Executives: Chris Hollis - Head, IR Jean-Jacques Guiony -

CFO
Analysts: Oliver Chen - Cowen & Company John Guy - MainFirst Luca Solca - Exane BNP Paribas Fred Speirs - UBS Mario Ortelli - Bernstein Thomas Chauvet -

Citi
Operator: Ladies and gentlemen, welcome to the LVMH 2017 Half Year Results Conference Call. I will now handover to Jean-Jacques Guiony. Sir, please go ahead. Jean-

Jacques Guiony: Thank you. So, ladies and gentlemen good afternoon and welcome to this conference call.

I am Jean-Jacques Guiony, the CFO of LVMH Group. Before I begin, I must remind you that certain information to be discussed on today's call is forward looking and is subject to important risks and uncertainties and could cause results to differ materially. For these I refer you to the Safe Harbor statement included in our press release. Let's now move to today's topic, the first half figures and after a brief discussion on the first half highlights, Chris Hollis, Group's Head of Investors Relation, will cover the main developments of our different business groups. I shall then comment on the main figures and after obviously both Chris and I will be available for your questions.

The press release is available on our website LVMH.com as well as the slides for today's presentation and the interim financial report. Moving to the first slide of the presentation, I will like to say that the first half of 2017 was excellent. We shall go into some details, but in my view the main points bear in mind that it should be first very solid financial performance, with sales increased 15% and current operating income by 23%. Secondly, a very strong contribution to both revenues and profits from our main businesses [indiscernible] and leather and certainly all major record is showing strong events is with Europe and Asia growing double digit. I will now turn to Chris, who is going to give you the main developments within our various business groups.

Chris.

Chris Hollis: Thank you, Jean-Jacques. Let's start as always with [indiscernible] slide 5. This business Group developed a $0.10 increase in organic revenue in the first half on a reported basis taking into account a positive 2% currency impact. Revenue is up 12% to €2.3 billion in the first half.

Looking at the two main categories, champagne and wines, organic revenue grew by 9% and after taking into account a positive 1% currency impact reached €942 million. Organic revenue for cognac and spirits, also increased during the period growing 10% and after taking into account a positive 3% currency impact, reached €1.35 billion. Profit from recurring operations for the Group increased by very strong 21% to €681 million in the first half of this year. And breaking this down champagne and wines contributed €211 in profit, up 19% with cognac and spirits contributing €470 million, up 21% in the first half. So, all in all its an encouraging start to the year for our wines and spirits business.

This is due in good measure to solid progress in the US and the confirmation of the recovery in China. During the period, this group launched Clos business or Clos19, a luxury lifestyle website on which you can not only purchase the group's champagne, Cognac and other wines and spirits online, but also benefit from sharing exceptional experiences around them. I encourage you to visit. Turning now to the champagne and wines business, champagne's volumes grew 8% in the first half, with several new vintages being released and other innovations as well as good performance of our prestigious vintages. Europeans particularly enjoyed champagne in the first half as did the Americans.

In the United States, the wines businesses have been good progress, the launch of exceptional projects, such as Ao Yun produced in the foothills of the Himalayas has been well received. Now with respect to Cognac, Hennessy had a strong 16% rise in volumes. This increase is due in large measure to excellent performances in the US as well as the confirmed recovery in China for all qualities. And on the other spirits side, Glenmorangie volumes were impacted by destocking budgets distributed in Asia, in an effort to clean up the market and get stocks back to reasonable levels. Looking to the second half of the year in this Group, the focus is on maintaining momentum but continuing to implement the value creation strategy across the business.

This includes an ongoing focus on product innovation and introducing new ways for customers to consume our products, such as [indiscernible]. As a reminder, we expect the second half of the year to be more muted in volume growth due to supply constraints. This results from the exceptionally high levels growth we have seen, in particular in the US over the past few years in Hennessey and could be accentuated by the hail and frost that we experienced this spring, particularly in

the 2:24 [indiscernible] regions. We continue to focus on the longer term, and we'll be expanding production and storage facilities in both cognac and champagne to support future growth. Finally, in the second half, we hope to benefit from introducing two new products in to Moet Hennessy's distribution network, the new Tequila Volcan de Mi Tierra and the recently acquired Woodinville Whiskey, a fine small brand that hails from Seattle, in Washington.

Turning now to our fashion and leather goods brands, starting on slide 9. This business group saw organic revenue increase by very strong 14%. There was a positive 1% currency impact and a 2% structural impact resulting from the net impact of remote first consolidation and the deconsolidation of [indiscernible] which we sold in December of 2016. After taking these impact into account, reported revenue increased 17% reaching nearly €6.9 billion. Profit from recurring operations was up particularly robust 34%, reaching nearly €2.2 billion.

The first half of the year in the fashion and leather goods groups reflects strong growth across all geographies, in particular in Asia and Europe, where we saw the continuation of the recovery in France that began towards the end of last year. US also delivered solid progress. As I mentioned, it has been an exceptional period for Vuitton, for we aim to particularly excellent creative momentum, the iconic lines continue to perform well and the new models have been well received around the world, in particular, I suspect many of you have seen the artistic collaboration with Jeff Koons, certainly eye catching. And the products are developed with Supreme [indiscernible]. You have lightly such as the [indiscernible], but you have more difficulties seeing them in stores, these are the planned limited availability and record-breaking seller.

Moving along, Fendi is performing very well with ongoing growth across all product categories. In the first half, the brand opened a new store in Tokyo, in the impressive Ginza 6 shopping complex and is off to a good start. Other highlights in this group includes Loro Piana, strengthened presence in Asia and ongoing growth at Celine, Kenzo, Loewe and Berluti. At Marc Jacobs, the move to a single brand is resulting in improved product lines and the restructuring is starting bear fruit. And finally, the financial results in the first half of 2017 include Rimowa, which we welcomed to the group in January when the transaction closed and they also excluded [Technical Difficulty] in December of 2016 as I mentioned before on previous slide.

