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Welcome to the LVMH 2019 First Half Results Conference Call. I will now hand over to Mr. Jean-Jacques Guiony. Sir, please go ahead.
Thank you. Good afternoon, ladies and gentlemen. Welcome to this conference call. I'm Jean-Jacques Guiony, I'm the Chief Financial Officer of the 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 that could cause results to differ materially. For this, I refer you to the Safe Harbor statement including in our press release and on slide two of today's presentation.
So, let's now move to today's topic, the first half figures. After a brief discussion of the first half highlights, Chris Hollis, Group's Head of Investor Relations, will cover the main developments of our different business groups. I shall then comment on the main figures. And after this, obviously both Chris and I will be available to take your questions. The press release is available on our website at lvmh.com as well as the slides for today's presentation and the interim financial reports.
So, moving to slide three of the presentation, I would like to say that the first half of 2019 was excellent, which I'm going to show details. But the main points to bear in mind in my view should be, first, a very solid financial performance with revenue increasing 15% and profit from recurring operations, what I will refer to as COP, C-O-P, current operating income, was 14%, a very strong contribution to both revenues and profits from all our main businesses and all main geographies showing strong advances, most of them in double-digits.
I will now turn to Chris who is going to review the main developments within our various business groups. Chris?
Thank you, Jean-Jacques. We'll now review each of the business groups, starting with Wines & Spirits numbers on slide six6. The business group's organic revenues increased 6% in the period on a reported basis, taking into account a positive 3% currency impact, revenue is up 9% to €2.5 billion compared to €2.3 billion in the year-ago first half.
Profit from recurring operations, this group increased 6% to €772 million in the first half of this year versus €726 million for the same period in 2018. This year, we did not have the same benefit from currency hedging as we did last year.
This business showed strong momentum in China and the U.S. in the first half as well as improved mix in Champagne and solid volume growth in Cognac. Looking at the two categories in this group, Champagne and Wines & Spirits, champagne volumes decreased by 1%, while price and mix both improved. Revenue grew in all regions, the Prestige cuvées demonstrated excellent performance driven especially by Dom Pérignon. And Estates & Wines also delivered as a result of favorable pricing actions.
Moving on to Cognac, Hennessy volumes were up 8%, in large part due to VS and VSOP qualities as well as both in U.S. and China. As we also rolled out a new captivating marketing campaign directed by Sir Ridley Scott.
Finally, among the group's other spirits both Belvedere and Glenmorangie reinforced the development of their high-end products.
Turning to the second half of the year to slide eight, we will continue to maintain our value-creation strategy as we navigate in an uncertain business environment. We will remain focused on our efforts to gain share with the new consumers through product innovations, introducing new ways and occasions to enjoy our offerings and innovative digital marketing. As you likely saw in May, we announced the acquisition of a French wine producer, Chateau du Galoupet, and for its high-end rosé, we are now integrating these new category of wines into our portfolio.
Another focus for the second half of the year is to further intensify our efforts around sustainable development and the environment in this business group, particularly through our viticulture practices. And finally, we'll continue to develop production facilities to support this business group's future growth.
Let's now review the excellent performance of our Fashion & Leather Goods brands. We're very pleased to share that this group saw an 18% increase in organic revenue in the first half of 2019. On a reported basis, taking into account the positive currency impact of 3%, revenue rose 21%, surpassing the €10 billion to reach €10.4 billion compared to €8.6 billion in the year-ago period.
Profit from recurring operations was up 17% year-over-year, increasing to €3.248 billion compared to €2.775 billion in the first half of 2019. There was a limited impact from the first implementation of IFRS 16.
So, going into more detail on page -- on slide 11, I'll begin reviewing the Louis Vuitton, which continues to build on its excellent momentum and saw success in both its iconic lines and with new designs during the period.
Brand also continued the transformation of its store network, creating exceptional Maisons through destinations and opened a new leather goods workshop in France to meet growing demand for its unique products with combined modernity with desirability.
Christian Dior Couture delivered exceptional growth in all product categories driven by strong consumer demand coming from clientele of all regions. The brand successfully launched its 30 Montaigne line and also held exhibitions in both London at the magnificent Vienna Museum and in Dallas at the Museum of Art, which was very well received. Some of the highlights at other group brands. Fendi paid tribute to Karl Lagerfeld through several widely covered events in Shanghai, Paris, and Rome that celebrated his extraordinary legacy. Loro Piana introduced a new bespoke service for shoes and opened a temporary store in New York City's Meatpacking District dedicated to its new footwear offering.
Celine welcomed the arrival in stores of Hedi Slimane's new collections as it rolled out its new store concept. Loewe's new collections by Jonathan Anderson met with great success. Rimowa and Berluti both grew significantly and kept developing their respective store networks. And finally, as I'm sure you know, we launched the new Maison Fenty created by Rihanna.
As we look ahead across the business group, we see very compelling opportunities to continue the momentum achieved in the first half of the year. Louis Vuitton will continue to innovate across all product categories and support the introduction of new products with creative and high-profile events, which will be announced. And the brand will continue to focus on the qualitative development of its retail network and expanding production capacity.
Christian Dior Couture has recently opened up a new exceptional store on the Champs-Elysées while its historic Avenue Montaigne store undergoes a major refurbishment. Fendi will announce exciting new partnerships, touching the world of art and music. One exciting example, it was announced last week that they will have a capsule collection with their brand ambassador in China, with singer, songwriter, Jackson Wang, who will hold a concert in Chengdu to kick it off.
Kenzo has recently appointed a new Artistic Director, Felipe Oliveira Baptista. And notably, last week, we announced the latest addition to our Maison through an agreement with Stella McCartney, in which we will take a minority stake in her business. She is an outstanding designer who has been a pioneer in sustainable luxury fashion. We'll be sharing more about this in September. As we move forward, we'll continue to invest in and support the creative development of these and our other fashion brands.
Turning to Perfumes & Cosmetics on slide 14, for the first half of the year, organic revenue rose 9%, including a positive 3% currency impact. This translated to a 12% rise in reported -- on a reported basis to €3.2 billion. Profit from recurring operations rose 6% in this business group, reaching €387 million compared to €364 million for the 2018 period.
To provide some insight behind the numbers on slide 15, I'll begin with Parfums Christian Dior, which continues its excellent momentum. Its fragrances, J'adore, Miss Dior and Sauvage showed continued vitality, while its makeup products, including its Rouge Dior and Ultra lipstick -- Ultra-Rouge lipsticks, demonstrated continued success. On the skincare front, the Prestige line delivered good growth, particularly in Asia.
