting lists at Louis Vuitton and possibly a question of under capacity. Could you remind us how many factories Louis Vuitton has, and what are the expansion plans for the next three to five years? Secondly, free cash flow generation was very strong, especially for a first half without there being a projection to the end of the year, we can estimate. Mr. Guiony, I think, mentioned net debt that should be below the EUR 2 billion mark at the end of the year, will no doubt be on that. I mean, can we expect a share buyback program or an exceptional dividend, perhaps earlier than expected?
Third question, the figures in Europe, which are very good, as you indicated, are they fully attributable to the boost in tourism thanks to the currency impact, or do you note local customers who continue to buy, and if so, in what country?
Well, Mr. Carcelle will tell you about the factories, the plants. I mean, our workshops are many in number, that we have a program, but that this program We don't publish the program, so we can tell you about the workshop that's under construction because, I mean, it's difficult to hide, but the rest is secret. If Mr. Carcelle will give you some details about the workshop that's under construction, but it's very interesting.
All right.
As you may have noticed, we have enjoyed steadily growing demand, and we've decided to work at expanding our capacity for leather goods. Of course, it's only one item, but we have hired as many as 320 leather smiths, leather makers, which is quite a number in itself. We've started a new site that was slightly delayed because we had difficulties with the local authorities, but it is in Marsaz, in the Drôme. It's a beautiful site. This is a rendering, by the way. It's not the real thing. This is a three. It's CGI, the roof is all grass.
We can not only this improves the thermal balance, but also it makes for better integration in the natural site. We've decided to open this out in the country, when you are in a beautiful area like this, people feel like making beautiful products. In Ducey, we have our leather workers near the Mont Saint-Michel, where they will be able to look at Vercors outside the window, and that will be most inspiring. This is a site worth mentioning. I believe that very few companies create such industrial sites, well, for workshops, for manual workshops, in France. As we are mentioning this, Toni referred to the Tanneries de la Comète.
This is, of course, where leather is tanned. Here, the skins are dried. They remain there for four days. This is natural. Well, this natural leather takes four days to change colors naturally from brown to white. We based our I mean, this is a very environmental tanning factory. We working with a, it was a family-owned business, and we've decided to start this joint venture. This is a vegetal leather tanning. It is wood, which is a ground wood, which slowly but surely provides this pigment to the leather. This is a totally vegetal tanning technique, very user, very environmental friendly.
The weather, the water is not polluted. Of course, the weather has sawdust in it, so it cannot be consumed. We are going to introduce a centrifuge to separate out the wood particles from the water so that the water can be used for natural consumption. This is a vegetal processing of leather as part of our sustainable development.
On cash flow, I didn't quite understand the question. You were asking whether we would be on the EUR 2 billion mark or below the EUR 2 billion mark of debt at the end of the year. Was that your question? I mean, well, it's difficult to make a forecast because, I mean, thanks to the crisis, we don't do forecasts anymore.
We leave it as a surprise. We hope we'll still have some good surprises, but that's the advantage of the present situation. I recall a few years back in this very room when we were giving these presentations, people were saying, "Well, there's too much debt." Now basically your question is not enough debt, if I read you right. What to do with the cash flow? Well, do we need to buy back shares? Pay out? I can't answer. We'll see. In any event, there's still some debt left, so let's allow a year or two to pass until the debt's disappeared, and then we'll see. Customers in Europe. Well, here we can say that across our points of sale in the Vuitton stores, cosmetics stores, it's very cosmopolitan.
It's very local. I mean, if you, if you stroll down the Champs-Élysées in Paris and you look in the Vuitton store, the line waiting outside of people, I mean, you'll see that the very varied population. French people, Europeans, and that's the case in European countries. I mean, we have customers, I mean, for our brands and in Europe, Italy, U.K., Spain, there's a strong increase in local customers. It's not, it's not just linked to tourism. Further questions? Mr. Guiony is, of course, available to take questions or to respond to matters financial perhaps, which I'm perhaps less competent.
I'm from the Financial Times. Could you say something about possible acquisitions? Are you expecting to pursue an aggressive acquisition as policy? If L'Oréal is up for grabs, might you be interested?
Well, on your second question, the answer is no. On the first part of your question, difficult for me to answer. I mean, either we have plans and I can't reveal them, or we don't have any, in which case I don't have anything to say. It's difficult to answer. Further questions? Sir.
Luca Solca from Sanford Bernstein. Could you give us details about the actual results of Wines & Spirits? There are some items that are that only come into H2. Château d'Yquem in particular is only accounted for in H2. Then on cost-cutting, you said that you are looking at cutting operating costs. Can you give us details about that, especially as regards advertising?
Well, Mr., we could tell you about Wines & Spirits, but regarding the grand, the chateaus, 2009 was an outstanding year. Cheval Blanc, which we sold, the, the new Cheval Blanc Premier wine was sold at EUR 600 a bottle, and we sold out in 10 minutes.
This has a huge potential because when you look at the development of emerging markets and the taste for high-quality wine, there's a huge demand, and production is limited. There, unlike workshops that we can hire new workers, there we are limited in terms of wine making. Yes, but, and of course, there's the Premier Yquem sales in the first half. Of course, this is still consistent with what Mr. with our friend Belloni just said. This will not affect the other lines or the other areas of Wines & Spirits.
Are there other questions? Ma'am?
Hello. Mélanie Flouquet, J.P. Morgan. Would you share with us specifics on your strategic outlook looking at an aging population? Are you going to adapt your policies or your strategies? You're looking, for instance, into the hospitality industry. I know you have a small project there, but are there some large industries you are thinking of expanding in the coming years?
Well, population aging, I mean, it depends on what country you're referring to. I mean, in India, the average age is 25 in the population. If you take China, they're also very, very young. Japan, the situation there is different. Europe, [Foreign language]. For us, emerging countries are rather young countries with growth potential in customers, young customers. Our capacity to grow that within our brands is considerable. We must attract young people and try and retain them for a significant part of their lives. New activities, hotel, I mean, that's really very small. I mean, we launched that from the Cheval Blanc brand. We have number of plans.
What we can say, what distinguishes this business that's still in its infancy is that unlike other brands that licensed their brand on hotels managed by other companies, we've opted for a different strategy. When we bring the LVMH brand to a hotel, we cover not just the design of the hotel, but its operation with all the service that that requires without having to do the investment, except in La Samaritaine, where thanks to the work of Mr. de Beauvoir, achieved produced one of the finest hotels in Paris along the Seine River. Save from some buildings that are quite historic, we don't actually invest in the freehold. We provide the concept and the overall management. That's a diversification that's just starting. It's something of a startup.
We already have a Cheval Blanc hotel in a French resort that's doing well. On the basis of that concept, we'll seek to expand it. It's not a diversification figures will disrupt the operating balance of LVMH before a few years. Well, ladies and gentlemen, if there are no further questions, thank you. Of course, we're available, Mr. Guiony is after and over refreshments to answer any more detailed questions.