Then to the balance of the year, at Louis Vuitton, the focused momentum, this will manifest itself in continued innovation across categories which began earlier this month with the launch of the connected watch, Tambour Horizon. You've likely seen this in the media and it's off to a good start. The new flagship store at Vendome here in Paris is due to open in the second half and for those of you in New York, I recommend you visit the Volez, Voguez, Voyagez exhibit which was first shown at the Grand Palais, in Paris to very large crowds and has taken a worldwide tour. It will arrive in New York from Seoul in the 57th Street Store at the end of the year. Then we recently hope to start [ph] Haute Fourrure fashion show in Paris and we'll open several new stores in the second half including one in San Francisco.

Kenzo is also expanding into retail network, with stores in Paris, Madrid and Rome. Givenchy, the new designer, Clare Waight Keller debut collection will take place in October. And beyond that, the other brands will continue to focus on selective store expansion, products creativity initiative and other targeted investments. Finally, in the second half, Christian Dior Couture will be integrated into the group. Turning now to perfumes and cosmetics beginning on slide 13.

For the first half of the year organic revenue rose a very healthy 12% or a 40% rise on a reported basis, inclusive of a positive 2% currency impact to reach €2.67 billion. Profit from recurring operations rose 7% in this group reaching €292 million in the first half of this year. To provide some insight behind the numbers as I mentioned earlier the first half is strong for Parfums Christian Dior with good momentum across all product categories, is new fragrance J'adore Injoy is off to a great start. It's men's fragrance Sauvage continues to perform well. The successful Rouge and Dior Addict lines continue their rapid development and the Dreamskin line has had some excellent results.

And Mon Guerlain is off to a good start with a great campaign featuring Angelina Jolie. Benefit has rolled out its Brow Collection and launched its new concealer Boi-ing. Givenchy too had a good first half with notable performance from its Le Rouge and Perfecto lipsticks. The Kat von D and Marc Jacobs Beauty lines are both strong performance and they expanded. Fresh's growth continues driven in particular by the success of the Black Tea line in Asia.

And finally, during the first half, the Group acquired the Maison Francis Kurkdjian perfume business. Now looking at the second half for the perfumes and cosmetics group, my goal is to continue the strong momentum across our brand by maintaining focus on bringing innovation to capital markets. Now Parfums Christian Dior, this mean continuing to invest in communicating about those new products as well as the iconic ones. We will also launch a new fragrance with a new communication campaign in the Miss Dior family and open new stores that truly reflect the brand's positioning and approach to beauty. At Guerlain, we will continue to build on the success of Mon Guerlain, while at Givenchy, we will relaunch the Gentleman Givenchy fragrance.

And last but not least a new makeup line Fenty Beauty by Rihanna will be introduced in collaboration with the internationally well-known singer and star icon. It will be available exclusively in those countries where Sephora is present. Now turning to slide 17, watches and jewelry. We saw good momentum in this business group in the first half with 13% organic revenue growth and that's taking into account a 1% currency impact. Reported revenue is up 14% to €1.83 billion in the first half of the year.

Profit from recurring operations was up strongly as well, up 14% which reached €234 million. To catch on some of the highlights of this Group, watches and jewelry delivered solid growth driven by the strokes of both iconic lines and the new products, reflecting this Bvlgari had a very good first half due to the success of its jewelry lines, Serpenti and B Zero 1 and its new high jewelry Festa. Its watch business also returned to growth, helped by the successful launch of the Octo Finissimo watch. The TAG new styles of its iconic lines, Formula 1, Carrera and Aquaracer being very well received and the second generation of its smartwatch was launched. In a sustained growth, notably in China, driven by its iconic lines, Classic Fusion and Big Bang.

And finally, Chaumet, the focus is on continuing upgrades to its product lines, the brand received strong media coverage for its exhibition in Beijing called Splendeurs Impériales, recounting its storage [ph] history with dates back to 1780. Looking ahead, the business group's brands will continue to concentrate on driving market share gains. We are working to achieve it through sustained investment in marketing, digital initiative and sponsoring high profile factory oriented sports and lifestyle events. Other news to come is the reopening of Bvlgari's completely renovated New Store on 5th Avenue and the launch of several models of the Serpenti Skins watch line. TAG Heuer will open a new store in London, 123, and back to Chaumet there is more product innovation to come for its iconic line Liens.

Selective retailing moving to the final business group, organic revenue growth was 12% after taking into account a positive 3% currency impact reached 15% on a reported basis, while €6.28 billion. This was due to strong growth at Sephora and significant improvement at DFS. This group saw an 8% rise in profit from recurring operations to €441 million. More specifically as to Sephora, we are pleased to report the business once again delivered strong comparable to our growth, especially in Asia. Sephora as you will know has been a digital pioneer and leader and they continue to expand their omni channel capabilities, which of course drives online sales.

They have also continued the expansion of their retail presence, renovating two major stores in New York City on 5th Avenue and 34th Street, I encourage you to visit. They also have renovated a major store in Dubai and returned to Germany recently opening a new shop in Munich. Turning now to DFS, there has been a significant sales recovery in Hong Kong, Macau and Japan. The business also benefited from good progress, added new Gallerias which are located in Cambodia and Venice. To build on this improved performance, DFS has strengthened its marketing efforts from the loyalty program including introducing a new travel booking service.

To Le Bon Marche, we are proud to report that the Group launched new digital platform, 24 Sevres, which takes its name from Le Bon Marche historic address. The initial response has been encouraging, while the journey will be long. The stores have introduced new workshops in the women's fashion area with services and these are being well received. As we look ahead to the balance of 2017 for Sephora, its focus will remain on introducing the new and innovative products that its clients rely on it for and continuing to develop new services that further enhance the unique shopping experience it offers. Sephora also continued to improve its mobile offerings and expand its retail store network around the world.