Guerlain saw strong growth with its lipstick line, Rouge G, and its skincare line, Abeille Royale. Givenchy had success with its makeup line in Asia, particularly China, as well as its fragrance, L’Interdit. The brand also launched its first digital transparency and product traceability platform. At Benefit, the brand continued to develop its Eyebrow Collection, which includes Gimme Brow and Precisely, and rolled out additional brow bars in China.
Fresh's iconic lines, Rose, Black Tea and Lotus, saw continued success. Fenty Beauty by Rihanna's social media comment -- by Rihanna's social media communications had a strong impact, driving the ongoing success of its new products. And finally, Maison Francis Kurkdjian launched 2twonew variations of its Gentle Fluidity fragrance called Silver and Gold.
Now, for the outlook in Perfumes & Cosmetics on slide 16. Overall, we will continue to strengthen the innovation and creative momentum of the brands in this business group in what is a rapidly changing and competitive environment.
At Parfums Christian Dior, the focus is on both supporting iconic lines and rolling out new product consistent with Couture and the draw on its historic roots in Grasse. This will include several innovations in makeup and strong digital activation. The brand will roll out new Maison Christian Dior concept stores in all regions and continue to focus on its Premium skincare line.
And with respect to the other brands, some exciting new offerings are coming soon. Guerlain will launch its Mon Guerlain fragrance and -- relaunch its Mon Guerlain fragrance. And Givenchy will relaunch its iconic Le Rouge lipstick as well as introduce a new version of its L’Interdit fragrance.
Kenzo will launch a new eau de parfum as part of its Kenzo World collection. And Acqua di Parma will introduce a new fragrance and interior candle lines and renovate its iconic store in Milan.
Moving on to the Watches & Jewelry business group. Organic revenue is up 4% in the first half or 8% on a reported basis after reflecting a positive 4% currency impact to reach a reported revenue of €2.14 billion, up from €1.98 billion in the first half of 2018. Profit from recurring operations increased 5% to €357 million from €342 million in the year ago period.
Overall, this group saw strong progress in Jewelry driven by stores that our brands operate. On the Watches side, Hublot contributed to this growth, while TAG Heuer continued its repositioning. Bvlgari continued its good revenue momentum and gained market share in the first half. Growth was driven by the iconic Serpenti, B.Zero1, Diva, Lvcea and Fiorever lines. In terms of its retail network, it completed the renovation of its boutique in Monaco and opened new temporary stores on the Champs-Élysées and in Macau.
At TAG, the brand focused on the development of its iconic lines, Carrera, Aquaracer and Formula 1, and saw success with its golf-connected watch. It also celebrated the 50th anniversary of its Monaco model and launched a new version of Autavia, with cutting-edge precision in line with its name, Techniques d'Avant Garde, or TAG.
Hublot delivered solid growth due to the performance of its Classic Fusion and Big Bang lines and the remarkable success of its Spirit of Big Bang watch. Finally, Chaumet saw success with its Bee My Love collection and iconic Liens and Joséphine lines. It also opened a temporary store in Paris during the renovation of its historic place Vendôme location.
Turning to the outlook for Watches & Jewelry for the balance of the year to slide 20, we will continue initiatives to enhance quality and productivity of our distribution and strengthen our marketing investments with a focus on digital platforms.
Bvlgari will be rolling out a new high jewelry collection called Cinemagia. The brand also recently opened a new exhibition entitled Bvlgari – The Story, The Dream at Castel Sant'Angelo in Rome, celebrating Bvlgari and Italian fashion.
Chaumet and Hublot will open flagship locations on the exciting 1881 Heritage site in Hong Kong, while Zenith and Fred will increase their respective presence in China. Finally, LVMH will hold its first exhibition of Swiss watchmaking Maisons in January 2020 at the Bvlgari Resort in Dubai.
Last, but not least, I'll cover our Selective Retailing business. Organic revenue for this group was up 8% in the first half of 2019. On a reported basis, this represents a 12% increase, reflecting a positive 4% currency impact to €7.1 billion. This compares to €6.3 billion in the first half of 2018. Profit from recurring operations rose 17% to €714 million from €612 million for the year ago period. There was a more pronounced impact from the first implementation of IFRS 16.
On the next slide, starting with a deeper dive into Sephora, slide 23. The brand delivered strong growth and market share gains in all regions, whilst its online sales continued to strengthen. Sephora's store network expansion continues and the same with its innovative store renovations, including, over the past few months, Paris' La Défense and New York's Times Square. And the new campaign dubbed we belong to something beautiful, was successfully rolled out in the U.S.
DFS, despite the slowdown seen in recent months in Hong Kong and Macau, saw strong demand in the first half and excellent performance at the Venice Galleria location in Italy. For a logistics agreement with Chinese company, Shenzhen Duty Free, DFS made its debut into the Chinese market, while its mini-programs marketing initiative on WeChat will allow it to better engage travelers.
Le Bon Marché opened its salons particuliers, which offer a personalized shopping service, and our digital platform, La Carte 24 Sèvres, was renamed 24S.
And now for the outlook in the Selective Retailing group, slide 24. Sephora is expected to continue its geographic expansion and market share gains as it opens its first stores in South Korea, Hong Kong and New Zealand in the second half of the year. It will also continue to introduce innovative products and develop exclusive services that set it apart in the marketplace.
DFS will complete the renovations of its flagship stores in Hong Kong and Macau as well as in San Francisco International Airport. It will also open a beauty store in Hong Kong's Mong Kok district and continue the work to prepare the Galleria in Paris' La Samaritaine, which is scheduled to open next year.
And lastly, Le Bon Marché, always an exciting shopping destination, will continue the transformation of its ground floor and plans to have a cool punk-themed exhibition to take place in the fall.
And with that brief summary of business groups, I'll hand the call back to Jean-Jacques, who will take you through the detailed numbers. Jean-Jacques?
Thank you, Chris. So, before we get into the main numbers of the semester, I would like to make a snapshot of what you know is my favorite subject, which is the impact of IFRS 16, which, anyway, is the main modification in how we account for our leases.
