Ladies and gentlemen, welcome to the 2024 first half financial results. I'm now going to hand over the floor to Mr. Axel Dumas, Executive Chairman of Hermès International, and Mr. Éric du Halgouët, Executive VP for Finance. Gentlemen, over to you.
Good evening, everyone. Thank you very much for joining us for the publication of our 2024 first half results, which take place just before the opening ceremony of the Olympics. I'm very happy today to share the robust H1 results with you against a more complex global economic and political backdrop. In H1, we have continued our strategic investment in production capacity in our network and also secured our supply chain. We've beefed up our teams. We currently have 23,200 people working for Hermès, 62% of which in France. Hermès carried on with its D&I initiatives, and currently, we have 7.12% of disabled employees above the legal requirements.
These H1 results capture the loyalty of our customers all around the world, as well as the strength of our artisanal model and vertical integration, and a strong local anchoring, unique know-how, boundless creativity, and exceptional materials. Our model relies on the commitment and enthusiasm of our teams, which I would like to thank today. Now, let's take a look at the highlights. H1 was marked by the creations of Pierre-Alexis Dumas' team across our 16 categories. For example, in small leather goods, on top of the classics, new products have come along, like the Della Cavalleria Élan item, new travel items, a new R.M.S. Cargo suitcase. The Men and Women Ready-to-Wear were very well received all around the world, with the show that took place for the Women's Ready-to-Wear in New York.
The furniture was also very successful at the Salone del Mobile show in Milan, at the Watches and Wonders Geneva show in April. Hermès unveiled the Hermès Cut, a dynamic, sporty piece with its proprietary movement. Then we have the fine jewelry collection, the eighth, Les Formes de la Couleur, designed by Pierre Hardy and revealed at the end of June, and you have a picture of it on the screen. We carry on with our production capacity investments across all our divisions. We have four small leather goods workshop projects for the next four years, for example, that of Riom in the Puy-de-Dôme, which will open in September after renovating and repurposing the listed buildings. In this first semester, we also started the construction of the L'Isle-d'Espagnac leather workshop and Loupes en Gironde at the end of May.
They will be opening, respectively, in 2025 and 2026. We've ramped up our production activity in the other divisions with, for example, the Hermès Manufacture de Métaux unit. They make metal and hardware items, but we've also increased investments in perfumes and tableware. We continue to work at securing our supply chain with our long-standing partners. To support its growth, the group pursues its investment in real estate, logistics, and IT. Moving on now to our distribution network, we have extended our network with new stores under our multi-local approach to bring our collections directly to our clients. For example, at Princeton in the U.S., in New Jersey, and in Asia, with a new opening in Wuxi in China and two openings in Japan. In France, we also have Nantes and Beijing and Hong Kong Lee Gardens, which have been renovated and extended.
Hermès is also very creative in its communication during the first half of 2024. Hermès In the Making event allowed the general public to see firsthand our artisans at work and see their exceptional know-how in both Mexico and Korea, and that drew in more than 44,000 visitors. We're also very glad to see our horse and riding enthusiasts at the 14th edition of the Saut Hermès au Grand Palais Éphémère in Paris.
Now, let's take a look at our responsible strategy going forward. During the first half of 2024, the group remained true to its commitment as a responsible employer, with an increased headcount by 1,200 people for the H1, including 600 in France. In keeping with our model, the group paid out in February a EUR 4,000 bonus to all employees for 2023, so as to share the fruits of growth with those who make it happen every day.
In July, the employees received the second and final round of 12 shares under the Free Share Plan of 2019. I remind you that a new employee plan was announced last year. Hermès continues to act responsibly when it comes to climate change, to protecting biodiversity and natural resources. Our real estate charter is particularly stringent and is applied from the design stage and the construction stage of our new sites, which allow us to reduce significantly our CO2 emissions. Our production sites are also places of training. The École Hermès des Savoir-Faire, for example, was rolled out in Franche-Comté, and this place trained saddle makers, leather goods artisans, and cutters. We remain committed to our involvement in the local area where we operate, with a special focus on our environmental impact. We also abide by our science-based target for nature approach.