DFS will open two new beauty points of sale in Macau, building on its success in that market, they will also continue to modernize its store network including in Hong Kong, Auckland and Sydney and the business will benefit at the end of this year, from the end of the Hong Kong International Airport concession, which will allow it to improve its profitability going forward. Finally, Le Bon Marche, will continue to add attractions and offerings including an exhibition dedicated to Italy as well as the opening of L La Grande Epicerie Rive Droite in Paris at the end of the year. This will be certainly be a draw for [indiscernible] alike. With that, I will turn the call over back to Jean-Jacques to discuss the consolidated key figures for the first half of 2017. Jean-Jacques?
Jean-

Jacques Guiony: Thank you, Chris.

So, I'll start with giving the review with revenues for the first half of the year as shown on slide 25. As you may see we ended the semester with all our business groups in double digit growth. Published growth was a bit higher than [indiscernible] due to 2% positive currency impact and 1% positive derivate impact resulting from the consolidation of [indiscernible] and the deconsolidation of [indiscernible]. Chris has commented on the business group already in some details, but in my view the main points are, first of all that's wine spirit showing you very positive organic growth of 10% with a strong contribution from US and Asia. Fashion and leather is 14% with very strong LV but also strong contribution from Celine, Fendi, Berluti, Loewe and Kenzo.

Perfume and cosmetic is up 12% in organic terms, outperforming its peers in most geographies. What is reassuring is a 13% growth despite an environment which remained quite challenging. And finally, selected distribution with both DFS and Sephora growing double digits. Let's move to slide 26 where you can see comparison between the first and the second quarters in terms of organic growth. You will notice that all our divisions grew double digit in Q1 and Q2 with the exception of wine and spirit as Chris explained, he anticipated slowdown in volume growth while aggravated by some market clean up notably in Asia.

Let's now move to slide 27, which shows a geographic breakdown of revenues in euros. No major change compared to the same period last year, so no further comments. Moving to slide 28, you will obviously note that the group's settlements [ph] was strong across the board. Worth noting the improvement in Japan based on strong local consumption and easing comparison base in Q2 and the very strong growth in the US, still impacted by discontinuation of the [indiscernible] distribution contracts for about 1 point. Let's now move to the next slide, 29, where you will see over 25 profit and loss accounts for the period.

My main comments are the following. On revenues as we already discussed, gross margin decreased slightly by 50 basis points to 65.1%, mostly due to the integration of Rimowa. Marketing and selling expenses are up 11% while admin rose 8%. Profit from recurring operations is 23% at €3.64 billion, currencies contribute a positive €90 million, while the net of acquisition and diversity positively impact current operating profit by €46 million. Other operating income and charges are negative by €95 million, reflecting mostly amortization of intangible and depreciation as well as the negative impact of recently disposed businesses.

Financial charges are improving dramatically compared to last year and will be commented in a separate slide in minutes and the Group's income tax rate is slightly up compared to last year at around 33.5%. and finally, the Group's share of net profit is up 24%. Now look at the profit from recurring operations which is broken down by business groups on slide 30. [indiscernible] had an outstanding first half and enjoyed a significant 120 basis point improvement in operating margin and a 21% advance for last year. Fashion and leather ended the semester also on a very high note with plus 34% and a 400-basis improvement in margins.

Perfume and cosmetic showed a healthy 7% increase in its current operating profit, with a slight decrease in margins stemming from marketing investments in some brands, mainly [indiscernible]. Watches and jewelry current operating profit was up 14% in H1 with an outstanding performance from [indiscernible]. And finally, still little bit lackluster numbers in selected distribution with an 8% increase in current operating profit despite a better topline. This comes mostly from the impact of Hong Kong International Airport and one-off G&A increase in both Sephora and DFS. G&A particularly should be better as we hope in the second part of the year.

Let's now turn to slide 31, and the analysis of the net financial charge. A few points to mention. First of all, the cost of debt is down due to both lower interest rates and lower average debts. The cost of hedging is positive which to say the least is an anomaly, we'll remember that in the second half of last year due to specific market conditions, our hedging cost was much higher than it should have been. We now benefit in the first half of this year of the reversal of this as expected.

Second half numbers should be negative and in line hopefully with normal levels. Moving to slide 32 where you may see the balance sheet structure. I will not comment as there we no major change in the first half of the year. Obviously, this financial structure doesn't integrate the impact of the acquisition. We'll come back on that.

Turning to slide 33, a few words on the cash flow statement. First, net cash from operations is up 850 million or 23% in line with operating profit improvement. Secondly, working capital requirements used about €1.1 billion in cash, in line with last year. You know that the working capital requirements are much higher in the first half than they are overall for the full year. Finally, capital expenditures are up about €100 million compared to last year.

Overall, our free cash flow is almost €1.3 billion, the first time in the Group history that we exceeded the €1 billion mark for the first half of the year. I will finish with the comment on the Group's net debt which was about €3.9 billion as the 30th of June of this year, about €700 million higher than at the end of last year. This change came out mostly from the €1.3 billion in free cash flow that I already commented net of a negative €440 million of net acquisitions and divestitures and €1.7 million in the total cost of dividend being paid out both to shareholders and to minority holdings. The Group's net debt as 30th of June 2017 represents 14% of total shareholder's equity. Obviously, the significant impact of Dior Couture acquisition is not included in that June 30th balance sheet as the acquisition only closed on July 3, and therefore Dior will be consolidated in [indiscernible].

I will like to conclude and I am on slide 36, I will like to conclude this brief overview of the activity with a few comments highlighting the most important points for the near future. In a nutshell, I think we need to be both positive and cautious. Clearly, most of our markets are well oriented as H1 numbers show, the US (inaudible) well, Japan is showing very strong progress, Asia is more than recovering, while Europe continues to benefit from both strong local consumption and rising number of choice. This said, as we pointed out many times already this year, the comparison base is much more challenging in the second half, both in terms of topline but also in terms of bottom line. Some geographies like Asia and China saw marked improvement from July onwards last year, with [indiscernible].