Basically, three points to bear in mind. The first one is a limited impact on the P&L, with a €77 million positive impact on profit from recurring operations and a negative €145 million on financial charges. The group's balance sheet is incremented by €12 billion in both assets and liabilities, which are supposed to materialize our commitment with the future rents and the corresponding assets.
The deep impact to the presentation of the cash flow statement as rents are not considered as operating cash outlays anymore but as debt reimbursements. We have therefore added a table on our financial statements to calculate the group operating cash flow generation so that you understand where we are.
All in all, I would say much ado about nothing. I would just point out the fact that the norm doesn't allow us to restate 2018 numbers and therefore, as complexity to an already obscure and uncertain accounting modification, but that's the way it is.
Let's now talk about what really matters, i.e., 2019 first half figures. I shall start the review with revenues for the first half of the year as shown on slide 27. As you may see, we ended the semester in double-digit growth, with a 12% organic growth for the group. The company's growth was a notch higher, with 15%, due to a 3% positive currency impact.
Chris commented already the main business groups in detail, but the main points regarding organic performance are, in my view, in Wines & Spirits, a positive organic growth of 6%, with a very strong performance of our Cognac business.
Fashion & Leather is up 18%, with LV and Dior being particularly strong. Perfumes & Cosmetics is up 9% in organic terms, with a very strong business particularly in Asia. And Selective Distribution is up 8%, with a strong contribution from both DFS and Sephora.
Let's move to slide 28, where you can see a comparison between first and second quarters in terms of organic growth. You will notice a slowdown in Wines & Spirits due to the pacing of our Cognac business in the U.S., which we mentioned already when we announced Q1 figures. Otherwise, all businesses are showing equivalent of better growth in Q2.
Let's now move to slide 29, which shows the geographic breakdown of revenues in euros, worth noting that Asia gained two percentage points due to the strength of the business in this year.
Moving to slide 30, you will obviously note that the group's geographical performance was strong across the board; strong growth in Japan and in the U.S., mostly based on strong local consumption; very solid growth in Europe at 10%; and a noticeable acceleration in Q2, mostly attributable to France; and finally, a very strong performance in Asia, with more or less all businesses growing double-digits.
Let's move to the next slide 31, where you may see our simplified P&L account for the period. My main comments are the following. We already discussed revenues. Gross margin decreased slightly to 63 -- 66.3% due to the nonrecurring impact of last year's hedging gain. We shall discuss that further on the current operating income later on.
Marketing and selling expenses are up 15%, while admin expenses rose 7%. Overall, total operating costs rose 11% on a constant currency basis. Profits from recurring operations is up 14%, at €5.295 billion. I will comment later on the currency impact and the contribution of IFRS 16 to the profit from recurring operation -- sorry, and the profit -- and the impact of IFRS 16 to the profit from recurring operations was a positive 2%.
Although operating income and charges are negative by a low €54 million, reflecting most of the amortization and depreciation of intangibles, financial charges are much higher than last year due to, again, the IFRS 16 impact. I will comment on this in a separate slide. And the group's income tax rate is slightly above 20% of pretax income. I'm sorry?
28%.
28%. Sorry. 28% of pretax income in line with last year's. The group share in net profit is up 9%.
Let's now look at the profit from recurring operations, which is broken down by business groups on slide 32. As you can see, Wines & Spirits shows a 6% advance in operating profit, which is a great achievement in view of an almost 10% headwind stemming from currencies.
Fashion & Leather ended the semester on a very high note with plus 17%. Perfumes & Cosmetics showed a 6% increase in its current operating profit, with a very high comparison base and an unfavorable pacing of marketing expenses in the first half of the year. Watches & Jewelry COP was up 5%. And finally, very strong numbers in Selective Distribution, with a 17% increase in COP, with a boost of about a bit less than €50 million from IFRS 16.
I'll now look at current operating profit with the impact of currency fluctuations on slide 33. The currency impacts on operating profit -- on current operating profit was negligible, with the -- with €3 million, with the impact of better currencies this year being offset by material hedging gains done in last year. So, all in all, the currency impact was zero for COP compared to a positive 3% impact on sales, generating a 70 basis point negative impact on operating margin.
Let's now turn to slide 34 and the analysis of the net financial expense. The main presentation changes due to the implementation of IFRS 16, a few points to mention. First of all, the cost of debt is quite flat, with the average debt and interest rates being very close to what they were last year. The cost of hedging is underweight due to both very little changes, with Europe now being included and the overall growth in the business and the need for a larger hedging portfolio. As in 2018, we benefited from a strong pickup in the value of our financial portfolio.
And last, but not least, we registered a €145 million charge connected with IFRS 16. You will note that the negative impact on financial charges is higher than the positive on COP. This is a bit technical, and I may discuss that if you have questions, but bear in mind, this gap should narrow in the future.
Moving on to slide 35, where you may see the financial structure. The main comment and the main impact is obviously the 12% -- the €12 billion increase in both noncurrent assets and noncurrent liabilities arising from IFRS 16, otherwise nothing really worth commenting on that slide.
Turning to slide 36, with a few words on the cash flow statement. Again, IFRS 16 makes the comparison between 2018 and 2019 a bit tricky. And I will mostly comment on the operating free cash flow generation at the bottom line of -- which is the bottom line of the table, which shows an operating cash flow generation of €1.7 billion for the first half of the year, a bit below last year.
Working capital requirements used about €1.9 billion in cash, with a negative impact of some Belmond expenses that could have been alternatively treated as acquisition costs. Capital expenditures are up about €200 million compared to last year, mainly due to special projects in the establishment phase, which has La Samaritaine, which has an impact for both central LVMH and DFS'. Obviously, DFS is developing its [technical difficulty].
So, we finish the comments on numbers with [technical difficulty] group's net debt, which reached €8.7 billion at the end of June, about €3.2 billion higher than at the end of last year. This change comes mostly from the 1.7 -- on the positive side from the €1.7 billion free cash flow I already mentioned, net of a negative €2.3 billion in dividend and a negative €2.7 billion Belmond acquisition cost, i.e., a net increase altogether of €3.2 billion in the group's net debt.
So, I would like to, on slide 39, to conclude this brief overview before answering your questions with a few comments, highlighting the most important points of the semester. First, I would like to insist on the strength in the end demand. I mean the expectations were very high with Chinese clients, and I don't think we are disappointed.
But I'd like to add that as shown by the strength in all our geographies, that all the clienteles, namely the Americans, the Japanese and most European ones, have also positively contributed to the group's strong advance in H1. In other words, this is not only a Chinese show.