We're currently at the third step of the project, where we set science-based objectives in areas such as biodiversity, freshwater, forestry, and soils. Hermès is one of the leading companies undertaking this initiative. In conclusion, Hermès's progress in non-financial ratings continues to increase this year and captures our commitments by way of example, our Moody's ESG rating, which is up, and we also received the Grand Prix, the top prize of the Transparency Awards, to reward the quality and transparency of our regulated information. Let's now take a look at our business. At the end of June 2024, Hermès posted a solid performance. At the end of June, the turnover stood at EUR 7.5 billion, up 15% at constant exchange rate, driven by our loyal and new customer base. All regions recorded double-digit growth, and the division recorded good progress in a more complex environment.
In Q2, sales reached EUR 3.7 billion, up 13% at constant exchange rate. In this more complex environment, all the regions continued with their incredible momentum. Now, let's take a look at a geographical breakdown. In the first half of 2024, all the regions recorded double-digit growth. Sales in France were up 15%, and Europe bar France +18% were particularly robust thanks to the loyalty of our local customers and the dynamic tourism. Japan +22%, sorry, Japan +22%, driven by its loyal customer base. And Asia, excluding Japan, is growing at +10%. And there's growth in all the regions, in all the countries of the region, despite the high comparison point in Q2 last year. America +13%, with strong progress in the US. And for the other line, that covers the activities in retail sales in Dubai and Abu Dhabi, who were previously labeled as wholesale.
The geographical breakdown remains stable year-over-year. Now, let's take a look at the division breakdown.
End of June, all sectors are growing steadily, despite increasing challenges. Leather goods and saddlery enjoyed remarkable growth, driven by increased production capacities and sustained demand. Ready-to-Wear and accessories +15% held its positive course, with the success of its ready-to-wear collections and footwear. Silk and textiles +1% has sustained growth, thanks to the diversity of creations, materials, and sizes, formats. The perfume and beauty sector is on the rise, supported by latest launches such as Oud Alezan and H24 Herbes Vives. The watches sector remains stable. Finally, the other Hermès products, including jewelry and homeware, +19%, continue to grow strong. Strong growth in leather goods, Ready-to-Wear, and accessories explains a change in distribution of sales per sector for H1 2024. I now give the floor to Éric du Halgouët, Executive VP for Finance, for the financial results.
Thank you, Axel. Welcome, and I have the pleasure of presenting our solid H1 performance. Our revenue exceeded EUR 7.5 billion, despite the negative impact to EUR 100 million of exchange rates, mainly due to the depreciation of Japanese yen and the Chinese yuan vis-à-vis the euro. The gross margin rate is 70.6%. It was 72.2% in H1 2023. The 2023 H1 rate was exceptionally high due to the combined positive impact of currency hedges, leverage effect of production fixed costs, and excellent sell-through. The H1 2024 gross margin rate is negatively impacted, and we forecast this by currency hedges, and this will accelerate in H2 2024. Indeed, the impact was offset during H1 by the sale of products bought in 2023 by our distribution subsidiaries at favorable rates. We spent EUR 272 million on communications, a 5% increase year-on-year.
Full year, we expect communication expenses to amount to EUR 650 million, with more spending planned for H2. Other administrative costs and costs of sales have grown slightly faster than revenue and stand at EUR 1.4 billion. The group has reinforced its sales teams and support functions and is now accelerating its IT projects. Those costs are mainly accounted for as expenses, as per the current accounting standards.
The other products and expenses, EUR 467 million, are mainly amortization of tangible and intangible assets and amortization of IP. The year-on-year increase is primarily linked to the cost of the free shares granted to all employees in June 2023. The recurring operating income for H1 2024 therefore stands at EUR 3.1 billion, +7% compared to H1 2023. The recurring operational profitability amounts to 42% of sales. That's close to the level in 2022. Our net financial income stands at EUR 141 million.