Cost on brands, the topline growth payout between H1 and H2 last year is as high as 10%, which obviously creates a strong challenge for the months ahead. Moreover, it is also worth pointing out that the currency situation, one can only be surprised by the shortfall in the US dollar that we place in the last couple of weeks, which is a useful reminder that we may not be in a strong dollar environment for ever. We never cease to hedge our business portfolio, but we all know that a stronger euro has a negative impact on margins. That's basically all we wanted to say on this slide and operator, you may now open the line for questions. Thank you.

Operator: Thank you. [Operator Instructions]. We have a question from Oliver Chen from Cowen and Company. Sir, please go ahead.
Oliver Chen : Hi Jean-Jacques and Chris, congrats on really a nice momentum and results.

We had a question related to the digitization strategy going forward. What should we think about in terms of the key hurdles and prioritization and some of the issues in the US that come up are around the margin profile of an online business versus physical retail CapEx in DC and kind of the topic of Amazon given that 80% of the customers in America use Amazon. So just curious about the parameters around digitization at your most significant brands such as Vuitton over the long term. And then your comment on the United States is encouraging on solid progress. Just curious about the geopolitical environment in relation to the solid progress in the US and what you're seeing there, if you're seeing a lot of volatility, if you could help characterize that, that'd be great.

Thank you.
Jean-

Jacques Guiony: Thank you, Oliver. How long do you have, because the first question will take three or four hours to answer in a detailed way, so we cannot go on that type of call in some details, but obviously we have characterized and you know we recruited Ian Rogers a year and half ago now to help us digitalize and not all the brands are at the same stage of development in digital. Some are just developing in ecommerce and making sure that they research online, purchase offline facilities are being up to speed. Some of those are more involved in global data, so there is vast -- a large number of different situations within the group which I find extremely difficult to characterize in only a few words.

But I can say that obviously digital is at the core of our thinking. We think the market is evolving fast. It's not necessarily a revolution or a big change for us, but it's particularly progressively, some of our customers want to engage with our brands, be it on the marketing side or purely on the commercial side, trading side in a digital way with us and we have to get ready for that. We are taking this very seriously and we are working on it. Obviously brands at the same time for some of them [indiscernible] I will mention obviously, for others its more recent and we are still a long way to go.

Obviously and your question about the US, US is particularly sensitive to that. You mentioned Amazon with 80% of households being one way or the other and touch with Amazon. I expect many kind overviews on Amazon particularly on this course, so I don't want to do it again in order to avoid headlines on this tomorrow as it happened in the previous time, but anyway again, in digital its extremely important and more in the US than anywhere else.
Oliver Chen : Okay, thanks and congrats on the Supreme collection, it looks great. I wish we could buy some, but it's so over --

Operator: The next question is from John Guy from MainFirst.

Sir, please go ahead.

John Guy: A couple of questions please. First of all, with regards to wines and spirits. You mentioned that there was some pin up activity in Asia, slightly lower growth into the second quarter. I'm assuming that there is no direct impact at this stage with regards to the weaker weather and that's something that will probably materialize over the course of the second half and into 2018, but could you comment a little bit more around the cleanup exercise in Asia for some of the brands probably with Tennessee.

And then on fashion and leather goods, very strong margin evolution in the first half of the year. Could you just aggregate for us effectively what the margin would have been excluding Marc Jacobs' restructuring impact and that will be very helpful. Thanks very much. Jean-

Jacques Guiony: If you look at the table with quarterly numbers and quarterly earnings growth, you have 10 numbers for divisions, only one is single digit, which is why it's better than Q2, so I am not surprised your question is on this. So, there was a little bit of clean up in some businesses, Chris mentioned Glenmorangie in Asia.

We sold a little bit too much to our clients, have little bit too many inventories, so we took that back, you know that this has a significant impact on the numbers, specifically it creates negative sales. So, this has had an impact on our numbers in Q2 in spirit. What I can say is that with regards to cognac which is aggregated with spirits in our reporting, cognac, if you exclude the impact from [indiscernible] in Q2 was still double digits and positive both in volumes and revenues. So, there is a slowdown no doubt. I mean we are not growing as fast as we did in Q1 for Cognac, but nevertheless, the performance in Q2 for Cognac was pretty strong and basically across the board, be it in the US or in Asia and particularly in China.

Your question about difficult weather conditions in April and the frost that took place, yes, it will impact mostly 2018 and mostly 2019, but it creates a little bit of impact already this year as we have the temptation to retain some order and not sell them and assemble them, to sell them this year as we know that we might be a bit short in one or two years' time. So, the impact will be felt already in a limited way in H2.

John Guy: Sorry Jean-Jacques, just before you maybe go on to fashion and other goods, just on that with regards to the grow money impact going for that pretty much annualizes now as you fall into the second half of the year, so we should start to see more normalized, yes. Okay, great. Thanks.

Jean-

Jacques Guiony: Yes, from Q3 onwards you have clean numbers. Yes, absolutely. On fashion and leather, the margin impact of the restructuring at Marc Jacobs is extremely limited. We are talking about a few millions of dollars, but it's quite limited.

Operator: The next question is from Luca Solca from Exane BNP Paribas.

Sir, please go ahead.

Luca Solca: I would like to ask about demand trans by nationality. You were helpful in previous update to give us Chinese demand globally for Vuitton and I was wondering how this evolved over the course of the second quarter in comparison to the strong double digits that you reported for the first quarter of 2017. You are also mentioning that Marc Jacobs or I think Chris was mentioning that Marc Jacobs are showing the first signs of the efforts that you have taken to improve the business and I wonder how this is playing out. And last but not least, I think you mentioned Gucci as one of the brands producing the most important growth.