Secondly, I would like -- also like to insist on the positive contribution of our most important and emblematic brands, Vuitton, Hennessy, Dior, Sephora, just to mention some of them. Strong advance in sales, but also in operating profits. A bit of pressure, yes, on margins, mostly attributable to currency changes that should not materialize again in H2, obviously assuming that currencies are not massively modified compared to where they are today.
Finally, you would be surprised if I was not pointing out some risk factors that we should keep in mind. Yes, the business is doing well, and it makes a lot of sense to invest into it. So OpEx and CapEx, this said, a few factors must be kept in consideration. Obviously, the various threats to international trades should rank first among our priorities. We are neither pessimistic nor optimistic, but we know our business is sensitive to tariffs and trade barriers.
Secondly, economic growth is there, but we cannot rule out that the good conditions of current liquidating will not be there forever. Once more, our message is not to be pessimistic, it's to be realistic. Let's invest into the business in good times, but be also nimble enough to adjust our strategies in case the environment becomes not as profitable as it is today.
This is basically all we wanted to say. Operator, could you now open the line for questions, please?
[Operator Instructions] We have a first question from Thomas Chauvet from Citi. Sir please go ahead.
Good evening Jean-Jacques and Chris. I have three questions, please. The first two are related to Fashion & Leather. Congratulations on a stellar performance. Vuitton and Dior must have driven the acceleration in growth from Q1. Could you give a bit of color in your key markets, particularly the acceleration in France or maybe Europe that you mentioned? And what are you also seeing in domestic China versus Hong Kong? The Chinese growth overall, I think, was up mid-teens for Vuitton in Q1. What was it in Q2?
On Fashion & Leather, secondly, on the margin decline of about 110 bps, could you try to dissect the dilutive impact from FX? The boost from IFRS looks like it's 20, 30 bps. And then was there actually an underlying margin pressure at constant FX? And what were the main drivers of that? Were there particular one-offs at some of your fashion brands or particular investments that won't reoccur in H2?
And finally, on Wines & Spirits, Q2 volumes for Cognac have slowed down from a strong growth in Q1. I think they're back to your long-term guidance on supply at about plus four. Can you comment on the depletion rates for XO, VSOP and VS and whether you have enough inventories to fulfill the demand in the U.S., but also in China given the earlier timing of Chinese New Year? Thank you.
Okay. Thank you, Thomas. So, on the Fashion & Leather growth in revenues by geographies, I'm going to say that wherever we look at, I mean, all numbers are pretty good. I mean you've seen the average for both Q1 and Q2 being pretty good. Whether you look at them in Europe, in Asia, in Japan or in the U.S., its growth is not only on the way up, but it's pretty strong across the board. So, I don't have many comments to say.
France was a notable improvement from mid-single-digits to double-digits. It is not only that. I mean we've seen improvement across the Board. At the end of the day, we moved gross up from 15% in Q1 to 20% in Q2. From a pure business viewpoint, it's not a big difference, but I know that on your side, it's a sizable difference. And really, when you look at it geography-by-geography, it's improving everywhere.
As far as Chinese customers at LV are concerned, we also have a noticeable improvement in between Q1 and Q2. So, we are really not complaining about the Chinese customer base, be that Vuitton or Dior or anywhere else. I mean the Chinese demand was very well-oriented in the first half of the year.
On the margins, which is the second question, margins in Fashion & Leather, the bulk of the drop, actually, all of it comes from currency. The impact of IFRS 16 is negligible on this division. We managed to make it very, very, very low.
So, you shouldn't be offsetting that with currencies. So, it's really the slight drop that we have in the margins of Fashion & Leather, which is not that big, and is really explained by the currency situation and the fact that we have to anniversary the hedging gains of last year.
And finally, your question on Wines & Spirits. So the Q2 volumes in Cognac were, as you'll remember, discussed and anticipated in -- when we released the Q1 figures. We had a drop. The reason for the very strong Q1 numbers, which I mentioned, has not been sustainable, obviously, particularly in the U.S., was that we were replenishing inventories in -- at distributors in the U.S. and at the same time, we were comparing ourselves with the period in 2018 where we had a price increase which had the negative impact on volumes. So, the comparison base was easy, and on top of that, we eroded the trade.
Nothing like that happened in Q2 on the contrary because we had the price increase for Cognac in the U.S. in Q2. So, obviously, we moved from a strong double-digit growth in Q1 to a mid-single-digit in Q2. It's not a surprise.
And as you pointed out, on average, we are close to what we expect this business to grow, so we have nothing really to report on that. And obviously, this business will be looked -- I mean the quarterly view on this business is obviously a bit complicated. Depletions are well oriented. We didn't have, neither in the U.S. nor in China, a very big change in depletions, so I have no particular comment to make on this.
Thank you.
Next question?
The next question comes from Antoine Belge from HSBC. Sir, please go ahead.
Hi, good evening. It's Antoine at HSBC. Three questions. First of all, I'd like to follow-up on the question on the margin and international levels. So, on a constant currency basis, the margins were flat. And when you have such a high top line, when would we assume that it could be some kind of an operating leverage?
So, which areas have you been investing the most? And do you think that there was a bit of a, maybe a one-off push in H1? Or do you think that all throughout the full year, you want to continue to keep the competition at bay and maintaining those very high barriers to entry?
And second question maybe on -- for numbers on Cognac. Is it difficult to have the exact organic growth for Champagne and Cognac? And is there a bit of an outlook for the Champagne business? Finally, I mean we've seen in Hong Kong some events affecting traffic. So, do you think this has had an impact in Q2 and maybe so far in July? And do you think that this may be just leading to a transfer to more consumption at home, which is sort of a medium term trend anyway? Thank you.
Thank you, Antoine, for your three questions. I mean on your first question on operating leverage, I think that the full answer is to say that, yes, you can expect operating leverage in good times, but you can also expect significant marketing and retail investments. And actually, you have both, so you have operating leverage, the natural operating leverage stemming from high volumes, but also very heavy investment in marketing and in selling that have been taking their toll on the P&L. So, all in all, I mean the stability in margins, excluding currency, is the function of these two opposite factors.
What will be the impact in H2? I don't really know. The only thing I know is that as long as the business is as good as it is, the willingness to invest heavily into marketing, exactly for the reason you mentioned, the barriers to entry and the competition, the strategy considerations regarding competition will be there. So, that's exactly the dynamic of the division margins today. On the Wines & Spirits, I think your question was to know the precise organic growth of both Champagne and Cognac?