That includes the cost of currency hedges and interest on lease debt, as well as financial proceeds. The EUR 17 million increase compared to H1 2023 arises mainly from improved net cash income, EUR 220 million for H1 2024. Our H1 tax rate is 28%. That's a level expected for full year 2024. Net income from associates dropped from EUR 43 million H1 2023 to EUR 16 million H1 2024 due to the consolidation and full integration of our UAE activities. Net income group share is just short of EUR 2.4 billion. That's a 6% increase compared to H1 2023. Our net profitability is nearing 32%, not far off our H1 2023 record level. The group continues going from strength to strength. Revenue doubled and net income tripled between 2019 and 2023.
Despite the COVID crisis in 2020, our average annual growth rate for revenue and net income for the past decade stand at 15% and 19%, respectively. The group invested EUR 319 million in H1 2024 compared to EUR 250 million last year. EUR 133 million funded renovation work and expansion of our distribution network, mainly in China, the US, and Europe, with the new store coming soon on New Bond Street in London. EUR 91 million were invested in production capacities with new leather workshops in Riom, Loupes, and L'Isle-d'Espagnac, as well as upstream capacities for silk, metal hardware, and perfumes. EUR 94 million go to digital, IS, and real estate investments to support the growth of our sectors. Operating investments will accelerate during H2 to reach a total amount of EUR 1 billion compared to EUR 860 million in 2023.
Our operating cash flow grew 8% year-on-year, more or less at the same pace as the operating income, reaching EUR 2.8 billion. The change in working capital requirement reflects EUR 600 million of cash consumed, similarly to H1 2023. This is mainly due to increased stocks. After operating investments and repayment of lease liabilities, our adjusted available cash flow stands at EUR 1.8 billion.
Financial investments include the payment of our majority stake in retail activities in the UAE and minority stakes to increase our vertical integration. Dividends were paid to the amount of EUR 2.6 billion. Hermès International did not repurchase any shares apart from the liquidity contract operations. As a result, our restated net cash position stands at EUR 10 billion on June 30th 2024. Our cash flow makes up more than 45% of our total assets. Our equity stands at EUR 15 billion, representing 75% of our liabilities.
At the end of H1 2024, the group has consolidated its sound financial structure, therefore bolstering its independence and providing strong assurances for its long-term strategy. Thank you for your attention, and I now give the floor back to Axel to talk about the future.
Thank you, Éric. Let's now look at the Hermès outlook. Our future remains unchanged. 2024 is a year marked by economic and geopolitical challenges, but we are confidently forging ahead, and we're keeping up the momentum with the unfading enthusiasm of our staff around the world. H2 remains uncertain, but Hermès will continue creating jobs and investing in all its divisions. We will inaugurate the Riom leather workshop, adding a second site to the Auvergne Hub, and expand our stores in Atlanta, US, Shenzhen in China, and Lille, France. H2 will also see the launch early fall of a new woman's fragrance.
Hermès is mindful of its footprint, and we will remain committed to our climate goals and natural resource preservation goals. By way of conclusion, I'd like to wholeheartedly thank our teams and clients for their loyalty the world over. We're now available to answer your questions.
Ladies and gentlemen, you may now ask your questions. Please dial star one. Please, only two questions per person, and make sure that you've muted the webcast before talking. The first question comes from Edouard Aubin from Morgan Stanley.
Good evening. Thank you for taking my questions. I have two questions about revenue growth. One first question about leather goods. There's been a strong growth for H1 that is beyond your guidance, which was 15%. Is the annual guidance maintained at 15%? We also see an increased number of days of stock. I believe it's 250.
Will there be an increase, therefore, for full year stocks in leather goods? In parallel to the growth of leather goods, there seems to be a slowing of the pace of growth of other sectors, such as watches, that for the first time in a long time has seen its growth dwindle. Could you maybe provide some explanations?
Do you want to answer about leather goods? Well, to answer on leather goods, we confirm our guidance for full year at around 15%-16%, with a price effect of around 6%-8%, and a capacity effect around 6%. With the Chinese New Year, we saw accelerated growth during H1. The increase in stocks is not linked to leather goods. We have more stocks for other products from other divisions, and I'll let Axel comment on that and explain what happened for the other metrics, for the other sectors.