I seem to have understand that this was the source of losses, I wonder if there's anything which is changing in this respect. Thanks very much. Jean-

Jacques Guiony: Thank you, Luca. So, on the demand by nationality and for the Chinese consumers, number is all still very good, a little bit lower than what they were in the first quarter of the years, but it's very good, both in China and outside China with the Chinese tourists. So, I will not elaborate further because at this level, I don't think these numbers will be repeated forever.

We are really enjoying very, very nice growth with Chinese customers but the numbers although slightly lower than Q1 are still extremely solid in Q2. For Marc Jacobs, the first signs that Chris alluded to are connected with like-for-like business in our own stores. Definitely we see big improvement there. We are closing some stores, overall the retail business at Marc Jacobs is down, but in the stores, we keep open the business is significantly up, so that's what we show the first signs of improvement. This being said, this is as you can judge quite limited, the wholesale business which is the back of the business is still going, they are going down.

We are dependent on department stores, particularly in the US for the recovery of the business and have to elaborate further on basis, situation remains quite difficult but at the very least we see the first signs of the improvement in our product offer in the overall business which is obviously very encouraging in telling us that we are moving into the right direction. Gucci still loss making, but improving topline improving fast and particularly fast, also on a like-for-like basis. So, as I said many times, it's a question of time before we get breakeven but the trajectory is pretty strong and we are not particularly worried. We should improve remarkably this year and in the following year as well.

Operator: The next question is from Fred Speirs from UBS.

Sir, please go ahead.

Fred Speirs: Three questions for me please. Firstly, within fashion and leather, I wondered if you could talk about how the margin expansion in Vuitton compared to the rest of the division. And within Vuitton, how would you split up margin improvement between gross margin expansion and operating cost leverage. The second also on Vuitton, I'll be interested to hear your latest source on pricing there.

Are you still just thinking about price increases for the Eurozone or does the recent euro appreciation make the China price increase perhaps also more attractive now. And lastly, just interested if you could share some more details on Hong Kong. You already stated that DFS saw some significant improvements here. I'm just interested in some more color on some of the other business units there and how that's developing sequentially and is the improvement coming just from better traffic or you are also seeing some extra factors helping out there too. Thank you.

Jean-

Jacques Guiony: Well on fashion and leather, you know the answer. We don't give you the little numbers, so I am not going to give you the margin improvement. Obviously, there was a margin improvement, but as we told the operating leverage worked there in the same way as it worked elsewhere. It mostly comes from better absorption of operating cost although the gross margin was also slightly improving, but it was with Vuitton, they are never far away from the globalization. The question on price increases, obviously, we like to communicate this due to the commercial sensitivity of such information.

What's going on today is that the dollar and renminbi are going down against the euro. So, what we call the price turnover which is difference between the various geographies, Europe being obviously the worst of them is narrowing a bit, which is frankly good news. We said many times that we didn't want to lure prices in Asia and in the US, the reason being that whilst currencies have gone, currencies can undo it. It's exactly what's happening. So, for the time being, we are very much in wait and see attitude, but I do not think we'll take a lot of action with regards to price in the months to come.

So, your question on Hong Kong, Hong Kong is doing better. Obviously, you have to bear in mind that the comparison basis, not particularly demanding because up to last year we were further going down two or three years in a row in a double-digit way. The business is growing globally double digit in Hong Kong in the first half of the year, its true for most of the brand, including DFS and Vuitton. Traffic is definitely much better exposed and traffic average purchase in most stores. So definitely better situation but comparing ourselves to what happened last year.

Operator: The next question is from Mario Ortelli from Bernstein. Sir, please go ahead.

Mario Ortelli: Good afternoon. In Louis Vuitton, we have seen in the last two-year incredible innovation continuing to launch new model, new style as the demand was a bit weak. Now that the demand in the market for leather goods is going particularly well, can we expect that Louis Vuitton will launch less new model going forward and try to build up lines on the models that arrive to the market in the last two years.

And the second question is, while we are waiting for the integration of Dior, the name biggest brand international leather after Vuitton also in European. Can you give us enough date or what is the development plan for the two brands, if it's for store openings or what else? Thank you. Jean-

Jacques Guiony: I am afraid, I will not answer to the last question. It's a bit early, we have just closed the acquisition of Dior. Although we know the company reason [indiscernible] and particularly some people within the organization, as far as I am concerned, I still have to review in some details.

So next call I'll be more knowledgeable about the brand and I will answer in a more precise way your questions on this.

Mario Ortelli: Yes, I asked about Fendi and Loro Piana [Multiple Speakers]. Jean-

Jacques Guiony: I missed this, could you repeat the question, sorry about that.

Mario Ortelli: Which is your development strategy for Fendi and Loro Piana? Is this focused on increase of store openings, is this focused on more innovation?
Jean-

Jacques Guiony: For Fendi, it's really both, we still feel that the store network had some way to go, particularly based on the momentum of product innovation that is fueling the growth for the time being. So, it's really both.

As far as Loro Piana is concerned, we will expand the network but in a fairly cautious way. Obviously, we don't need that many Loro Piana stores as we will need in other brands, the brands has a less waste, probably a little bit less democratic and some other brands we have and the emphasis is mostly on products. And for your question on LV and the innovation level, and I will make two comments on your question which is obviously difficult to answer. The share of new products in the total business has will remain quite stable, its more -- as long as I have been reviewing Vuitton, what we do with new products is more or less stable in percentage of total sales. So, there is maybe innovation some more visible than there used to be, but in terms of percentage of total business, its more or less what's it's been for quite some times.