Yes, please. And maybe some qualitative comments about the Champagne and Wines business?
Okay. Well, the numbers are extremely close to Cognac and Spirits on the one side and Champagne and Wines on the other side. I mean they're within 1% of the numbers that you have already. As far as the champagne business is concerned, we had a very slightly -- I mean, a stable, very slightly negative performance on volumes, but a very sizable mixed impact, much higher than we would normally have.
These two numbers reflect the value strategy that we have been pursuing over the last, I would say, 18 months, which is basically to lower the volumes of some brands, mostly Mercier, where we don't think we get the proper value for our -- the quality of what we sell and obviously, to replace them with better priced champagne.
And when you do that, all in all, you get a good impact on prices, a good impact on mix but a negative impact on volumes. So, it will take time to replace Mercier volumes with other brands. So, that's why last year and this year so far, we have shown very limited advances in volumes, but very strong mixed impact. And this will continue -- in my view, this will continue because this mixed strategy is the right one, and this is the one the Wines & Spirits division intends to pursue in the future.
Your third question on Hong Kong. It's a good question, but the one pretty difficult to answer. What I can say about Hong Kong is that when you look at the growth in the business in June, which was mostly -- which is where all this thing started, it's not very different from what it was before.
So, we haven't really felt any impact of what's happening in Hong Kong on our business. That's June. What happens in July is too early to say. I mean, we don't have full numbers, and it's very fickle to predict any impact. I mean, as you've seen, it's really limited from both a time basis and a geographic basis in certain suites in certain days in the week.
So far, we have not experienced a very deep impact on the business. But I mean, it's -- the question that you will certainly ask again when we discuss Q3 numbers and maybe the answer will be different, I really don't know.
Okay. Maybe just a very quick follow-up. I mean, the margin at Dior in H1, I mean, did they increase? Also, was there also willingness to reinvest behind that brand, which seems to be gaining from strength to strength? Thanks.
Well, there was willingness to invest behind the brand. The momentum is very good, and we want to keep it that way.
Thank you.
Thank you. Next question comes from Edouard Aubin from Morgan Stanley. Sir, please go ahead.
Yes, good evening. Two questions for me on Bvlgari and DFS. So your Watches & Jewelry division, the sales decelerated a touch higher than you more than expected in Q2? I think it's quite clear that your watch sales were relatively weak, but did Bvlgari sales decelerate sequentially and are they still up double digits? And in the past, you've mentioned some proactive actions you are taking on Bvlgari in terms of realization of the wholesale network. So I was just wondering if you are done with this realization process.
And on DFS, some observers are predicting a big increase in duty-free sales in Mainland China over the next few years, among other reasons because of changes in legislation. To what extent is it an issue for DFS, which has a big exposure to Hong Kong and Macau? Because I know you -- I noticed you mentioned you participated in the duty-free markets in Mainland recently.
Thank you, Edouard. So, on Watches & Jewelry and on Bvlgari in particular, I mean the organic growth of Bvlgari remained pretty, pretty strong, more or less at the same level in Q1 and Q2, slightly -- I mean, very high single-digits.
As you pointed out, we had some impact, something like, I would say, 2%, maybe a bit more than that with the wholesale cleanup, which takes place both in jewelry and in perfume. It's not yet coming to an end. We want to limit the impact. I mean, we don't think it will be wise to make it all in one go and to suffer a big drop in the growth for 1 quarter or -- I mean, for a certain period of time.
So, we spread it out over a fairly long period of time so that it is well advanced but not over yet. So you may expect this cleanup to weigh a little bit on Bvlgari's growth for the future. But when you look at DOS, so directly operated stores, the growth at Bvlgari is very strong. I mean, very good double-digit number. So we do think we are on the right track and we will continue.
Your second question on DFS and duty-free in China. Well, it's one of these things that pop up very regularly that all of a sudden, the Chinese would allow a big allocation of duty-free purchase for locals. We've seen that many times. Usually, it doesn't materialize in a quick way. So, we are very much in a wait-and-see attitude.
And also, but I will not elaborate, we also make some, I mean, we review strategically what our options are to how sales penetrate the Chinese duty-free market. It's not an easy market, but there are ways to do that. I will not elaborate, as I said, but we are keeping an active stance on this particular issue.
And sorry, the extension mentioned by Chris earlier in the Mainland China, what does it relate to?
It's a specific agreement, a wholesale agreement to supply local operators.
Okay. Thank you.
Thank you. Next question comes from Aurélie Husson-Dumoutier from Kepler Cheuvreux. Madam, go ahead.
Good evening everyone. I have a question. The first one is on Fashion & Leather. If I'm not mistaken, this is your best quarter ever at least since 2003. So, you gave a bit of color by geographies, by brand. I assume Louis Vuitton, you said is never far from the division average, but Dior, I guess, is outperforming. How far above Vuitton Dior performance is, if you could give us a bit of color on that.
And in this 20% growth, what is the space expansion impact because you don't open many stores, but -- at Vuitton, but I guess that you have opened some many Dior. So, I guess it's limited, but if you could confirm that, that would be great.
And my second question is on Sephora. What could you share with us about the performance of Sephora in the U.S.? Thank you very much.
Thank you, Aurélie. Well, I will disappoint you on the first question and the color by brand. I mean, the -- we have, obviously, a variety of situation. Not all the brands are exactly at the same stage of their development.
And frankly, getting into details would simply add pressure on the current management, which is the last thing I want to do. What I can tell you is basically when you look at the division as a whole, two things.
First of all, the global momentum is very good for most of the brands, if not all of them and for most of the geographies, if not all of them. This is very true, obviously, for LV and Dior, and I will not get into the details of whether Dior is growing faster than LV or the other way around. But it's true also for most of the other brands. That's the first point.
The second point and I mentioned that already in answering to Antoine's question on operating leverage, we are actively investing behind the brand, and we are investing behind all of them. Marketing is up. CapEx are up. We are not milking the brands in good times. We are -- investments into the brand, as I discussed many times, come when the business is good with a view not only of supporting the existing momentum, but also reinforcing the brands to make them more resilient with the global environment -- if the global environment was to become more difficult. So we have done that in the past with Fendi, Veuve's success in the last decade as shown by the strength.