Thank you, Éric. Indeed, we wanted to replenish our stocks. This was a deliberate activity with low stocks. We can't cater as well to our customers. And so we have aspirational customers, but the number of aspirational customers has dropped. We have our legacy customers, of course. We see new customers come in also, but it's the high volume activities that see their stocks remain high, so silk and textile and fashion accessories. As for watches, you have, on the one hand side, manufacturing movements, complications, and other watches that have a broader market. And we've seen a diverging performance. And for the luxury, well, jewelry is doing very well, whereas watches not quite as much. And this is true for watches in all companies. But I'm confident that Hermès Cut will set the trend for watches, and we can hope for improved performance.
Next question from Luca Solca from Bernstein.
Good evening. I had a question about consumption trends depending on countries. You talked about China and the fact that there are increasing sales in Japan. Could you explain this more? You have close contact with these customers, and so it would be interesting to have your input. Also, I was reading in La Tribune, the Swiss publication, that Mr. Puech may have lost 6.2% of his shares. Apparently, those shares may have been stolen. Maybe you could provide us with more information.
I'm not quite sure about that information. I'll answer the corporate question before answering the family question. So you've mainly given the answer in your question. Indeed, we have a very locally based customer, and in Japan, we have a very local customer base, and not very many tourists buying Hermès in Japan.
The Chinese tend to buy in China. There are a lot of tourist sales in Europe, including in France, where these are mainly customers from China, the Middle East, and to a certain extent, the U.S. So that gives you an idea of where our customers are from. As for Nicolas Puech, as you may know, since 2016, we no longer publish Nicolas Puech's shares in our partner share figures because we cannot control and have no oversight on those shares.
Duverger, Adrien, Goldman Sachs, the floor is yours.
Good evening. Thank you very much for taking my question. My first question is on China. So we've seen a lot of other companies in the luxury industry that have seen a slowdown. Have you noticed any changes in the behaviors of Chinese consumers?
Are they not buying luxury goods as much as before, or are they buying different types or kinds of luxury goods? And for my second question, in your 2023 results, I remember that the margin was a bit bigger in Asia-Pacific compared to Japan. So I imagine that there are bigger margins to be made in China. Do you think that this might have had an impact on your margins for H1 2024?
Okay. First things first. For our clients in China, as far as I'm concerned, it's the continuity of the transformation that started in 2010. People are not buying based on how much they earn from their income, but based on their wealth. And therefore, it's very much pegged to the real estate market. And we can see that there is less appetite for buying luxury goods, and people are saving money more than spending money in China.
There's a drop in the footfall of especially aspirational clients, which are particularly hard hit. Now, it's true that the stock exchange and the real estate has a huge impact on our Chinese clients. Now, our Chinese clients are also extremely sophisticated. They've learned very quickly. From what I understand, they are currently looking for high-quality products, which is good for us. They don't necessarily want a logo to be affixed to what they buy. There is this change, which we believe is underway and is positive for us. Then I'll hand over to Éric. In the middle of your second question, you do surprise me because we don't give any margins with a regional breakdown or a country breakdown. I'm not sure how we can make these comparisons, rather how you can make these comparisons. Maybe Éric can give you some information.
Well, there's one answer that we can share, is that the drop of the share of China is very, very small in H1. It's not significant in any way. And then the drop that you can also see is down to the fact that we had nearly no more stock, and we had to replenish them. And then secondly, there was the currency impact, which was very unfavorable in 2024 compared to 2023. And as I said earlier, in H1, we had a higher sell-through of our products in the network with coverage levels, which were very high, or sorry, hedging levels, which were very high. This impact is going to disappear for H2 since we will have the full year effect of this coverage or hedge effect at the end of the year.
Still on profitability in Asia, there's also Hong Kong, where there's no VAT, but they are very small when it comes to the group's total revenue.
Next question from Thomas Chauvet from Citi. Over to you.
Good evening, gentlemen. Two quick questions. First of all, Éric, could you tell us a bit more about the drop in the gross margin? And could you tell us also about the product mix? Because I believe in H2, it should be less favorable since you're planning for a strong slowdown in H2. Second question now on consumer behaviors and on tourism and the strong demand in Japan that is both local and driven by tourism. How are you looking at this situation with the Japanese currency, which is seeing its value going down?