So, we have no particular intention to change our strategy there. With regards to demand for handbags being globally much stronger, I will just remind you that the market seems to be discerning and there are brands not only within our BMH that are doing extremely well but some other brands are not doing that well, so the market in my view is mostly a function of the quality of product innovation today and it's no surprise that the brands having done the best job within our group mostly Fendi and Vuitton are getting the highest growth.

Mario Ortelli: You mentioned the share of new product and the total sales pretty stable at Vuitton. Can you give us a number?
Jean-

Jacques Guiony: No, I can't. Well, if I get the number from the competition, I will give you, but as I don't unfortunately, I can't answer.

Sorry about that.

Operator: The next question is from [indiscernible] from HSBC. Sir, please go ahead.

Unidentified Analyst: I'm sorry if I missed this, but the eliminations line at the EBIT level has increased quite significantly and I'm just wondering if you could come back on the reasons why that has been the case. Is there are any link to the development of [indiscernible] or has that something to do with completely different element.

Secondly, I was thinking about the H2 slowdown, because trees can't grow to the sky and things have to slow but is there any particular region where you think things will slow? I mean here in the US we heard some of your competitors talking about a bump, a surge in sales in the US from November last year to April, May this year and a bit of softening since. Can Europe soften on the back of currency potentially? And with Asia being stronger, how do you think about the margin equation with some regions XR ratings, some regions are decelerating. And then thirdly, on Sephora, and the opening in Germany which in hindsight might seem like a pretty brave move because you have a pretty big competitor in the market. Does this mean that there are other markets that were theoretically taboo in terms of opening that you could look at opening for Sephora, extending Sephora to become a proper global retail banner? Thank you. Jean-

Jacques Guiony: So, on your first question, I was wondering whether your question was on -- elimination [ph] is more or less the same number if I am not mistaken.

So last year it was a negative for the -- operating profit, a negative 5 this year and a negative 27 last year. So, I don't think there is a big change to your question is probably to the total of other and eliminations. So, elimination is stable. Other is down. It's usually negative but its more negative than it was last year, mostly due to some one-off impact, one is at [indiscernible] where we took a sort of global provision to account for management changes that start taking place in the way we forecast our profit for the fits we deal, so there was a significant impact there.

And the second thing is that, we have taken reserve for the rents of the store that we kept from DKNY in New York which is a pretty expensive store, that was not part of the transaction last year and given the fact that the landlord had indicated that they will renovate entirely the building in five years' time when the lease ends, it will be very difficult to lease this space. So, we have taken reserve, so that explains these two elements explain why the other line is more negative than it was last year. For the H2 slowdown, by regions, it is obviously a very competitive question and the short answer would be I don't know. Nevertheless, if you look into some details as last year, we had a lot talking about difference in comparison base and where we have the highest difference in comparison base between H1 and H2 last year is in Asia. If I am not mistaken we had a 10% while it was flat in the first half of the year, if I am not mistaken, it was 10% in the second half of the year.

So, this is where we have the highest discrepancy between H1 and H2 and therefore where we may suffer the most in my view from the comparison base in H2. As far as the US is concerned, again if I am not mistaken, growth in H1 and H2 are not identical, but we are more or less in the same ballpark. So, in terms of comparison base, it shouldn't suffer too much in the US. Then there is the market dynamic in the US, which as far as we are concerned, you have seen the numbers which are more or less in line with last year's growth in Q1 and Q2 are more or less the same. We are not particularly worried.

Third question you had on Sephora in Germany. We implemented in Germany the same strategy that we have implemented in Switzerland, which is a market we recently entered with an association with local department store chain called Manor. It worked pretty well and we have decided to do the same in Germany. Well now that we have a sizable competitor in this market which is not something scares us too much. We expect to replicate in Germany what we have done in a very profitable way in Switzerland.

Unidentified Analyst: Just a quick follow-up on the second part, looking at the H2 slowdown. Does the regional mix really matter in terms of where your margins can go to?
Jean-

Jacques Guiony: Yes and no. for a given quarter or given semester maybe, not really over a couple of years, because we have the ability to work as prices or that's not really something that worries me too much.

Operator: The next question is from Thomas Chauvet from Citi. Sir, please go ahead.

Thomas Chauvet: Good evening. Thank you. I have three questions, please. The first one on FX as you highlighted Jean-Jacques in your presentation the year has appreciated about 10% versus the dollar and the yen I think more or less since you published Q1. What are your final hedge rates for 2017? How far you are hedged in 2018 and at what rates? Any guidance on how you are planning to offset these potential headwinds? Secondly, can you characterize the sudden acceleration in demand in Japan? In Q2 you said it was local demand.

We know this market is very volatile with locals, with tourists. Many of your peers seem not to be in such a good Japan in the second quarters. So, do you think that, that's suitable or there are some one-offs in that strong Japanese growth in Q2. And finally, I know M&A at [indiscernible] is not really at back of synergies, but being able to for the first time have your sister company put you under the same roof might offer some opportunities I guess to run your umbrella more efficiently, I am thinking maybe media buying, central functions, rents, maybe even the tax rate, I don't know. I know it's a bit early for you to comment as I said, but I am sure it's something that you've looked at when obviously considering the €6 billion to €6.5 billion price you paid for these attractive assets.

So, could you maybe elaborate on where you see it easy wins in terms of running your umbrella better with good year being part of LV. Thank you.
Jean-

Jacques Guiony: So, as you said, we had mentioned dollars, the dollar mostly which is covered for this year at 1/11 and its actually almost the same rate, it is the same rate for next year, so it moves 1/11 for this year and next year, 83% of the budget is hedged for this year and about 64 for next year. So, it's a pretty solid hedging position for as long as the level of currency prevailing level of the dollar. Japan, your second question, although they were not, no, I don't think so apart from the fact that if I am not wrong last year's comparison base in Q2 was minus 6 or something like that compared to plus 5 in Q1.