Sometimes, I should say the reverse of Céline, Fendi, Kenzo, Veuve. All this happened over the last 10 to 15 years. It is certainly the right thing to do now if we want to strengthen further the strategy value of the portfolio. To that, we need the landscape for the Fashion & Leather division.
Your question -- your second question about space. Space is not the main driving factor behind the growth in the division, certainly not behind Vuitton, but also not behind Dior. Maybe through some smaller brands, but certainly not with the biggest.
Sephora in the U.S. We are -- we had a better Q2 than Q1, which in turn was much better than Q4 last year. So gradually, the situation is improving. I don't have many comments to make on that. The category, the makeup category is a little bit under pressure globally in the U.S. and in -- with this unfavorable landscape, nevertheless, Sephora is doing very well.
So, we are very pleased with what they do. It's not double-digit, but it's a very decent growth rate and they really deserve a lot of credit for doing much, much better than the global market due not only to other categories, they do well, particularly in skin care, but also to the performance in makeup in a difficult environment.
Thank you very much.
Thank you. Next question comes from Oliver Chen from Cowen & Company. Please go ahead.
Hi, thank you. Regarding Sephora and your relationship with JCPenney there. What are your thoughts on the strategy there and the opportunities and how that may proceed? Also, we have seen some major strides at Amazon with new beauty product launches, and rethinking how to capture share in that market. How will Sephora continue to stand out? And there are some brands that have overlap.
We're also curious about your statements regarding 24S and your thoughts on how this will be different from a Matches, a Farfetch, a Moda Operandi and rethinking what you mean by platform and leverage the powerful nature of your brand portfolio. Thank you.
Thank you, Oliver. I think it's difficult for us to comment on the JCPenney situation as we are not in all the JCPenney stores but we are in a larger amount of them. The business is not as good as it used to be, but it's nevertheless quite favorable.
So, I think we are one of the pocket of growth of JCPenney. We are important to them and they are important to us. I don't have further comments to make on this. The rest of the situation at JCPenney is not for me to comment.
Your question on Amazon versus Sephora. I mean, it's not the first time that there are competitors to Sephora in the U.S. I mean, it's been -- the competitors have been there forever. Obviously, Amazon could be considered as a special competitor. The models are quite different. Sephora is very much a push model when Amazon is more of a pull model.
So, from a customer behavior viewpoint, they are -- both models have a different approach. We've seen brands going on Amazon still being at Sephora and still doing well. So, for the time being, I mean, I don't think there is a particular evidence that Amazon will bite into Sephora or will not. I mean, it's a bit early to say. We don't have very precise numbers on what Amazon does on this segment. So, frankly, I don't have many comments to -- or maybe educated comments to make on Amazon.
And finally, on [Indiscernible], the difference between Matches and the others and [Indiscernible], I mean I don't like very much to comment on competition in those schools, but the lineup of brands at [Indiscernible], is obviously its main competitive advantage. I mean, Céline, Vuitton, Dior are exclusive to [Indiscernible], which is now the commercial name, as we saw [Indiscernible] was a bit complicated in some languages.
And we think this is very unique competitive advantage. I'm not saying that this will enable us to do big business tomorrow. I mean, it's a business in which we are in a learning phase as we've said many times. So, it takes time, but we are very hopeful that this unique competitive advantage will help us make our way into the online platform business for Fashion.
Okay. And then just lastly, a topic amongst luxury goods and the future of luxury goods is this intersection of street wear and fashion, and you've been a pioneer with many different collaborations as well as creative energy. What are your thoughts on sustainability? And how this evolves with new generations? And how this movement may or may not apply across your portfolio in terms of rethinking Generation Z and luxury goods?
Well, sustainability is very important. I think very important factor. Chris mentioned it. We are working a lot on that. And we think as far as the new generation is concerned that this ranks high in their priorities and in the way they look at brands, and we have to address this particular concern of the new generation.
So, I don't have much to say about that. Obviously, it's something we work a lot on. This is part of our product and distribution strategies, and we need to take this into account. Obviously, I will not elaborate in great detail at this point in time.
Best regards.
Thank you.
Thank you. Next question comes from John Guy from MainFirst. Sir, please go ahead.
Yes, good evening Jean-Jacques and Chris. Thanks for taking my questions. Just a couple on pricing fees. Jean-Jacques, I think you said that Hennessy volumes were around 8% in the first half. How should we be thinking about pricing going into the second half of 2019? It was normalizing a little bit in the second quarter from a volume perspective.
And I guess conversely with regards to Fashion & Leather, when you're looking at the very strong volume growth that you've had at both Louis Vuitton and Dior in particular, should we expect pricing to be relatively subdued at the moment so you keep your powder dry when the volume is soft? Thanks.
Thanks John. On Hennessy, we increased prices in the U.S., and I think also in China, by 3% in the U.S. and slightly more in China. It was, I think, end of May, early June in the U.S., a little bit earlier than that in China. But basically, we did more at the same time last year. So, the price impact at Hennessy shouldn't be different this year from what it was last year. So, the main difference would come from volumes, not from price.
As far as Fashion & Leather is concerned, our strategy, as you know, has been based on volumes and mix, not so much on price increases. In the current environment, given the strength and the demand and the volume growth, we see no particular reason to modify entirely our approach to pricing.
So, you should expect, as long as the environment remains what it is, you should expect more the same, I would say, i.e., very low price increases and a negligible contribution from prices to double growth in Fashion & Leather as it's been the case for the last, I don't know how many years, four, five years.
Yes, that's great. Thank you very much indeed.
Thank you. Next question comes from Atiyyah Vawda from Avior Capital Markets. Madam, please go ahead.
Hi, good evening. Thank you for taking my questions. I have one on the Watches & Jewelry division. If you look at the current operating margins, considering that Bvlgari is not yet at peak operating margins and you're busy working on the watch brands, where do you see the operating margins of this division evolving to?
Yes, it would be a no surprise. As you know when we discussed that many times, we are sort of reengineering TAG Heuer in a significant way, and this has -- and this is having -- has and is having a significant impact on margins. At the same time, Bvlgari's margins are growing and they've been growing very fast.
Obviously, the fruits are hanging higher into the -- in the tree. So the likelihood of Bvlgari doubling its margin, which is basically what they've done over the past seven or eight years, is quite, quite low. So the perspective of improving margins are -- at Bvlgari are more limited, and we have a negative impact from margins of TAG Heuer due to the reengineering of the brand.