Are you going to increase prices or change your price policy in Japan at all to factor in this drop in the value of the Japanese currency? And to which extent do you think that local customers in Japan will be affected?
Well, the gross margin drop is mainly down to the currency effect. The second reason is our sell-through rate, which was at a record high in 2023, and which dropped slightly in H1, especially in Greater China with the drop in footfall in stores in China. Now, regarding the Japanese yen, we continue with our strategy of increasing prices at the beginning of the year and leaving it at that. We had a two-digit increase at the beginning of 2024. Now, for 2025, we are going to assume that the yen is going to increase its value. So that's essentially what we're expecting for next year.
We're expecting for the trend to change for 2025.
Now, questions in English. The next question is from Melania Grippo, BNP Paribas. Please go ahead.
Good evening, everyone. This is Melania Grippo from BNP Paribas. I've got two questions. The first one is on the U.S. Your growth in the Americas continues to remain very strong, double-digit also in Q2. Could you please tell us how you see the environment there and if you have seen any meaningful changes also at the beginning of this new quarter? My second question is actually if you could please remind us your CapEx and tax rate guidance for 2024. Thank you.
CapEx and guidance. [Foreign Language] Oui. Yeah. Well, in the U.S., yes, the situation is quite good, actually. And on top of it, we had the historical comparable quite high.
So it's a great surprise to see the dynamism of the US market lately. I think the US, there's very difficult to give you a very directional point of view on the US because you've got really the West Coast, which has a very different dynamic than the East Coast. Florida by itself is now a great hub for business. And we have the central in the central, especially Texas, which is another hub where, and I will say, every week there is a different thing in the hub and another one in the rest. So it's quite difficult to see a directional there. What we see is there is a great dynamism in the market. We were able to have +14% in the first quarter, +13% in the second quarter. And we see quite a good attraction of our brand in the market.
In a way, I believe, and probably it's the same in finance, when there is a tougher time, there is a flight to quality syndrome. And I think we are benefiting in the U.S. to this flight to quality sentiment from our client. Of 28% that taken into account in the closing for the first semester reflects, in fact, our best estimate for the full year.
Thank you. And on the CapEx, if I may.
The CapEx, yes. We expect to spend a little bit above than EUR 1 billion, as I mentioned before, for the full year, compared to the EUR 300 million spent for the first half of the year, which means an acceleration.
Thank you very much.
Ladies and gentlemen, you can ask your questions by dialing star and one on your phone. Next, the last question in English. The next question is from Zuzanna Pusz, UBS. Please go ahead.
Thank you for taking my question. So the first question will be on, I think, some of the comments you've made about trends not having changed in Q3, which I think is quite encouraging given the sector context. So I was wondering if you could maybe comment a little bit on that, and especially given the Olympics in France, and I think some expected disruptions with the business there? And maybe if you could share with us your thoughts on that, that would be very helpful. And secondly, I appreciate maybe it's a little bit too early to ask about that, but I'll still give it a go. If you can share with us any thoughts on pricing going forward, especially next year?
You're probably aware that there is sort of a wider discussion in the sector that some of your peers may have raised prices too much. You've been a little bit more conservative. Now, obviously, you also have a lot of inflation in your business. So I was just wondering if next year we should think about pricing being back to the historical, I think 1%-3%, or if the inflation you're seeing in the business is still a little bit higher, in which case pricing could be still a bit more than that historical 1%-3%. Thank you.
Okay. Well, what I've said, this is really the beginning of the quarter. We are just 25 days in. So I would say I don't see any major change in what we've seen in the end of Q2. So the trend is continuing this way.
Our experience for Olympic Games is that is not the best moment for us. We've seen that in London. We've seen that in Beijing, and we're probably going to see that in Paris. That's what we budgeted, actually, with our Parisian store. Having said that, we expect to have clients all over the world because the client that won't be in Paris will be somewhere else, and to continue on our trend like that. Regarding price increase, there are two components of our price increase, and we've been very, I will say, coherent with that. Sometimes it didn't please you as much when everybody was raising their price, and we continued to increase our price just by inflation. And now, well, it seems that it's been a better choice. So I won't comment about the change of mind on this.