So obviously a big discrepancy between the two quarters last year which obviously creates some gap in the two quarters this year as well. When I look at, what I can look at, which is mostly read those numbers by client base, the Japanese customer has been pretty strong in both Q1 and Q2 and obviously the Japanese customer is not subject to the big effect I just mentioned because as you know, the big difference between Q1 and Q2 last year was the fact that the Chinese tourists used to be from Japan, the Japanese business was not affected with the Japanese, customers were not affected by that at all. So, if I look at it in Q1 and Q2 this year, the business we did with Japanese customers were in Japan was pretty strong. The business we work for is becoming negligible now, but the business we do locally was pretty strong, not double digit, but quite strong. And I don't think they are particularly one-off factors.

So, I am not saying that things will last forever, but it's a pretty healthy situation in Japan particularly with the local customers. So I will repeat what I said, to call what we -- when we announced the transaction, obviously we'll try to -- we are not very keen on synergies as you know -- there is heavy integration on businesses, we don't believe them in that too much, this being said there are intelligent things to be done. We will do it and topics we mentioned are particularly relevant, the media, purchase, the -- I mean I'll justify that normal purchases that we'll do together, don't expect a big, big impact from this in terms of over profitability that's…

Thomas Chauvet: Thank you.

Operator: The next question is from Melanie [ph] from JPMorgan. Ma'am, please go ahead.

Unidentified Analyst: Good evening. I have three questions, sorry the first one is regarding the cosmetics and what then jury division, they were actually a bit lower than expected in terms of margin expansion and I was wondering whether you could explain whether there is -- I mean you mentioned A&P pressure but I was wondering whether this is structural or whether you think you really call some of that in the second half in some of that more launch in the second half, so I imagined some of this is structural. My second question is whether you could help us understand maybe quantify the positive impact of the Hong Kong effort concession expiring into the second half of this year and then more important into next year given that it's around November. And then my last question is by fashion and leather goods and not just for Louis Vuitton, you have now commented on [indiscernible] but is it fair to say that this -- second transaction that was actually quite small but between 16% and 13% growth between Q1 and Q2 that was imagine roughly the growth of Louis Vuitton itself but this sequential discretion was linked to the Chinese consumer in total? Thank you. Jean-

Jacques Guiony: I'm glad to see that you're interested in understanding why we moved down from [indiscernible], I mean it's really a big number, I understand you will want more details on that.

Let's start -- let's take your questions in order Melanie. At present cosmetics [ph] which is into lower margin in H1 than anticipated, we mentioned some modeling push alongside some loan shelf of product, especially [indiscernible] for -- mostly on the -- and lesser extension to contribute and as far as which is into real concern is the connected which for -- so the impact is quite significant. I wouldn't call this structural but there will be some further developments in H2 obviously, there will be second wave of marketing for Moët in the second part of the year. Can do, we'll launch Louis Vuitton as we discussed before in pretty announced way in H2. And for the watches and jewelry business and TAG Heuer particularly, I think it should be lower in H2, the push will be lower in H2 than it was in H1.

So it's not structural but there will be some further developments to the wait in the second half of the year. As far as Hong Kong is concerned, I will answer the question when I will know the answer for 2017; for the time being, it's very well a tired number so this is why I don't want to answer. Depending on the conditions of the airport, obviously we have very high cost for rentals, depending on whether we do plus 1% or minus 1% in spending the packs, it makes a sizeable difference to the profitability or the lack of profitability of this business, so I cannot really answer as of today. And finally the 15 versus 13, well there are a number of explanations, some going out, some going down, so we'll not elaborate. There was a very mild slowdown with the Chinese customers.

You may consider that is part of the answer but it's only part of the answer.

Operator: The next question is from Maya [ph] from Raymond James. Madam, please go ahead.

Unidentified Analyst: Hi, good evening, I still have two questions; one on selective retaining and also could you explain a bit more in declining in margin, except for Hong Kong, which is a bit more better? Where it's also one that it's for us I was maybe interim Germany or if some other impact? And then I wanted to know we should think about anything H2 regarding volumes because you spend in the past two guide for volume expansion of around 7% to 8% and they were already at 16% in H1, we should think about it going forward. Thank you.

Jean-

Jacques Guiony: So it is the distribution, the drop in margin, as I said is -- I will now 25 but it is Hong Kong airport which had some one-off, positive one-off last year, so obviously we didn't have them this year; so it has a negative impact. There were also some one-off in [indiscernible], some various development, some of fewer position costs, etcetera, that goes the admin cost rise bit faster than it should have and there was also the impact stemming from bonus accrual at DFS; DFS business saved for the Hong Kong airport operations is doing better, so obviously when the business does better we have to recruit for larger bonuses for the management team and in the year, so this has also a negative impact where at least it's I'm sure being part of the improvement that we get otherwise, so that's a main impact on selective distribution that explains why all in terms of bottom-line growth to topline. Your second question was about volumes and in fact, for second half of '18. Well, the volumes on the second half will be -- the growth will be limited, typically to say we don't really know how it ends but I -- we do not contemplate very significant rise in volume. So the rise in volumes were very significant in H1, demand was there, demand is still there but we will be lacking availability of -- we've already seen less due to Q2 business of what we have seen in the U.S.

was a bit under pressure already and it will continue, so you can expect -- I would say low to mid-single digit growth in volumes for the second half of the year at France with H1.

Unidentified Analyst: Okay, thank you.

Operator: The next question is from Amelia [ph] from Bank of America Merrill Lynch. Madam, please go ahead.

Unidentified Analyst: I'm just wondering, firstly, just following up on pricing; was noticed that you're not changing your evergreen pricing really at all and that's sort of in-line with what you've been saying but it does seem like there have been some price changes in terms of your seasonal output in Louis Vuitton and some of your other luxury brands.