So, the big question is timing, and I don't know really how long all this will take but we are very hopeful that TAG Heuer will improve its margins due to reintroduction of novelties of really striking products that will help the sales momentum to recover. So obviously, the timing is very difficult to predict.
And as I said for Fashion, the last thing I want is to put pressure on the TAG Heuer people by setting a time line. So, I have known. But definitely, I mean, we expect margins at TAG Heuer and therefore, the division to improve in the next years.
Okay. Thank you. And then the second one I had was on the gray market for watches. Have you seen any increased activities? And have you taken any action at some of the brands, the watch brands?
Frankly, we are not really subject to gray markets. I mean, we -- our pricing structure is reasonably well aligned between the various geographies. And it's only this alignment between geographies that cause gray markets. So, we haven't seen much of gray market. Gray market, I'm not saying it doesn't exist, but we haven't seen much of it in the recent past.
Thank you very much.
Thank you. Next question comes from Melanie Flouquet from JPMorgan. Madam, go ahead.
[Foreign Language]
Wouldn't you want to make it in English? Melanie, wouldn't you want to make it in English?
[Foreign Language]
Yes, I'll do it in English. Sorry. My first question is on Christian Dior. If I'm not mistaken, Christian Dior had a pretty big seasonality in its profitability profile between H1 and H2. I was wondering how will you see this evolving through time and whether we can expect that this is going to be smoother and therefore, the profitability of H1 notably improve quite markedly in the coming years. So that's the first question.
And actually linked to that, can you confirm that you're suggesting that you invested a lot in Dior with gains this semester. So, does that mean that you're suggesting there was no brown mix impact in this semester? Because again, I would expect that Christian Dior is growing fast and the margin actually pretty low, maybe we add the brown mix impact that also explains the pressure that we saw in this division. That's my first question.
The second question is I'm trying to understand that I know your head is at, but we had an acceleration, a 20% growth compared to an acceleration on the quarter one. Can you help us understand a bit better maybe what happened that actually draw this acceleration maybe focusing on Louis Vuitton? You've mentioned the Chinese consumer accelerated, is this -- the sole driver of this acceleration or every single nationality improved in its growth rate in quarter two?
The other question that I had was on mix and volumes. You mentioned that the growth drivers at Louis Vuitton had been mix and volumes and not prices. Can you actually share with us the contribution of each of these drivers? And what they were last year? Thank you very much. Sorry.
Well, I could answer in a -- on your last question in a language that nobody understands because I won't answer this question, as you know. I mean, as I said, I mean, the bulk of the growth of Louis Vuitton comes from mix and volumes, but I cannot elaborate further on that.
On your question on Christian Dior and the seasonality, well, there are structural reasons, particularly the marketing spend and the show spend, et cetera, which explains why H1 has lower margins than H2. As you pointed out, yes, the seasonality should decrease in the future. So, I don't know whether it will happen this year already or not, but this seasonal factor should be reduced. I'm a bit baffled with your question on brand mix impact. I mean--
It's another way of trying to understand whether Dior grew twice the level of the division.
In terms of what? In terms of what -- I was not really--
In terms of totally [Indiscernible] an impact?
Well, the growth in Dior was faster than the growth in the division. I will not say more than that. And there was some margin improvement at Dior, although as I pointed out, there was also a very significant marketing and selling reinvestments into Dior. So, I will not say more than that. And as I said before, I mean, the pluses and minuses in the Fashion & Leather division all in all, I mean, we are pretty satisfied with the global profile.
Your second question on growth -- acceleration in growth in Q2. I mean, as I said before, I mean, for you, 5% is extraordinary. For us, it's a normal volatility in growth rate in the business, not that we would say exactly the same thing if the growth had been going from 15% to 10%, but it went to 15% to 20%.
Frankly, I'm short of explanations. I mean, the business has been doing well. The comparison basis is not particularly easy. The Chinese customers are there but not the only one, as I said before. And when you look at the Chinese contribution and the Chinese growth in -- at Vuitton for instance, I mean, they had their fair share of the growth in the business but not more than that. As I said, it's not the Chinese -- only a Chinese play.
And when we look at American customers, at European customers, all of them are double digits. So, it comes really from everywhere, which is really a testimony to the strength in the brand, not to a specific factor that would benefit to the brand in a specific geography or due to a specific product. So, it's pretty difficult to really give you a compelling explanation on this acceleration. And as I told you before, I mean, I'd rather have no explanation for an improvement rather than good explanations for a decrease. So, I will finish there.
Thank you very much.
Thank you. Our next question comes from Rogerio Fujimori from RBC Capital Markets. Sir, please go ahead.
Hi, thanks. Hi Jean-Jacques and Chris. Two questions, please. You said gross margins down 90 bps due to the hedging packed at group level. I appreciate that you don't disclose Fashion & Leather, but this factors to assume the same dynamic for Fashion & Leather gross margins.
And then on Selective Retailing margin performance, aside from the boost from IFRS 16, was there any other meaningful factor influencing H1 margin performance, you stepped up your investment behind Sephora U.S. or any kind of reinvestment in certain markets to gain market share? Thank you.
No. As far as Fashion & Leather -- as far as Selective Distribution was concerned, no. There was no particular factor, a bit of operating leverage. DFS did pretty well from a -- both a topline and bottom-line viewpoint, but Sephora was both -- was more in line. So, the bulk of the margin improvement comes from DFS, but nothing really particular to report. I mean, the volume growth at DFS was good, and they are doing tight cost control there. So, at the end of the day, we benefited from operating leverage. And sorry, your first question was on Fashion & Leather? Sorry, I didn't get it.
Yes, I think you said -- you disclosed that gross margins at the group level were down 90 bps, and that was part -- was primarily due to the hedge impact. Was it the same for Fashion & Leather as well? I think gross margins down due to hedging primarily?
Well, to be frank, I don't have it fully in mind, but I think so. I think as far as Fashion & Leather, we had probably a comparable drop in gross margin. And the bulk of it, if not all of it, but I think it's all of it, was attributable to currencies. So, it's more or less the same thing, both in magnitude and origin.
That's great. Thank you.
Thank you. Next question comes from Luca Solca from Bernstein. Sir, go ahead.