We try to follow our path, and our path is really based on two different things. One thing, which is the most important one, and it's at the worldwide level, is our cost of goods, inflation of our cost of goods. We continue to see some in terms of materials, especially in terms of the increase of our salary for our workers. So that's part of the increased goods that we need to factor for 2025. And the other one, which is more at the country level, is the exchange rate. And to compensate, because we are all producing euros, to compensate that a little bit. And also, we are taking already measures to cover ourselves for exchange rate. So there will be probably inflation in one way and also an appreciation for exchange rate for the country where the currency has devalued compared to the euro.
That will be after the two components that we'll use in the same coherent way that we do year-on-year for many years. Thank you.
So thank you. So just to follow up, so do you expect the inflation of cost of goods next year to be still elevated versus the historical levels?
You noticed that I didn't give you a figure because it's a little bit too soon to give an actual figure of what will be our cost of goods of 2025, which will be mostly also based on salary increase and salary condition that we're going to have, and also a little bit on the cost of materials that we need to produce. So it's too early to give you an indication that will be meaningful.
Thank you.
[Foreign language] One more question in English.
The next question is from Rogério Fujimori, Stifel. Please go ahead.
Hi, good evening, everyone. I just have a follow-up question on the answers and question on cost inflation. I was just hoping if you could elaborate on the OpEx inflation for the business in the second half of the year. How should we think about personal costs, rents, communication in H2 versus H1? Anything we should keep in mind when thinking about margins in H2? Thank you.
So for the second quarter, regarding communication expenses, we expect to spend, as mentioned before, around EUR 650 million, which means an acceleration versus Q1 versus the first half of the year. In the first half, some events in Greater China have been postponed to the second half of the year. Regarding overheads in general, for the time being, we have a little bit reduced the pace of recruitment.
However, we need to reinforce our support functions. As mentioned in our presentation, we have still some projects in manufacturing, and therefore we follow our mid and long-term projects, which means that we are still reinforcing production indirect and direct labor.
Yes. What we can say is that, generally speaking, at Hermès, you see an acceleration between S2 and S1 for CapEx, communication, and overhead.
[Foreign language] Is from Ashley Wallace, Bank of America. Please go ahead.
Oh, hi. I just have one question on your gross margins. If we look at half-one gross margins, we're down 160 basis points. I was wondering if you could please help us bridge the drivers behind that lower gross margin. And do you expect the same level of gross margin pressure in the second half? Thanks.
Sorry. [Foreign language] Yes. I already answered the question.
The two main factors are the currency impact and the fact that we had some larger inventory in Greater China at the end of June.
Okay. So there's an inventory provision or something in the first half, or it's something that will also end up being a headwind in the second half as well?
This is normal reserves based on the rules we apply since many years.
[Foreign language] One last question in French. Carole Madjo, Barclays, please.
Good evening. I have a question about exchange rate. Do you know what the impact on EBITDA is for H1, and what do you expect for H2? You said the impact would be higher. So could you maybe provide us with further information about the currency effect? And I also have a question about the Middle East. During H1, you've integrated UAE activities. How will that impact your business?
Will it be business as usual, or will this lead to strong organic growth? And if we look at underlying growth, is it aligned with the general growth of the group?
So to give you an idea of the impact of currency hedges for H1, it's around EUR 60 million, and we're expecting EUR 160 million for H2. So there'll be a greater impact due to the fact that we'll be selling off our inventory. And the second question was about the Middle East. So we had wholesale margins, and now we have wholesale margins plus retail margins because we are now the majority shareholder over the retail stores. And so we allocated goodwill, which meant that we had to reassess the price of our stocks from the unit price to sale price.
So there was a minimal negative effect, but this will be absorbed as of next year, and it should have no substantial impact on our revenue for full year 2024.
Thank you.
I believe we have exhausted all questions. We were very happy to share these figures with you. We feel that Hermès is resilient and solid in the face of a complex and challenging environment, but we're forging ahead both confidently and with humility, and we will do our best to sustain our performance. Thank you.
[Foreign language] Ladies and gentlemen, the conference is now over. Thank you for participating. You may now log off.