Can you talk a little bit about that dynamic and maybe whether you're using seasonal product in order to close the pricing differential between geographies? And then secondly just returning to the perfumes and cosmetics division, obviously very strong continued momentum in that division; would -- will you be able to explain just couple of the drivers of that momentum? And then the third, the last thing is on the margins in that business; now, I understand your point on your extra marketing spend and new product rollout but we do noticed that your margins are at the operating level are still a bit lower than peers or quite significantly lower than peers, is there something in particularly driving that or is it just that you're rolling out more product and doing more market than peers [ph]?
Jean-

Jacques Guiony: Thank you. Yes, on the seasonal products your question is, which in the correct way, we've introduced seasonal product at price difference, it's not new -- I mean we implement -- we've been implementing that for much years now at quite different compared to Europe which was more in line with the objective that we have rather than what comes from the currency gaps that we have. So we use the seasonal product to drive down the price gap, that's obvious. The second on the perfume and cosmetic top line drivers, the most dynamic category by far was make out; I don't think it is unique to cosmetic -- I mean most players in the industry report the same. We also benefited from perfume being quite healthy, particularly due to the launch of Mon Guerlain, but also I would say that two-thirds of the growth comes from the makeup which is a little bit less than half of the total business.

And you will find questions on margins in perfume and cosmetic, I always answer the same thing. When you look at benefit or top [indiscernible], their margins are in line with peers. We have a few businesses -- other businesses are more in a development phase, we're launching new products and therefore this has a negative impact on global margins, on their margin and obviously on that ridge, on the global margins of the division.

Unidentified Analyst: Thank you, that's very helpful.

Operator: The next question is from Huma Sad [ph] from Evercore ISI.

Sir, please go ahead.

Unidentified Analyst: Thank you very much for taking my question. My first question I wanted to ask about the new digital website, multi-brand digital website in fashion and leather goods, I guess it's -- what is it [indiscernible]. You know, maybe talk about the decision behind -- the decision process behind launching this platform; I know you guys have a little bit in the multi-brand space physical world in multi-brand fashion leather goods but maybe talk about your decision to go forward with the digital? And then I have one follow-up. Jean-

Jacques Guiony: So the decision process is tough but the answer is in your question, we already have some multi-brand concept into the [indiscernible] within the GFS [ph] to a large extent was in the group and we think quite logical to develop online and particularly for [indiscernible] what we are doing, doing offline.

And the second part of the sole process was also to acknowledge that we have a unique portfolio of brands and most of these concept, competiting concepts like the big brands, namely Vuitton, Dior, etcetera; they may have been from time to time when they buy from third-party distributors but not in the large way and in a big scale. With 24 Sèvres, we are in the position to offer this brand or we will be in a position to offer this brand because we are only starting now, so we have not older products available on the multi-brand website which is quite unique proposition, so that's basically the familiarity with these environment and the fact that we have unique brand line that which we want to develop as well on the way.

Unidentified Analyst: Are you finding that easy to sign-up designer brands to 24 Sèvres or is there a little bit resistance on the part of some of the designers? Is it -- are you tracking supply quickly?
Jean-

Jacques Guiony: It's -- I will not elaborate because we are talking about pretty sensitive topic from commercial viewpoint but we've been -- when it comes to brand outside any troop, we've been positively surprised by the answers we've got from let's say most players; so that shows us that we are in the right direction. Don't take me wrong, I mean it will not take five minutes, I mean these concepts should be up and running and to be efficient and to offer, seem less superior clients experience, it takes time but we think we are in the right direction.

Unidentified Analyst: Thank you very much.

Best of luck. Jean-

Jacques Guiony: Thank you. One last question maybe.

Operator: The last question is from [indiscernible]. Sir, please go ahead.

Unidentified Analyst: Just quick two questions. Could you comment if the reason for fashion and leather in Q2 were similar to what you described for total group in Slide 28? And then I was just wondering if you could comment on exit sellout trends for watches and wine and spirits, thank you. Jean-

Jacques Guiony: Sorry, I missed your -- your first question is about the trends, the galvanic growth trends for Q1 and Q2 in fashion leather?

Unidentified Analyst: Yes, you described the regional growth trends for total group but I was just wondering for fashion and leather it was similar. Jean-

Jacques Guiony: Okay. Well, it's -- there are some differences but we see slight slowdown in -- very slight slowdown in Asia from a very high base.

The U.S. is doing okay and is improving slightly, Japan is also improving in a fairly spectacular way and Europe is a bit flowing down, also from a very high base. So it's not the similar to the group's trend, although the numbers may differ but it's not dissimilar. And also -- so I missed your second question about trends in wines and spirits. Well, for wine and spirits, we are pretty close given the current inventory situation which is pretty tight in the U.S.

but also now in Asia, selling and sellout of particular; so we are not particularly worried and sometimes we have inventories within the trade which are at a level which is bit low. So that's -- if we have a concern that we lack a little bit of inventories within the trade run then sending in more than sending out. And -- well, the question on jewelry is, most of what we do is retail. So it doesn't apply to jewelry, it applies more to watches where the situation -- I mean for quite some time it's been difficult to push inventories into the trade, so the situation is reasonably healthy there, I wouldn't say particularly for outruns [ph] that a lot of retailers of access inventories, it's not the case at all and selling and sellout are pretty close.

Unidentified Analyst: That's great.

And may I just ask a follow-up on; if you could comment, if the shift to digital first of all is marching a quick given the scale for the brand in the U.S., at least in qualitative terms? Thank you. Jean-

Jacques Guiony: It is, it is margin accretive, the margin is on the web slightly higher than they are in the brick-and-mortar business across the boards.

Unidentified Analyst: Thank you very much. Jean-

Jacques Guiony: Thank you. That ends the call.

Thank you for attending it and I look forward to discussing with you Q3 figures in October. Thank you and have a nice evening.

Operator: Ladies and gentlemen, this conclude the conference call. Thank you all for your participation. You may now disconnect.