Yes, this is Luca Solca from Bernstein. A couple of questions, please. I would like to understand a bit better the position you have on the cost commitment to the business. You said that very rightly you invest as the going is good. How viscous do you expect the cost commitment to be? Are you in a position to switch on and off these costs in a relatively agile manner? Or are you pushing for a higher cost position so that smaller companies are going to struggle to compete with your brands as they lack the appropriate scale? It's more of a strategic question than necessarily one connected to the current performance.
More to the details. You mentioned the cleanup of wholesale distribution for Watches of Bvlgari to be preceding step by step. I wonder if you could help us understand your broader vision on watches distribution and how this is going to involve.
A number of companies are seemingly changing their approach to the wholesale channel and shifting in part to mono brand retail and digital. Where do you stand on that? And what is the role that you see, for example, from participating to local watch exhibitions as you announced?
And last but not least, the smaller brands that have in the most recent months been added to the group, the examples of Fenty and now the participation in Stella, how do you -- what do you expect that they could potentially provide the group with other than very interesting opportunity in Bvlgari? Is there any sort of cross-fertilization opportunities?
And how do you expect that they are going to be impacting on the senior management bandwidth? Do you have the appropriate senior management organization, you think? Will you have to increase it or expand it as the complexity of the group continues to grow? Thank you.
Thank you, Luca. So, the cost commitment, well, our objective is not to weaken competition. Our objective is to strengthen our brands. So, bear that in mind. I mean, we are in a business where we think the name of the game is brands. And the stronger the brands, the better we are. So, all the spendings we do behind the brands are with the sole objective of strengthening them.
When you look at what we do, where we the largest discretionary increase in costs, it's mostly in marketing. So, marketing has, I would say, two advantages. One, it's short-term -- the impact is short term. So, when you do it, it has a short-term impact.
And secondly, if things turn out to be not as good as they were expected to be, it's reasonably easy to cut it. So, the agility is important. And when we invest mostly into marketing and less in selling expense, I think we have this flexibility and we should be able -- we should be in a better position if the business was to slow down to reflect that into our cost base.
The second question on watches. Actually, maybe I didn't make myself clear. The cleanup in wholesale distribution is mostly on jewelry. I mean, our strategic objective is not to distribute jewelry of Bvlgari in wholesale doors in the future. As far as watches is concerned, we know that third-party distribution will remain a factor for a long period of time, and that makes a link to your second question about how we view distribution of watches longer term.
Distribution of watches longer term will be a combination of third-party wholesale, third-party distribution and on distribution. The higher the individual value of the watch is, the easier it is to increase the share of owned distribution.
So, in other words, I mean for Hublot, chances are that in some years, a big chunk of -- it's already the case, that the big chunk of the total distribution will be in our own network, whereas for TAG Heuer, the priority is not in the full term to really increase the share of our own distribution but to improve the business.
But we will never move out from third-party distribution. We think it is important that we benefit from this people presence and clientele. Throughout the world, we cannot deploy stores in all the geographies and have the same number of contacts with clients. So it's something that will remain a big part of watches distribution in the future.
And finally, your question on new brands. I would say that we are a large group. I mean, we have a large number of brands. We have to take initiatives to make investment in businesses that may not seem obvious when we do it. I think it's part of what helps the group to stay where it is, i.e. a group at the forefront of competition, not only from a brand viewpoint, but also from a strategy viewpoint.
So, it's important and we will continue to do it that we invest in brands that you may not expect us to invest into. It was the case with Belmont. We are making, I think, a very interesting venture with Rihanna on Fenty.
Obviously, way too early to comment on the reserve. And as far as Stella is concerned, well, we'll discuss that later on. We have not yet closed the transaction. But the concept is definitely to invest into different brands, not necessarily something we have experienced in the past. There may be some learnings. There may be some value. There will be some learnings. There will be some value, and it's up to us to be good enough to extract it.
Thank you very much indeed.
One last question.
Sorry. We have a last question from Louise Singlehurst from Goldman Sachs. Madam, please go ahead.
Hi, good evening Jean-Jacques, Chris. Just a couple of small ones for me, please. I wondered my first question will be to understand the group's ability to deliver the volumes, obviously, needed to support the group, particularly for retail. Obviously, we had about the production a little while ago. But is this more about increased volume from lengthening the production shift? Or is it just much more flexibility than we are thinking? It's more demand-driven at this point?
And a follow-on from that. Can you just remind us of the timing of the new production facilities which are coming online? And then my smaller last question, is e-tail within retail in Fashion & Leather increasing as the proportion? Obviously, it's growing markedly, I'm sure, from a very small base. But is it really beginning to pick up some share in the overall sales channel? Thank you.
Thank you, Louise. So, obviously, we had this treat at Vuitton earlier on in May, and I think you would certainly anticipate what my answer will be. It's obviously not bigger shift, but flexibility, and we're promoting flexibility so that we have the ability to deliver the needed product in a short period of time where they are needed. And that's in a nutshell. I mean, that's the summary of what has enabled Vuitton to grow almost or higher than double digit in volumes over the past few years.
As far as the timing of the production facility is concerned, I don't want to be mistaken, but I think we have two coming up in the -- one already opened and there are two coming up in the fall of this year, one in the U.S. and one in France. Precise months, I don't have them in mind, but it's in the fall of this year in the U.S. and France. Sorry, your last question was?
Just regarding e-tail. In terms of -- it's obviously, grown from a very small base, but is it now beginning to take quite a bigger proportion of sales across Fashion & Leather, but particularly Vuitton? Thank you.
Vuitton was very limited e-retail. I mean that e-commerce. If you make the distinction between e-commerce, which is not on own website, and the business done on other platforms, this is very small. At Vuitton, it's only 24S, which -- where they do business. Otherwise, all the e-business of Vuitton is on its own website. And chances are that it will remain that way. For other brands -- it's the same for Dior.
For other brands, they might have a different strategy, but Dior, Vuitton, Céline will be either on their own website or on [Indiscernible] on 24S and some of the brands may be on different platforms. And obviously, the growth there is pretty significant. But from a strategy viewpoint, this is the way we want the business to be in the future.
So, would they be still less than 5% in terms of kind of digital sales, the low single digits, i.e. still absolutely tiny?
Well, we don't comment on that. I mean, we gave you global numbers for digital. I took a level on a yearly basis. We don't comment them on a half-year basis, and we will update you at year end.
Thank you very much.
Thank you. Thank you for attending this call and I look forward to discussing with you Q3 figures in early October. Thank you and have a nice day.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.